Americans spent $512.4 billion on rent in 2019. This is nearly twice what renters spent in 2009, a decade earlier. It isn’t hard to determine from these numbers that owning investment rental property can generate a healthy monthly income.
However, your tenants need to actually pay their rent for this investment to generate cash flow. Otherwise, you risk missing out on an opportunity, and your rental property could end up costing you money.
This guide will show you how to ensure that your tenants make on-time rent payments each month.
Automate the Process
By setting up automatic payments with your tenants, you never have to worry about someone remembering to make the payment. On a specific day of each month, the payment will trigger, and you automatically collect the rent. There are several ways you can set automatic payments up.
Bank-To-Bank Transfers (ACH)
You can set up automatic bank transfers directly through your bank. Your bank will automatically withdraw the money from the tenant’s bank account. There are some downsides to this method.
Not all tenants will feel comfortable handing over their bank account information and giving you permission to automatically withdraw the rent. There’s also the risk of the tenant not having enough money in their account. If this happens, you don’t get paid, and the tenant gets fees assessed by their bank. This makes no one happy.
Online Bill Pay
Another option is for the tenant to set up automatic payments through their bank or an online portal. This lets them control the process and maintain the security of their bank information. Some banks will send you a paper check. Other banks are more advanced and can do digital transfers.
Have a “No Cash” Policy
While cash is king in many situations, collecting rent is not one of them. Cash payments can get easily lost, and there’s no verifiable paper trail. There’s also the risk that you’re now driving around with large amounts of cash on you.
Choose Tenants Carefully
Thoroughly vet every application to ensure you only approve qualified tenants with great rental histories. Tenants that have strong credit scores and reports give you better odds of them making on-time rent payments.
Have a clear set of criteria that prospective tenants need to meet. Perform a credit check, background check, and talk to the references.
Hire a Property Manager
One smart way to ensure you hire the best tenants is to work with a property manager. They have more experience with processing applications and placing tenants. They can provide you with a complete application profile that will identify potential red flags.
Report to the Credit Agencies
Not all landlords report on-time rent payments to the credit bureaus. By doing so, you make yourself stand out. If your tenant makes on time payments, then your reporting helps them to boost their credit score.
However, if they fail to make on-time payments, then your reporting can hurt their credit score. This acts as a negative consequence for failing to make their rent payments.
You can encourage positive results by offering tenants rewards for making all of their payments in full and on time. You could give them a thank you gift towards the end of their lease in the form of an Amazon gift card or North Carolina themed gift basket.
Improve Your Rent Collection Process
While there’s no way to guarantee that your tenants make on-time rent payments, these tips can swing the odds in your favor. Start by carefully selecting applicants with strong rental and credit histories. Then implement a no cash policy and offer your tenants automated methods for paying their rent.
Contact our experienced property management team today and let us help you set up your rent collection processes.