Strategies For Getting Your Tenants To Pay On Time!
You’ve heard it before: Cash is king. Cash flow is the air supply of a business. Zig Ziglar once said that money is like oxygen because when you need it, you really need it. In order to keep your business running optimally, you must have consistent rent collections. Assuring that cash flow is moving consistently is an area of your business you will never take your eyes off, but that doesn’t mean you need to lose sleep over it. Apartment property management in Utah can be difficult if you do not know where to begin and how to get people to pay.
Keep that oxygen level at 100% and implement these strategies for getting your tenant to pay rent on time!
Find Reliable Tenants
Find quality tenants with good credit and enough income that can afford the rent. Credit has to do with the quality of the person, while income has to do with the ability of the person. For example, even though a person has an excellent credit score, they may not make enough money to afford the rent plus utilities and housing expenses, or may have too many other expenses to cover. This can drastically reduce their ability to pay. My standard rent to income ratio is 30% for less expensive properties and up to 40% on more luxury properties. Set your standards, and stick to them. When your property is on the market and you are thinking about dipping into savings to make the mortgage payment, it will be emotionally tempting to bend the rules and lower the bar, but don’t give in! You can change your standards from time to time. But when you do, try not to do so in the heat of the moment. Implement a thoughtful, systematic change.
Set Clear Expectations
Clear expectations from the beginning will save major headaches in the end (even the threat of litigation). Have a clear conversation with your new tenant about what the lease agreement actually means. Don’t cut corners or shorten the conversation just because of the excitement you both have about the move in. Slow down and express that you are happy to be working with them, but also let them know this is a serious legally binding agreement. Make sure they fully understand the serious consequences, without dampening their excitement for their new home.
No Grace in Rent Collection
Communicate the consequences of late rental payments, and follow through with them every time. Your tenants will test your boundaries, and when it comes to money, if you give them an inch, they will take it. Remember, money is an emotional subject for your tenant and for you. It’s natural to feel like the bad guy or to be passive, but if you set very clear expectations, you will be surprised as to how this improves your relationship with your tenant. It’s like creating a personal budget. While at first you may think that implementing a budget is rigid and limiting, you will likely find, as others have, that a budget actually creates a sense of clarity and freedom. This applies directly to ensuring your tenants understand your boundaries. A quality landlord clearly communicates the rules, and a quality tenant appreciates them.
Be Disciplined With the Collections Time Line.
Once the statutory grace period is over (be sure to check your local state tenant landlord laws for clarification on what this is), immediately start the eviction process. This doesn’t mean you have to evict, but initiate the process in case they don’t pay. This communicates to your tenant that you are serious, and this is the process you are required to follow.
Consider requiring direct withdrawal of rent from your tenant’s checking account. This empowers your tenant to appropriately prioritize their rent payment. Since shelter is key to basic survival, it is a top priority and should be the first bill that is paid. They should pay their rent before they pay their phone, food, electric or TV bill. By offering the direct withdrawal, you can avoid some uncomfortable situations.
Once a tenant has passed off a NSF (non-sufficient funds) check, require certified funds such as a money order or cashier’s check as the only method of payment from that day forward. If they did it once, they will probably try to do it again. This will free your mind from extra and unnecessary worry each month until the check clears.
Never Accept Cash
If you accept a cash payment, then you will have to meet your tenant personally in order for them to pay. This directly cuts into your profits because of the additional time and expense required to meet them and also poses issues related to safety and accounting. Being handed a wad of cash could eventually threaten your safety; how long before someone mugs you to get your cash? Accounting will remain an issue as well because cash is impossible to track or record properly, and the probability of a miscalculation is much greater as the amount of cash handled increases. Cash payments also leave you vulnerable in terms of proof of payment. If a tenant pays in cash, how do you prove they did or did not pay?
Credit Card Payments
Allowing your tenants to pay their rent online by offering credit card payments is a good collection solution. This makes it easy for your tenant, but make sure to add a convenience fee to cover the transaction fee the credit card company will charge you. Or better yet, find an online portal solution for your tenant so they have options to pay directly with their bank account through ACH or a credit card option, in which that 3rd party handles the credit card processing for you!
When it comes to collecting rent, there are a lot of things to consider, but not a lot of things to worry about as long as you put the right systems in place. The you’re your mind is occupied with cash flow the more you can focus on building your investment portfolio. Consider hiring a property manager in Salt Lake if you want to become successful with your real estate investments.
We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.