Rent Collection

Rent collection is probably one of the most important tasks we do as property managers. If the rent is not collected on time, the owner can't pay the mortgage, repairs are deferred and no one is happy.

I have often said that we must train our residents to pay the rent on time. This is often accomplished using different approaches but before we discuss those, lets go over what happens when we allow residents to pay late.

When a resident is always late on their rent or does not pay and we do not attempt to collect, the resident perceive it as "normal" to be able to pay late and many times may lead to them being delinquent for months at a time using your money for other things except paying you rent.

What makes it worse is that Residents talk to each other and others soon find out that we are soft on our approach to rent collections and start paying rent late or do not pay at all. Before you know it, the property has a large delinquency and the owners cash flow suffers as a result.

So how do we train our residents to pay on time?

1. Take the time to properly screen your prospective residents; credit check, rental references and work history/income. Use a tenant screening service and check for prior evictions. Call current landlords and ask for rental history; do they always pay on time. If the landlord is hesitant to provide info ask if they would rent to them again? If the answer is no don't take a chance. Set a criteria and do not waiver from it no matter how sad they story gets!

A trick I learned, is to first call the number I am given for the current landlord and block the caller ID before I call. When the person answers I ask do you accept pets? If this is a legitimate business they will answer yes or no. If the prospective tenant just happened to give a telephone number to one of their friends (which with cell phones is likely to happen with bad tenants) they will probably tell you that you have the wrong number or answer with the professional AHHHG?

2. Take the time to go over the lease and/or rental agreement with the new tenant. Explaining thoroughly when the rent is due, when is late and what is the grace period and applicable late charges. For example if your rental agreements says the rent is due on the 1st of every month and it has five day grace period make sure the tenants understands what that means to them.

I always explain it this way; "The rent is do on or before the 1st of every month and it is considered late on the 2nd of the month. However there is a five day grace period before late fees/charges start to accrue. What that means is that we most receive the rent by the 1st of every month if not a lot fee of $____ will be charge on any rents received after the sixth of the month.

3. Proper service of notices; the first time someone is late on the evening of the sixth no later than the seventh of the month I knock on the door and I ask to speak with the tenant. I smile and say hello and then let them know that we have not received the rent. I asked them if maybe they just forgot and they can give me a check at that time. If they say they mailed it or that they will pay by _____; I immediately hand them an official non payment of rent notice and remind them that a late fee of $_____. needs to be included with the payment and I thank them for their time. I they are not home I post and mail the notice as required by law.

Some will argue that a formal non payment of rent notice or eviction notice is to harsh. But keep in mind that if the resident understands from the very beginning that they need to make their rent payment on time it will safe you a lot of headaches later. Besides, do you want to have resident that you have to chase after to collect the rent or that pays on time.

When you do receive the payment for rent the first thing that comes out of the payment that is received is the late fees. We then apply the rest to the rent payment. If they are short I once again serve them a notice for the difference and start the process all over again.

Harsh yes; effective yes!

I'll give you an example. I once took over a property in which they old owner did not collect the rent on time and did not charge late fees. The first time rent was due, two of the three tenants did not pay on time. We went through the above process a for the first few months in a row and we stood firm by the late fees and the timely payment. One tenant moved out three years later but always paid on time. The other one still lives in the property and continues to pay the rent on time month after month ten years later.

Now if we did not train them to pay on time they would have continued their late payments and we would have struggled to maintain the property and pay the mortgage.

Reality is we are in the business of managing property and collecting rents not in the business of evicting people. However, if a resident is not paying rent on time or not paying at all; that is worst than having a vacant site or unit. At least with the vacant unit you have an opportunity to rent to a good tenant who will always pay on time.