How to Collect Rent On Time

invoice-153413_1280-PDThis is a post about how to collect rent on time.  It is a secret recipe that I am going to share.  The rents for June have all been collected.  23 of 25 are in the bank as of June 3, 2014.  Of course, that means I had them all in hand by yesterday, June 2.    The other two are in hand, as of June 3, but not in the bank, yet.  I challenge any other landlord to beat me on that record.  Here is how I do it.

I have 25 of 25 rents in hand, but one tenant gave me a check and asked for me to hold it until Friday.  He apologized for being late, and included a $75 late fee on the check.  If he would have dropped it in the rent box Thursday, after 5:00 or so, I would have had to hold it until Friday anyway, and he would not have receive a late fee.  As long as he included it, without me even asking, I am OK with it.  Add $75 to the bottom line, not a bad investment return.

I have most tenants drop the check in the rent boxes I have in each building.  One pays PayPal (free), one pays cash that I have to write a receipt for, four pay via some sort of USPS mail.  One of these four are using a handwritten check, the rest use a bill pay method from their bank.  There are no fees that I pay for anyone to help me get rent, like an auto-draft service.

Late Fees for Rent

Late fees are almost usury.  When you get a $75 late fee, for loaning $950 for a single day, that is a very good interest rate.  At 7.8% per day, that is almost 3,000% per year.  Where can I put a million dollars down and get that interest rate?  And where can I get a million dollars?

Another set of tenants had an issue with one of the roommate’s new job.  She got a new job, and the payday was a bit out of sync.  She said it would be there Tuesday, and it is now in hand.  They have solid credit scores, and solid payment history.  Receiving rent on the third of the month is not all bad.

Either of these tenants are not typically what I would consider a weak links, but things happen and as long as the rents are in before the late fee kicks in, I have to wait it out.   Technically rent is due by the first of the month, and I could file an eviction on the second, but it makes no sense to do that.  I always wait until the 6th of the month before I would evict.  Never wait too long, especially if your tenants do not have a chance in hell to pay the rent.  Start moving them out as soon as you can.

 Getting Rent On Time

The first step in getting rents on time, is to get great tenants.  Tenants that can show they pay their bills on-time, as evidenced by their credit score, will pay rent on-time.  Tenants with a sub-600 credit score will likely pay rent late quite often.  You may get late fees, which increases your revenue, or you might get a tenant that you need to evict, and then you lose money.  It’s a gamble, and one I would rather not take.

The second step in getting all of your rent on time, is having a tenant than can afford the rental.  That means, having a tenant that makes at least 3.5x the rent in gross income.  If they do not have enough money to pay rent, it doesn’t matter what the credit score is.  But a higher credit score person will at least make the effort to pay the rent, and might even skip a meal, or borrow from friends, to pay it.

Criminal records and past landlord checks are important when screening, but they really do not matter in terms of rent collection.  A murderer can pay rent just as well as a priest.

Send Monthly Invoices

When you have any sort of installment loan, whether it is a car loan, or a mortgage, the finance company sends a monthly reminder, and encloses an envelope with it.  They do not care if you pay, they can take the car or house back.  But they do not want to, they want the money to pay back the loan.

Similarly, in a rental, your tenant is making monthly payments.  The first of the month falls on the first of the month, by definition.  It comes faster than some people would like.  It comes faster than the tenant’s paychecks sometimes.  It doesn’t hurt to send a reminder.  You do not want the apartment back.

I send a text, every month, on the 28th of the month at 2:00 PM.  I use a messaging application called SMS Pro, to do it. I add my Gmail contact list, called ‘Renters’, to the ‘deliver to’ list.  With my Android phone, it’s very easy.   I also add myself to the list, so I know the text went out.  A simple message is delivered “Group text.  Reminder, rent is due soon.  If you have already made your payment, thank you very much.”

