My Favorite Rent Collection Method (Shocker—It’s Not Electronic)
I love technology, and finding new and more streamlined ways to use it to do everyday tasks is fun for me. My banking, accounting, calendar, communication, task management, project tracking, and hard money loan underwriting are all done electronically.
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I’ll move as many other tasks as I can to an electronic system. I scan in receipts and contact info so I don’t have to keep paper. I always have multiple businesses and volunteer projects going at once, so being able to multi-task using a device is pretty important for me.
All of that being said, it may surprise you that my rent collection method is decidedly old school. Here’s what I do, and why I do it.
How I Collect Rent
Are you ready? I pick up the rent at the property.
Tenants place their checks in a locked mailbox at the property by no later than 7 a.m. on the due date, which is the 25th of the month (more on that later). The mailbox has a slot similar to this one below.
I drive to the property, snap photos of the checks to deposit using my phone, and walk the building. Sometimes I see a tenant—more frequently I don’t. I’ll chat if I do.
I meet my maintenance person there, pay him, and discuss any issues he is dealing with or tasks on his plate.
“WHAT? And waste all that time? Why on earth?” some of you are probably asking, wondering if I also grew up with rotary phones.
Hear me out though. Here’s why I do this.
Going to each property forces me to pay attention to the condition of the property and not assume that everything is fine. I can see for myself.
If something needs repair or replacement, I notice. (Yes, I’ll admit to being a control freak.) I take a minute to walk around, and I can discuss it on the spot with the maintenance person.
Because I see my property—and sometimes the tenants—on a regular basis, my renters know that I am involved and aware. It can head off problems before they start.
Can this be a detriment if the relationship with the tenant deteriorates for other reasons? Absolutely.
It is not possible for me to be just “the property manager.” They all know I’m the owner. If I tried to pretend, I’d for sure slip up and give it away, and then they would know I was lying. That’s just me.
But because I’ve screened carefully for excellent tenants, I seldom have issues. So, staying in touch occasionally is a positive on both sides.
I once saw someone write on BiggerPockets: “Be nice to your tenants. They are buying you a building.” It’s too true!
Another reason I like to keep close tabs on my renters is that many of my properties are what I call “starter units.” It may be the tenant’s first apartment, they may be in their first real job, or they may be broke and starting over again after divorce.
In other words, they don’t always have their financial affairs in peak condition. Some of them still like to use money orders to ensure they don’t bounce a check.
If that’s the case, trying to set up electronic payment methods can be difficult for them, especially if they don’t pay for internet, so fighting the tide is harder than working with it.
Maintenance Person Relationship
I pay my maintenance person monthly during the same visit when I collect rent checks. It’s an opportunity for him or her to keep me up-to-date on things that might not be immediately evident.
And as his day job’s schedule changes occasionally, or he has vacations or family time planned, we can work out coverage and supply issues. This has paid off with multi-year loyalty from my current maintenance person, so since it ain’t broke, I ain’t fixin’ it.
Now, I’ll talk about why my rent is collected on the 25th, as I mentioned above. A guru talked about this plan. (It may have been Jeffrey Taylor?)
I don’t collect on the 25th for the rental month 1st through 30th, I collect on the 25th for the rental period 25th through 24th. It’s illegal in some states to hold more than a specific amount of money in advance though, so be sure to comply with your state’s laws when making this decision.
Why do I do this?
When I started, I needed to make sure to collect rent before my mortgage payment was due. That way, if I had to wait for a check to clear (or bounce), I still had the mortgage funds in time for the 1st.
Later, as I moved into commercial mortgages, it became less important. Those don’t always start on the 1st, and I had reserves. But it was a lifesaver when starting out, and I didn’t want to change midstream.
This won’t work if you are trying to scale. My hard money lending business grew to full time, while my rental properties didn’t.
I’m not good at managing a property manager. I preferred to manage tenants myself, as screening is the most important part of rentals. Maintenance of the properties was easy with a maintenance person and a few trusted contractors. So, I let it stay small.
If you are aiming for hundreds of units, I don’t recommend this approach. If you are buying property out of state, it won’t work either.
You’ll need to focus on how to find a good property management company and not try to do it yourself. But if you are like many investors on BiggerPockets, you aren’t there yet. So, I encourage you to consider if this low-tech approach will work for you and help you keep tabs on your property.
What do you think of my rent collection method? Would you ever try this approach?