Buying a rental property can be a great source of cash flow and capital appreciation. However, as with many other types of investment, receiving payments on time is important.
With rental properties, having tenants who not only pay their rent, but also pay it on time is crucial. Without rent coming in, you may be unable to pay your debts and property expenses.
7 Tips to Ensuring Your Tenants
Pay Rent Every Month
1. Review Your Lease Terms
Make sure your lease/rental agreement is clear on all matters related to rent. Such as:
- The amount of rent due. Also, check what your state landlord-tenant laws say about limits. This is especially common in states that have rent control communities.
- Tenant payment options. Will it be through cash, money order, check, and/or credit card?
- When rent will be due. Your lease/rental agreement should also be clear on what should happen should the date fall on a weekend or a holiday.
- Where rent is due. For example, your business address.
- The amount of notice you’ll provide should the need to increase rent arise.
- The late fee amount. In addition, you should also state the consequences of paying rent late.
Spelling out such details on your lease/rental agreement will help avoid disputes and help reinforce your landlord-tenant relationship.
2. Enforce a Late Rent Fee
Charging a late fee can be one way to get tenants to pay their rent. The late fee serves as a penalty to a renter who can’t pay rent on time. Although, the late fee clause must be stated in the lease/rental agreement beforehand.
This fee compensates the landlord for the inconvenience and the risk of not being able to pay the rental expenses.
In addition to implementing a late rent payment fee, you should also consider the following.
- If you allow a grace period, clearly define it in the rental contract.
- To prevent your tenant from paying their rent late every month, avoid waiving the late fees.
- Consider adding a progressive fee schedule. This may force your tenant to act quickly to avoid paying a hefty amount.
3. Reward Good Tenants
As you probably know, finding good tenants is not always easy. As such, once you get one, you want to do everything in your power to keep them. Being a landlord is a demanding job, so it’s not surprising to find yourself overlooking good-quality renters.
If you have a good renter, then consider rewarding them. The reward doesn’t have to be expensive or fancy. It can be as simple as a fruit basket or an Amazon gift card. This will help make your landlord-tenant relationship even stronger.
It may also give your tenant motivation to renew their lease for another term and continue paying their rent each month.
4. Let Them Know the Consequences
Besides the late fee, let your tenant know that there are other consequences that they may face if they fall behind on rent. More specifically, let them know that you have the ability to report them to a credit agency.
For this to be effective, it must be included in your lease terms. You must state that late payments risk destroying their credit scores.
By including this in your lease agreement you will likely keep your tenants on their toes as regards to rent payments.
Of course, reporting them isn’t something that you’d “want”, and is more of a strategy than anything else. With that said, it probably won’t hurt you to know a thing or two on how to follow-through.
There are three credit bureaus that you can call to report a negligent tenant: TransUnion, Experian, and Equifax.
5. Communicate With Your Tenant
If a few days have gone by and your tenant hasn’t reached out to you, consider contacting them. You can do this in person or you can simply give them a call.
Sometimes, there might have been a bank error, or your renter could have simply forgotten. Whatever the reason, let them know that they need to pay immediately or risk facing the consequences.
6. Avoid Taking Rent Payments in Cash
It’s never a good idea to accept cash as a rent payment. It’s just too risky. Cash can easily get lost. It leaves no paper trail and it may sometimes imply involvement in illegal activities.
You can simply avoid these issues by clearly stating on your lease that you don’t accept cash rent payments. Advise them on the best ways to pay rent, such as direct deposit, money order or check.
7. Screen Tenants Well
You can easily prevent tenant problems by knowing how to pick the right tenants for your rental property. That’s why having a good tenant screening process in place is crucial to the success of a rental business.
So, when screening your tenants, make sure to:
- Check Landlord References: Past behavior is the best predictor of future behavior. If a renter violated a lease agreement elsewhere, it’s highly likely they will do the same with you.
Therefore, always insist that all prospective tenants provide you with a list of references in their rental application.
- Verify Credit: The only way a landlord can see how responsible a tenant is in managing their money is by checking their credit score. Essentially, a good credit score is a good indicator that a tenant is going to pay rent on time.
- Verify Income: Generally, most landlords require that renters have an income equivalent to three times the rent amount. For example, if rent is $1,000 a month, then a prospective tenant should have an income of at least $3,000/month.
Also, in screening your tenants, make sure to adhere to the Fair Housing Laws. Basically, hold each prospective tenant to the same standards and criteria. In addition, don’t discriminate against any person on the basis of their race, national origin, familial status, handicap, sex, religion, and color.
There you have it. Seven tips on how to get your tenants to pay their rent on time. When your tenants pay rent on time, you don’t have to spend the time, energy and resources tracking them down to collect the money they owe you.
Be proactive in always improving the ways you collect your rent. By doing so, you’re taking another step closer to protecting your cash flow and rental investing portfolio.
Aaron DiCaprio is an attorney, investor and CEO of Rent Rescue (www.rentrescue.com), a rent default insurance product that reimburses investors a portion of their lost rent and legal expenses when a tenant defaults on their lease. He can be reached at firstname.lastname@example.org.