Owning rental property can be equal parts enjoyable and agonizing. If you’re lucky, you have good tenants and a nice way to make extra income. If you’re not, you have (at least) monthly struggles with evasive and rude people who are trying to bilk you out of a free place to stay.
Are there ways to make your job as a landlord easier—especially in the dreaded arena of rent collection? There are indeed! Ways to collect rent, their pros and cons, the best ways to set up a proper system for collection, whether to hire a property manager—it’s all in here.
Your crash course to easing headaches and snafus of rent collecting has arrived!
1. Know your options
There are several major ways to collect rent. It’s important to tailor these in your lease agreement to the specific demographic you are intending to house, as this will reduce potential issues in the future. For example, college students and young professionals may not know how to fill out a check or even own a checkbook, while older people may balk at anything electronic or online options. In the next few subheadings we’ll outline the major collection options, along with their pluses and minuses.
2. Automatic withdrawal
There are several types of automatic withdrawal. The most common, direct deposit, pre-arranges for money to be transferred from one account to another on a specified date or dates. Virtually all payrolls use this method. Online bill pay is another option. This is when a tenant has their bank list their rent payments as a recurring bill; on the specified date, the bank will issue a check and mail it to you automatically.
A far less-common but potentially effective method is the post-dated check. (This was quite common in the days before electronic everything.) In this option, a tenant would write 12 checks—one for every month of a lease. The landlord would collect them ahead of time and simply deposit one on the first of each month.
Direct deposit is probably the easiest of these, but it is possible to incur a fee for the transaction, and if there are insufficient funds the payment will bounce (exactly like with a check) and you won’t be paid.
Online bill pay ensures the check comes directly to you from the bank, but you still have to physically deposit it, and as with anything in the mail, the check getting lost is a risk. Post-dated checks are simple, but lots of tenants understandably do not want to give a handful of checks to a virtual stranger, even if it is illegal to deposit a check before the date written.
Checks are a reliable form of payment used millions of times daily. While they can be used more infrequently than other methods in this electronic age, lots of people still use them, especially for important things (like rent payments!) when a paper trail is especially helpful.
It’s true that they can bounce if there are insufficient funds in the tenant’s checking account, and that the postmark can allow a check to not be technically late with you still not getting paid on time. But these problems can be minimized with clearly stated expectations (more on this later).
4. Automatic Credit/Debit Card Payments
This is an easy way to “set it and forget it” with all kinds of recurring payments. The landlord simply needs to keep the tenant’s card number on file and it can be charged automatically each month.
MoonClerk actually specializes in this kind of thing. When the landlord has a MoonClerk account, the tenant can set up their card information to be easily charged on a recurring basis on a specific date. This prevents them from having to remember to write a check or otherwise manually “do” anything, though of course it is a good idea to make sure their account has enough money (or that they haven’t reached their credit limit).
Even though the landlord will have to pay a higher percentage in processing fees, it’s also more convenient, in that he or she can simply add charges (like late fees) to the card — this manual ability keeps the landlord in charge of when charges are made and ensures payment.
Additionally, once the card is run the money is immediately deposited in the landlord’s account — lacking the delay of automatic withdrawal methods. Finally, on the tenant’s side, if their card comes with cash back or other rewards options, using it regularly can be an excellent way to rack them up. You can learn more about payment with MoonClerk here.
5. Money Orders
This is a prepaid alternative to cash and checks. The tenant would specify who the recipient is (you, the landlord), and both parties must sign it for it to be cashed (much like a check). The difference is that in this case, a money order is guaranteed not by the personal account of the tenant (which is why bouncing can be an issue), but by the third party issuing the order, which is often a large company like Western Union or the US Postal Service. The guaranteed payment idea is certainly attractive, but it could be an issue for tenants to have to physically purchase one each month.
6. Screen Tenants Judiciously
Sound obvious? It should be! Taking care to vet just who you’re letting rent your property can save loads of time, angry phone calls, frustration, irritation, and a thousand other problems.
Make sure you have clear, easily understandable criteria in place which applicants must pass, and be sure to not violate any discrimination laws (you must have the same standards applicable to all applicants). Also make sure they have sufficient regular income (one landlord expert says at minimum this should be three times the rent amount), and good credit (their credit report will tell you how they handle debts and if they’ve gotten prior eviction notices).
