The difference between a successful Austin landlord and an unsuccessful one often boils down to a simple measurement: Steady and predictable cash flow. If there’s one element that has a greater impact on cash flow than almost anything else, it’s collecting rent on time and in full.
The Importance of Rent Collection
When you sign a lease agreement with a tenant, that creates a basic understanding that you’ll provide living accommodations and in return the tenant will furnish payments. Unfortunately, some renters – for a variety of reasons – fail to live up to their end of the bargain, and that presents a challenge.
To begin with, a tenant’s failure to pay on time is frustrating, rude, and inconsiderate. Depending on the circumstances, it may even be unethical.
If you directly depend on those rent payments to cover your own expenses, the tenant’s failure to pay might jeopardize your ability to keep up with your own mortgage. Even if you own the property without any debt, a lack of timely payment can create cash flow problems and accompanying stress.
Tenants miss payments for many reasons. If you work in the industry long enough, you’ll likely hear every excuse in the book. The most common reasons for failing to pay rent include loss of employment, health problems, relationship conflicts (particularly if two people signed the lease), poor financial decision-making, laziness, and ineptitude.
Seven Tips for Better Rent Collection
If 2020 taught us anything, it’s that you can’t control everything. Nevertheless, there are some specific action steps you can take to ensure better rent collection. Here are a few of our favorites.
1. Improve Tenant Screening
The number-one, foundational element for better and more consistent rent collection is proper screening. If you can get the right people into your spaces, you’ll never have trouble collecting rent. (Or if you do, the event will be so rare and uncharacteristic that it poses little trouble.)
It’s impossible to know a person fully and guess how they’ll be as a tenant, but you can significantly improve your tenant screening process by observing the following tips:
- Always verify an applicant’s income with their employer. You want to make sure (A) they’re actually employed by the company and (B) that they earn the amount they claim. As cynical as it may seem, you should never take a pay stub as evidence. Those are not difficult for a person to fabricate.
- Speak to the prospective tenant’s current and previous landlord. The current landlord will likely shoot straight, but could have motivation to embellish in order to unload a bad tenant. An earlier landlord will have no skin in the game and always give you clear feedback.
- Obtain the prospective tenant’s credit report and score. This will enable you to assess their payment history and identify warning signs.
If you do these three things and nothing else, you’ll get better tenants for your property almost immediately. The key is to be disciplined about following these rules, even when an applicant seems like a great fit.
2. Set Clear Terms
Your lease agreement should contain very clear terms about how much the rent is, when it’s due, what constitutes a late payment, how a tenant should proceed if they’re unable to pay, what factors will lead to an eviction, how the eviction process starts, and so on.
3. Review the Lease Agreement
Don’t assume a prospective tenant will read the lease agreement word for word. Review it with them before the signing, and make sure you focus on the rent terms. Ask them if they have any questions or concerns.
4. Have Consequences for Late Rent
You’re well within your legal rights to penalize someone for late payment. The key is to set clear rules, identify a reasonable fee, then stick to your guns. If your lease agreement says you’ll charge a 10 percent late fee for payments that aren’t received by the fifth of each month, stick by your word and penalize the tenant the very first time they slip up. Otherwise, they won’t take you seriously thereafter.
5. Reward Early Payment
In addition to penalizing tenants for paying late, you ought to reward them for paying early. This basically doubles the incentive and encourages them to prioritize rent over their other bills and debt payments.
Something like a 5 percent discount for paying before the first of the month can be enough to catch most people’s interest. But rather than phrase it as a “5 percent” discount, use the actual dollar amount. So if the rent is $2,000, promote it as a $100 monthly discount.
6. Collect Rent Online
Collecting rent in person or through the mail is a recipe for trouble. This makes it easy for a tenant to come up with excuses or leaves the process in the hands of the U.S. Postal Service, which has been a little less dependable of late. By collecting rent online, you can make the entire process instantaneous and predictable.
7. Hire an Austin Property Management Company
Nobody likes collecting rent. It can be uncomfortable and stressful. If you don’t want to do it on your own, why not outsource the task to someone else? A property management company can take over the reins.
In addition to providing a host of other services – including tenant screening, property marketing, accounting, and repair coordination – an Austin property management company can do the heavy lifting of rent collection for you.
In essence, a property manager acts as insulation between yourself and the tenant. They’ll step up and be the “bad guy” when necessary. You simply get to watch as money is deposited into your bank account on the same day every month.
Green Residential: Austin Property Management
At Green Residential, we’re more than a property management company. We’re an Austin landlord’s best friend.
Not only do we offer instant online payment processing that enables us to collect payment from tenants electronically, but we also offer a best-in-class Rental Income Guarantee. This ensures that if a tenant was screened, placed, and approved by our team and fails to pay rent on time at any point during their lease, we’ll reimburse that lost rent.
Want to learn more about the benefits of working with our team? Contact us today and we’ll be happy to discuss it further.