How to Collect Rent from Tenants
Being a landlord or property manager comes with a huge collection of responsibilities. One of the most important responsibilities is collecting rent from tenants.
Rent collection is a critical aspect of the landlord-tenant relationship as it ensures that the landlord can maintain the rental property and provide a safe and comfortable living environment for the tenants.
In this guide, we will be going over all aspects of rent collection, including how to come to an agreement with the tenant as well as the best rent collection methods.
To begin, let’s talk about the best ways to set the best rent amount for your tenants.
Setting the Rent Amount
As a landlord, one of the most important aspects of your business is setting the right rent amount for your property.
Not only do you want to ensure that you are getting a fair return on your investment, but you also want to make sure that your tenants are able to afford the rent.
In this section, we will go over some of the factors that you should consider when determining rent amounts, as well as the legal guidelines that you need to follow.
Factors to Consider When Determining Rent Amounts
When determining rent amounts for your property, there are several factors that you should take into account. Some of the most important include:
The current state of the housing market in your area can have a big impact on how much rent you can charge.
For example, if there is high demand for rental properties and low vacancy rates, you may be able to charge more rent than if there were a lot of vacancies and not as many interested renters.
The location of your property can also play a role in how much rent you can charge.
Properties in more desirable areas, such as those close to public transportation or in good school districts, will typically command higher rent than those in less desirable areas.
The amenities that your property offers can also affect the rent amount.
For example, properties with more bedrooms and bathrooms, or those that include a pool or other luxury amenities, will typically command higher rent than those that do not.
The condition of your property can also impact the rent amount.
Properties that are well-maintained and in good condition will typically command higher rent than those that are in poor condition or in need of repairs.
Legal Guidelines for Setting Rent
In addition to considering the factors listed above, it's important to be aware of the legal guidelines for setting rent. Some of the most important include:
Rent control laws
Some cities and states have laws that limit how much landlords can increase rent each year. These laws can vary widely, so it's important to check with your local government to see what applies to your property.
Fair housing laws
It's illegal to discriminate against potential renters based on factors like race, national origin, religion, or sexual orientation. This means that you cannot charge different rent amounts to different renters based on these factors.
Lead-based paint disclosure
If your property was built before 1978, you are required by law to disclose the presence of lead-based paint to potential renters.
How to Increase Rent
Even if you have set the rent at a fair and reasonable amount, you may need to increase it over time. Here are some tips for how to do this:
- Provide notice: Before you increase rent, it's important to provide your tenants with notice. The amount of notice required will depend on the laws in your area, so be sure to check with your local government.
- Negotiate with tenants: If your tenants are having a hard time paying the increased rent, you may want to consider negotiating with them. For example, you could offer to let them pay the increased rent over time, or you could offer to make certain repairs or upgrades to the property in exchange for the higher rent.
So, now after establishing some of the rent payment terms with the tenant, you can move on to choosing the rent collection method that best suits you and your needs.
Best Rent Collection Methods
There are several different ways of collecting rent, each with their own pros and cons.
In this section, we will go over some of the best ways to collect rent as a landlord and the pros and cons of each method.
Online Rent Collection
One of the most popular ways to collect rent these days is through an online payment system.
The best part about online rent collection software is that they can set up automatic rent payments where the rent is automatically taken from the tenant's bank account.
This can include platforms like PayPal, Venmo, or a custom portal set up by the landlord through property management software, like DoorLoop.
- Convenience: Online payment systems make it easy for tenants to pay rent from anywhere, at any time.
- Automated reminders: Many online payment systems have automated reminder systems that can send tenants notifications when their rent is due.
- Record keeping: Online payment systems keep records of all transactions, which can make it easier to keep track of rent payments.
- Security: Online payment systems generally use secure encryption to protect both the landlord's and the tenant's sensitive information.
- Speed: Since most systems use direct deposit with the landlord's bank account, the money will be available very quickly after the rent is paid.
- Fees: If you want to collect rent online, you will probably
- Technical difficulties: If the online payment system experiences technical difficulties, tenants may not be able to pay rent on time.
- Limited options: It can be difficult for tenants to make online rent payments if they have limited exposure to things like the internet or a computer.
