Many landlords struggle with one of the most important parts of rental management — rent collecting. Considering rent is how you make money, though, you should arm yourself with everything you need to know about how to collect rent.
A Landlord’s Guide to Rent Collecting
Managing a rental property is a difficult undertaking, requiring the completion of a multitude of tasks, often simultaneously. After finding and screening tenants to fill your vacancy, the next step is to sort out rent details so that you can draft your lease agreement.
But, there is more to rent collections than just setting a rental rate and waiting for the checks to come in. You must also set a due date for rent, know how to charge prorated rent, provide rent receipts, and decide whether you should accept partial rent payments. Let’s take a closer look at each of these areas of rent collecting below.
Setting a Deadline for Rent Payments
To start, settle on a due date for rent payments. You can pick out any date you want, but it is generally recommended to set it on the first of every month. This way, your tenants can easily remember when rent is due.
But, you don’t even have to collect rent monthly. Depending on what you and your tenants have agreed upon, you can also decide to collect it on a different frequency. You can collect rent every week or every two weeks if that is what you prefer.
Some tenants find this type of setup easier because they can pay in smaller amounts instead of a lump sum. It is worth noting, though, that collecting rent this way can be more troublesome on your part as the landlord.
Is it illegal to ask for rent early? While you can certainly request that your tenant pay rent in advance, you can’t demand it. Rent is only legally due on the date specified in your lease agreement. As such, you can’t punish a tenant for refusing your request. Besides, just as you wouldn’t want your tenants to pay rent late, tenants also don’t want to scramble for rent money earlier than normal.
Moving In: All About Prorated Rent
The first month’s rent is usually the trickiest, especially if you will charge a prorated amount. Landlords usually prorate the rent amount if a tenant is set to move in or out of the property in the middle of the month.
It might seem inconvenient to take this extra step, so you may feel tempted to just wait until the start of the next month to have your tenant move in. But, the longer your rental remains vacant, the more money you lose. Therefore, you naturally want your tenant to move in as early as they can.
To calculate prorated rent, you first need to figure out how much you charge in rent on a daily basis. You can calculate this amount using the formula below:
Monthly Rent Amount / Number of Days in the Month = Daily Rent
Now that you have your daily rent amount, you can calculate the prorated rent amount using the formula below:
Daily Rent * Number of Days Your Tenant Lives in the Property = Prorated Rent
Keep in mind that you should only start collecting rent — including the first month’s rent — after both parties have signed the lease agreement. Make sure to wait until the check clears before you hand over the keys to your tenant.
Providing Rent Receipts
Is it necessary to provide a rent receipt to your tenant? The answer is yes. It is always a good idea to issue a receipt to acknowledge that you have, indeed, received the rent payment. Many states, such as New York and Maryland, even have laws requiring landlords to issue a rent receipt.
Beyond following the law, receipts can also help you in case a tenant sues you. Additionally, receipts are a good way for your tenants to track their rent payments. It serves as concrete proof that they have already settled rent for the month and can even aid them when they go through future tenant screenings.
Partial Rent Payments: Yes or No?
Should landlords accept partial rent? The decision is fully yours to make, except when you have started the eviction process. In that case, you should not accept partial rent or else you may need to start the eviction process all over again. Other than that, though, you are free to decide whether or not to allow partial payments.
Of course, there are drawbacks to agreeing to such a setup. Accepting partial rent might signal to your tenant that you’re not serious about collecting rent. And, from there, it’s a slippery slope.
To avoid coming off this way, you should clearly inform your tenant that you expect the rest of the rent to be paid. Set a due date for when you intend to collect the remaining balance. It’s wise to have both parties sign an Agreement for Delayed or Partial Rent Payments. In doing so, you can legally bind your tenant to pay the rest of the amount and protect yourself from liability as well.
Collecting Unpaid Rent from Previous Tenants
Can landlords sue their tenants for unpaid rent? This is a question landlords commonly ask. If a past tenant still has an outstanding rental balance with you, you can deduct it from their security deposit. If the security deposit fails to cover the full amount, you can file a lawsuit against the tenant. You can then subsequently take them to small claims court to force payment.
Best Ways to Collect Rent
1. Collect Rent Online
When you ask, “What is the best way to collect rent?” Most people will say online.
Collecting rent online makes it easy and convenient for your tenants, especially when they’re on the go. Additionally, many online services also issue receipts.
Some of these services charge a fee, while others have certain requirements that you must follow. When shopping around for the best app or service for you, make sure to consider all your needs as well as whether or not you’re willing to pay for them.
Keep in mind, though, that you must also accept another mode of payment to accommodate tenants who can’t pay rent online with bank accounts, apps, or other virtual means.
2. Collect Rent Personally
Another way to collect rent is to do it in person. You can go door-to-door come due day and personally receive rent payments. A benefit of this method is that you immediately get the money, especially if tenants pay you in cash. But, there are also pitfalls to collecting rent personally, such as having to coordinate schedules with your tenants. Plus, this rent collecting method can be quite bothersome if you live far from your rental property.
3. Collect Rent via Mail
Collecting rent by mail is still a viable method since you don’t have to do much but wait. However, a huge downside to this is that you might not receive rent payments when you expect to since delivery takes a while. It also allows for tenants to send only partial payments to buy themselves some time or to make the clichéd excuse that their payment “got lost in the mail.”
4. Drop-Off Rent Collection
You can also ask tenants to drop off their rent payments at a certain location. This could be your office or place of business. Don’t allow your tenants to drop off payments at your home address — unless you live in the same property as your tenant.
It’s also a good idea not to allow cash payments when utilizing this method since there is a risk of theft. Additionally, tenants might claim they dropped off the exact rent amount when, in fact, they only put in a partial amount and lied about it.
5. Hire a Rent Collection Service
If you don’t want to deal with the hassle of collecting rent yourself, you can always hire someone else to do it. You can use a rent collection service.
What is a rent collection service? It is a service, usually provided by a rent collection agency, involving the collection of rent payments and, sometimes, even chasing after a tenant. Rent collectors make it easy for landlords to obtain payments, though their services also cost money.
Do property managers collect rent? Yes, in addition to rent collecting, property managers perform a wide array of rental property management tasks. This includes marketing your property, screening tenants, managing maintenance and repairs, and even drafting your lease agreement. Hiring a property manager or management company is an all-in-one solution.
How to Encourage Tenants to Pay Rent on Time
Ideally, the tenant screening process would have filtered out any bad tenants and only left you with quality tenants who pay rent on time. Unfortunately, not all landlords can be as lucky, and some bad tenants might slip through the cracks. Here are three simple ways to encourage on-time rent payments:
- Charge a Late Fee. Provided you follow state laws and include such a clause in your lease agreement, charging a fee when the rent becomes past due is a good way to get tenants to pay on time.
- Offer Incentives. If you’re willing, you can also provide incentives. You can offer a discount on rent if tenants pay early or shave off a certain percentage if a tenant never misses a due date for a set number of months.
- Make It Easy to Pay Rent. Sometimes, tenants fail to pay rent on time because the single payment method you accept just isn’t convenient. Consider using a few different methods to make it easier for your tenants.
Part of the Job
Rent collecting is often no easy feat, but you can make the process smoother by keeping these pointers in mind. After all, as a landlord, rent is the primary way you earn income through your rental property. Therefore, you should understand how to collect rent as much as you can.
No time or patience for rent collection? Find a property management company to do it for you. Begin your search for the best property management companies in your area using Rental Choice’s online directory.
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