Rent collection includes determining the best payment methods, how to track payments, increasing rent, handling non-paying tenants, charging late fees and more.
Rent Collection Methods
The best way to collect rent will depend on your personal preferences, what works well for your tenants, and your portfolio size. These methods include:
- Payment apps – There are several payment apps that are convenient and easy to use (especially for those with a small portfolio) including Apple Pay, Zelle, Venmo, PayPal, and Cash App
- Rent collection software – These services allow landlords to easily collect rent without much oversight and offer additional tools like payment reminders and the ability to add late fees. A few options include Zillow Rent Manager and Apartments.com.
- Direct deposit (ACH) – This method sends money from tenants’ bank accounts to the landlords’. It can be set up to happen automatically and is free through several rent collection software systems.
- Cash – Cash is often the easiest method to collect rent. However, landlords need to be careful to count the money with the tenant and sign a rent ledger each time a payment is made as it can be difficult to keep track of.
- Check – Collecting a cashier’s check or money order is a reliable way to collect rent. However, it requires the tenant to go pick this up from their bank or other banking services each month, which can be time-consuming.
- Mail – Landlords who do not live near their rental properties may prefer mailed payments. Just keep in mind payments can take a bit longer to get to you and then be processed.
- Drop-off box – If you own several properties or an apartment community, a secured drop-off box can be a great rent collection option. Tenants can drop their payments when it is convenient for them. However, it is important to have a good tracking system to ensure the box is checked regularly and payments are recorded.
How To Determine How Much To Charge for Rent
Landlords need to set a fair rental price that allows them to cover all expenses and make a profit without exceeding market norms. To determine the best rental price for your unit you should:
- Calculate all expenses – Understanding the operating costs of your rental will help you determine the minimum amount of rent you can collect to break even.
- Identify competition – Looking at rental sites can help you determine what comparable houses in your area are renting for. Be sure to consider the unit size, lot size, number of bedrooms/bathrooms, amenities, neighborhood, and security features to ensure you’re looking at fair comps.
- Consider seasonality and location – Rental prices can also fluctuate throughout the year. Rental prices are typically higher in the summer and lower in the winter. The location of your property also factors into the price as living near a populated area such as a college campus would constitute a higher price in the months leading up to the start of school.
How To Keep Track of Rent Payments
Tracking rent payments is important to ensure that tenants are paying their rent on time each month. Landlords typically track rent payments by:
- Rent ledger – This method is a physical document used to track all payments including security deposits and repairs. It typically lists the type of entry, date, amount, description of the item, property address or unit number, tenant name, and signature.
- Spreadsheet – A digital spreadsheet like Google Sheets, Microsoft Excel, or Apple Numbers can be an easy and convenient way to track payments. They typically include sections for income, expenses, fees, and utilities.
- Automated software – These services offer landlords and tenants a variety of tools including tenant portals, rent reminders, online rental applications, screening services, a maintenance portal, and more. It is an ideal choice for those who prefer online payments—just keep in mind many of them come with a cost.
Are Rent Receipts Required?
Rent receipts are not required in most states. However, they are recommended as they can be beneficial should you have a legal issue with a tenant.
Let’s say you have a tenant who pays you cash for the rent each month. When you collect the rent this month, they have only paid you $100. You have no record of their consistent in-full cash payments. You are forced to file an eviction suit. They claim that they gave you the full amount. Without documented receipts, this could turn into a disaster.
What Day of the Month Should Rent Be Due?
Rent is typically due on the first day of the month. However, landlords can select any day as long as it is listed in the lease agreement.
When selecting a rental due date, be sure to keep a few things in mind:
- Stay consistent – Keeping the same policy and due date throughout the life of the lease will help you avoid any confusion about when rent is due. Tenants need to know how much to pay, when to pay it, and how to pay it.
- Determine bill dates – Plan for any bill expenses you as the landlord have.
- Consider grace periods – If you offer a grace period or your state legally mandates one, you need to plan for tenants to use it.
- Identify payment methods – If you only offer online payments, you can easily see which tenants didn’t pay on time. However, if you accept mailed payments or have tenants with Section 8 housing, payments may be delayed.
- Talk with your tenant – If there is a solid reason why a tenant needs a different due date, being flexible can be beneficial to the landlord-tenant relationship.
Should I Increase Rent Each Year?
Generally, landlords should increase rent each year. Adjusting your rent price each year helps to offset the increasing cost of owning a rental property. Landlords often face increases in property taxes, utilities, HOA fees, insurance, and more.
Small increases over time are much easier for tenants to handle than large increases every few years. However, landlords do need to offer proper notice and should cover the topic of yearly increases in the lease.
When You Should Not Raise Your Rental Price
There are times when it is not in your best interest to raise the rent, including:
- Small or no increase in expenses – If your operating costs haven’t risen or only increased by a few dollars, and you are happy with your current profit margin, it may not be necessary to raise the rent.