Finally check references, especially their previous landlord or two. The number one question you should ask them is, “Would you rent to this person again?” That will tell you all you need to know.
7. Consider Hiring a Property Manager
Though not essential, having a third-party individual or management company physically collect your rent payments is an option.
For a fee, the management company will handle all the collection, follow-up, and all other management responsibilities. Legally, if they are collecting rent, they are required to deposit it within a time frame specified by the landlord, and if not they are subject to legal action.
As such, picking a reputable company that can be trusted with your money is a must. You can find out more here.
8. Have a Ridiculously Clear Lease
Just as with properly screening tenants, having a clear lease agreement is your first line of defense against lazy, dangerous, or irresponsible tenants. You need to clearly state:
- the parties involved (you and the tenant),
- the length of the lease, including start-and-end dates (or if it is an automatically continuing lease),
- the amount of the security deposit,
- requirements for maintenance of the property (noise level limits, itemized list of appliances included and requirements for use, where to park, etc.). This is hugely important. All requirements must be clearly stated in the lease to be binding;
- Disclosure of defects in the property,
- Whether the tenant may sublet the property and the requirements for doing so (note it may be best to simply end the original lease and begin a new one with the sub-let tenant)
- Lease termination (which takes place at the end of a lease term and in the eviction process), and
- What you can legally do with property left behind after the tenant leaves.
9. Enforce Your Collection Policy
Once you have spelled out what the rent is, when it is due, and any other concerns (late fees, grace periods, etc.) in the lease, enforce them to the letter.
An adage of parenting—follow through!—is applicable here. If you don’t remain consistent and reliable on your expectations, your tenants will learn you can be disrespected and devalued without consequence. Then you not only have unpaid rent piling up, but tenants who are the worst kind of unchanging—the disrespectful, indifferent kind.
10. Show a Little Grace
However, there are times to be gracious with tenants. If they have a history of timely payments and very responsible use of property, you can be more forgiving of a potential slip-up.
Or, if a tenant is going through a genuine financial crisis you should not be an ogre and nail them to a wall. Offer to work out an alternate arrangement (ideally, this would have been already spelled out in the lease).
11. Don’t Be Afraid to Ask
If you do suspect you’re being taken advantage of by a conning tenant, you mustn’t be afraid of looking boorish and cruel by politely but firmly and decisively asking the following:
- Why is your rent late?
- Exactly how much do you owe (including any applicable late fees)?
- With what income and in what form of payment will you be making the payment?
- When can I expect to be paid?
Know your jurisdiction’s laws for eviction and for reporting defaulting tenants to credit agencies. (All of this, too, ought to be stated in the lease.) The latter especially ought to be undertaken only under duress.
Reporting a tenant to any of the three major credit agencies will effectively ruin their credit and make it very hard for them to bounce back. Sometimes, this is deserved if the tenant is a truly nasty individual. But sometimes they’re just hard on their luck, and ruined credit would only make things worse. Proceed with caution.
MoonClerk’s recurring payment system can help you move from a 0% on-time payment rate to 100%. Here’s how.
12. Never Take Cash
Just say no. Cash is convenient but offers no paper trail, cannot be easily reimbursed if lost, and may be an indicator of illegal activity on the part of the tenant (again, no paper trail).
It can also indicate a general tenor of irresponsibility and unreliability. Generally, reliable and upstanding people write checks. Drug dealers and people on the lam use cash.
13. Send a Reminder
This can be super-easy if you create an automated email to send to everyone a few days before rent is due.
However, phone calls, texting, and even notes in mailboxes can all be effective communication methods. (It’s best to tailor these according to what is most accessible for your tenants. Again, see the millennial/older people contrasts mentioned in point 1.)
14. Be the Good Cop
This can be an extremely rewarding part of landlordship. Loyal, kind, and helpful tenants who appreciate your serving them can be an extremely useful asset!
Don’t be shy about thanking them, giving them a gift basket or gift card on the holidays or on their birthday, or other potential perks. Be creative!
Not only will it make a good relationship better, but it might induce them to renew their lease, and even be a gentle kick in the pants to less-admirable tenants.
Owning rental property can be a challenge, but with common sense and knowing as much as you can up front, it can be a real adventure and reliable source of income. Try to create your own policy for your property, stick to it, and learn and grow along the way.