Managing rental properties can be a profitable business, as long as you collect the rent on time.
Learn how to collect rent and help renters make payments on time.
1. Choose your renters wisely
When screening tenants, you’ll see the gambit of credit scores. Some prospective renters will have an excellent history paying bills, but others will have a less than stellar record. Only rent to qualified renters with a great rental history.
Set your criteria: Start by being clear about the criteria prospective renters must meet during the application process. Discrimination laws state that you must hold the same standards and criteria to all renters. If you deny an applicant for having $50,000 in credit card debt, you must deny all applicants who have $50,000 or more in consumer debt.
Income requirements: At the very least, this calculation should include regular income equivalent to three times the rent amount or more, and an established history of paying rent on time with past landlords.
Good credit: Landlords and property managers should get an up-to-date consumer credit report, like the ones tenants share with you in Cozy, which includes eviction judgments and past debts.You’ll also see how they’ve been paying other creditors.
Check references: I believe that the best predictor of future behavior is past behavior. Therefore, thorough verification of the application information is critical to paving the way for prompt, full rent payments. Always call the previous landlord and ask, “Would you rent to them again?” Keep in mind that a previous landlord doesn’t have to tell you anything, but it doesn’t hurt to ask.
2. Exercise a no cash policy
Accepting cash for rent payments is never a good idea. Cash is too easily lost and leaves no paper trail. Eliminate these risks by establishing a policy that you don’t accept cash as a payment for rent.
Advise your renters of acceptable ways they can make their monthly payments. If they pay you rent online through Cozy, you’ll both have a record of every payment, which you can export for tax purposes. And your renters can choose to have their Cozy rent payments build their credit histories, which could boost their credit scores.
It’s a best practice to write into your lease or rental agreement how you prefer to receive rent.
3. Make rent payments automatic
Encourage renters to pay rent via an auto-pay or auto-deduct system. This eliminates the human error factor and helps ensure rent arrives on time every month. There are multiple ways you can set up automatic rent payments.
Collect rent through Cozy, which was designed for rent collection, as opposed to services like PayPal or Venmo. Once you set up the details of rent and when it’s due, we’ll help you invite your tenants to pay. They can set up recurring rent payments, so you’ll both rest easy knowing the rent will be on time. And no one will miss dealing with rent checks.
See all payments in one place, including deposits and move-in costs. You’ll know at a glance if your tenants are current with payments, or if the rent is past due. Export payment history at tax time or any time.
Collecting rent with Cozy is free for landlords. Tenants can choose to pay for free with their checking accounts or for a 2.75% fee if they pay with a debit or credit card.
Automated clearing house debits
An ACH (automated clearing house) withdraws money from the renter’s bank account. To authorize this transaction, renters sign a document that allows the landlord to withdraw a set amount of money on recurring basis.
The downside is that if a renter doesn’t have enough money in their account to fund the withdraw, the draft will bounce, and you won’t get paid. ACH systems usually cost $.50 to $3.00 per transaction and take four to seven days to process.
Online bill pay
All major banks have an “online bill pay” feature. If you don’t want to set up an ACH, you can ask your renters to set up their rent payment as a recurring bill with their bank. This way, the bank will issue a check and mail it to you automatically every month. The downside: you still have to deposit the check, and payments could get lost in the mail, even though the bank is mailing the check, not the renter.
Prior to the invention of online payments, some landlords would collect 12 post-dated checks, one for every month of a year-long lease. Then, the landlord would deposit one check on the first of every month. It’s simple, but most renters can be uneasy about writing 12 post-dated checks, and rightfully so. You can easily explain that it’s illegal to cash a check before the date mark.
4. Enforce your rent collection policy
To ensure consistent, timely rent payments, keep your collection policies firm. In your lease, address all payment related issues including:
The amount due every month
Where payments can be made
Acceptable payment methods
When rent is due, with grace periods
Consequences of bounced checks
If your renter pays the rent late, and you know it’s a one-time issue, consider cutting them some slack. But be firm about your rent collection policy, so they don’t take advantage of you in the future. We suggest forgiving a late fee once, but only once.
5. If your renter pays late, ask the necessary questions
If you renter is late with a rent payment, ask these questions:
When do you expect to make a payment?
Where will you submit your payment?
What’s the exact amount you’ll pay?
What will be your method of payment?
What’s the source of income you will be using to make your payment?
Hopefully, your renter to be honest and open. If they seem to be evasive when answering, it might be time to consider the eviction process. But don’t try to perform a self-help eviction, which can get you into legal trouble.
6. Reward responsible renters
A critical part of managing a rental property is keeping great renters for the long term. Sometimes landlords can be so focused on preventing unwanted situations, they overlook the renters who make their job worthwhile.
If you have a renter who always pays rent on time, abides by your rules, and takes good care of your property, show them how much you appreciate them with an Amazon gift card, fruit basket, or other gift. Showing them you appreciate them could inspire them to renew their lease.