Not getting rent on time (or at all) puts a damper on your wealth-building strategy. Your rental properties are supposed to provide you with long-term income. Usually, rental profitability is predictable and it’s easy to calculate your expected profits. However, when your tenants stop paying rent, you’ll probably have to recalculate your capitalisation rate several times.
Whether you have non-paying tenants or you want to prevent any possible problems, here are several ways to mitigate common problems that arise from collecting rent.
Under normal circumstances, you wouldn’t want to change the rules because your tenant can’t pay the rent on time. However, given the current state of the world, amending a month-to-month lease can be beneficial. In fact, amending a tenant’s lease might be the only way you’ll get any rent at all.
First, talk to your tenant to find out why they’re behind on rent. It’s possible that your tenant has income, but not enough to cover the full amount of rent. Some tenants won’t offer to pay partial rent because they believe their landlord will reject their offer.
Ask your tenant if they’re able to pay partial rent. If they are, amend their lease to reflect a new, lower monthly rent. While you can skip negotiations and evict your tenant, your case could take a while to be heard and your tenant might not leave for several months.
Collecting rent online is the easiest way to mitigate a host of potential problems. When tenants set up online rent payments, they won’t have to leave their house to pay rent. This eliminates excuses like working late, not being able to get to the bank, running out of checks, having car trouble, etc.
Some excuses for late rent are valid, but even so, a valid breakdown won’t stop someone from paying rent when they can pay online.
You’ll pay a fee to collect rent online, but the convenience is worth the expense. Your tenants can set up recurring payments or make a payment each time rent is due. With most online rent applications, you can set the payment amount so your tenants can only pay the amount due.
Is your rent collection process easy? When it’s easy to pay rent, you won’t get late or missing payments from tenants who don’t understand what’s expected.
The following rules make it hard for some tenants to pay rent on time:
If you don’t want your tenant to mail you a check or money order, consider installing a locked box outside of your home for your tenant to deliver the rent. Likewise, don’t require a tenant who doesn’t drive to mail the rent when they can easily pay you online.
Set the tone for your landlord-tenant relationship from the beginning. Make sure your tenant understands that late rent won’t be forgiven, and you intend to impose the late fees in your rental agreement.
Late fees are supposed to deter tenants from intentionally paying rent late. If you waive your late fees, your tenant won’t have any incentive to be meticulous about paying rent. Why bother going the extra mile to pay on time when there are no consequences for being late?
It’s okay to set a grace period, but don’t waive late fees. Even when tenants can’t help paying rent late, don’t forgive late fees. You’ll only set yourself up for more late payments.
Building wealth with rental properties only works when your tenants pay their rent on time and in full. When you have non-paying tenants or vacancies, you don’t have income. You can protect your income and wealth by mitigating the potential for problems related to collecting rent.
