It’s critical to have a good rent-collection process in place if you want to have a successful rental property business. Without specific guidelines established, it’s easy to fall into disorder and lose track of your rental income. Being disorganized can also lead you to treat customers differently and compromise your level of fairness.
To stay organized, my management team has a rent roll on a Google Sheets document that’s accessible to each of us.
A rent roll includes the address, tenant name, tenant contact information, lease start and end dates, deposit, current rent rate, and payment history of a tenant.
This spreadsheet becomes the centerpiece of all interactions around managing our properties. It allows all of us to access vital tenant data and manage information regarding their payment history. While there are lots of property management products and tools on the market, we have chosen to use something simple on a widely accepted platform, thus Google Sheets.
Using the information on our rent roll sheet, our accounts manager then makes rental income reports at key points in the month. I’ve included an example below and will spend some time discussing each part of the process.
- Rents Due by 1st
It’s the standard expectation for our tenants to have rent in by the 1st of every month. Typically, 90+% of all our tenants pay on time and there are no additional issues.
- Rents Late After the 5th
Our tenants are given a 5-day grace period, but if they don’t pay by the end of the day on the 5th of every month, they will be charged a $75 late fee. A side note—it’s not unusual for us to waive one late fee per month due to extenuating circumstances.
Overdue Report (#1)
The first business day after the 5th of every month, our accounts manager will email me and my team the Overdue Report. This report includes every tenant who is past due on rent (typically 1.5-2% of tenants). At this point, my property manager will contact all the tenants on the report. This process is low pressure and serves as a friendly reminder for those tenants to pay. If there is an usual situation, my property manager may be more strict with the tenant. It’s likely the same people will be on the report month after month. I don’t necessarily worry about the tenants who habitually pay late and catch up. I worry about the tenants who don’t return our calls and fail to communicate about why their rent is late. As a landlord, you need to be a good student of your tenants to understand the difference between the two categories.
Follow-Up Report (#2)
The first business day after the 15th of every month, our accounts manager will update the previous report and email it out. Again, my property manager will touch base with tenants, and I will talk with him about those who are still past due. This process has increased pressure, and we begin to discuss whether or not to post a threat of eviction at the end of the month.
Month End Report (#3)
The first business day after the 1st of the next month, our accounts manager emails a final update of the previous report. At this point, 99.9% of issues are typically resolved, but in the case that one isn’t, my property manager will attempt to contact the tenant one last time before posting an eviction notice on the unit’s door. After posting the eviction, my property manager will engage an attorney to formally start the eviction process, which of course is high pressure.
In all my years as a landlord, I have only had to evict a handful of tenants, but it’s important to have clear procedures in place so tenants understand their responsibilities and consequences when it comes to paying rent on time. No tenant goes with late rent for 30 days without facing eviction unless there are extenuating circumstances. I’ve found that nothing is more uncollectible than a previous month’s rent. Once that time has passed, the tenant has less incentive to catch up on rent. Being a squeaky wheel and reminding the tenant of his or her obligation throughout the month exponentially increases your likelihood of collecting rent. If you wait until 30 days have passed, you may never get the tenant caught up to where he or she should be. That’s the significance of having multiple touchpoints through the month with anyone who pays late. I think collecting rents is just like any other job, the more you manage it, the better results you’re likely to achieve.
A Landlord’s Ethical Dilemma
So what do you do when a tenant is late or unable to pay rent due to extenuating circumstances? I think as a landlord, it’s important that we have good processes but never lose sight that our customers may have situations that are beyond their control that require a little extra grace to manage. There have been times that I’ve felt like I was in an ethical dilemma between pursuing rents that were due and balancing a more human component of our business. Landlords are forced to draw a line between collecting rents and showing compassion to tenants who could be in real need. I think that line could be drawn in a different place according to the unique situation that your tenant finds him or herself in.
I think it’s especially important to manage this dilemma well if you’re a person of faith who wishes to emulate the teachings of Christ. While you’ll never please everyone, it’s important to find the balance between being gracious and not enabling bad behavior. There’s been times where I’ve failed to strike this balance, sometimes I’m too tough and other times I’m too enabling, but through these failures I have learned that having a conversation with our property manager about tough situations helps determine where to draw the line with each tenant’s circumstances. In these conversations, we discuss how frequently a tenant is late and if we’ve ever forgiven late fees or made special provision for him or her in the past. We would be less likely to extend grace to someone who is habitually late with a real problem of money-management ability rather than a true extenuating circumstance that he or she needs help with. I do think it’s a good thing to forgive rents and late fees as necessary, but I would not do that wantonly. In doing so, you could create a bigger problem for yourself to manage later, and once a precedent is set, it’s very difficult (if not impossible) to undo.
In Summary:
- Good processes and frequent touchpoints are essential when collecting rent. Don’t be afraid to be the squeaky wheel!
- Put together a good team to help you with this process. You’ll get better results when you share responsibilities and pressures.
- There will be ethical dilemmas for you as a landlord that will be very difficult to deal with. Equally balance being fair to yourself and to the tenant. Remember that being gracious is a powerful way to help people but could also create a worse problem in the future.