Managing a single unit, student or military housing or any multi-family property requires due diligence on the part of the landlord or property owner. Not only should the tenants be screened properly ahead of time, landlords must have a clear understanding of tenant rights in order to collect rental payments. In some cases, tenants may be unable or unwilling to pay on time.
Collecting back rent can be done properly and in compliance with renters rights if you follow these tips.
Screening
As we mentioned in the introduction, screening and properly vetting tenants is of utmost importance before you rent to anyone. Allow yourself some time to define very clear criteria for the type of tenant that you want renting your property. Research other property rates in the same area to determine a fair price for rent. Make sure the tenant has a good credit history and a good history of paying rent or other bills on time. Check for eviction or criminal reports on the prospective tenant as well to ensure the care and maintenance of your property.
See also: Tenant Screening Tips for the Individual Landlord
Rent Collection Policy
Establishing a rent collection policy up front is one of the best ways to avoid late rent payments. Some items to consider in your policy are:
- A "no cash" policy. Without a paper trail, your tenant may be able to move out with no trace.
- The exact amount of rent due
- Due date of rent
- How payments should be made
- Acceptable payment methods
- Late fees or other consequences (including collections) if rent is not paid on time
Put the policy in writing in the lease and, most importantly, stay consistent and true to your policy. If you find that your tenant has a one-time difficulty paying on time, you may decide to be generous and put off the late fee. Remind the tenant that your policy will otherwise be followed to the letter and stick to your word.
Automatic
As many financial wizards will advise, making fixed payments, such as rent, automatically deducted from accounts is one of the best ways to ensure that rent is paid on time. Rent should always be paid as one of the first bills so offering an option that is easier for the tenant may be helpful. Some automatic options may include:
- ACH or direct deposit (automatically deducted from the tenant and deposited into the landlord's account) - the tenant must sign a document that allows this.
- Online bill pay - tenants can set up a recurring payment through their bank account. This is especially helpful when the amount due remains consistent.
- EFT - electronic funds transfer - again, the tenant must approve of this.
The easier it is for the tenant to pay rent, the less likely the landlord will have to concern themselves with late payments.
Communicate
Communication with the tenant begins with the lease and rent collection policy. Once these things are spelled out, the tenant should not have any confusion about when, where, how or how much rent is due. If rent becomes past due, make especially sure that you are communicating with your tenant. It may be as simple as asking the right questions.
- Is there a reason rent has not been paid?
- When do you expect to make payment?
- Will you be paying the full amount?
- How will you be paying?
If there is a breakdown in communication or if they are being evasive, it may be time to move on to other countermeasures (including eviction notices) as outlined in your rent collection agreement.
Collections
After all else, once the due date of the rent payment has reached a certain point, as dictated in your rent collection policy, you may resolve to work with a third-party collections agency to help collect back rent. In order to begin work with a collections agency, you must do some research. We've outlined some tips for hiring a debt collections agency including:
- Ensuring the agency is licensed and insured
- Making sure the agency specializes in the industry - in this case, property management collections.
- How the agency will charge fees
You will need to provide necessary information to the agency including:
- Itemized list of what is past due
- That you have given the tenant ample notice of late payment
- The signed lease and rent collection policy and
- All attempts to collect on past due or back rent.
The collections agency will attempt to recover your back rent and charge certain fees during the process. There is a better chance of recovery of most of your back rent, minus these fees, if the collections agency specializes in property management collections. Do your research and make sure you are communicating with your agency representative.
Owning, renting and managing a property is challenging enough for a landlord without the added headache of collecting back rent. Sticking to these tips will help alleviate some of those challenges and prepare the property owner for a positive landlord/tenant experience.
