Rent collection is perhaps one of the most fundamental things you do as a landlord or an investor. You are renting out your property to tenants in order to earn money. While there are lots of ways to earn money on an investment property, rent is the most basic. It’s a recurring source of income. It keeps you paying your mortgage and your taxes and your insurance. It contributes to the maintenance expenses and the property management fees and the profit.
It seems like collecting rent should be fairly simple. Tenants know that it’s due on the first, and that’s when they’ll pay.
Things don’t always go this smoothly. If you’ve ever had to file for eviction or chase down a tenant for the late rent they’ve been promising to pay for weeks – you know it can be time consuming and frustrating.
But it shouldn’t be.
With today’s technology, rent collection should be automated and easy.
As South Jersey property managers, we invest our time and resources into making sure your rent is collected consistently and on time every month.
If you’re not so lucky when it comes to rent collection, check out these six strategies that we’re sharing today for better rent collection.
RENT COLLECTION STRATEGIES THAT WORK
1. Put Together – and Enforce – a Rent Collection Policy
Collecting rent in South Jersey starts with a plan. You need a specific policy that outlines the process of rent collection. This will tell current and future tenants how, when, and where you will collect rent.
What should be included in a rent collection policy?
You want to go beyond the simple expectation that rent is due on the first of the month. The policy should start with an explanation of why it’s so important to pay rent on time. Tell your tenants that on-time payments will save them money on late fees. It will also create a positive rental record which will help when future landlords call for a reference.
Once you’ve introduced the theory behind a consistent rent collection process, include these details in your policy:
RENT COLLECTION POLICY: THE WHAT
RENT COLLECTION POLICY: THE WHY
1. List the Day Rent is Due
Typically, rent is due on first of the month. Your policy needs to state on which day it is due and on which day it is considered late. Reference weekends and holidays and whether payment will be accepted on the day following a Sunday or a holiday. Tenants cannot claim to be confused about when rent is due when it’s in your written policy.
2. Grace Periods
Your tenants need to know if they must pay on the date the rent is due or whether they have a day or two after the due date to pay without penalty.
3. Late Fees and Consequences
Penalties for late payments need to be specific and fair. The rent collection policy should include all consequences – from late fees up to eviction.
4. How Rent is Collected
State whether you’ll accept checks, credit cards, electronic transfers, wires, or online payments. Reference whether you want it mailed, handed in personally, or left in a specific location.
Once you have a written and documented rent collection policy, enforce it consistently. Charge the late fees. Serve the eviction notices. You need to let your tenants know how seriously you take this.
Put the rent collection policy in your lease agreement and reinforce it when your new tenants are moving in. Sharing those expectations early and often will help you all have a better rental experience.
2. Allow South Jersey Tenants to Pay Online
|The National Apartment Association Reported that 79 Percent of Tenants Prefer to Pay Rent Online.
Paying online is something we do for everything. We buy goods and services online. We pay our bills online. We order groceries and split dinner bills with online apps.
Tenants expect to pay rent online, too.
If you’re not offering this capability, you’re going to be behind the curve. Technology can help you lease, manage, and maintain your South Jersey investment property with more efficiency. Rent collection is one of the best reasons to adopt the best possible software, platforms, and technology when you’re renting out a home. It takes one of the major stressors off your plate when you know tenants can easily and quickly pay their rent electronically.
With some of the online payment systems available, your tenants can:
- Pay rent at any time and from any device with an internet connection.
- Schedule future payments or recurring payments.
- Review their history of rental payments.
- Save accounts and payment methods in the system.
If you’re working with a property management company like Realty Solutions, you won’t have to worry about the mechanics of rent collection. We’re taking care of online rents for you. Most of our tenants pay this way, and we’ve found that we spend less time chasing down late rent and following up with tenants when rent comes in this way. There’s no waiting for a check in the mail.
Our online payment system benefits our owners, too. You get paid faster when our tenants pay online. The money is deposited into your own account as soon as it clears the tenant’s account.
As an independent landlord, you may not have access to the technology that we use. Investing in an online payment platform could seem like it’s outside of your budget.
There are still some smaller scale apps that will allow you to collect rent and give your tenants the preferred experience of paying digitally. ClearNow and eRentPayment and even larger platforms like Appfolio, Buildium, and TurboTenant can help you collect rent online.
If you’re not already allowing for electronic rent payments, talk with your tenants. See how much they’d appreciate paying online and consider implementing a process where it’s easily collected without a lot of work on your end. This will work out for both you and your tenants.
3. Offer a Variety of Payment Methods
Online rental payments have quickly become the preferred way to pay for most renters. That doesn’t mean it’s the only way to pay rent. Some tenants are still iffy when it comes to loading their bank information into a computer. Older tenants, studies show, are less likely to pay rent online than younger tenants.
Be prepared to accept rental payments in a variety of different ways.
Potential Rental Payment Methods That Do Not Involve Online Tech
|Tenants can mail you a check or money order.
|Tenants can drop off a check or money order in person.
|Tenants can mail you a check or money order.
|Tenants can pay in person or over the phone with a credit or debit card.
Tenants can pay in cash at a third-party location.
Let’s unpack some of these options so you understand what the pros and cons are of each payment method.
- Mailing Rent Payments
Mailing rental payments is the way it was always done for a lot of landlords and tenants. They write a check, get a certified check, or buy a money order, and they drop that payment in the mail.
This is fine. However, it’s going to take more time and extra processing. It’s also going to require tenants to have a steady supply of envelopes, stamps, and checks.