Tenants that will be late generally respond with a date that they will pay, if they are going to be late.  On the second of the month, I send another text to tenants that have not yet paid.  Most often, I get the “I just put it in” response.  It was a check that was ready, but not yet in the box.  That shakes out 95% of the rents.  Once in a while, you have a payment after the late payment date, and you then collect the late charge.

To Summarize

  • Get great tenants
  • Make sure the tenants have the ability to pay rent (income)
  • Make sure the tenants have the desire to pay rent (credit score)
  • Send them a monthly invoice (text)
  • Make it easy for the tenant to pay rent
  • Take the rent checks to the bank

What is your rent payment strategy?  If you are a tenant, what was your landlords method of getting you to pay rent?  Did you ever have better idea for a landlord to collect rent?

30 Replies to “How to Collect Rent On Time”

  1. I too have 25 properties and most months I receive all my rent by the 1st. Two times in the last year I was paid on time but the check bounced (so essentially it was late), Now these tenants are required to pay in cash, cashiers check or the electronically transfer.

    I give most of my tenants a Wells Fargo Account number and they are free to go to any branch and deposit. When the check clears I move the money out to my business account. Other tenants electronically transfer to funds to my account. This has worked really well for me. When I first meet with a new tenant I tell them I’m very picky about two things… Pay your rent by the 1st and take care of the property. Do this and we’ll get along great. If a tenant is even a day late I make a big deal out of it and it usually doesn’t happen again.

    1. Congratulations on your rent collection success! It’s not easy to get that great of a collection record.

      I know landlords that open an account for each property, and have the tenants stop by the bank and make a deposit. If I was a renter, I would think that is a pain, and would move. If I could not do an automatic payment, via check or auto-draft, it would be a deal killer. But I think there is large cash economy out there for lower income folks that they need something like that. When I had lower income people, most of my rents were in cash.

      It’s near impossible to be a great tenant when you do not pay rent…

  2. If the tenant who paid you $75 for a one day late fee had asked you to wait until Saturday, Sunday or Monday, what would have happened then?

    1. Definitely a late fee. If I was the tenant I would have just out it in the box late on the 5th, and avoided a late fee. But that is me. I would be paying on the 5th, always, just like I do my mortgages…:-)

      I have waived a late fees in the past, for one-time things. Generally, when a tenant pays late rent, it is because they do not have the money at that time. It takes better money management from the tenant, and if you always let it go, you start getting your rent on the 20th.

      These are great tenants, but better tenants just pay rent on time.

  3. I like this SMS Pro idea… I am a big fan of text messages.

    I always get caught giving them a pass the first time they are late, then its tough when you start pinging them with late charges. They key is to set the tone up-front… DONT be late – there is not penalty for being early, etc…..

    1. Yes, the SMS pro is a great product. It allows the scheduled text. I use the free version of SMS Pro, so it limits me to like 100 texts per hour. Once you start down the path of no late fees, it’s hard to stop, it is expected by the tenant right away. They learn quick.

  4. Great texting system there. We’ll be outsourcing that bit to our property manager, who unfortunately gets the late fees as part of our negotiated agreement.

    1. So, they find a tenant that pays late, and they get the rewards? Nice incentive program that you offered. When do they start an eviction?

      You might want to be sure you set the tenant screening criteria in advance for them, so you do not get late payments. I have a property manager post coming up, be sure to watch for it.

    1. Thank you for the comment!

      late fees are a necessary evil, but if they are too high, they are illegal. 8% is the maximum late fee in MN. Other states have different limits, or no limits. If there are no limits, I would stay less than ~8% anyway. Or a judge could rule them excessive.

  5. Thanks. This is what I found out for my private residence in NY state.

    “The state does not limit the amount of rent or late fees that landlords can charge their tenants who reside in private housing or unregulated housing. In this case, landlords are limited to what is ‘reasonable’ when they include their late fee provisions in their leases. ‘Reasonableness’ depends on the geographical area where the landlord conducts business, the prevalent rental rates in that area and amounts other landlords who are similarly-situated charge their tenants. The ‘overcharge’ provisions within the rent stabilization and rent control guidelines do not apply to tenants in private housing.”

