How to stop late rent payments
Owning an investment property can be one of the most financially rewarding decisions you can make. When property investment runs smoothly, your tenant covers a large portion (if not all) of your mortgage repayments and you gain all the benefits of capital growth with minimal ongoing outlay.
But it’s not always smooth sailing and one of the most common issues investors come across is a tenant who doesn’t pay their rent on time. Sometimes this is unavoidable – relationship breakups, job loss, illness etc. But other times, it’s simply a case of a poor tenant selection and them not being clear about your expectations.
At Besser & Co we pride ourselves on keeping our rent arrears lower than the industry average. The key to making sure our tenants pay their rent on time starts with a very thorough application checking process, clear instructions on how the rent is to be paid, setting our rental payment expectations at the beginning of the tenancy and being clear about what happens if the tenants fall behind.
Here are a few more tips for making sure your tenant pays their rent on time.
1. Make sure your tenant can afford to pay the rent. Stick to the 33% rule: if the rent is more than 33% of the total household income the tenant is at high risk of not being able to pay his rent.
2. Be clear about what you expect from the start. Explain your expectations in terms of rental amount, when the rent is due and how often, what is covered by the rent, penalties for late payment and what happens if they don’t pay their rent.
3. Make sure your instructions are clear and non-negotiable and give them to your tenants in writing. Explain the document to them before they move in so they understand exactly what they need to do and when.
4. Give your tenants a rent due date calendar at signup. For those tenants who need a little reminder of when their rent is due, try sending them a text message or email before the due date.
5. Set your tenants up on a direct debit if possible. If this is not possible, get them to schedule a regular online transfer. Avoid cash payments if possible.
6. Avoid multiple rent payments from share tenants – insist on a single payment. Also, never accept part payments if a tenant or share tenant falls behind.
7. Always enforce your rules around late payment. If you are entitled to issue a breach, do so, you can always rescind it if you need to.
8. Give a tenant notice to vacate on the 15th day that they get behind with the rent. Don’t give them any slack and don’t let emotions get in the way of a business decision.
9. Do not renew the lease of a tenant whom you have constantly had to chase for arrears. Their behaviour is not likely to change after their initial 12 month lease period.
10. Keep all communications in writing (in case of legal action) and be meticulous with your records.
If your Property Manager is having trouble collecting your rent on time, feel free to forward them this post or contact me for a chat.