How To Get Tenants to Pay Rent on Time
One of the biggest problems that landlords face is getting tenants to pay their rent on time. You can speak with them every month about making late payments and it doesn't do any good. If you're tired of having your words go in one ear and out the other, then here is how to get a tenant to pay rent on time in a more proactive, strategic manner.
1. Create a Rental Discount.
If you are having tenants consistently pay their rent late, then maybe it's time to develop a new leasing agreement. Add $50-$100 to the amount of rent that you plan to charge. If the tenants pay their rent before the due date or on time, then they get to have this additional amount discounted from their monthly rent. If they pay late, then they are subjected to this higher rent. Some landlord/tenant laws require this additional amount to be a late fee, so make sure you structure your leases according to local regulations.
2. Lower Rental Amounts For Renewals.
This might hurt your bottom line a little, but it can also help to promote more on-time payments and better tenants. Many markets have high rent levels that are a struggle for households to afford. Consider adding an addendum to your leasing agreements which creates a lower rent after 12 consecutive on-time or early payments. You'll keep vacancy rates lower over time as the changes filter on down and though you might have a lower margin, you may wind up with more overall profits.
3. Setup ACH Rental Payments.
Lenders are using automatic payments as a way to guarantee payments and finding great success with it. You might be able to do this with your tenants as well. Create a time when the amount for rent will be withdrawn from the tenant's bank account every month. If problematic tenants are willing to sign up for this service, consider giving them a 5-10% discount on their rent since they're doing you a favor. This will give you a better chance of making sure you get paid. Now ACH payments are only as good as the amount of money that happens to be in the bank account. Not every tenant will have the needed rent payment available at the time of withdrawal. Make sure you have a clear and precise return payment or rejected payment policy so that you can begin the eviction process immediately and have a way to recover the fees that may come when a full payment cannot be made.
4. Offer To Build Up Their Credit Score.
Many renters are in a place where they could use a boost in their credit. They might be renting because of a foreclosure, a bankruptcy, or because of prolonged unemployment. Landlords have access to services that will report on-time rental payments to the major credit bureaus and increase a credit score over time. This also works in the opposite way as well. You'll also be reporting payments that were not paid on time and that can negatively affect a tenant's credit score.
5. Hand Out a Holiday Bonus.
Do you think you can take out $5-$10 from the rent that is getting paid every month? If you can, then consider putting this cash into an interest bearing account. When an on-time payment is made, put the amount into this account. You might even consider matching the funds. At the $10 rate and if you decided to match the funds that are in the account, then up to $240 could be given to a tenant at the end of the year. They'll have some extra cash for the holidays and you'll be getting more on-time payments. If you don't want to cut tenants a check, you could put the amount onto a gift card as well.
6. Consider Different Rental Payment Arrangements.
Maybe your tenants struggle to pay their rent on the first of the month. Some self-employed or contract workers might not know when their outstanding invoices will be filled. By being flexible with the rental date, you may find tenants are better able to meet their contractual obligations. That doesn't mean you should have a floating payment date every month because that would make evictions nearly impossible. It does mean that your due date doesn't have to be the 1st of the month.
7. Make It Easier To Pay.
Do you have a slot for tenants to pay with a check at your office? Is there a website you have that can process payments after hours? If you can expand your collection areas, methods, and types of payment accepted, then you've got a chance to improve the number of on-time payments that you could receive. If you have a grace period for rental payments, then a tenant isn't late on rent until that grace period expires. You can say rent is due on the 1st of the month, but if you have a fee-free grace period up until the 5th of the month, then rent isn't legally due until then. If you're tired of tracking down tenants month after month, then consider removing any grace periods and implementing these ideas to create a proactive environment instead. It could help you improve the profitability of your rental properties.
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