    1. Even though you do not have a limit, if you would charge too much, a judge would strike down all of it. Anything over 10% would certainly be excessive. Daily fees, especially without a cap, are almost always ruled excessive.
      I have seen landlord charge $25 per day late fee, on a $800 per month rental. There is no way a Judge would let a landlord charge $750 per month in late fees on a $800 per month rental.

      Stick to 8% to 10% and you should be OK. If there is a limit in the “Rent Control guidelines”, stick with that. That should always be a reasonable amount.

  6. That’s a great tip on the texting a few days prior! I always found that we rented the landlords that were fair and flexible would most commonly have the least issues, though not without issues of course. I also loved it when our landlords made it easy to get payments in to them, whether that be via check or ACH.

    1. The texting works great. I have had the benefit of never having to had pay rent my entire life, but I think I would hate it.

      I have always thought, if your customers have money, figure out the easiet, and most efficient way for them to give it to you. Some landlords make a tenant go to the bank and make a physical deposit. That is a lot more difficult than writing a check, or using auto-pay. I pick up cash from people too. There are people that have a side income, and want to pay cash. Restaurant servers and maybe some computer repair type jobs.

  7. I really like the text idea. I’m sure most people realize it’s the first, but I’m sure you’d get a lot more “I just forgots” if you didn’t send the reminder. I have never had a landlord that made me deposit money at a bank. What if you work longer hours than the bank? It would be very inconvenient.

    1. Adding the text feature is definitely a good thing. Even most of my tenants like it. None have complained.

      The first of the month comes up pretty fast, and before you know it, rent is due. For people that do not have some sort of auto-pay, it is a great reminder.

      And, if they are going to be late, that is the time to let me know.

  8. When we rented they gave us a monthly invoice/reminder. For some reason I haven’t done it for our renter. Maybe since I only have one I don’t think about it as much. I typically will be okay with it even coming in 5 days late (I probably shouldn’t make that public!). I haven’t had issues yet, though. If i had as many tenants as you I would definitely copy your system of a text reminder.

    1. The texting is easy to do, and free. You never want to have to remind your renter after the first, and great renters do not need reminding, but it never hurts. You do not want your first reminder to be the sheriff.

  9. I love my late fee’s. Seems since oct 2013 everyones late. Everyones broke. I know the pay days and a few tenants pay 2x a month and my 60 late fee. Again I enjoy 300 extra bucks, Also 14 of my tenants have option to mail a check or walk into chase. they all like to walk into chase. I have converted some tenants into owner carry deals on the homes I own outright. I fix nothing and do 8 percent loans and they tend to pay because they are now home owners. I’ve tried many different ways, but most don’t want to move because I except rent late and dont’ complain. Why complain when you have a nice reserve and money isn’t an issue. I agree it can be a run away train, but I’m also called best landlord ever and when theyre late they tend to fix things more themselves because they feel guilty for being late. so theres some positives about having a few late payors. If they pay late on the same late schedule and are predictable than I’m all for it. very few pay on the 1st ever, most are the 5th, the other third are by the 20th. oh well, retired young and my system works so I’m not complaining. also turn over is small, average tenant 4 years. no bad. why leave when i’m so flexible . right…….

  10. I decide rate when I do owner carry..The following way. Example. My tenant in Vegas paid 780 my rent. I had 127 how fee. .. bottom line she owns with little down and her mortgage is 20 bucks more per month than the cost of renting. Her Apr is 8. Some other home are 6 or u. I try to make sure owning is max 50 bucks more per month compared to staying a renter. The interest number isn’t important. If they rent from me 5 years they have no equity.
    Everything has a reason. I still would rather get rent a little late and make 300 extra in income. I admit they can develop bad habits and I simply say communicate your pay day..fine pay then and include late fee.Of course it’s always included.i don’t have to chase a late.fee. In hard times ,300 more in income a nice. I guess it if it’s predictable it’s worth it. My rents are are..where 780, 1095, 1135, 1750, 1935 (at beach) 2235. I’m selling my high equity homes where cash flow was small 100-500 month and I had 150 to 200k cash freed up. Owning homes free and clear is now the only way I buy. Yes even in california. I bought 6 homes all nice for 50 k range 2009-10. In 2006 6th went out for 250k-300k. Um no stress if no mortgage. All gravy. And the homes I paid 50k range for rent for 1000 to 1150 and are all good size.1400 to 2600 Sq ft. Built 1960 to 1990.not bad !

