Rent Collection Strategy for Landlords
Landlords and property managers of all types are having some difficulty with late paying tenants as well as rent defaults in this last 12 months.
It’s great that Covid vaccinations are progressing, however the issue with tenant back rent owed, and future missed payments isn’t over. The moratorium delays just push the matter down the road so to speak, and the repayment time will be at hand.
Rent collection is perhaps among a few tasks that a few landlords find to be hard work and distasteful. And for good reason, since a few tenants don’t intend to meet their obligations under their lease. Some will find additional angles to not paying their rent such as maintenance work not done or appliances not working optimally.
It’s wise to consider what you’ll need to prepare and carry out in order to effectively collect what you’re owed. This is one of those times when you’ll want to cover all your legal bases.
Know Your Landlord/Tenant Laws
And legally, the courts may be unwilling to enforce evictions in good faith and may look dimly on your own attempts to remove non-paying tenants. Official notices and outright demands on your tenant may not work.
Before you launch into collections activities, ensure you’re up on your local tenant laws and of course, any state and Federal rules.
But if it comes down to you suffering major losses, losing a few properties, or becoming homeless yourself, you must act, especially if you haven’t received rent from a tenant in 6 months or more.
It’s All on Landlord’s Backs
The government has foisted the issue of rent default onto small business landlords. Few experts would agree that this is fair to small business people who have always paid their taxes and provided comfortable homes for their tenants.
If landlords are struggling to collect rent and receivables, it’s hard to imagine investors wanting to invest in rentable property. Landlords can help themselves and the industry by strategically pursuing payment from tenants.
Where do They Live?
This updated data from NAR shows surprisingly, that most renters in default are in single-detached rental houses. The rest in default show apartment renters have similar default rates regardless of whether low rise or high rise.
How Much Funding is Needed for Renters?
Cut Stress with a Smart Strategy
These days, collecting rent and accounts receivables can be a source of significant stress. We’re exploring a few of these hard tasks including avoiding landlord mistakes, landlord reputation management, and tenant screening in other posts.
Huge Back Rent Still Owed
Some estimates of back rent due to landlords in the US alone is up to $74 billion so far. We’re not out of the pandemic crisis yet.
This graphic below shows that fewer renters are paying the rent on time (by the 6th of the month), suggesting more trouble ahead for landlords.
Now as rent moratoriums launched by governments during the Covid 19 pandemic expire this year, some renters will be unable to pay their rent.
Getting Serious to Save Your Business
Landlords may learn that a little rent collections work doesn’t get enough cash flowing against a tide of refusals. Your strategy and effort should match the challenge you face.
This post assumes you have listened to their reasons for non-payment and have been compassionate, but you must get them to pay or you’re in serious trouble yourself. If you’ve been lenient about the matter, then by drawing a line (which only you see of course), you’re ensuring you’re managing your receivables professionally. Your banker will demand to know what you’re doing to save yourself.
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K Shaped Recovery: Why Some Renters Won’t be Able to Repay their Rent Debt
Yes, the economy will recover, but many believe it is a K-shaped recovery where a few renters may not be employed again soon. This means back rent will likely never be paid, and they’re continuing to occupy your rental property.
The matter is a hot potato issue for governments and they’re just pushing it forward. Unfortunately, it’s a wave of evictions and potential landlord bankruptcies ahead this summer when stimulus payments end.
Getting into Rent Collection Mode
Set a goal, create a process, and act on it. Remember the consequences if you can’t get renters to pay. All roads point to payment and there’s a strategy to make it so.
Making Renters Care and Willing to Pay
We’ve written about encouraging payment previously, but when renters stop caring and communicating, refuse to pay even partial payments, or won’t sign an agreement to pay their overdue rent, what should you do?
Put the entire onus on them based on their financial and lease responsibilities. Make it apparent you’re doing everything you can to help them, but they need to reciprocate. Renting is a business.
24 Ways to Encourage Renters to Clear up their Debts and Pay Rent On Time:
- showing how you’re lobbying hard and loudly for local, state and Federal government rental assistance funds (show you’re doing all you can to help the situation and post it on your website)
- lobbying hard for governments to force renters who have funds to pay their rent first before other bills – if housing is essential then paying rent is essential too.
- informing renters of their rights at the same time as informing them of their lease responsibilities
- informing renters of all the easy ways to pay their rent
- building urgency in your communications
- offering a discount if they pay today (capture their impulse to pay and ease their anxiety/guilt)
- introducing them to your online rent payment application so they can transfer from their bank accounts now
- offering non-paying renters a discount if they pay by a set date.
