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    Rent income is the driving force behind every rental business. As a property owner, you rely on this revenue to fulfill mortgage payments and keep your properties in tip-top condition. However, rent collection remains a struggle for many property owners.

    In 2019, Zillow estimated that US households spent $512 billion paying rent. This figure demonstrates how promising the real estate industry is. However, many renter households have fallen behind on rent due to the pandemic’s economic challenges. 

    According to the National Multifamily Housing Council (NMHC)’s Rent Payment Tracker, 92.0% of apartment residents paid full or partial rent in December 2021. This suggests that 8% of the 11.8 million participants still failed to pay their dues. In a similar study, the National Equity Atlas found that over 5.8 million renter households were behind on rent. These numbers, though alarming, highlight the importance of establishing efficient rent collection practices.

    An established rent collection process holds renters accountable for their monthly commitments. More importantly, having a proper rent collection process in place allows you to stay on top of your portfolio’s revenue.

    In this blog, we round up the basics of rent and how you can ensure that your residents can pay on time every month. 




    Consider What Works Best For You


    There are various ways to collect rent. Whether you’re a novice property owner or a seasoned investor, you probably have developed your unique system of collecting payments. However, providing limited methods to pay might be the culprit why your residents fail to pay rent on time. Adding more channels for rent payment can help address this.

    Before choosing which methods you’d like to adopt in your rent collection process, consider these questions:

    Do you manage multiple properties?
    It’s essential to assess how many rental homes you currently own and manage. Some payment methods are best suited to portfolios containing multiple properties.

    Are you a remote property owner?
    Some traditional forms of rent collection are only suitable if you and your renters live near each other. The most convenient way to collect rent for properties located out of state would be to implement an online payment system. Alternatively, your renters can also opt to mail their checks or money orders.

    Are you tech-savvy?
    Nowadays, there are various ways to pay bills online. If you’re eyeing digital channels, make sure that you’re comfortable using your phone or personal computer to organize payments.

    Answering these three simple questions can offer plenty of insight into your options for collecting monthly payments from your residents.



    Looking at Different Ways to Pay Rent


    Now that you’ve identified how you’d like to manage rent collection, it’s time to narrow down how you’d like your residents to pay their dues. Below are four methods typically used to hand in rent.



    Handing in cash is the most straightforward way your resident can pay rent. However, this method can be time-consuming and inconvenient for you and your residents. You’ll have to allot time to meet with your renter, which can be tricky if you both have conflicting schedules. So, it’s best only to accept cash payments if you live near the properties you manage.

    Another downside to this payment method is how challenging it can be to track payments. To avoid messy payment disputes, you’ll have to issue a receipt for your renter and create a record of all the rent you’ve collected.



    In a study conducted by the Federal Reserve Bank of Boston, 42% of households reported using checks to pay rent. This is a widely used method because it allows more flexibility than cash payments. If a renter is out of town when their rent is due, they can simply mail a check to you or postdate one before they leave to ensure that they don’t miss the deadline. 

    To avoid the instances of a bounced check, make sure only to accept certified checks or cashier’s checks. Banks may only issue these checks when they can confirm that the individual has enough funds in their account to cover the amount. 


    Money Orders

    A money order is a guaranteed form of payment that you can purchase at retail banks, grocery stores, pharmacies, or the United States Postal Service (USPS). If a renter doesn’t have a bank account, they can opt to purchase a money order instead. This payment method is a secure alternative to a check because it can only be bought with cash or credit. Money orders also clear within 24 hours after you deposit them.  

    These are a few of the significant costs you can expect to incur during a vacancy. On top of these, you’ll also have to factor in property insurance premiums, mortgage payments, and cleaning fees. In the next section, you’ll find strategies that can help you reduce renter turnover and avoid the costs that can undermine your rental income.


    Electronic Payment Methods

    Zillow’s Housing Trends Report indicates that in 2021, 52% of residents paid their rent online. This is no surprise because online payment channels have made rent payment and collection much more manageable. Residents can use bank-to-bank Automated Clearing House (ACH) transfers or forward their monthly dues via Paypal or Venmo. Some companies have even developed online systems that allow you to deduct rent from a renter’s account automatically. 


    Person holding phone on desk with PayPal logo


    Despite these payment methods, you’re still bound to encounter the occasional late rent. In the next section, we round up the most professional ways to handle renters who are past due.  




