Collecting rent is more than walking up to a tenant's door and asking for money. It also involves setting fair rates, keeping records, and handling evictions.
Rent is your main source of income. Managing it well can take you from begging tenants to being a profitable investor.
Read on for three rent collection mistakes to avoid.
1. Inconsistency
If you want consistent rental income, you have to be consistent about how you collect it.
Create a lease that sets clear standards. It should let tenants know the:
- Amount of rent due
- Date rent is due
- Preferred payment method
- Amount of late fees
- Length of grace periods
- Consequences of bounced checks
Stay consistent in how you enforce these rules as well. Flexibility may be appropriate in certain cases, but tenants will take advantage of you if you let them bend the rules too often.
2. No Late Fees
13% of tenants are behind on rent. Most of them spend over 30% of their income on housing.
Landlords may be tempted to waive late fees, but they're a necessary evil. They incentivize tenants to avoid late rent payments. The standard amount is 5% of the rent.
3. Not Keeping Records of Rent Collection
Rent collection should be the cornerstone of your bookkeeping, and the records you keep are useful elsewhere.
You won't have a strong case against a tenant during evictions without them. You need them to prove they made late payments.
You'll also need detailed records if you report tenants to a credit bureau. Consistent on-time payments boost their credit, but a poor report drops it. This can incentivize them to pay on time.
4. Pushing Tenants Out or Illegal Evictions
You cannot try to force a tenant who won't pay to leave by:
- Changing locks
- Removing appliances
- Refusing to perform maintenance
- Blocking entrances
- Refusing to clean environmental hazards
- Shutting off the utilities
Evictions are the legal alternative but don't rush into them after the first late rent payment. They're a complex, time-consuming process.
See if you and your tenant can reach an understanding. If not, you must give them a notice within four days of a 45-day tenancy or seven days for other lengths. Then, the case goes to court.
Look into your local eviction protection laws. Following them won't prevent you from ever having to go through the process, but it will reduce them. This is a win-win for you and your tenants.
5. Not Getting Help
One of the best pieces of landlord advice is to never try to do it all on your own. Hiring a property management company can take the weight off your shoulders.
They'll offer you much more than rent collection tips. A full-service company can help with all the other areas of your business, including:
- Legal compliance
- Tenant communication
- Marketing
- Property maintenance
Hiring a Property Manager Is Never a Mistake
Rent collection is one of a landlord's most important and complex tasks. Set consistent rules and keep detailed records. Don't rush into evictions and don't be afraid to get help.
PMI Diversified Properties has 20 years of experience in all areas of real estate and asset management. We'll protect and maximize the performance of your investment. Get a free rental analysis to see how we can increase your rental income today.
