Rental properties are a wonderful investment, but they do have risks such as late rent. We explore how to best handle and reduce late rent payments.
Rental properties are a wonderful investment, but they come with their fair share of risks. Repairs, problems between tenants, maintaining the property – there are a lot of duties that come with owning a property. The last thing you want to do is add even more work chasing tenants around for late payments.
Although that’s the reality for many landlords, there are several ways to reduce late payments:
Are you still knocking on your tenants’ doors asking them for cheques the day rent is due? It’s time to start living in the future – or at least, the present. You can arrange for online payments, credit card payments, or even, in some circumstances, automatic payments – so you’ll never have to collect cheques again.
Don’t feel like joining the digital revolution? That’s okay too; instead, you can consider collecting post-dated cheques. Get all of them at the start of the lease so you don’t have to treat rent day as a collection day.
You should also take a good look at how you’re invoicing your tenants. If you send invoices for rent earlier, your tenant will be prompted to remember that they have rent coming up. Paper invoices are a little old school, but they can help. These invoicing tips can help you with all kinds of landlord-type transactions.
We live in an age of automation and that means you can remind your tenants that rent is due without having to text each tenant individually. For example, with Landlord Studio you can set up automatic rent reminder emails for each tenant a few days before the rent is due. This way, if they need to get their finances in order, they have a nice heads-up.
When people are paying late, it’s not necessarily because they can’t afford the rent. Rather, it might be because the day they get paid doesn’t align with the day rent is due. They may be getting payments from the government, child support, or from a regular old paycheque, but if the timing doesn’t line upright, it can cause late payments. You can often solve this problem by adjusting the payment date for those individuals.
Rules about late payment fees can vary significantly between regions – keep in mind, then, that this advice is generic. Check with the tenancy branch in your area to understand what kinds of late fees you can charge; there’s often a very particular schema in place.
Late payment fees, when they’re stipulated clearly during early discussions with your tenant and in the lease, are an excellent way of discouraging late payments. Keep the above recommendation in mind, however. Some tenants don’t want to pay late, for whom late payments may create a setback in their rent payments. Other tenants, on the other hand, will respond very well to late payment fees. At the very least, late payments fees can help you cover costs associated with late payments. Explaining those costs to tenants can help motivate them to pay on time.
This tool is the carrot to the late payment stick. What’s more, it can be a way of getting around late payment rules put in place by the tenancy authority in your region.
For example, you could charge $1200 in rent, with a $200 discount for early payment. This effectively makes your tenant’s rent $1000, as long as they pay on time. This can cause some difficulties when it comes to advertising the unit, so make sure to prominently display the early payment discount in all your communications. Encourage your tenants to set up an automatic payment method to ensure they always get the discount.
When you’ve screened your tenants properly, you’ll be far less likely to encounter scenarios in which they don’t pay on time. You can ask for credit checks, references from other landlords, employers, you name it. If something feels off, you’re never obligated to take on the tenant.
One of the most effective tools is a tenant interview. There are a lot of intangible factors that can point to whether or not a tenant will be good or bad. What’s more, a well-informed tenant is a good tenant. They should understand all of their obligations on the property, expectations you have of them, and more. They, in turn, should discuss questions before the lease is signed. This interview may be your first prolonged interaction, and it’s a great time to cement a positive relationship. After all, when you like your landlord, you’ll be less prone to paying them late!
The tips provided above are all useful for helping you avoid late payments when things are going well. When times of crisis-hit on a mass scale, however, it’s important to have a few other tools in your toolbelt.
Take a look at this comprehensive resource on managing rent arrears during COVID-19; it goes over everything from alternative payment plans for tenants to relief plans for landlords through the Federal Housing Finance Agency. Reducing late payments will, more often than not, mean working with your tenants to find arrangements suitable to both of you. You should acquaint yourself with COVID-19 related financial relief at the local, state, and federal levels.
The more you know about available financial supports, the more you’ll be able to help your tenants access those resources. This will prove beneficial for you and them and may serve to improve your relationship during this trying time.