Finding a tenant is only the first step in running a successful rental property portfolio. Having said that, collecting rent is as equally important. You may have spent hours screening your new tenant, but they will ultimately be judged on the first of every month. Rent collection is the payoff for all your hard work. You should never just assume that your tenant knows how, where and even when to send their monthly payments. You should make rent collection as simple and easy for them as possible. If not, you run the risk of rent collection becoming a nuisance, or worse, every month.
Start by setting firm dates, responsibilities and consequences. As basic as this seems, it cannot be stressed just how important these factors are. One of the most important things in any lease deals with rent collection and consequences. You cannot just glaze over these details and move on to the next point. At the lease signing, you can set a tone for how you want the relationship to go. In other words, don’t give them an ultimatum. You don’t need to go overboard and say “if it is not in your hands by the first, you are starting the eviction process” either. Find a balance that works for you, but stress just how important it is. If you give them until the fifth of the month, make sure they know that you can charge a $25 or $50 fine if received after. Eviction can start as soon as they are at least ten days late. You also need to let them know where, when and how to send the payment. There are numerous ways to do so. Here are a few rent collection options:
- Cash: Collecting cash may seem like the path of least resistance, but it often opens up additional problems. For starters, it is no advisable to have your tenant send cash in the mail. There are countless reasons why this wouldn’t make much sense. If that is the case, the alternative is to drive to the property every month. This is an inconvenience that you may not have the time or desire to make. Plus, it can cause conflict as to how much money was left or when it was left. Also, documenting payment becomes an issue with cash. If this is the only option, you need to figure out a set time and date every month. Use this only as a last alternative.
- Checks: Sending and receiving rent checks has long been the most common method of receiving rent. While it makes sense, there are some downsides with checks. For starters, there will always be a lag from the time a check is sent to the time it is received. Even mailing just a few towns over could take two to three days. Then there is the concern of getting items lost or stolen in the mail. If your tenant swears they sent the check on the first, you may not get it until after the fifth. If it is still not received and they insist it was sent, you have to battle over stop payment and wait on another check to come. While this may seem like the exception rather than the norm, there are more problems with checks than you may expect.
- Online: Technology is changing every day. It was only a few years ago that the thought of receiving rent payment online seemed radical. With the vast number of programs and websites online, payment is as easy and safe as it has ever been. The best part of this method is that it is time and date stamped. You know exactly when money is going into your account. It may take a few days to clear, but you know it is there. You don’t have to worry about a check bouncing or never hitting your mailbox. You can avoid going to the house and collecting cash. Since you will receive security and deposit checks before your tenants move in, you know they have a bank account to draw from. There are a solid handful of reputable sites to draw from. Do your research and find the one you are most comfortable with. Once you set up online payment from your tenants, you may never opt to collect any other way again.
As a landlord there is an expectation to get the rent by the first every month. While nice, this is not always very realistic. One way to entice tenants to pay by a designated date is to offer some incentive. If they pay on or before the first for a certain number of consecutive months, you may offer a small gift card or some other concession. Many landlords will scoff at this. However, is it worth $25 once every six months to get your rent by the first every month? Most investors would answer yes. Whatever you do and however you do it, find a system that works for you and be ready to run with it. The minute that you start to take rent collection for granted is when you will start to run into trouble. Without rent coming in on time, the whole process becomes much more difficult.