Collecting rent is the fuel of your rental business. It’s difficult to effectively lease and manage an investment property when you don’t have the rent coming in on time. This is something that a lot of landlords struggle with, and the problem could be a simple one to solve: you need a consistent process and a rent collection policy that’s enforced.
We’re taking a look at ways to do both. Our years managing properties in San Jose and throughout Santa Clara County make us an excellent resource for rental property owners who need some direction and support when it comes to effective rent collection.
Here’s how to ensure your cash flow isn’t disrupted by late or missing rental payments.
Screen Residents Well
If you want to get your rent paid on time, you have to attract, place, and retain tenants who can be trusted to pay rent on time.
The tenant screening process is an essential part of the leasing and marketing period. Make sure you’re checking all of the usual background information; credit and income and eviction histories. Take a look at rental references as well. When you invest the time to talk with or email current and former landlords, you can ask them:
- Whether your applicant paid rent on time.
- If they were late, how quickly they caught up.
- Whether any Pay or Quit notices had to be filed.
A good tenant screening process will set you up for an effective rent collection process.
Establish a Rent Collection Policy
You need a written rent collection policy that can be shared with tenants and included in your lease agreement. The elements of a good rent collection policy will include:
- The amount of rent that’s due. This is pretty obvious. Your residents likely will not even apply for a property without knowing the rental amount, but you want to have it in writing and you want to include any additional payments that the rental amount has to include. Perhaps there’s a pet fee or an amenities fee. Maybe you charge for valet trash or a utility package. The rent collection fee should include everything that’s due.
- The due date. Typically, rent is due on the first of the month. Make sure you stipulate that in your rent collection policy. Include information on grace periods. When is the exact date and hour that rent is officially late?
- Late fees and penalties. Your rent collection policy needs to establish the consequences of paying rent late. There should be a late fee and a list of all potential consequences, leading right up to eviction. There are no existing limits in California to how much you can collect in a late fee, but the penalty does have to be “reasonable.” Most rental property owners have interpreted this to mean between 5 and 10 percent of the rent.
- Methods in which tenants are permitted to pay the rent. How will you collect it? Be specific about what is allowed and what is not allowed. You might not want cash, for example. You might want a certified check instead of a personal check. To effectively pay rent on time, your tenants need to know how you want to collect it.
Use your rent collection policy to reinforce your expectations around on-time rental payments. When rent is late and you need to assess a late fee, send the rent collection policy to your tenants with your notice as a reminder. You’ll also want to include this policy with the documents you prepare for court if it ever gets to the point that you’re evicting a tenant.
Allow for Online or Digital Payments
We mentioned the importance of stating how you’re willing to collect the rent, and we always recommend allowing digital or electronic payments. As a property management company, we collect rent online through a tenant portal that makes everything easy and secure. This is because we’re able to invest in the latest and most innovative software that’s available in the industry.
As an independent landlord, you may feel less able to invest in an entire platform. However, there are plenty of apps and simple systems that will allow you to collect rent electronically from your tenants. This will facilitate more on-time payments. Most of the residents we work with prefer to pay this way; it eliminates a lot of the legwork that goes into paying rent by check or in person. An ideal payment system will allow your residents to store payment information, schedule payments in advance or on a recurring basis, and pay with the swipe of a screen or the click of a button.
Provide Positive Reinforcement
Encouraging tenants to pay rent on time is one thing, rewarding them for consistent on-time payments is even better. While it’s true these on-time payments are expected (some might say required), it doesn’t hurt to show some positive reinforcement and to let your residents know that you value and appreciate them and their commitment to the lease agreement.
There are a few things you can do around this. Report on-time payments to credit bureaus, for example. This will help them strengthen their credit. You can also offer a small discount on rent after it’s been paid on the first for six consecutive months. A $25 rent credit won’t hurt your cash flow, but it will encourage your tenants to continue paying on time.
Invest in Tenant Relationships
Rent is unlikely to be paid late if you have a positive relationship with your tenants and they are enjoying the rental experience in your property. Happy tenants pay on time. They take care of their home. They follow the terms and requirements of the lease agreement.
Good tenant relationships lead to good results and positive cash flow.
If you’d like some help with your rent collection policy or with enforcing your lease agreement, please don’t hesitate to talk with us. We’d be happy to tell you more.
Please contact us at South County Property Management. We serve Santa Clara County, including San Jose, Campbell, Saratoga, Cupertino, Sunnyvale, Los Gatos, Milpitas, Morgan Hill, Gilroy, and neighboring areas.
