Inside T&H: Rent Collection

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Rent collection.

It’s the grease on the the investor’s skids.

The fuel to the engine.

Without it… well, there’s no reason to own rental property.

And because of that, we take rent collection very seriously here at T&H Realty Services.

Effective rent collection, as we’ve noted in other blogs, starts with effective Tenant screening.

But even highly qualified Tenants can sometimes run into payment issues.

And when that happens, it’s critical that you have the right system in place – a system that helps make paying rent your Tenant’s #1 priority.

As with most things relating to good property management, you have to have a solid lease – with due dates and late fees, for example, that are clearly defined.

And almost as equally important is that clearly defined and universally enforced collection procedures are written and followed.

Consistency, for many reasons, is key.

So, in this week’s blog, we want to provide you a top-level view on how we go about collecting rent.

Let’s start with the Lease.

DUE DATES

For years and years, our Lease showed rent due on the 1st, but considered late on the 6th, which provided a 5-day grace period.

However, for a couple of important reasons, we recently changed our due dates. For all Leases we sign now, rent is due on the 1st day of the month and considered late on the 2nd.

So, there’s no longer a grace period for all new Leases we sign.

Recently, we’ve reviewed Leases (generally from the larger REITs) where rent for a given month is actually due by the 25th of the prior month.

due date stamp

LATE FEES

If rent is paid late, we charge 5% of the total balance as a late fee on the 2nd of the month, and then 1% of the balance for each additional day.

Two important points here:

  1. We used to charge a flat fee as a late fee. However, since we have a range of rents, we felt it was more fair to charge a percentage of the rent.
  2. Additional daily late fees, in our mind, are extremely important. It keeps the pressure on the Tenant to make a payment.

Note: We keep all late fees. I realize some Investors have a problem with this. But, as you can see from this blog, we spend a lot of time and effort to collect rent. We do not charge anything additional, via management fees, for the additional time required. So, whether we spend no time collecting rent, or hours collecting rent, our Clients pay the same.

COLLECTION PROCEDURES

In addition to late fees being assessed to the Tenant, we have a whole fleet of collection procedures we utilize.

  1. System-Generated Notifications. Our PM Software sends daily email reminders to all Residents who have a past due balance. This is a very powerful tool that gets results for our Owner Clients.
  2. Text Notifications. On the 4th of every month, the Resident will receive a text message asking them to contact our office regarding the past due rent amount.
  3. Email Notifications. On the 6th of each month, the Resident receives an email indicating they have 5 additional days to pay rent or face an eviction filing. This notification, which we call a “5-Day Notice to Pay or Quit,” is also uploaded to the Resident’s Portal for reference.cynthia computer

    In many cases, this email will initiate a response from the Resident, who will generally provide a promise to pay on a certain date. Once the payment is received and settled, you will receive an owner draw by the following Friday (minus any costs that may be due).

  4. Phone Calls. In the small amount of cases where we still receive no word from the Resident, we will place a phone call to them to understand their situation by no later than the 8th of the month.
  5. Occupancy Check. If we fail to reach the Resident, we will then schedule an occupancy check to see if the Client is still living at the property.

If the Resident still resides in the home, we will file for eviction, which is an entirely different process we’ll address in another blog.

The key here, as you may have determined, is that, no later than mid-month (generally by the 15th), we’ve identified a problem Tenant and are ready to evict. The courts in Central Indiana have slowed dramatically, so it’s important to quickly identify the issue and react accordingly.

Again, having the right systems and procedures in place to collect rent is vital and a key part in maintaining a profitable asset.

About the Author

Jeremy Tallman

Jeremy is the President and Managing Broker for T&H Realty Services. He has been active in the Central Indiana real estate market since 2000 and leads one of the most successful single-family property management companies in the state.

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