As a landlord, one of the things you constantly struggle with is late-paying tenants. It’s a frustrating experience most landlords would rather avoid. So, here’s how successful landlords minimize the aggravation and get tenants to pay every time.
Set Up Automatic Payments
When payments come out automatically, you don’t have to go chasing tenants down for rent. Requiring tenants to pay this way reduces the number of bounced checks and will improve retention rates in your rental units. There are multiple systems that will help you do this, which eliminates the human error factor.
A few ways to set up automatic payments include
ACH Debit — This automatic payment method withdraws money directly from the tenant’s bank account. There are no excuses for missed payments. If you do happen to get a returned payment, you know that your tenant really is on hard times. Or, maybe they just can’t afford to pay your rents and they need a cheaper place. To authorize the transaction, tenants sign a document that lets you withdraw a set amount every month.
Cozy uses an ACH direct deposit system to deduct a tenant’s rent money and then deposits it into your bank account. The downside, of course, if that if there are insufficient funds, the system typically charges you a fee or simply returns the payment and you don’t get paid. There is also a fee for the transaction of between $0.50 and $3 per transaction.
Online Bill Payment
All major banks have an online bill pay feature where tenants can set up an online ACH. You can ask tenants to do this and set it up as a recurring bill with their bank. This way, the bank issues a check and then mails it to you automatically every month.
The downside is that you still have to deposit a physical check every month. And, the check could hypothetically get lost in the mail even though the bank is the one mailing the check.
Collect Post-Dated Checks
This is the least-desirable solution, but it can work. Before online banking, some landlords used to collect 12-postdated checks from their tenant — one for every month of the year of the lease. Then, the landlord could deposit the checks as rent came due. It’s a simply system, but some tenants are a little uneasy about doing it. It’s illegal for you to cash checks before the date mark, even though some banks don’t check the dates, which is why some tenants are hesitant to give you all the money up front.
Choosing Better Tenants
One way to make sure you get paid on time is to choose good tenants from the get-go. This is harder than it sounds of course. But, an easy way to get the scoop on tenants is to do a basic background check on them to check for overtly bad or criminal behavior. Do a basic credit and ChexSystems check to make sure they can pay their rent.
Finally, hire a private investigator to look into them. This is totally legal and will tell you pretty much everything you need to know about the prospective tenant.
If the preliminary stuff doesn’t check out, there’s no need to hire a PI, of course. But, assuming you are satisfied with the tenant “on paper” you can move things up to a serious and real lifestyle check. If the person says they make enough money to pay your rent, but you see they live a lifestyle that would preclude that, you might suspect they’re lying to you.
Don’t Accept Cash
Taking cash seems like a good policy, but it’s not. Cash is easily lost, leaves no paper trail, and might imply your tenant is doing something illegal. And you don’t want to be involved in any of that. You can eliminate this risk easily enough: don’t accept cash payments.
Enforce Your Rent Collection Policy
Most landlords who don’t get paid on time don’t enforce the rules strictly. When you’re a landlord, you need to enforce those rules you just told your tenant about. If you don’t, they’ll see them as “soft” rules that don’t need to be followed.
This means, if you charge a late fee for late payments, charge the fee — even if the tenant is late, and regardless of the excuse. Because a tenant can come up with an endless array of excuses why something wasn’t done or why the rent isn’t paid on time.
Declan Burke entered the buy to let property market a few years ago, and has since learnt so much about choosing tenants and being a good landlord. He shares his tips with others in his articles.