For an investment property to be profitable, there must be a steady stream of income. This means having renters who pay their rent on time, month after month.
As a landlord, there are many things you can do to encourage your tenants to pay on time. Not only does this guarantee a positive cash flow, but it also gives you the resources to keep the property up to code.
Got tenants that aren’t paying on time? We’ve put together 8 tips for making sure that your tenants are never late on their payments.
What Your Tenants Need to Understand
A common misconception among tenants is that their landlords just want to fatten up their wallets. Contrary to popular belief, only a percentage of the rent that each renter pays actually goes to the landlord. As the property owner, they have the obligation to maintain the upkeep of the property, ensuring that it’s habitable throughout the year. A significant amount of each month’s rental income goes to repairs, utility bills, garbage collection, insurance, taxes, property management, and so on. If tenants fail to pay their rent on time, landlords won’t be able to meet these obligations. In turn, tenants won’t be able to enjoy the living conditions that made them sign the lease in the first place.
8 Ways to Encourage On-Time Rent Payments
#1 Screen Your Tenants
Qualified tenants are most likely to make on-time rent payments, so make sure to conduct a thorough background check on all of your potential renters. You need to review their credit score, employment status, rental history, monthly income, etc. to determine whether they will be able to make prompt payments. Ideally, it’s best to choose tenants with an income of three times more than the monthly rent. This guarantees that they have sufficient finances and won’t lag behind their payments.
#2 Offer Multiple Payment Methods
Not everyone will be comfortable with online payments, but not everyone will have the time to withdraw cash, either. Be flexible with your payment options by offering your renters several modes of payment, such as electronic payments, bank transfers, automatic debit, and cash or check. Generally, cash and check are regarded as the most cumbersome ways to pay rent, but these might work for older, non-techy-savvy renters. It’s still preferable to encourage your tenants to pay online. This also benefits you since digital payments are easier to track.
#3 Give Clear Instructions
When the tenant signs the rental lease, it’s expected that they are already aware of when rent is due each month. However, your tenant still might need more information, so be sure to explain the payment process as clearly as possible. Provide instructions such as how tenants should pay the rent, and where rent should be paid. If you’re collecting rent by check, make sure that tenants know the necessary details to fill out the check, and the address to mail it to. Be extra patient with student tenants and first-time renters.
#4 Impose a Late Rental Payment Fee
Tenants are more likely to pay rent late if there aren’t any consequences. This is why it’s best to include a fee for late rental payments in the lease agreement. Once a tenant fails to pay even after the grace period, you should send them a notice to pay the rent plus the late fees, or else they’ll have to face eviction. Your tenants will probably make excuses for their late payments, but it’s your job as the landlord to enforce your rules. If you’re lenient with your policies, you might find yourself with an increasing number of non-paying renters.
#5 Provide Discounts and Incentives
Incentives are an excellent way to encourage tenants to pay on time. For instance, you can offer a $20 discount off the month’s rent for payments made before the due date. You could also slice a percentage off their rent if the tenant has been paying on time for three consecutive months or more. Rewarding tenants shows them that you appreciate their effort to make prompt payments each month. Just make sure that you don’t end up losing money with your discounts and incentives.
#6 Report Late Payments
Since most tenants want to maintain or build excellent credit, they’ll want to avoid falling behind on rent as much as possible. Landlords have the power to put a dent in their tenant’s credit score by subscribing to a credit bureau, such as Equifax, Experian, and TransUnion. This gives you the ability to report late payments to the credit bureau thirty days past the due date. Keep in mind that you are required by the law to notify your tenant before submitting the report. If you plan on reporting delinquent tenants, make sure that this is stated in the lease agreement.
#7 Send Invoices Each Month
Your tenants are busy with their lives, so it’s possible that they just forgot to pay the rent. To prevent your tenants from forgetting, send them a copy of their invoice five to seven days before their rent is due. It’s best to also send them a text to remind them about their financial obligations. If you use online tenant portals such as AppFolio, you can provide tenants with on-demand access to their monthly statements.
#8 Hire a Property Manager
Collecting rent each month can be a hassle, especially if you live miles away from your rental property. Even if you accept electronic payments such as PayPal, keeping track of all payments isn’t an easy task. If you find that these tasks are taking too much of your time, you might want to hire a property management company. This way, you’ll have a dedicated property manager who will handle everything from sending invoices to collecting rent.
What if a Tenant Still Won’t Pay on Time?
In some cases, even after you follow the tips above, a tenant will still pay their rent beyond the due date. It’s up to you to decide whether you should evict them, but keep in mind that there are certain eviction procedures that you need to follow.
Need a Hand?
Luxury Property Care has been helping property investors professionally handle these types of tenants for years. To find out more about how Luxury Property Care can help you encourage your tenants to make on-time rent payments, get in touch with us today by calling (561) 944-2992 or filling out our contact form.