If you don't want your tenants to pay rent online, you can also have them send a certified check.
A certified check is a check that has been guaranteed by the bank to be good for the amount written on it.
- Guaranteed funds: A certified check guarantees that the tenant has the funds to pay the rent.
- Legal documentation: A certified check serves as legal documentation of the transaction.
- Security: Certified checks are considered to be more secure than personal checks.
- Time-consuming: Obtaining a certified check can take longer than other forms of payment.
- Not widely accepted: Some landlords may not accept certified checks as a form of payment.
A cashier's check is a check that is guaranteed by the bank and is drawn on the bank's own funds.
This can be obtained from the bank or credit union by the tenant in exchange for cash.
- Guaranteed funds: A cashier's check guarantees that the tenant has the funds to pay the rent.
- Security: Cashier's checks are considered to be more secure than personal checks.
- Time-consuming: Obtaining a cashier's check can take longer than other forms of payment.
- Not widely accepted: Some landlords may not accept cashier's checks as a form of payment.
- Cost: Obtaining a cashier's check can be more expensive than other forms of payment.
A money order is a financial document that is similar to a check, but it is guaranteed by the company that issues it. This can be obtained from a post office or other financial institution.
- Guaranteed funds: A money order guarantees that the tenant has the funds to pay the rent.
- Security: Money orders are considered to be more secure than personal checks.
- Time-consuming: Obtaining a money order can take longer than other forms of payment.
- Not widely accepted: Some landlords may not accept money orders as a form of payment.
- Cost: Obtaining a money order can be more expensive than other forms of payment.
After figuring out how you're going to collect rent payments, you also have to put a plan in place for dealing with missing or late rental payments.
Dealing With Late Rent Payments
When a tenant falls behind on their rent payments, it's important for landlords to handle the situation in a timely and professional manner.
Some strategies for handling late rent payments include:
- Reminders: Send reminders to the tenant about the rent being due and the late fee that will be charged if it is not paid on time.
- Late Fees: Charge a late fee for rent payments that are received after the due date. Be sure to include information about late fees in your lease agreement.
- Eviction: As a last resort, landlords may need to begin the eviction process if a tenant continually fails to pay rent on time.
It's important to note that the eviction process can vary depending on the laws of the state or municipality where the property is located.
Be sure to check with your local government to understand the specific laws and procedures that apply to evictions.
Tips for Preventing Late Rent Payments
While it's important to have strategies in place for handling late rent payments, it's also important to take steps to prevent them from happening in the first place. Some tips for preventing late rent payments include:
Properly screening tenants can help to ensure that you are renting to individuals who are able to pay rent on time.
Be sure to clearly communicate the rent payment schedule and any penalties for late payments to tenants.
Use automated reminder systems to remind tenants when rent is due and when late fees will be charged.
Offer online payment options, which can make it easier for tenants to pay rent on time.
Apart from having methods to make sure your tenants don’t fall back on paying rent, it is also important for landlords to have a method in place for legally collecting unpaid rent.
Legal Methods for Collecting Unpaid Rent
When tenants fall behind on their rent payments, landlords may need to take legal action to collect the unpaid rent.
If a tenant is consistently behind on their rent payments, landlords may need to begin the eviction process. This can involve giving the tenant notice and then filing an eviction lawsuit with the court.
Small Claims Court
Landlords can also file a small claims court case against tenants who owe unpaid rent. This can be a faster and less expensive option than going through the eviction process.
Alternatives to Legal Action
While legal action may be necessary in some cases, it's also important to consider alternatives to legal action when trying to collect unpaid rent. Some alternatives include:
Mediation is a process where a neutral third party helps to resolve disputes between landlords and tenants. This can be a good option if the tenant is willing to work with the landlord to come up with a payment plan.
Landlords can also try to negotiate with tenants to come up with a payment plan or to agree on a specific date for the unpaid rent to be paid.
Make Rent Collection Easier
In conclusion, it is important for landlords and property managers to realize the importance of collecting rent.
However, it is also crucial that they realize how tricky and complicated it can become when you don’t have the right tenant.
Want to learn how to find the best tenants that won’t cause you these problems?
Continue reading through our landlord hub to learn everything you need to know!