Running a rental portfolio can be a foolproof way to build a profitable business. According to the Internal Revenue Services (IRS), an estimated 10.6 million Americans declared rental income when filing their taxes in 2019. Apart from being a source of passive income, rental revenue also covers your business’s operating expenses. Without it, you may experience difficulty in maintaining your properties. So, when one of your tenants pays rent late, your bottom line may be significantly affected.
As stipulated in the lease, you and your renters would have agreed on the specific date when the rent is due and the corresponding late rent fees and grace periods. But even with these measures in place, you’re still bound to encounter a renter who fails to pay rent on time.
Overdue rent continues to be an issue for homeowners and residents as the country grapples with the pandemic’s effects. The Joint Center for Housing Studies (JCHS) of Harvard University estimates that 15% of renters in America have fallen behind on their payments in the third quarter of 2021. With many of them still struggling to make ends meet, it’s essential that you put together temporary measures for delayed rent. This way, you’ll be able to keep your residents for as long as possible while ensuring the continued profitability of your business.
In the following sections, we discuss the different ways your renters can make up for overdue rent.
What Causes Delayed Rent?
“Was rent due today? I thought it was due on the 5th, not the third.”
“I was on vacation and forgot to send my payment.”
“I missed the bank’s cut-off.”
“I paid my other bills first.”
These are a few of the most common excuses for late payments that late rent fees can easily cover. Often, when a renter falls behind on rent due to simple oversight, they will still be able to pay within the grace period. However, some situations require a little compassion and flexibility on your end.
The following are instances when it’s advisable to make exceptions for a resident who missed the payment deadline:
Unemployment and Pay Cuts
The economic effects of the pandemic have caused many renters to experience pay cuts or job losses. According to the JCHS, 25% of renter households had lost employment income in the third quarter of 2021.
Separation or Divorce
The National Apartment Association (NAA) estimates that 5% of today’s renter base consists of young couples sharing rent. During a separation, your renters may miss a payment as they’re trying to settle the details of their divorce, especially if they used to split the expenses.
If your resident or their close family member has fallen ill, they might find themselves in a financial bind due to mounting hospital bills. Similarly, if your renter has been hospitalized after an accident, they might not be around to pay their dues.
Death of a Loved One
A renter may explain that they missed a payment deadline after a close relative passed away. If they are experiencing financial troubles on top of the emotional turmoil caused by the death of their loved one, it may be difficult for them to stay on top of their responsibilities.
Unexpected Use of Their Emergency Fund
Some unexpected events can prompt a renter to spend whatever’s left of their emergency funds, leaving them in a financial bind. As they wait for another paycheck to come in, they might temporarily be unable to pay their dues.
These situations can greatly affect a renter’s capacity to pay rent on time. Making exceptions for delayed payments when they’re dealing with difficult circumstances shows your compassion as a property owner. However, as you’re still running a business, it’s best to handle these situations professionally.
How to Deal with Overdue Payments?
Rent payment is considered late once your resident fails to pay within the grace period stated in the lease. Once they miss that window of opportunity to pay their monthly dues, it’s advisable to take the following steps immediately.
Step 1: Double-Check the Lease Agreement
Go over the lease agreement and confirm that the payment deadlines, grace periods, and late rent fees were explicitly stated in the document. This way, you can rule out the possibility of your renter simply not knowing when their rent is due.
Going through your lease agreement also gives you a chance to assess if there have been any shortcomings on your end that may be causing your resident to delay their payments deliberately. In some states, your renters are legally allowed to withhold rent if you’ve failed to maintain a habitable living space for them.
Step 2: Get in Touch and Send a Late Rent Notice
After verifying the lease agreement, get in touch with your renter and remind them that their rent is past due. You can do this by sending them a late rent notice, which should contain pertinent information like when the payment was originally due and the penalties they incurred for missing the deadline.
If you’re able to call them or speak with them in person, take this as a chance to explain the repercussions of their late rent payment and how it can reflect on their credit scores. Once the overdue amount is reported, it can take up to seven years to remove it from their record.
Step 3: Work Out an Alternative
If your renter has informed you that they won’t be able to pay rent in the next few days or weeks, avoid serving a pay or quit notice right away. Allow them to explain their side. If their reason is valid, you can proceed to discuss the different ways they can make up for the payment.
How to Help Your Renters Make the Payment
The following strategies can be implemented to help your renters make up for the payments that they missed:
Allowing a rent repayment plan can be ideal for residents who need a bit of time to get back on their feet after a significant financial crisis. A typical repayment plan usually allows a renter to repay overdue rent over a certain number of months.
By dividing the total amount of back rent owed into smaller and more manageable payments, you’re giving your renter enough leeway to reorganize their finances. This can also help ensure that you’re still collecting revenue, no matter how little.
To prevent any misunderstandings regarding the payment plan, put everything down in writing. Make sure to indicate the duration of the plan and if you’re waiving late rent fees until your resident catches up on rent. Clarify how much their total rent will be each month after payment for previous overdue rent is already factored in.
Rendering Services in Exchange for Rent
You can also opt to accept services from renters who have the skills to perform simple maintenance tasks, such as replacing light bulbs, repainting walls, or repairing minor damages. Depending on the total amount of rent that your resident owes you, this kind of agreement is ideal to use in tandem with a repayment plan.
It’s best if you and your renters sign a document outlining the type of services they’re expected to provide and how long you want them to do it. Agree with your renter beforehand if their missed rent payment is still owed after completing the services you asked them to perform. Making sure that you are both on the same page ensures that no conflicts will arise.
Cash for Keys
If your renter is still unable to pay after a whole month or more, you may want to also consider a “cash for keys” approach instead of initiating an eviction.
In this kind of agreement, you can offer to forgive a renter’s overdue rent as long as they are amenable to vacating your property within a specific time frame. Such an arrangement can be beneficial for a renter since their inability to pay for rent won’t appear on their record and hurt their credit. This can also be less time-consuming and less expensive for you since it requires less paperwork than formal eviction proceedings.
If you’re considering this strategy with one of your renters, have them sign a written contract to ensure that the cash for keys agreement is legally enforceable.
It’s also important to remember that rules on security deposits still stand. This means that you are still responsible for informing your renter about repair costs that may be deducted from their security deposits.
Online templates for cash for keys contracts are available from reputable organizations such as the American Apartment Owners Association and the National Association of Income Property Owners.
A Tech-Enabled Property Manager Can Help
Dealing with delayed payments while supervising the other aspects of your rental property can be taxing, especially if you’re in charge of numerous households. Working with a tech-enabled property manager like Poplar Homes can help lighten the load by streamlining the rent collection process and having the property manager follow up with your renters on your behalf.
Poplar also offers a Rent Guarantee designed to protect your business’ stream of income. Our Rent Guarantee ensures that you receive rent payouts on the third day of the month, even when your resident fails to pay on time. When you have to proceed with an eviction, Poplar has you covered with our Eviction Coverage which includes $15,000 financial coverage for legal fees and other expenses that come up during the court proceedings. A team of legal experts will also ensure that you remain compliant with state laws throughout the process.
Delayed payments are inconvenient and inevitable. During these instances, temporary arrangements such as repayment plans and accepting services in place of the overdue rent can help your residents get back on their feet.