Build a consistent cash flow by implementing effective strategies to mitigate late rental payments. Making sure that the rental property stays in good condition requires a lot of work, and it can be a hassle when the tenants don’t keep their end of the bargain by paying rent when they ought to.
After all, property owners may want to reinvest a significant portion of their rental income into paying their mortgage, settling utility bills, and servicing the apartment. So how do you prevent delinquent payments or address these issues when maintaining your business’s financial health? Read along with this article as we discuss preventative ways to avoid rent payments and keep the positive cash flow going for your rental business.
3 Preventative Strategies to Avoid Rent Payments
Thorough Tenant Screening
Minimize the risk of dealing with delinquent tenants by prioritizing having a thorough tenant screening process. If you’re worried about late rental payments in the future from prospective renters, get ahead of the situation by running a comprehensive background check on your current applicants. A thorough tenant screening makes the leasing process longer and often requires a fee, but this can help property owners gain their peace of mind during the lease.
For instance, let’s say you’ve narrowed your picks to two potential renters: Tenant A has a better-paying job, but their credit score is low and their last landlord had to evict them for not paying rent. On the other hand, Tenant B earns a decent income, has a good credit score, and received glowing recommendations from their previous landlords. In this scenario, it is obvious who the better candidate is, and who is more likely to miss their rental payments.
Establish Clear Rent Policies
Set clear and detailed rent policies before signing a lease agreement with your chosen candidate. It is best to state clearly on the lease agreement that rent payments are expected to be paid in full on a specific date, instead of assuming your tenants will intuitively know when to pay their rent at the end of the month.
Sometimes, rent payment issues can be a source of misunderstandings between landlords and tenants that didn’t clarify when signing the lease, which is why Bay Property Management Group Northern Virginia urges landlords to remain professional in dealing with unresponsive tenants. You’ll be surprised how often renters will meet their expected deadlines if there’s a clear understanding of when they ought to pay, through what means, and the consequences of delays.
Encourage Automated Rent Payments
Skip the hassle of sending a reminder every month by automating your rental collection. It would be in your best interest to modern digital solutions that make your life as a landlord easier. After clarifying your expectations, recommend that your tenants set up an automatic bank transfer, a mobile app, or an online payment portal that ensures you receive your funds on time.
Aside from streamlining the process, automated payments also make it easier for landlords to plan their finances through routine payments. These online payment portals even send automated notifications to your tenants reminding them of their approaching due date which can reduce your workload while maintaining a consistent cash flow.
Should Landlords Implement Grace Period and Late Fees?
Grace Period
Implement a grace period to improve your relationship with your tenants. Most tenants aren’t intentionally trying to inconvenience you by paying late, but sometimes personal challenges or financial setbacks get in the way. If tenants experience a particularly rough month or their bank has an accounting error, it could prevent them from paying on time as they usually do.
Even human error or minor delays in their business could prevent them from paying rent on the exact due date. Consider implementing a grace period that provides a short buffer, typically 3 to 5 days, to allow them to meet their rental obligations. After the grace period, a late rent payment notice can help tenants be reminded and serve as a document for court purposes.
Late Fees
Opt for the carrot-and-stick approach by adding a late fee to your rental clause. When tenants know there are consequences for paying after the deadline, and beyond their grace period, they’re more likely to pay up on time. This can be a great option to protect your rights as a property owner than take advantage of your grace period.
A blanket late fee also ensures that all tenants receive fair treatment, avoiding a situation where other renters feel inconvenienced for paying a penalty while others don’t. Property owners must be consistent in enforcing these laws to avoid having a tenant concerned with a discriminatory suit.
Double-check with your local laws about charging a reasonable fee that encourages tenants to pay on time. Each state has its own set of policies on what percent of the month’s base rent can be charged for delinquent payments. So remember to include these details in the lease to ensure everyone is on the same page.
Conclusion
To wrap up, tenants who are notorious for late rental payments can potentially impact your rental property’s expenses and income. Imagine not having enough cash to service the HVAC system, pay the electrician, or cover the loan repayments. Property owners can protect their rental and income by avoiding delinquent tenants altogether.
Adopt a meticulous tenant screening process that spots renters with prior negative reviews, and set the record straight about your payment policies from the get-go. Consider using an automated rental payment system that removes the hassle of having to send a monthly reminder.
Sometimes life happens and it could be beneficial to give tenants a short buffer to address personal challenges or financial issues. It is suggested that property owners cap off the tenant’s grace period with a late fee to avoid being abused by this privilege.
Remember to set your policies based on what works for you, and hire an experienced property manager who can help you curate the most effective strategies to ensure a smooth rental collection process.