One of the most prominent issues that landlords encounter when having rental property is having tenants that don’t pay their rent on time. Although one late payment may not actually put you over the edge, the pattern could eventually hurt your wallet.
Continuously accepting late rental payments can turn into a messy situation and decrease your overall productivity. Not to mention the legal troubles that could possibly arise from a tenant not paying their rent. But have no fear! Here are some guidelines to follow to avoid those dreaded late rental payments and keep your business and its finances on track:
Pre-Screen Your Tenants
Not only do you want responsible and trustworthy tenants, you also want to ensure that they are financially suitable to rent out your facility. You can take a big hit in revenue from leasing out your complex to a tenant who isn’t financially stable.
Take the time and effort to make sure that those that are looking at your property can pay the rent every month and on time for that matter. By spending extra time and energy in this step, you will prevent those discouraging tenants that won’t be able to deliver your payments on time. To ensure that one is financially stable, you should ask them to be able to provide at least the following:
Credit Score: This number determines if they have a good track record of keeping their bank accounts above the minimum, paying their credit card bill on time, car payments, etc. It shows that they are financially responsible and consistent with payments. Want to make it easier on yourself? Having a company like VerticalRent to handle this process for you will give you the ability to get fast and correct answers.
Meet Your Standard Minimum Income: By enforcing a minimum income for future tenants to withhold, you will decrease the amount of people that will just sign a lease without a stable income. This will put your mind to ease that a tenant will be able to follow up with on-time payments considering their income.
Information from Their Previous Landlords: Contacting a previous landlord can give you more insight not only on a tenant’s payment trend, but their overall demeanor as well. If they can provide a previous landlord’s number, you will more than likely get the direct and honest answer you are looking for.
Verify Their Employment: Has the tenant ever been employed? Do they have a stable job? This is an essential piece of selecting a suitable renter. Ask them to provide the phone number of their current employer or a W-2 Income Statement which they should easily be able to obtain.
Don’t Accept Cash Payments
78% of consumers prefer to pay for things with their credit or debit card while only a small 9% prefer to pay with cash. This is due to our quickly evolving cashless society, and while there’s something satisfying about receiving cash payments, the growing trend is to move away from paper money. There are also several downsides to accepting cash payments. Cash is untraceable, easy to misplace, and hard to manage. Driving back and forth to bank can be a daunting task and time consuming. Implementing a no cash policy will help reduce any of these risks. This policy should be nonnegotiable and clearly stated in the lease that you will not accept this type of payment for rent.
Bonus Tip: The same policy for cash should be implemented for checks! The NACHA has estimated that between the labor, stamps, ink that it costs your business about $10 to send and process every single check. This is not only an extra time and cost for you but it also frees your renters from having to hassle with the process of doing so as well.
Streamline Online Payments
No one enjoys paying rent every month, but people do like convenience. A simple way to avoid late payment is to make paying rent a painless and easy experience. The best way to do this is to provide your tenants the ability to pay online. By providing this for your renters, you will decrease the amount of time it takes you to get paid by 70%! This gives them the option to pay at any time on any day. Not to mention making it virtually impossible for them to have an excuse for not paying. Online payment systems also give you and your tenants several other benefits:
- Time Documented: Everything that is done through the system will have a time check on it. This automatically makes it easier for you and your tenants to track payments each month.
- Automated Reminders: You can send your tenants reminders straight to their emails whenever you choose to schedule them prior to rent being due. Tenants may be just as busy as you in their daily lives, so sending automated reminders will keep both of you on the same page.
- Everything in One Place: With an online payment system like VerticalRent, you’ll have one tool to consolidate all your business needs. All tenant information and payment records are organized for you so that no matter what happens, everything is saved instantly and easy to access.
- Mobile Payments: In addition to an online payment system, tenants can pay bills through VerticalRent’s tenant portal, which is mobile friendly. You can securely accept credit, debit and all other electronic forms of payment. This not only allows you to receive payments quicker, but it’s much more convenient for tenants in this digital age.
Have a Clear Policy
Your leasing contract should be crystal clear to your tenants. Ensure that all rules and guidelines are outlined in your policy. Even minor details should be presented in your policy. You don’t want to run into any liability issues. By enforcing the rules from the very beginning, there will be no confusion for those that are signing a lease with you. This all starts by reading through the lease with them and presenting them guidelines such as:
- How much it will cost them each month
- Where payments should be made
- When rent is due
- Acceptable payment methods
A payment due date is non-negotiable, but sometimes tenants may not see the importance of paying that rent on time. Rent payments often cover utilities, mortgages, and other assets of the facility. Without rent payment, aspects of your organization will be negatively affected. It is crucial to not only share with your tenants the amount of money they will be paying, but also what that money is going towards. Clearly state this in your policy. There will be no confusion regarding payments, and know what their bills are covering will set their minds to ease.