- remind tenants they can’t sublet or assign the units because they’re in default
- remind tenants you will pursue payment from guarantors and that they will likely need guarantors for their next rental
- remind tenants you may ask for an increased security deposit (if allowed) and their current one has already been used to pay their rent
- remind tenants that interest and late fees continue to be applied as per their lease contract
- remind tenants you will have to raise rent to cover losses suffered in 2020
- directing renters to your eviction process webpage with details they need to know
- advising renters to protect their credit rating and mention that rent refusal could lead to credit damage
- informing renters of why it’s wise to communicate with you honestly so they don’t put themselves in danger of eviction and collections activities
- reminding renters of the damage rent default does to their credit rating and ability to acquire another rental
- using the phrases overdue, pay rent, and eviction to set the theme in your communications strategy
- setting up times to visit with them, face to face at their doorstep at a safe distance, to discuss the matter and get them to commit to a payment schedule and have them sign the agreement (create a collections schedule) to pay.
- if you can’t afford to pay tenant’s utilities, consider having them shut off or reduced.
- make a termination or vacating the unit offer (e.g., last 2 months rent forgiven if they sign a contract specifying they will leave the unit at the end of the month).
- offer to help with move (pay for moving van)
- helping non-paying renters move on and encourage to them to live with friends or relatives.
- giving them a set date to begin eviction proceedings and inform them of the process (force them into awareness).
The overall rent collection strategy revolves around communications, encouragement, decisiveness, and good personal financial management. That’s a positive, helpful approach backed by legal documents and consequences.
For many hard core rent objectors, a hard line is the only way to get things moving again.
If tenant eviction seems likely, you may find Nolo.com nolo.com/legal-encyclopedia/evictions-during-covid-19-landlords-rights-and-options-when-tenants-can-t-pay-rent.html helpful in understanding your legal rights before you act.
And AAOA has some rent collection guidance that may help.
Hopefully, you’ve created a rent collection policy that is valid and enforceable as it provides a reference for tenants. Ensure the rent collection policy is included in your rental lease (and have them initial that section).
The rent collection policy may include:
- a no cash payment rule so you always have a paper trail (or digital trail)
- the exact due date of rent
- specify exactly how payments should be made
- which payment methods can be used (checks, etransfers, online rent payment systems)
- the late fees for late payment
- fees for collections activities
- responsibilities clearly stated if back rent accumulates
The rent collection policy is a reference too for court action if you must take tenants to court to collect rent and evict them if they’re squatting in your rental property.
Perhaps, the key tactic in a rent collection strategy is to ensure tenants understand and feel responsible for paying their rent. If they’ve put the matter out of their minds, it’s important to reintroduce them to their lease obligations and let them visualize themselves moving out of the unit.
Part of that persuasion is to remind them and the public that landlords/property owners aren’t responsible for housing citizens, paying their bills, and acting as the backbone of society. Rather, landlords are business people in business relationships who are real people who are at risk themselves in this pandemic.
A Post Pandemic Rent Collection Strategy
7 Measures that may help you collect rent:
- find a copy of a legal rent collection policy — to post on your website
- plan your communications with renters — map out your collection actions and the steps you need to take to get them to pay
- draft a message that asks them to contact you now — to arrange or follow up on payments
- organize your renters — according to how far behind they are in payments, with the most overdue who you will be focusing on for immediate action
- notify them — of all the easy, convenient ways they have at their disposal to pay their rent
- advise them — that the matter will be handed over to a collection agency, affect their credit rating, and the eviction process will be started if payments aren’t made
- advise them — that no communications means a refusal to pay rent due
Collecting rent properly still means using compassion to connect with your tenants. Your soft skills can play a roll in helping tenants come to grips with their situation and move forward (avoiding further trouble).
When rent debt piles up, it’s a serious situation and it calls for professionalism. Good luck with your collections process. Please do leave a comment regarding your collections experiences and any tips you might have.
Please do review our posts on tenant acquisition strategy and tenant screening as your future prevention strategy.
If you’re thinking of just handing rent defaulters and receivables to a collections agency, will they be any more effective than you? Check them thoroughly for fees, licenses, insurance, specializations, experience, and their collections success rate.
And some services offer to automate it via software apps but the wisdom of that is questionable given the current status with government rent moratoriums.
If you create your own collections strategy, it might be a better route than bringing in tough-minded debt collectors.
News and Resources
Collection rate: denver.cbslocal.com/2021/01/28/colorado-apartment-association-rent-collection-rate-january/
Rent guarantees: kcet.org/news-community/coronavirus/landlords-can-sign-up-for-rent-guaranteed-program-to-house-homeless-angelenos
Stopping rent controls: wmtw.com/article/portland-landlords-sue-to-stop-citys-new-voter-approved-rent-control-ordinance/35652411
Rent Debt Collection: rentdebt.com/
Rent Debt Collection System: icsystem.com/industries/rent-recovery/
When to Send Tenant Debt to Collections Agency: bylcollections.com/blog/when-to-send-your-tenant-to-collections
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