Investors understand the truth behind the common misconception that the rent they receive from their properties is pure profit. Landlords often have to pay insurance fees, mortgages, repair fees, taxes, utilities, and more. With all of the outstanding payments that landlords face and all the headaches associated with owning and managing income-producing properties, it is crucial for the rent to arrive on time.
If you already have income-producing rental properties or if you’re thinking about investing in real estate with a tenant, pay attention to these 5 strategies to get your tenants to pay on time.
1. Build a Relationship with Carefully Screened Tenants
Relationships between tenants and landlords vary. Some working relationships are instantly amicable or even hands-off, whereas others can grow hostile. As the landlord of a Florida income-producing property, it is in your best interest to both carefully screen your tenants and then work to build a positive relationship with them.
Actions for building a positive working relationship can look like:
- Clearly communicate your vision for the property
- Be available and responsive
- Touch base on regular property maintenance
- Respect their relationship with the property as their place of residence or business
- Check in regularly with multiple forms of communication such as text, email, phone calls, and in person, but don’t bombard your tenants.
2. Send Monthly Invoices as Reminders
Friendly reminders can help forgetful tenants or provide a nudge for unresponsive tenants to pay their bills on time. If you create a standard practice of emailing or mailing a monthly invoice a week before rent is due, it can help in the long run. Review the rent-reminder policy upon move-in so tenants don’t feel surprised, unwelcomed, or confused when receiving the notice. Remember to keep these reminders friendly, short, and to the point without mentions of late fees or evictions.
A common reminder should include the following information:
- A short sentence that reminders are standard practice
- Date the rent is due
- Amount of money that’s owed
- Your contact information
- Methods of payment
3. Make the Payment Process Incredibly Simple
The ways that you accept rent depends on how many properties you own and manage. Within those limitations, make sure to offer as many easy payment options as possible. Easy processes make for a higher success rate of completion, so if you want your tenants to pay on time, make it simple for them.
Popular methods of rent collection include:
- Various online rent collection services
- Checks – certified, cashier’s, and personal
- Cash – make sure to document each payment
- Money order
- ACH Electronic Transfer- be mindful of the possibly 3-day delays
- Venmo – be mindful of the 3% business fee
- Apple Pay
- PayPal – be mindful of the 2.9% and $0.30 fee for each rent collection
4. Provide a Small Discount for Early Payments
This strategy might take some calculation on your part, but offering a reward is oftentime more successful than imposing a penalty. Though late fees may be attractive for some landlords because people love receiving extra money, late fees run the risk of hurting your tenants and the relationship you’re trying to build for the long-run. Providing small discounts of $25-$100 depending on your budget can be a positive incentive for loyal, hardworking tenants.
5. Discuss a Grace Period and Late Fee Payment if Necessary
If you find that chronic lateness is an issue and building a true relationship with your tenants is proving extremely difficult, it may be time to think about late fees. Most tenants who are serious about building positive relationships will offer a 3-5 day grace period for a few reasons–money could be on the way, there could be a payment issue with your tenant’s employer, or your tenants are living paycheck-to-paycheck.
If you’ve decided to impose a rent fee, here are some guidelines:
- Decide on a reasonable and fair fee (typically 5% of rent or less)
- Include the fee procedure in the lease
- Explain the late fee reasoning and procedures during the leasing process
- Check local and state laws about late fees
- Adhere to the grace period before collecting late fees
Stay current on the best practices for real estate investment and tips on how to finance, fund, and fuel the success with your income-producing investment properties by connecting with Community Capital Holdings at ComCapHoldings.com