Rent Collection: Mistakes to Avoid
To have a successful real estate business you need a couple two things, cash flow management and rent collection on time. And of course, the biggest factor in your cash flow will be your ability to collect rents. As many states have different laws, sometimes there are only a few options, keep asking tenant for a fee or file an eviction.
No one enjoys these type of situations, that's why you have to focus on implementing a clear rental collection procedure, or if you do not collect rent properly, the rest of your cashflows and business could be jeopardized. A lot of new investors make mistakes like, relying on a basic lease template or writing a lease themselves. Without a detailed rental collection policy, you open the door for future tenants to stop paying rent and that will cause many financial and legal problems.
1.Issue late fees.
Late payments serve several functions, you are taking proactive steps to prevent missing payments by tenants, they get reminded about the consequences of late payments and it's a way to compensate yourself for the extra time and lost income. A lease agreement should outline all the terms related to rent payments, including the late rent fees policies. Some of the things you should include in your lease document: The monthly rent, the due date of the monthly rate, what happens if the due date of the rent happens to fall on a holiday or a weekend, where and how the tenant should pay the rent, what happens if the tenant pays the rent late, how much he will be charged for paying the rent late, what happens if the tenant doesn’t pay rent at all.
2.Enforce the rules.
If your tenant is late with their rent, let them know and charge them late fees according to your official policy. Always make sure to enforce strict rules, that's why rules are made for and if you continue to ignore that and allow tenants to break the rules, or if you are oblivious to the rent collection policy you have, tenants may take this as a signal that the rules don't matter.
3.Track payment history.
Until this day, you can find many operators that have an outdated systems to track their rental income, so make sure you have a stable and reliable online system for tracking tenant rent payments. As this will prevent tampering and help you identify reliable tenants and tenants with recurring problems. Keeping these records is important if you ever need to take action against the tenant or even when you're going to be looking to sell your property, having detail financial reports will help you a lot in that process as well.
4.Don't rush to evict.
There are also legal and illegal ways to force the tenant to leave the premises and if the tenant stops paying rent, you cannot force them to move; like turning off utilities, moving appliances, or replacing locks, you could end up subject to legal action, so make sure you follow the law strictly. First, you should give them the option to pay what they owe or leave and then only after you issue this, you can move on to more serious actions or even take it to the court.
5.Don't Accept partial payments.
First of, new and inexperienced investors sometimes don't see the problem of collecting rent in an inefficient way and is usually best to have an automated system if you have access to it. And you need to remember that it is really unwise to accept partial rent payments unless there are some unique circumstances. Some investors might think that it's better to get $1200 instead of $1400 a month, but all they're doing is just setting a bad example and if you choose to accept a partial payment, make sure you apply a penalty to prevent this behavior in the future.
6.Don't try to do everything yourself.
It involves a lot of due diligence and work, from managing rent collection, to writing your policy or completing an eviction, which most of the time is really challenging for investors. That's why a property management company can help you with this process. In addition to helping you collect rents, property manager can help you with many other tasks like, advertising, screening tenants, maintenance, repairs and much more.
If you want to prevent mistakes in rent collection and make the process as easy as possible, make sure to send us a message today.