    Managing Past Due Rent Payments


    Rent arrears should be taken seriously as these can lead to missed mortgage payments or insufficient funds on your end. It’s also important to remember that when a resident fails to pay their rent on time, they violate the rules indicated in the lease agreement they signed. To avoid these, it’s necessary to implement penalties that will help reduce the strain of a late payment.

    Here are a few methods that you can use to manage past-due rent when they occur.


    Consider Giving A Grace Period

    Incorporating a grace period into your rental lease agreement provides residents a chance to still make payment even if they’ve missed the due date. A grace period also provides leeway for unexpected incidents or holidays that may cause a renter to delay their payments. 

    Suppose that you’re used to collecting rent on the first day of the month. With a grace period in place, residents can pay rent a few days after this date without getting charged a late fee. Waiting a few days before officially charging late rent fees can also help residents who have not received their paycheck on the day rent is due.

    Bear in mind that property owners are mandated by law to provide grace periods in some states. In Colorado and Washington, renters are legally allowed a seven-day and two-week grace period, respectively. Meanwhile, there are no state-mandated grace periods in California, Nevada, Texas, and Missouri.


    Curb Rent Arrears with Late Rent Fees

    Constantly pestering a renter to pay their rent on time can be tedious and time-consuming. Enforcing a late rent fee can help alleviate this issue by showing your renters that leaving rent unpaid has consequences. This penalty is also a legal way for renters to compensate you for any inconveniences or risks resulting from their late payment.

    One caveat to remember is that late rent fees should be indicated in the lease agreement. According to Avail, 80% of active leases it handles impose a penalty for renters who cannot hand in their payments on time. It’s essential to have your late rent fee in writing to make sure that your renter understands that you expect to be paid on time. Additionally, disclosing this policy in the lease agreement is the only legal way to enforce a late fee. 

    When deciding on the amount you’re charging for past-due rent, always consider local and state laws. In several locations across the US, residents who fail to pay on time can be charged 5% to 12% of the entire outstanding rent. Ideally, a late rent penalty should be hefty enough to deter late payments but not unreasonably expensive that it can discourage current and prospective renters.

    Implementing grace periods and penalties are practices that can help you manage residents who fail to pay their rent on time. However, the best way forward is to tackle this problem at the root and set up a system that encourages your renters to make timely payments. 



    Steps to Take to Ensure Timely Rent Payments


    Encouraging renters to pay on time may be more pleasant than enforcing penalties when they miss a payment deadline. If you’re looking to take a more proactive approach to rent collection, consider adopting the following techniques.


    Provide Clear Instructions for Payment

    It’s best to go over the procedures and rules surrounding rent payment and collection at the onset. Remember to emphasize necessary details such as collection date, grace periods, and penalties for late payments.

    If you’re allowing multiple methods of payment, make sure to outline clear instructions on the lease agreement or provide a separate document containing all salient information. These guidelines should include your full name, bank account details, and mailing address. It’s also essential to clearly explain how online payments work if you accept rent payments this way.

    A tech-enabled property management company like Poplar Homes can help you set up a rent collection system that residents can easily follow. Our automated rent collection can help you do away with the time-consuming ordeal of collecting rent from your residents. When rent is past-due, Poplar’s accounting team takes the necessary steps to get payment on your behalf. Our Rent Guarantee also ensures that you receive your payout even if a resident falls behind on rent.


    Reward Renters Who Pay On Time

    Offering incentives to residents who make timely payments can be an excellent way to encourage them to avoid past-due payments. You may want to award rent discounts for residents who pay a day or two earlier or those who have consistently handed in their payments on the dot. A discount as low as $20 may be enough to motivate residents to pay rent early or make consistent monthly payments.


    Report Rent Payments to Credit Bureaus 

    Another way you can encourage your residents to be punctual with their payments is by helping them boost their credit scores. You can accomplish this by using a rent reporting service that allows you to inform credit bureaus when a renter hands in their payment on time. Major credit bureaus, such as Equifax, Experian, and TransUnion, include rent payments in their credit reports. Offering this incentive can appeal to renters who are concerned about their finances. According to TransUnion, 26% of residents avoided past-due rent when they knew their payments were being reported. 




    Bottom Line


    The revenue you earn from your properties is what keeps your rental business running. However, a late payment can disrupt the stream of rental income you rely on for your portfolio. Although late fees and grace periods can help mitigate the inconvenience of late rent, it’s best to avoid past due payments from happening in the first place. It’s also essential to keep your residents informed about important payment details and offer incentives in exchange for timely payments. By adopting a proactive approach to rent collection, you’re setting your business and renters up for success.


    Ease the burden of late payments with our Rent Guarantee