10 Rent Collection Mistakes New Landlords Make

May 28, 2020 by Michael Brown

Rent collection is probably going to be one of your most gratifying responsibilities as a landlord. It’s a deceptively simple practice—all you have to do is collect money from your tenants at the first of the month (or whatever date is specified by your lease agreement)—and you’ll enjoy the influx of cash however you like.

But rent collection is also a point of vulnerability for your rental property. If you don’t have a solid procedure for collecting rent, or if you collect rent inappropriately, it can jeopardize the rest of your operation.

The Biggest Rent Collection Mistakes to Avoid

New landlords are sometimes blinded by the seeming simplicity of rent collection, and they end up making mistakes like these:

Not having a documented rent policy.

If you’re relying on a basic lease agreement template, or worse, if you’re putting the lease together entirely on your own, you might skip over the rules for how and when you collect rent. Without a detailed, formal policy for how you’re collecting rent, you’re opening the door to tenants taking advantage of loopholes and legal problems in the future. Make sure you explain exactly how much rent is, when it’s due, how you’re willing to receive it, and whether or not you’ll impose late fees or other charges for violating the policy. Think it through and try not to leave any gaps in your wording.

Never enforcing the rules.

The rules are there for a reason. If a tenant violates one or more of your rules, make sure you point out the discrepancy. If they’re late with the rent, let them know and issue them a late fee in accordance with your formal policy. If you allow tenants to violate the rules, or if you don’t pay attention to the rent collection policy you wrote, tenants could take that as a cue that the rules don’t matter.

Irregularly enforcing the rules.

It’s just as bad to enforce the rules inconsistently. For example, if you accept a late rent payment and fail to issue a late fee, then impose a late fee on the second late rent payment, you’ll be setting a bad example—and leaving the tenant confused. It’s much better to be consistent with the rules you’re enforcing. This is especially true if you’re working with many different tenants; if you’re seen as providing special treatment to one tenant, you could be the subject of a discrimination suit.

Accepting partial payments.

In most cases, it’s unwise to accept partial rent payments, unless there are extenuating circumstances. You may believe that it’s better to get $500 instead of $750 for the month, but again, you’ll be setting a bad precedent. If you decide to accept a partial payment, make sure there’s a penalty, fee, or other measure to dissuade this behavior from occurring in the future.

Never issuing late fees.

Most areas allow you to issue late fees for late payments, and it’s in your best interest to collect them. Late fees serve multiple functions. They’re a proactive effort to prevent tenants from missing payments. They’re a financial reminder to the tenant that late payments have consequences. And they’re a way to compensate you for your extra time and lost income.

Not tracking payment history.

Make sure you have a stable, reliable tracking system to keep track of tenants’ rent payments. This is going to prevent you from charging fees inappropriately, and will help you identify tenants who are reliable (and tenants who have recurring issues). More importantly, these records will be important if you ever need to take action against a tenant; for example, if you’re evicting a tenant, you’ll need to have a reasonable demonstration that they haven’t been paying rent in full or on time.

Manually or inefficiently collecting payment.

New and inexperienced landlords usually see no problem with collecting rent in an inefficient way. They may ask tenants to mail a check to them, or may even drive by the property to pick up a check themselves. However, these methods tend to be less secure and more time consuming for all the parties involved. It’s typically better to have an automated system in place, if you have access to one. Automatically withdrawing payments is reliable, consistent, and predictable. Failing that, an online payment system is ideal.

Moving straight to eviction upon nonpayment.

After a few months of missed payments, you’ll be understandably frustrated with your tenant, but it’s not a good idea to move straight to eviction. Most states have some variation of a “pay or quit” law, which forces you to give the tenant an ultimatum; in other words, you’ll give them the option of paying what they owe or moving out. Only after you issue this can you move forward with more serious legal action.

Trying to force a tenant out illegally.

There are also legal and illegal ways you can get the tenant to move off the premises. If the tenant has stopped paying rent, it’s illegal for you to bully them into moving out; for example, if you turn off the utilities, move out the appliances, or change the locks, you could eventually be the subject of a lawsuit. Make sure you follow the law precisely.

Doing everything yourself.

Managing rent collection, from writing your policy to collecting monthly rent to following through with eviction, is complex. It’s not a job you can handle entirely on your own. For some people, a property management firm makes everything easier. For others, a bit of help from a lawyer is all it takes to solidify things.

Simplifying Your Rent Collection

If you want to prevent rent collection mistakes and streamline the process as much as possible, you’ll want to simplify your approach. The easiest path forward is to work with a property management firm, which will take care of rent collection on your behalf (as well as a number of other responsibilities). If you’re interested in a free consultation, or an analysis of your current properties, contact Green Residential today!

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