- Comparable property rent prices – If your research shows that your rent price is the same or a bit higher than comparable properties, it may not make sense to raise the rent, especially if you have a good tenant. Why would a good tenant re-sign a lease when they can find the same property for a cheaper price?
- High-quality tenant – If you have a high-quality tenant who pays their rent on time and in full each month, it may not be worth the cost to raise the rent. If the tenant chooses not to stay, the time and expense to advertise, screen new applicants, and float payments on the vacant property may be significant.
- Your property doesn’t merit a rent increase – If your property is dated, needs maintenance, and doesn’t offer appealing amenities, raising the rent may be the final straw to having tenants leave.
How to Raise Rent Without Annoying Tenants
Strategically raising your rental price can help you maintain happy, high-quality tenants and avoid vacancies. To effectively raise your rental price you must:
- Calculate expenses – Looking over your operational expenses can help you determine how much your costs have risen and how much you need to raise your rent to cover the added expenses.
- Assess the property – Determine if your property is in a condition that could withstand a rent increase. If your unit could use a fresh coat of paint or a few upgrades, it’s a good idea to handle this before raising the rent.
- Identify local market values – Look for at least 5 comparable properties and calculate the difference in price. Raising your rent only pays off if you can keep your unit filled.
- Review local laws and regulations – Landlords need to ensure they are within the state and local laws to raise the rent. Some areas have rent control laws that can affect how much, how frequently, and when a landlord can raise the rent.
- Notify Tenants – Offering tenants direct, professional, and open communication about rent increases can go a long way. Landlords should also give plenty of notice about the increase to allow them time to budget and research if your increase is on par with similar properties. Many states require a 30- to 60-day rental increase notice.
What Is a Reasonable Rent Increase?
Determining a reasonable rent increase depends on your local rental market. Although the average rent increase is typically 2% – 3% per year, some markets increase at a much faster rate. During an upswing in housing, it might be reasonable to raise 10% or more in a year.
Should I Offer Rent Concessions?
Rent concessions are special offers to tenants that can help attract new applicants, maintain high-quality tenants, or market an older unit. Although they can cost you some money, a long-term, high-quality tenant pays off in the long run as you won’t have to spend time and money tracking down unpaid rent or frequently filling a vacancy.
Rent concessions can include:
- Gift cards
- Move-in assistance
- Yard maintenance services
- Amenities (Community pool, special parking spot, gym)
- A month of free rent
- Property upgrades
Should Landlords Charge a Late Fee?
There is no requirement for landlords to charge a late fee. However, a late fee can be beneficial to ensure tenants pay on time. If you opt not to charge a late fee, tenants can take advantage and continuously make late payments which can cause issues when landlords need to pay their own bills.
What is the Typical Late Fee for Rent?
The typical late fee for rent is between 5% – 10% of the monthly rent price. However, this can vary based on local rules and guidelines as some states have a maximum late rent fee.
It is also important for landlords to consider a few other factors before determining if they want to charge a late fee including:
- Reviewing required grace periods – Some states require landlords to give tenants a grace period. This means tenants have a few additional days each month, after rent is due, to pay before incurring a late fee.
- Examining tenant behavior – A tenant who consistently pays rent on time and suddenly misses a payment may not be the candidate for a late fee without a conversation. But, charging a fee to a tenant who has paid late a few times may cause them to be more diligent with making their payment on time.
- Considering the local market – In a competitive rental market, an applicant may be more willing to sign a lease with higher late fees. However, if the rental market is relaxed in your area, higher late fees can be a reason an applicant chooses another property.
- Determining a preferred fee structure – Landlords can charge from a variety of fee structures including a percentage-based fee, daily fee, or a flat fee. Be sure to choose a fee that works best for your system, is simple to charge, and is easy to collect or add to an online payment portal.
What To Do if a Tenant Won’t Pay Rent
The ultimate solution for a tenant who doesn’t pay is to evict them. However, there are a few strategies for landlords to collect past-due rent, including:
- Talking to your tenant – There is a chance that there is a very simple reason for non-payment, like the tenant changed banks or received a late check. Communicating with your tenant can open the door to working through a solution.
- Reviewing eviction laws – Each state has laws that affect how landlords can handle nonpayment of rent. Depending on your location, you may have to give tenants a grace period, followed by an eviction notice. Tenants may have up to three weeks or more to pay before being evicted.
- Investigating alternative solutions – Consider offering tenants a temporary payment plan, pushing the rent due date back, or offering them cash for keys.
- Sending a pay rent or quit notice – A pay rent or quit notice shows the tenant you are serious about pursuing legal action if they don’t pay.
- Filing an eviction action – If the tenant doesn’t seem motivated to pay or find a solution, you need to file an eviction action. The eviction process varies by state so be sure to check your local laws or consult an attorney.
