On-time rent collection is one of the prerequisites to profit from the rental business. However, collecting rent from tenants is one of the most challenging jobs of a landlord.
Irregular rental collection can lead to many problems such as delays in paying the mortgage, property maintenance, and managing bills.
There are many reasons why tenants delay rent payments, some of them are circumstantial while others are intentional.
Understanding the issues and difficulties in rent collection will help you to know – how to get tenants to pay rent on time.
Landlord rent collection: What are the issues and difficulties?
1. Gap in communication
One of the most common reasons why landlords face issues in rent collection is a gap in communication with the tenant.
To avoid miscommunication, you have to ensure that the lease document mentions all the terms related to rental payment in a clear and crisp manner.
The rental lease document should consist of details about
- The amount of rent per month
- Amount of security deposit to be paid
- How the security deposit will be returned and what deductions can be made in the security deposit
- The last date for rent payment
- How the rent is to be paid ( cash, check, online, etc.)
- Grace period available, if any
- Late fees are to be charged if the rent is not paid on the stipulated date
- Action to be taken in case of bounced checks and other failed payments
Providing these details beforehand will help you to communicate your expectations with the tenant in black and white.
You will also have proof that the tenant is aware of all the issues related to rent payment and failure to do it on time, in case you have to approach the court of law at a future date.
2. Not enforcing the rules strictly
Creating a lease document is not enough to ensure that you receive rental payment on time.
As a landlord, you have to enforce the rules mentioned in the lease document, very strictly. Enforcing these rules will set a precedent for the tenants that they have to face the consequences if the rules are broken.
For example, if the tenant does not pay even after the expiry of the grace period, communicate to them that they have to pay the rent along with the late fee.
Do not accept partial rent payment as it sets a bad example to the tenants and becomes hard to maintain the accounts.
If you have to accept partial payment due to certain consequences, make sure to tell the client when the full payment is expected and the amount due at the time of payment.
Some common rules that are broken by the tenants are
- Not paying rent before the due date
- Making partial payments
- Not paying the late fees
- Bounced checks and wilful default on payments
You have to be firm and consistent while enforcing the policies mentioned in the lease document to ensure timely rent payments from the tenants.
Moreover, if you are renting multiple properties, you have to be consistent in your actions with all the tenants.
3. Not sending the “pay or quit” notice
The law requires you to send the “pay or quit” notice to the tenant when they fail to pay rent within the agreed date.
The notice informs the tenant that they have” n “number of days to settle the dues, failing which they have to vacate the property.
If the tenant does not settle the dues within the days mentioned in the notice, you can formally terminate the lease contract and file for an eviction lawsuit.
However, it is important to note that you cannot physically evict the tenant even if the court ruling is in your favor.
4. Not maintaining records
Landlords can take legal action against tenants who refuse to pay rent. However, you will need the records of past rent payments to make your case strong. You have to be very meticulous when recording rent received from the tenants.
Keep physical receipts or online receipts of all the previous rent payments. Previous records are also essential to report the defaulting tenants to the credit agency.
A credit agency provides credit ratings to the renters based on their payment history and can incentivize them to pay rent on time for a better rating.
5. Failure to seek security deposit
Collecting a security deposit from the tenant is essential to safeguard your financial interest and the property against the tenant’s negligence.
Though collecting a security deposit is not mandatory, it is permitted by the law. However, you have to safeguard the amount as it is the property of the tenant and you will have to return it at the time of the lease expiry.
You can withhold all or a part of the security deposit of the tenant when
- The tenant’s default rent payments
- The lease is terminated by the tenants earlier than the agreed date
- The property is damaged due to the tenant’s negligence or bad behavior
- The tenants fail to pay utility bills
Not collecting the security deposit can have a significant impact on your cash flows in the above scenarios.
Always mention the amount of security deposit to be paid in the rental agreement to avoid miscommunication with your tenant.
Best way to collect rent as a landlord
Determining how to collect rent from the tenants is as important as how much rent to collect and when to collect it. There are many ways to collect rent such as direct cash payment, bank transfer, etc.
Your rental agreement should clearly spell how to avoid confusion for the tenant and ensure timely rent payments.
Here are some ways to collect rent from the tenants
1. Online payments:
The best way to collect rent from tenants is through online payments. There are many online rent collection apps such as ERentPayment, RentMerchant, etc. that you can use for this purpose.
Your tenants can pay the rent through their bank accounts, credit/debit cards, or mobile wallets through these apps. These apps can also be used to send reminders, keep records of payments and organize payments.
2. In-person:
Collecting rent in person is the time-tested and the old way of collecting rent. Collecting rent in person gives you an opportunity to have a look at the property every month and interact with the tenants to know their problems.
However, this method will not work if you have multiple properties on rent or if you live far away from your rented property.
3. Dropbox:
Installing a dropbox is a great idea if you own a multi-family home, occupied by several tenants.
Dropbox can be installed in a common area to make it convenient for your tenants to drop checks. However, it is crucial to monitor dropbox and secure the area with a security camera.
4. Hire a property manager:
If you live away from the property, hiring a property manager is the best way to collect rents on time.
The property manager will not only help you in collecting rents but also take care of other tasks such as routine property maintenance, managing leases, screening prospective tenants, handling tenant issues, etc.
To pick the right method to collect rent, you have to consider factors such as the number of tenants, your location, your preference to interact with the tenants, and how tech-savvy you are.
You can choose an option based on your personal preference and the convenience of your clients. For example, if your tenants are younger, online payments work best as the younger generation prefers online payments.
How to collect rent from tenants online | Best Ways:
There is no dearth of online portals and digital payments to help landlords and property managers. If you are considering collecting rent online, here are some options.
- Zelle pay
- Venmo
- Paypal
- Apple Pay
- Standing order to bank
- ACH – direct debit payment
- Credit card
- Electronic fund transfer (ETF)
- Sites like RentMatic, RentMerchant, etc.
You can shortlist an option according to the convenience of your tenants and your preferred option.
Once an option to collect online is shortlisted, you can inform the tenants about it and include it in the rental lease agreement.
How do I deal with a tenant not paying rent?
When the tenant does pay the outstanding rent even after the end of the grace period mentioned in the rental lease, then you can consider it a late payment.
It is crucial to take prompt action when the tenants do not pay rent on time. Here are some common steps to follow to recover the rent dues
- Send an informal notice to remind the tenants that the rent is overdue.
- Speak to the tenants over a phone call or visit them personally to know the exact reasons for not paying rent.
- Send “pay or quit” notice
- File for eviction.
How to get back rent from an evicted tenant
The security deposit collected from the tenant can be used to cover the outstanding rent. The law permits
Landlords to deduct outstanding rent from the security deposit. However, if the security deposit does not completely cover the rent overdue, you can appeal in the small claims court or a civil court.
You can sue the tenants in “assumpsit” and ask the court to order the tenants to pay back the rent. Most states also allow landlords to claim interest on the outstanding rent.
Most landlords struggle with the issue of how to get tenants to pay rent on time. Following the tips in the article will help you streamline the process and ensure on-time payments from the renters.