Keep an up-to-date record of all payments and when they are received. It’s also a good idea to avoid accepting only partial payments from tenants. Every resident on the lease is responsible for the rent, so don’t be hesitant to ask for the money and be upfront with them regarding late fees.
As a landlord, you should always have some sort of repercussion if they do happen to pay rent late. A simple solution would be to have the fees become more severe as each time it is done. For example, you could implement this policy: (This should also be stated in the lease and pointed out when reading through it with them)
- Three-day grace period
- Fourth day: 5% of their rent + $20 a day
- Fifth day and every day following until the rent is paid: $20 a day
By having all of this clearly stated in the lease, you will protect yourself if it does ever come down to eviction or court you can show where it is in the lease so that you don’t lose even more in the end. However, it is important to realize that every State has rules and regulations (laws) in place as it relates to late fees. You can reference VerticalRent’s State Resource Center for more information about late rent payment regulations in your State.
Effective communication with tenants also help you build a positive relationship. Late rent can create trust issues between you and a renter. Irresponsible tenants can make a landlord question whether they are a suitable candidate to rent out the complex. Consistently communicating with tenants throughout their rental period will help avoid that awkward grey area and create a trustworthy atmosphere between a landlord and tenant.
Here’s our timeline suggestion to make sure you keep your renters up to date whether that’s through creative emails or texts:
- 1 week prior to rent due
- Day before rent is due
- The day that rent is due
Not only should you communicate with your tenants religiously, you should also document and save all communication. We cannot stress this enough. All communication is valuable regarding the conversations you have with your tenants whether it be verbal, emails, a late notice posted on their door, to the lease they first signed with you. You will be happy that you kept a record of these instances in case anything ever happens between you and your tenant. Additionally, your renters will respect you for showing how serious you take them.
What if Late Rent does occur?
Hold strong to your policy, but here are some of the legal reasons for late payments:
If the due date of the tenants’ rent falls on a weekend, your renters have until the next business day to get you the payment without having any sort of penalty attached to it. This holds true in many states, but you should always check with your local real estate attorney to confirm.
As the landlord, you need to listen and take into consideration the requests that your tenants have. These could be anything from structural, electrical, or plumbing repairs. If you do not fix these request within a timely manner then your tenants can withhold their payment until you do so.
Do Everything You Can to Avoid Eviction
Evictions cost over $5,000. Yes, you read that right. Not only are they expensive but they will very time consuming. So what steps should you take prior to pulling this drastic measure?
Set a meeting, call, or knock on the door of the renter asking them why they are late. Getting an explanation will help you realize if their reason is legitimate or not.
Set a payment plan for them so that the goal of paying their rent is attainable but have a firm end date. By implementing one, they will be required to eventually pay rent on time just like the other tenants. Make sure to get this payment plan in print and signed by them so you have documentation of doing so.
Last option: eviction
If it has to come down to this, make sure that you are taking all the necessary legal processes that are required by your state. However, these are the general steps asked of you:
- Proper notice to the tenant is required. This notice should basically state that they must pay their rent or they must vacate the premises by a certain date.
- If the tenant does neither of the above, terminate their lease.
- Go to your local county court system immediately and file an “unlawful detainer”
- If the court doesn’t go to their house and serve them their papers. Make sure to do so yourself
- Attend the hearing date with all documents including communication, lease, payment plan, etc. Win the judgement.
- Retrieve a “writ of possession” from the courts
- Get the scheduled date and time from the Sheriff as to when the writ of possession will happen and show up
- Usually, the Sheriff will physically remove the tenant from the property but you will be responsible for removing their belongings. Again, this depends on the laws in your state so check before the time comes.
After and only after the tenant has been removed from the premises should you change the locks. Never change the locks while the tenant is still squatting in the rental property.
We offer additional educational real estate guides to help you with tenant screening, evicting a tenant, setting rent prices, and building your rental property portfolio. Whatever path you choose for collecting rent online, we recommend a single source of truth to manage your rental property portfolio. Hiring a property management company can get expensive. With today’s options, such as VerticalRent, you have an all-inclusive platform available to you at the fraction of the cost it takes to hire an end-to-end property management company.