As a property manager, you may feel overwhelmed by the many moving parts of your job.
From unexpected repairs and property damages to regular maintenance and multiple complex systems — all of these can create frustrating dents in your bottom line. But the most important aspect of determining cash flow is the one we seem to spend the least time talking about: collecting rent from your existing renters.
Many property managers lose opportunities because of their failure to develop a consistent, systematic way of ensuring that their renters pay their rent on time. Some rental properties turn into revolving doors as tenants are taken on without the proper screening and never end up paying as they should. Here are five ways to make sure you get paid — and what to do if you don’t.
- Choose the right renters in the first place: With great screening tools available and the ability to access credit, criminal, and eviction reports, there is no excuse for taking chances on a renter without knowing their history. If you are taking over the management or ownership of a property with existing tenants, you must be cognizant of the potential for inheriting some problem tenants. Some sellers will take on anyone in order to market a property at 100% occupancy. While your rights with these renters are limited, you should carefully review the property’s income and expense statement for the past two years to ensure that the seller hasn’t brought in any questionable new renters.
- Create positive reinforcement for good behavior: Just like in school, a reward is often more effective than punishment. When negotiating rents, rather than including a fee for a late payment, include a discount for early or on-time payments. This works in two ways: first, it reinforces the positive behavior you want to encourage, and second, it reduces the risk of renters paying extremely late because they have already incurred the late fee. Another way to encourage on-time behavior is with a once-per-year “bonus” for early and on-time payments, taking into account the previous twelve months. It’s a great way to reward your best tenants and keep them loyal even through rent hikes. (Bonus points if it’s given at the end of December when budgets are especially tight and the impact will be greater.)
- Report payments to credit bureaus: Again, you can frame this as a positive for your best tenants: “Build your credit score with on-time rent payments!” But the not-so-subtle downside for the chronically late is that their late payments will also be reported. This can continue to encourage renters to take your deadline as seriously as they take their credit card or car payments.
- Make it easy to pay: Use online renter portals, ACH, and other automatic means to make it easier for your tenants to pay their rent, and they’ll be more likely to pay on time. With automated options, like an automatic debit arrangement, the decision is out of their hands and rent is prioritized above other expenditures in their monthly budget. Additionally, increased options for payment means that renters are more likely to pay on your schedule. Want to incentivize automatic payments? Offer a discount when they sign up. Even as little as $5 – $10 a month may help get residents on board.
- Communication is key: It’s easy to assume that you know why your renter is not paying. They’re just irresponsible or untrustworthy, right? Well, maybe not. While there are a few bad apples out there, it may be that your renter isn’t exactly sure of the due date or thinks that the time between the first of the month and the late fee date is an acceptable range to pay. If a tenant is chronically late each month but pays on the same late date, it might be a good idea to discuss with him or her whether a different payment schedule would work better. It may be that the renter gets paid after the first of the month and just needs an adjustment of a few days to be a faithful, on-time payer. This kind of open and honest dialogue will be much appreciated if it’s simply a matter of scheduling. Remember, the goal is to establish a good relationship with the renter and to encourage the behavior you want.
With a little planning, great communication and some encouraging incentives, you can ensure that your residents are on time, every time.
This article was provided by Costello Realty & Management. Costello Realty & Management has grown dramatically since partnering with AppFolio and seen improved on-time rental payments since implementing the software’s online payment methods.