The most common mistake of a novice landlord is a lack of understanding of how a simple rent-collection can blow your rental profit off.
Horray! you have found a tenant that fits your requirements. This is the part when most landlords are celebrating. Don’t celebrate yet. Having a tenant that has all your requirements is good. However, please understand that the lease agreement is a commitment. You are committed to maintaining the unit, attending tenants’ complaints/requests, and collecting rents.
To most of the landlords, rent collection is no fun! You encounter a bunch of excuses from your tenant about why they could not pay the rent, such as.
- I forgot to deposit the amount yesterday. When I realized, the banks were closed.
- It’s ECQ/GCQ/MECQ our company is temporarily shut down due to the pandemic and I am unable to pay the rent.
- The due date has slipped from my mind, I was too busy at work. My boss had given me many works to do.
- My kid graduated! That is a hell of a lot more important than your damned rent!
- My parents forgot to send me the money due to their hectic schedules.
- It’s summer, my son and daughter are not in the unit. I will pay you when classes resume.
Although some of the above were valid however, as a landlord you need to understand that when rent is late and there is no money coming in, it puts you in a difficult spot. You have BILLS to pay, operational expenses to meet, and other personal needs. How do you intend to take care of these responsibilities?
Elsewhere, if you are a tenant please read and understand this part. Most of the landlords are small businessmen if not micro, they are not like Zobel de Ayala, Manny Villar, and Jose Soberano III who can absorb any delay from rent payments. They need to meet their obligations each month. Obligations that have a negative result if they would miss them. Please take note that they have employees who are dependent on their salaries. So for whatever reason you have, try not to miss your rent. If it’s not avoidable, set a proper communication to your landlords earlier.
What to Do When a Tenant Doesn’t Pay Rent
Your worst nightmare as a landlord has come true, and you’re not getting your rent.So, what can you do when you have problems collecting rent? Jumping right away to your property and confront your tenant? Call him and demand for the rent? Or threaten him to slap with a huge penalty in case he won’t pay in the next 3 days. None of these options would have a positive conclusion. Surely, you have plenty of options on how to deal with this situation. However, you need to select the best one that could work for you and your tenant.
The first step is to check your lease documents and payment records.
This is the time that you would appreciate a good and fair lease agreement as you need to go over and review it. So, a copy and paste agreement from Google is not a good idea. You might save some money but in the long run, it will cost you more. Do not pretend that you understand the legal technical terms, you can always call a lawyer to confirm and further clarification.
Second, confirm your accounting if the rent payment is delayed. If you determine that the rent is late (or it’s obvious the tenant is not paying), serve the tenant a late rent notice in writing. Sometimes renters may not know their payment is late. It’s good to give reminders. Did a late rent notice not work? Give it a few days and follow up with a phone call and pay a visit.
Let your tenant talk. Then, you proceed with your script calmly and clearly. Remember, the goal here is to come with a win-win solution. Would you cancel the penalty upon hearing a valid reason? It’s entirely up to you. Remember, before the meeting you have to know what has more value, imposing a penalty, or maintaining a good relationship with the tenant.
Let’s say, you have exhausted all possible means but no responses from your tenant.
Worst Case Scenario…
The third step and the first official step in the eviction process is the pay or quit notice. It’s more official than a late rent notice and can be drafted by an attorney. It shows how serious you are about taking legal action.
After waiting for the prerequisite amount of time, you can start the eviction process with an eviction lawyer. This is the last resort, and it means a court appearance, but sometimes this step is necessary.
Keep in mind that collecting past-due rent will take time and will cost money. Waving penalty for a delayed penalty often won’t give landlords a good result as tenants have a high tendency to misunderstand your goodwill gesture. Thus, best to keep and impose what has agreed and moved on. This is the point when you should realize the importance of good property management. Instead of you handling all these cumbersome tasks, why not them?
How to Prevent Rent Collection Horror Stories
If any of the above sounds exhausting, you need to set your policies straight before allowing your tenant to sign the lease agreement. Communicate these policies and make sure that your tenant understands each of them. Moreover, you can avoid the traumatic experience of rent collection by:
Choosing the right tenant
Make sure to do background and credit checks for any prospective renters. If you have no idea how to do this, ask a property management company. This is one of their services that you can avail of.
Let your tenant submits the rental application, track, and review it. Evaluate and check for any indication of late payment. If you find one, ask politely the goal is to understand properly not to crucify the tenant.
Finding the right renters can make a difference. As mentioned earlier, set your criteria and be clear during the application process. All criteria must be the same for all applicants, and be sure to include your income requirements. You want to make sure they fill out everything on the application; send it back if they left anything blank. Be sure that they’ve filled out everything properly, and check their references.
Provide a clear rent payment policy
If you’ve found the right tenant, you need to make sure you have the right policies in a lease. You don’t want any legal loopholes.
The basics of a rental payment policy that should be reviewed with your tenants, as per our experience as landlords are:
- The exact amount due and what is included in the amount (utilities, etc.)
- The period the payment covers
- Where and/or how payments are made
- Acceptable payment methods
- When rent is due
- Grace periods for payments
- Who checks should be made out to
- The exact mailing addresses for checks or payments, if applicable
- Instructions for lost checks
- What to do if payments can’t be made
- Clearly stated penalties for late payments or nonpayment and how they will be collected
- Consequences for returned checks
Be sure to be clear in your policy and to go over it with your tenants before they sign. Try to make things simple and easy to avoid issues.
Offer rent payment solutions
While cash can be an easy and direct payment method, it’s not the best when it comes to tracking rent payments. Checks also can take too much time and effort. And if a check bounces, that’s even more frustrating. Three easy rent payment solutions for you to offer to tenants are direct deposit, online rental payment, and via credit card.
With direct deposit, rents are regularly going directly into a landlord’s bank account. This can work for tenants who don’t like online payments. For many, though, online payments are the best and most convenient solution. Tenants can log in and make either one-time or automatically reoccurring payments. Avail offers the ability to collect and pay rent online. This option makes it easy for landlords and tenants to keep track of rent payments and leaves a trail. No matter what payment method used, be sure to track when and how rent payment is made.
Send reminders to the tenant for payment
This is the simplest possible solution. Give them a call four or five days beforehand or send an email. It’s good to get this started early to set a pattern for success. Once renters get in the habit of making payments, it’s easier for them to continue doing so.
Rent collection horror stories don’t have to be the norm. If landlords take precautionary steps before signing new tenants and provide solutions to potential problems, collecting rent doesn’t have to be a nightmare. If you do not know, ask for help. There are several property management companies that can help you. Select the one that is good.
Leonard Mulle
Real Estate Investor/Landlord/Businessman
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