    1. Assuming you are selling at market rates, I think you would make more by continuing to rent. If all you are getting is an extra $50, in a couple of years rents will out pace that. Of course, you have to be more involved.

  11. Quality and turn over is getting worse. If economy continues to decline ,I find owners pay and tenant quality is deteriorating, good people now have bad credit, middle class is squeezed out. I’m selling homes I paid 50 k for 150k, also I’ve had a property returned to me after 8 years receiving payments . I guess I’m half a landlord, the stress and my health issues over past years has made this a great approach. Also 30 year owner carry means I usually collect rent continuous without work. Rent has went above what most can afford based on jobs and pay. I will see in time how it goes, I still have 5 rentals I collect on, I will try to keep them that way. I do notice when people pay late they suddenly need a repair, the games people pay, as if we should be disaplanned for them having to pay to live in our properties. People and growing bitter and desperate trying to make ends meet.

    1. The economy is tough for some people, better for others. I try to get solid A quality candidates that can afford my rent easily. In an area that was one a Section 8 neighborhood, it can be done. I have a post here that I explain what I did.

  12. good article. Well I say never fall in love with a property. I had a 9 plex in a high gang area in los angeles, worse part was it was rent control, I was lucky I paid 420 and resold in 13 months for 610k, but I look at all opportunities, I had 4 places in Bakersfield, it was literally the worse place to collect. I never touched single family until they where down to 50k a door, I look back and see I did get in at the bottom. People who have bad credit stay longer because it’s hard to move with bad credit. You know missing a credit card payment on accident ruins credit, I have good credit but after some medical issues I was late on 2 and I’m sure it makes me seem irresponsible. There is value in rooting on the underdog. I love section 8 still. My beach rental was worth 640k in the good days , 3rd floor ocean views and yes section 8 rents there with plenty of kids and a single mom. The walls still stand and she’s a great tenant. I absolutely see things changing and don’t like landlording as much as I did, but it’s easy money if you have a system. Also if you fix everything yourself it’s even more money saved, thus made. I retired in my late 30s except a repair every other month at most. I love this site, thank you, much appreciated ! Cheryl in Ventura County

      1. I invested without a plan, I rolled with the times, the best advice I give if I mentor,I say, remain flexible ! ! I had a rule, if I bought something and it went up 100k in a year, get out. Of course it was 200 to 400 k properties. It would take me years of collecting rent to make that 100k. It served me well. I taught myself and it took being tolerant and creative. I myself was a welfare mom years ago , I started with 30k and built myself up to 14 properties. Along the way picked up my realtors license for convience and then became a broker for the heck of it. I was really blessed, I KNOW my parents couldn’t have made the money I did in 10 years, from a net worth of 30k to over 3 million in 10 years. I’m also having fun. I truly don’t stress about late rents as long as I’m paid that fun late fee. Iv even said to tenants, if you wanna pay late I will just take my family out to dinner at olive garden. Doesn’t matter to me. I guess I am to blame for bad behavior but it’s like free money and the people I have now are nice and respectful. I sure think oddly, but in a way I also know that I keep tenants longer because either they don’t have good credit or don’t make 3x rent, so I kinda of have them where I want them, no other landlord wants the tenants I take. BUT DO THEY……… I look in their eyes and decide, are these good people and that’s how I accept folks, gut instinct. Funny thing is, I have become close with some tenants also, but they know when it comes to rent the friendship turns off and business lectures set in. The boundaries of where being cool and needing my money are not blurred. THANK YOU ! ! !

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