Many new landlords struggle to get tenants to pay their monthly rent on time because they do not have a plan. Here are 3 tips that will help ensure consistent, repeatable cashflow, and make your life easier
1. Have your tenants automatically pay you via direct deposit. This is the single best thing I’ve done in terms of rent collection. I liken the scenario of automatic deposit to any job where a paycheck is collected. Every other Friday, people who “don’t trust their employer”, rely on someone hand delivering them a physical check, which they must drive to the bank, wait in line, and deposit. Maybe it’s just me, but I’d rather spend my lunch hour doing something fun.
In my opinion, having your tenants pay you every month with a physical check is just as silly as the above scenario. From your customers’ (tenant’s) perspective, it saves them from doing the following
- Writing out a check every month
- Paying for checks
- Buying and storing envelopes
- Buying and storing stamps
- Wondering when you will cash said check, to ensure it doesn’t bounce
- Wondering if your letter has gotten lost
- Having to spend time doing these actions every month, especially when traveling or on vacation
- Late payment fees
As a landlord, you’ll enjoy the following benefits
- Consistent, timely rent payment every month
- Not having to carry/accept cash
- Not having to chase down tenants, listening to stories about what happened to the rent money (although entertaining, not the best use of your time)
- Less time spent tracking and depositing checks (I can track who paid and when in a matter of seconds from anywhere in the world)
- Less gas money spent driving from property to property to have your “where’s the rent” discussion
Setting this up is very easy. The tenant simply brings a letter, provided by you, to their banking institution. The bank sets this up in 10-15 minutes. Here’s a sample letter I’ve successfully implemented
Dear Ms Tenant:
Thank you for tolerating the showings, inspections, and appraisals of your home. I hope this wasn’t too bothersome for you.
As you likely have heard, I’ve just purchased this Duplex from Former owner. I hear you have been an excellent tenant, and am thus happy to have you stay at your current, below market rent of $XXXX/mo.
One of the ways I’m able to provide clean, well managed properties at below market rent is to keep overhead low.
To help us keep our costs down, and pass the savings on to you, I’d like you to pay rent electronically every month. Please use the voided check below to setup automatic payments with your bank. Not only will this save a stamp, and headaches for both parties, you’ll be doing your part to help the environment.
Thank you again for being a great tenant.
2. Don’t accept late payments. At first, many new landlords make the mistake in thinking that accepting late payments is helping the tenant. Actually, this action “trains” tenants to think that making late payments is acceptable, and they will do it again. Even worse, when tenants someday buy a property of their own, they will find the bank to be far less thoughtful.
3. Be firm, yet fair. Enforcing late payments can be difficult, especially with tenants that you like personally. Rest assured that by enforcing this policy, you are helping your tenant by building their financial responsibility
I personally guarantee that the above three methods will make your life as a new landlord easier. Not only will your tenants (and your bank account) be happier, you’ll have far less headaches and more free time to do with as you see fit.