When tenants want to pay this way, make sure they understand that they’ll need a few extra days to ensure the rent arrives on time. If it’s due on the first of the month, for example, you’ll want to encourage them to mail the check at least five days before the first. This can be inconvenient for them, but if they want to mail the check, you want to be sure it’s going to arrive by the first.
- Dropping Off Rent Payments
There’s not a lot that needs to be done in person these days.
But, maybe you have a tenant who likes to see you and chit chat. This method of payment cuts down on the risk that rent will be late with a paper check. You’ll be able to deposit or cash it within moments of the money being handed over to you. The only really cost to you is your time. If you have a chatty tenant, you’ll need to plan on seeing that chatty tenant on the first of the month.
- Dropping Off the Rent into a Dropbox or Mail Slot
Perfect for after-hours rental payments, if you have a box or a slot at your office door, you can welcome payments this way. Tenants still get to pay with that paper check or money order that they prefer, and you don’t have to physically be there to accept the payment. Make sure you let your tenants know when you do fetch that payment out of the box. They’ll need a receipt or some kind of acknowledgement that it was found right where they left it.
- Cash Rental Payments
We don’t like cash payments because they’re difficult to document and when the rent is paid, we’re left holding a large sum of money that’s essentially untraceable.
But maybe you have tenants who still operate on a cash-only basis. How can you make rental payments convenient for them?
You can invite them to use a third-party payment system, which is available at a lot of department and convenience stores. They can walk into a 7-11, pay the rent in cash, and the store will credit that payment to you.
This is safer than accepting cash in person. You’ll simply have to sign up for the network that allows the transfer of their funds to your account.
4. Document Every Payment and All Correspondence
Documentation is absolutely essential when you’re renting out a home, even if it’s just one home. You need to create a reliable, accurate, and transparent system for internally collecting, recording, and managing rental payments. This will be income that you later claim on your taxes, and it needs to be correct. It needs to be easily tracked. Document any late fees or letters you may have written trying to collect overdue rent. Keep your emails and text messages. If there are notices served, keep copies of those as well.
Set up an alert so you know when a rental payment has been missed. This is especially useful when you’re renting out more than one property and keeping track of multiple tenants. Trigger a notification when the grace period has ended and rent still is not in.
Keep this documentation in the cloud. Paper ledgers aren’t going to help you be efficient and organized. Paper gets lost. Paper gets wet. Paper gets set on fire. Digitize your accounting system to reflect when rent is collected. You’ll be able to access the information from anywhere.
You don’t need the best and most expensive property management software to track your rental payments and alert yourself when rent is late. Try a digital calendar. Set reminders on your phone. An automated system that integrates rent collection with all your other financial reporting would be ideal. But, you can work with what you’ve got.
There are many reasons that you might need this documentation.
- Maybe you’ll be audited (gasp!).
- Maybe you’ll need to evict a tenant (oh, no).
- Maybe you’ll be thinking about making some changes to your investment portfolio and you’ll need a clear idea of what’s coming in rent-wise.
Keep everything accurate, detailed, and available. Reach out for some professional help if you need it. A property management company in South Jersey will provide some high level accounting and bookkeeping. You can also work with an accountant, a CPA, or a tax expert.
Don’t set yourself up for mistakes.
5. Incentivize On-Time Rental Payments
There’s nothing wrong with a reward system.
Yes, you expect your tenants to pay rent on time every month. It’s something they’ve agreed to do in exchange for living in your lovely home. In fact, you have that agreement in writing.
But, bringing in rent on time every month goes a long way when it comes to your own consistent income, your own financial organization, and your desire to keep good tenants in place for the long term so you avoid vacancy and turnover costs.
We aren’t suggesting you cost yourself a lot of money making on-time rental payments an attractive option for renters who should be paying on time anyway. We’re simply suggesting that you contribute to your tenant retention plan and increase the likelihood that rent continues to come in on time.
Here are some of the things you can do.
Have a Drawing.
Every tenant who pays on time is entered and you pull a name every month.
Offer a Discount
Maybe you take $5 off the last month’s rent for every month that rent is paid on time. This gives your tenant a $55 credit on month 12 of the lease!
Buy a Coffee
Treat your tenants to a coffee when rent is paid on time. It’s a smart, simple way to say thank you for being responsible.
Simply expressing gratitude can go a long way as well. Everything costs more than it once did. Your tenants are facing increased expenses just like you are. Budgeting and balancing takes work, and when your tenants prioritize paying their rent, you want them to know that you see it and you appreciate it.
When your South Jersey tenants pay their rent on time, it makes it easier for you to save your own money and your other resources – like time. When a resident knows there’s a reward coming for on-time payments or even early payments – you won’t have to prompt or remind them to pay.
6. Communicate/Healthy Relationships
Are you keeping your tenants happy?
They’re your customers, and part of your customer service plan is ensuring your tenants are having a good rental experience. Happy tenants lead to on-time rental payments.
This is a relationship business.
A good tenant relationship will dramatically cut down on late rent payments. Make sure you’re open and transparent with your tenants. Be accessible and available. You need to be responsive and you need to let your tenants know that you’re both working together to take care of their home and make the relationship work.
If a good tenant runs into a financial difficulty one month, they’ll want to feel safe coming to you to explain that rent may be a day or even a week late. It’s better if you know about this ahead of time, so you can plan your own finances.
Communication is part of rent collection.
Hopefully, you’ve found something you can use in these strategies that we’ve provided. When rent collection simply becomes more than you want to handle, don’t hesitate to reach out to our team at Realty Solutions. We can take this off your plate and help you have a better, more profitable investment experience with our South Jersey rental property. We work in Audubon, Collingswood, Cherry Hill, Haddon Heights, Blackwood, and the surrounding communities.
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