This 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.
- 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?