Being able to collect rent on time is one of the most fundamentally important aspects of being a landlord. Unfortunately, it’s also one of the aspects that feels most out of your control. Many new landlords think it’s up to the tenants to pay rent wherever and whenever it’s due and your only option is to evict those tenants who don’t pay on time.

Although you’re ultimately relying on your own good judgment and screening process to choose a candidate who will likely pay you rent faithfully and in a timely manner, there are still ways you can encourage all tenants to pay rent on time!

Luckily, adopting a few proactive measures can help you take back control of your rent collection and emphasize the necessity of timely rent.

Is late rent really a problem:

What is the true cost when one of your tenant’s does not pay their rent on time? You may think the cost is limited to just a simple nuisance, but the price tag goes beyond the initial delay in payment.

Your Mortgage depends on it:

Maybe your needing the rent checks to cover the mortgage or other payments related to the property. A failure to collect will probably lead to phone calls from the bank, late charges or may even affect your credit score. Mortgages are typically due by the 5th of each month, just like a rent payment from a tenant. Banks start charging late fees and finance charges on the 15th of each month.

Stress and Bad Will:

When your tenants are late on their rent payments, you have to be the so-called “villain” and consistently follow-up with them, basically their problems in life why they can not pay their bills have now become your problem. All of the constant requests and reminders drive a rift between you and your tenants where anything is difficult to accomplish. Late rent erodes the trust that you have in the tenant.

Bad Habits are hard to break:

The real issue is that a tenant doesn’t just pay their rent late one-time. It becomes a pattern. The late rent is a problem to be solved every time it happens – needing to chase after it is emotionally draining and time-consuming. Once they figure out that paying late is OK, they’re incentivized to continue doing it. In fact, other tenants, if you have any, catch onto this as well.

4 Tips to Collect Rent On-Time

Tip 1: Establish Expectations in the beginning with tenant

Straightforward information about rent, due dates, late fees, and possible consequences for late rent prior to the tenant signing the lease agreement will accomplish two things. First, it will help prevent any confusion in the mind of the tenant about any of these topics. You can then avoid dealing with tenants who paid late simply because they didn’t know when rent was due or didn’t understand the repercussions for doing so. Second, if a dispute ever comes to a legal matter, you’ll be in a far better position if you can demonstrate that you clearly relayed to the tenant when rent was due and the consequences of not paying on time.

Tip 2: Have a late fee

Charging an additional fee for late rent can help ensure that tenants are financially motivated to pay on time. Exact rules about how much you can charge vary from place to place, so you’ll want to check local statutes.

You should always charge the maximum allowable late penalty. You’ll need to ensure that a clause about late rent is in the lease, and you may want to include information about it in any sort of introductory material you give a new tenant. Be sure to mention it when you go over the lease with the tenant. If the late fee isn’t included in the lease, it isn’t legal to impose one after the lease is signed.

Tip 3: Be consistent

Consistency is another of the best policies you can have as a landlord, and is especially helpful in preventing late rent, which may occasionally come from even the best tenant. As unfortunate and personally tragic their situation may be, it’s truly best to treat all situations equally– with professionalism and an eye towards the bottom line of your business. While it’s easy to prosecute generally bad tenants and act more leniently towards good ones, it shouldn’t affect the steps you take. You can of course personally sympathize with their situation, but separate that emotion from your landlord policies. This will keep you out of Fair Housing & Discrimination Lawsuits.

Tip 4: Always act professional

Although having to jump through hoops to collect late rent is frustrating, it is to your advantage to remain as professional as possible. Never threaten to cut off utilities and don’t rely on threats in general, no matter how vague they may be. Threats or personal attacks against your tenants also make you look unprofessional and and are very unlikely to be tolerated by a judge.

When Breakdowns Occur:

Sometimes, despite your best efforts of encouragement to the contrary, a tenant will still pay late, maybe even multiple times. There are several options you have available at this point which graduate in severity based on how late the payment is.

As soon as the 3 day grace period ends, be prompt in delivering a Late Rent Notice, or Notice to Pay Rent or Quit to the tenant. Technically this begins the eviction process, but your tenants must know that you’re serious. Zero tolerance in this area of your business is a must if you are planning on being a landlord for any length of time.

Article Source: https://www.biggerpockets.com/