Importance of Setting & Collecting Rent

[Heath Sizick]

My recent posts have shared key questions to ask and important things to know about professional property management. If you’re considering hiring a property manager, I encourage you to look back at those posts. You’ll also find valuable insights in the comments from other property management professionals that I think you’ll find helpful.

Today's topic: Setting & collecting rent! 

Rental income is vital to a landlord’s business. Without proper systems to collect the right amount on time, the business can struggle. This is key to helping top real estate investors achieve higher returns. Here’s a list of issues and questions to ask property management firms:

Setting the Rental Rate

How do they determine their rental rates?

Maximizing rents requires a property manager to understand the local market and research recent comparable rentals. While rules like the 1% rule can be useful, they can’t replace thorough market analysis. Rental rates not only affect income but also property value. The goal should be to rent the unit within a month. 

How often do they raise rents?

Rental rate surveys should be performed at least annually, and more frequently if there are vacancies or lease renewals.

Do they put contractual escalators in the lease?

Contractual rent escalators allow the rents to be raised without the need to negotiate, offer an explanation or give notice. Tenants know they have already agreed to it so it doesn't feel arbitrary, and tenants are actually grateful if the firm decides to not enforce the full rate hike.

Collecting Rent

How is rent collected?

It’s 2025 - stop processing checks!  Offer direct debit for tenants - this not only improves cash flow and saves time and money, it also lets you know as soon as possible if funds aren't there and eliminates excuses about checks lost in the mail.

How do they deal with delinquent payments?

Choose a property management company with a firm yet reasonable process. If tenants are allowed to pay late, they will continue to do so. It’s crucial for the company to enforce all lease terms and monitor tenants showing a pattern of delinquencies. A strict collections process should be balanced with prompt, quality service to address tenants’ needs.

What is their current rate of delinquency?

Find out if they run a tight ship or allow things to get out of hand.

When is rent due? Is there a grace period, if so how long?

Due on the first day of the month, late on the second day of the month is standard. A grace period that extends to either the 3rd or the 5th is also standard. Keeping it shorter prevents it from getting significantly delayed in the event of a holiday or long weekend.

How much is the late fee?

Late fees primarily encourage tenants to return to timely payments, although they can generate revenue. The property management fee typically ranges from 5% to 10% of rent, with a small daily fee added as an incentive to catch up quickly. Late fees are meant to mirror the penalty the owner would face with a late mortgage payment.

How do they handle evictions?

Their process should be well documented, and although the best course of action will vary based on the circumstances, they should be able to explain to you the basic checklist they go through each time. You want to deal with a company that acts quickly, documents their actions, and understands your area’s unique laws for this process.

In the last year, roughly how many evictions did they experience, out of how many properties being managed?

The higher the number, the less confidence you should have in their screening process.

How quickly do they usually get repossession of the property when an eviction takes place?

Time is money, and a smart tenant with bad intentions can drag this process out for a very long time. Find a manager who excels at containing and eliminating the problem as quickly as possible.

Do they provide eviction insurance?

This is basically a small monthly fee that insures that the management company will pay for all attorney and court costs associated with evicting a tenant they placed. It's not a widely offered service, but it’s a valuable service that speaks to the property management companies confidence in their screening process.

Cashflow may be strong now, but rent will inevitably decrease over time if the property is not well maintained.

I hope you find this helpful!