A critical part of managing or renting out a property is collecting rent from your tenants. You, as the landlord, and your tenant normally sign a written agreement on the terms and conditions of the rent, as well as provisions on when to pay, how much to pay, and even how to pay.
It is common, however, to deal with tenants who do not pay on time or in full. They’d probably say they have forgotten that the rent is due, but most of the time, they just really don’t have enough money to pay you. These situations are indeed troubling especially if they keep on forgetting to pay the rent. Your compassion can easily give in to their request for extensions, but remember that you are still running a business. That is, late rent means no income for you.
Dealing with late rent can bring a lot of pressure but there are a number of things that you can do to overly belated payment of rent. Here are some of them.
1. Track payments when they are due
Surely, you have an agreement with your tenant regarding the terms of their payment for rent. This would include when and how often the tenant will pay, how much the rent will be, and what will happen if the tenant is not able to pay the rent. This agreement will generally have the information you need in tracking the payments such as the amount for rent, and the set date of payment.
But while you can keep track of the payments manually using a calendar and a ledger, it might be difficult to keep track of everything especially if you have a lot of real estate properties. Luckily, there is a number of property management software online that will help you track payments.
Most of these property management applications allow you to manage multiple real estate properties at once. This helps a lot in tracking payments and in other real estate concerns you may have. For example, some of these applications have a tenant portal or interface which helps the tenant monitor the fees and report financial or maintenance issues, making the real estate beneficial for both the owner and the tenant.
2. Notify immediately if payments are late
Let’s face it, late payments for rent are inevitable. Whether they simply forgot and are too busy, or do not have enough to pay, tenants need to be reminded of their late payment immediately. A letter of late rent payment may be necessary to notify the tenant that the payment is past due.
According to the Keyt Law, the letter, which should be certified or hand delivered, should give the tenant with a 5-day notice. The letter should include at least the following:
- the names of the landlord and the tenant;
- the total amount due for the rent, including late charges;
- the address of the residence or property;
- the date that the tenant is expected to pay all fees, and;
- that the lease or transaction will be terminated if the payment is not settled within the specified expected date
The tone of the letter may depend on the attitude of your tenant in terms of paying their rent.
For tenants who generally comply with the rent immediately, your letter may be written in a friendly or courteous manner. For example: “This is a friendly notification that your rent is now due. You may have overlooked the set deadline for your payment. Please settle your accounts immediately to avoid any late payment charges. Thank you for quickly attending to this, and please contact us if you have any questions or concerns.”
On the other hand, with tenants who are habitually late, you may use firmer words. You can include a reinstatement of the previously settled agreement, and a warning for eviction.
3. Have a conversation with the tenant
The best way to avoid scenarios such as eviction is to have a clear and thorough conversation with the client. This clear conversation begins when the potential tenant fills out your rental application.
Of course, you want to check the credibility of your potential tenant. In order to do so, you may include the following information in your application sheet:
- name of renter,
- current address,
- phone numbers,
- email address,
- driver’s license number,
- previous address,
- employment and income information,
- emergency contacts,
- personal references,
- background information, including criminal charges or previous bankruptcies, if applicable, and
- vehicle information
Once you have reviewed the information of your potential tenant from the application sheet or their references, you may ask your tenant for consent for a credit and background check. With their permission, you may obtain the following:
- landlord/tenant credit record
- criminal record
- consumer credit report
These credit and background checks will determine if their lifestyles and sense of responsibility make them suitable tenants. Note, however, that according to the Fair Housing Act, a person’s race, color, religion, sex, disability, familial status, or national origin are not grounds to deny a tenant from rent.
Once you have the rental applications approved, you should prepare a lease contract. A lease is a legal contractual agreement between the landlord and the tenant, where the tenant pays the landlord for use of an asset, may it be a building, property, or vehicle.
The lease will clearly contain the following:
- the names of the landlord and tenant;
- the starting date and duration or end date of the agreement;
- the address of the property being leased;
- options for lease renewal, if any;
- rent payments, including amounts and due dates;
- security deposits;
- applicable late charges;
- number of occupants and guests;
- right of entry and inspection;
- noise and any “quiet” hours;
- property maintenance;
- termination, and;
Before having the tenant sign the lease, it is important to discuss the said provisions clearly and have the tenant ask questions and clarifications. This way, you will make your conversation look professional and you will project a responsible demeanor.
How to Avoid Late Rental in the Future: screening, online payment
It is really troubling to face such penalties, as stated above. However, to prevent these early on, you have to screen tenants carefully and only accept tenants who are likely to obey the law. Remember how important the credit and background check information is? These will allow you to screen out potentially dangerous individuals before they even get the chance.
Aside from monitoring your tenants, a regular monitoring and maintenance of your property will prevent you from further fines and costs. If you keep your properties well, you will lessen the risk for further damage while avoiding the possibility of a tenant suing you for leasing a poorly-maintained property.
You should be also wary of your tenant’s behavior, should it become disruptive to the property and to the neighborhood. With your constant monitoring of the property, as well as reinstating the provision in the lease, you may warn them of a possible eviction due to their violations. You may get information on your tenant’s behavior by talking to their neighbors. Since they live near your tenant, they have some sort of awareness on your tenant’s activities.
Offering online payment methods
Another way to avoid financial penalties is to avoid cash rental payments. Instead, have your tenants pay their fees online. This will not only make a safer transaction for both parties, but also help you have a clearer way to view your income, pay your taxes, and avoid charges of tax evasion.
Learn More about Your Rights and Duties as a Landlord
A clear and thorough agreement with your tenant will iron out misunderstandings and misinterpretations. However, it is your knowledge of you rights and obligations under state laws and policies that will help you become a better and more effective landowner. Keep checking out Rental Academy for articles on how you can be better equipped as a homeowner or property manager.