How to Collect Rent On Time…Every TIme

Owning a rental property comes with benefits and challenges. But if you know how to maximize the benefits and neutralize the challenges, good things will happen for you. And to be quite frank, it all starts and ends with collecting rent on time, month after month.

The Danger of Late Rent Payments

Late rent payments are detrimental for a number of reasons, including:

• Hurts cash flow. This is the most obvious consequence. When there’s no money coming in on a monthly basis, it’s difficult to pay your bills. And if you have a mortgage on your hand, it could even prevent you from being able to make your payment to the bank each month (potentially leading to devastating consequences, like foreclosure).

• Increases stress. Late rent payments are extremely stressful. Not only do you have to continually confront the delinquent renters, but it’s possible that you could eventually have to pursue eviction (which nobody wants).

• Leads to ancillary problems. Late rent payments often lead to related problems. For example, a tenant who isn’t paying on time is also more likely to damage your property and/or require eviction. Both of these issues cost you money.

No landlord wants to deal with these issues. Thankfully, you don’t have to. If you’re willing to develop a calculated plan, you can prevent late payments and create a steady drip of income each month.

Tips for Collecting Rent On time

If you want to collect rent on time, you must have a plan. Here are several useful tips:

• Set the Ground Rules Early

It’s very important that you set the ground rules with all new renters at the very beginning of their tenancy. Just because it’s written in the lease agreement, doesn’t necessarily mean they’ll read it word for word. So it’s best to have a verbal discussion about it.

When discussing ground rules, be very clear about when rent is due, how penalties work, what the tenant should do if they know their payment will be late, how to pay, etc.

• Hold Tenants Accountable

When a tenant doesn’t pay, it’s tempting to let it slide. After all, you want to be a nice person. But the problem with letting it slide once is that the tenant will expect you to let it slide twice. And once you go down this path, things get slippery in a hurry.

As tough as it might sound, you can’t give free passes. If there’s a penalty for a late payment, enforce the penalty the very first time. People will get the picture pretty quickly.

• Outsource to a Property Manager

Truth be told, the easiest solution is to just hire a property manager to collect rent on your behalf. This removes you from the equation and allows someone else to be the enforcer. Not only that, but it also saves you time and mental energy, so that you can focus on big picture tasks (like finding your next rental property).

• Collect Online Rent Payments

If you hire a property management company, chances are they’ll implement an online rent payment portal for your tenants. However, even if you decide to self-manage your own properties, you can set up a similar system. This simply removes the manual task of writing checks and putting them in the mail (which leads to all kinds of excuses and delays).

• Incentivize Early Payments

While there’s certainly good reason to penalize a tenant who doesn’t pay on time, you should also incentivize people to pay early. (Some people respond better when there’s a positive reward offered to them.)

One idea is to give a one to two percent discount to people who pay by the first of each month. So if your rent is $2,000 per month, a $20 to $40 discount could be enough to move the needle.

Become an A+ Landlord

Want to know the truth? Less than half of landlords are able to consistently collect rent on time each month. At the same time, less than half of landlords are financially successful. If you want to break that mold and generate a significant cap rate each month, it starts with collecting rent on time. Implement several of the tips highlighted above and you’ll be well on your way.