The success of one’s rental housing business, like most businesses, strongly relies on its profitability because it’s a venture that requires capitalization and operational funds to stay afloat. One of the things that mainly affect profitability is a stable cash flow, which is the coming in and out of money in a business. If the money coming in is less than the money coming out, there will be no profit.
Maintaining a rental business requires spending on property management, maintenance, utilities, taxes, and other business expenditures. A residential rental establishment like apartments pays those operational expenses with the rent payments from the tenants. That is why when tenants fail to pay rent on time, business operations will suffer, which could lead to its downfall.
Tenants often get stereotyped as irresponsible when it comes to paying rent promptly, but there may be a fair reason behind it. Every landlord who has been in the business for quite some time can not deny that non-payment happens more often than one thinks.
Since non-payment may be challenging to avoid, there are ways that landlords can prevent it from happening more often.
Automate Payments
A lot of landlords have transitioned to electronic rental collections in the past years. Digital technology has made rent collection more efficient because auto-pay or auto-deduct features can schedule the transfer of funds from a tenant’s bank account to the landlord’s using the Automated Clearing House (ACH) system.
There are also non-digital options to automate rental payments. Collecting post-dated checks is one of them. There’s also the “online bill pay” feature that banks offer. Tenants may set up their rent payment as a recurring bill with their bank. The bank then sends the landlord a check every month.
Choose Tenants Wisely
If a tenant is responsible when it comes to his finances, late payment or non-payment of rent will not happen. That is why rental agents must check if rental applicants are financially stable before approving their applications.
After publishing a listing on Padleads, a rental agent could receive several leads interested in renting the property. However, not all of them deserve to have their application approved. Although an applicant’s character is also a vital factor in gauging if he will be a good tenant, his financials is a more quantifiable factor.
A good rule of thumb is to choose a tenant whose regular income is at least three times the rent amount. The applicant’s credit history could also give a glimpse of his attitude towards money. Bad debts and a history of eviction due to non-payment are major red flags.
It is also vital to gather references such as their previous landlords. Some deceptive applicants will provide fake financial documents, so verifying how responsible in paying rent to their past landlords by calling the latter would help in the screening process.
No Cash Policy
Accepting cold hard cash for monthly rent can be problematic in many ways. Tenants can easily make excuses that they lost their money. It’s also risky if there is no paper trail, unlike bank transactions with receipts.
Establish a “no cash” policy to eliminate the said risks. The lease agreement must state that rent payment in cash will not be accepted and the preferred modes of payment such as post-dated checks, direct debit, or money order.
Have Low Tolerance for Late Rent
Other than having a rent payment policy on your lease agreement, a landlord must enforce it strictly as well. Being too lenient will encourage tenants not to take policies seriously, making late payment a habit.
Consequences of late rent (e.g., late fees, getting reported to the credit bureau, eviction, etc.) must be made known in the lease agreement. A landlord must enforce such penalties when necessary. However, tenants can fall on hard times. If the landlord knows that a good tenant deserves a bit of consideration, he can let them off with a warning. Such privilege must be limited (one-time) and only after careful evaluation of the tenant’s situation.
Reward Prompt Tenants
If a tenant consistently pays monthly rent on time for a year, it would not hurt to reward them even with simple gifts such as a gift card to a nearby restaurant or a fruit basket. Simple forms of appreciation can go a long way. If it would not hurt profitability, the reward could even be a discount on next month’s rent.