A Guide to Collecting Rent – What You Need to Know

The Joseph Group Nov 2021

Ian Joseph

“Clients first!” – is a huge part of the DNA that Ian Joseph and his Team have established at The Joseph Group. This motto helps them focus on striving for the highest level of customer experience, for their clients (landlords) and customers (tenants). In fact, Ian strongly believes that in life, family and business, you must strive to give more than you receive. “You can have everything in life you want if you help enough other people get what they want." - Zig Ziglar

A Guide to Collecting Rent – What You Need to Know

woman paying rent online

Effectively collecting rent can mean the difference between a successful property investment venture and a headache-inducing one. How much you charge, how you collect rent and the way you deal with late payments and penalties is up to you as the landlord. There is no one right way to go about collecting rent from your tenant. However, there are several things every landlord should understand.

Determining Rent

You may have heard or read about mathematical equations to determine how much rent you can ask for your property – typically between 0.8% and 0.10% of the value. While it is a good starting place, it isn’t necessarily the best way of determining how much rent you can charge. Property value doesn’t always equate to the local market, what others are charging, and what upgrades and appealing characteristics your property has over others in the area.

Determining how much rent you can charge is a fine balance. Charge too much and you’ll find yourself with increased vacancies and difficulty finding well-qualified tenants. Charge too little and you’re cheating yourself out of potential income.

The easiest way to determine how much rent you should be charging is to consult a qualified property manager who has the tools and knowledge needed to analyze the local rental market and help you set the ideal rent – one that will attract tenants and make you the most money.

Rent Collection Methods

The way in which you collect rent can greatly affect the probability that your tenants will pay on time. The easier you make it for them to pay, the more likely you are to successfully receive your monthly rent. Most landlords provide their tenants with several different options when it comes to paying their rent.

Cash – while collecting cash means you don’t have to wait to receive the funds or run the risk of a check bouncing, there are several downsides to going this route. Cash payments are hard to track, and disputes on what and when something was paid are more likely. If you are going to allow tenants to pay in cash, it is imperative that you have a detailed tracking system and provide receipts to all parties involved. Having a document that both parties sign to attest that the rent was paid and received is also a needed step in the process. In the end, most professional property managers advise against using cash as a method of rent payment.

Direct Deposit – Direct Deposit is a popular way to collect rent. By transferring the money from the tenant’s account directly into your account, you can be confident that you will receive your rent on time each month – usually. Like checks, there is always the possibility of a payment bouncing if the tenant has insufficient funds to cover the payment. Some banks also charge fees that are deducted from every transaction and the availability of funds can be delayed. However, offering Direct Deposit provides tenants with an easy way to pay rent and is more secure than collecting cash.

Online Platforms – there are many services available now for online rent payments. These are easy and secure ways to collect rent, making them appealing to many tenants. It gives tenants the ability to set up automatic payments using credit cards or debit cards. People are more used to using online payment platforms these days as well.

Check – this is the good old-fashioned way of collecting rent. Many landlords offer checks as a method of payment and it’s particularly good to consider if your tenants aren’t technology-minded. Many banks have apps that give you the ability to deposit checks using your phone, saving you the hassle of having to go to the bank in person. With checks, you run the risk of them bouncing, although this is a risk with many rent payment options. You also must decide whether you are going to collect the rent in person or allow your tenant to mail the check to you. Mailing a check can cause delays and occasionally things get lost in the mail.

Payment Services – apps such as PayPal, Venmo, and Zelle are increasingly becoming more popular methods of paying rent. It is easy to transfer money from one person to the other and provides a convenient way for your renter to pay. The downside is that at least right now, they are not meant to be a long-term payment system. Tracking and payment history options can be limited, and it can take several days for the funds to transfer. However, it is a good option if you keep detailed records yourself and do not rely on just those provided by the online payment service.

Once you’ve determined what your rent is and the payment methods you’ll accept, the next step is determining a due date. Rent is typically due on the day the lease begins, and as most leases begin on the first of the month, this is the most common rent collection date.

Late Fees and Grace Periods

While the hope is that your tenant will pay his/her rent on time, there are instances where late fees come into play. It is important to set the expectations and details of what the late fees are and when they will go into effect in your lease agreement with the tenant and ensure they fully understand the consequences of paying their rent late. It is important that you understand local, state, and federal landlord laws regarding late fees. Some prohibit late fees or regulate the amount you can charge.

A late fee policy should also include information about any grace period. Most landlords do not start charging late fees until several days after the rent is due – typically 3-5 days, although it is up to the landlord (within the confines of any local, state, and federal laws) to decide. If the tenant has always been on time, in some cases showing a bit of leniency can help maintain a good relationship with a good tenant that you do not want to lose.

In the end, much of the way rent is collected is up to you as the property owner. Collecting rent and dealing with late payments is one of the greatest sources of stress as a landlord. Therefore many turn to professional property management companies to collect rent, track it and deal with any issues that may arise.

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