The average annual pay for a landlord in the United States is over $87,000, with seasoned professionals making as much as $151,000 per year.
You may have become a landlord for the money, so you need to understand where your income stems from. Most rental property income comes from tenant rent payments, but what is the best way to collect rent?
The truth is that there is more than one way to collect rent. The method you choose may depend on certain factors, such as personal preferences. Keep reading to learn more.
In-Person Rent Collection
With the ease of online rent payments, in-person rent collection is less common these days. This is an ideal method of payment if you allow tenants to pay with checks or cash.
Receiving rental checks or cash through the mail is an outdated way of doing things. It takes too long and there is a risk of the money going missing.
If you agree to collect rent in person, make sure you set a collection policy to make the process more efficient.
Check/Money Order
Accepting checks or money orders are traditional rent payment methods. They often involve collection via certified mail, but this is not an ideal transaction.
If you accept checks and money orders, collect them in person. This way, you don’t have to worry about funds getting lost in the mail.
Many banks offer instant online check deposits that you can utilize via banking apps. If your bank offers this perk, put the check into your business account as soon as possible. If the check bounces, you’ll be able to quickly catch the issue.
Money orders tend to be more secure than checks as they require more steps to obtain and they can’t bounce.
Online Rent Collection
The most popular rent collection strategy involves online rent payments. Rent collection software programs are one of the most convenient ways to collect rent.
A rental portal is a helpful program that landlords can implement when they hire property management companies.
These programs allow various payment methods from ACH transfers to credit card payments. Offering different online payment options mitigates the risk that tenants pay rent late or not at all.
A tenant portal will send automated messages to tenants reminding them when rent is due. All late fees and additional charges will be automatically accounted for with the use of payment software.
Some online rent payment platforms come with small transaction fees that the tenant will be responsible for paying for.
Rental income collected through online methods may be deposited into a landlord’s bank account within one or two days.
Direct Deposit
Property managers can collect monthly rent through direct deposit. This is a great option because funds will be automatically sent to the property’s account.
This is convenient for landlords as they will receive rent faster and can increase their cash flow. Property managers will be able to send out owner disbursements quicker as well.
Tenants benefit from using direct deposit because they won’t have to worry about the transaction getting lost. There will be instant proof of a rental payment.
Setting up direct deposit between both parties will require setup with your bank accounts.
Drop-Off Location
Offering a designated drop-off location for rent payments is a great option for apartment community owners. Tenants can drop off rent on time and you don’t have to worry about waiting for the mail.
This option does come with some downsides. It can be difficult to track late payments, especially if you don’t check the box on the payment due date.
The drop-off location can easily become a target for theft as well. If you have an on-site leasing office, make the drop-off location indoors.
A drop-off location is helpful for those who aren’t comfortable with online methods of rent payment.
Rent Collection Tips for Landlords
The best way to collect rent for you might be different than it is for other landlords. Consider the above options, and use these rent collection tips to ensure your practices increase your cash flow.
Include Rent Responsibilities in a Lease
A lease agreement should leave room for no questions from the tenant. There should be clear details about a tenant’s responsibility to pay rent. The more details you include, the better you’ll be protected from a tenant dispute.
A lease agreement should specify these rent collection best practices:
- Rent amount and additional fees
- Acceptable payment methods
- Rent due date
- Cost of late fees
- Cost of overdraft fees
If you report tenant rent payments to credit bureaus, make sure this is in the lease as well. Landlord credit bureau reporting is not required, but it could benefit your renters.
Create a Late Fee Policy
A clear late fee policy will encourage tenants to pay rent on time. Late rent payment processing can cost landlords money, but late fees help offset these costs.
Depending on your local laws, you might have to follow regulations regarding late fees. In a state with no specific laws, it’s common to limit late fees to 5% of the monthly rent price. You also charge a flat rate for late fees.
Some landlords offer grace periods to tenants before charging late fees. Your state may dictate when you can charge late fees as well.
Send Automatic Payment Reminders
Many online rent collection tools allow you to send automatic payment reminders to tenants. You can set these reminders to go out on a specific day each month to keep tenants on track.
If you allow checks or cash payments, you can send out emails to tenants reminding them that their payments are due. This is a more manual and time-consuming task than setting up automatic rent payment reminders through a portal.
With these reminders, landlords can benefit by getting money into their accounts more quickly.
The Best Way to Collect Rent: Final Thoughts
Collecting rent payments is a landlord’s main form of rental income. By figuring out the best way to collect rent for your business, you can protect your cash flow.
Online rent collection is the most popular option in our growing digital world, but it doesn’t work for everyone. No matter what you choose, make sure your policies are detailed in your lease agreements.
For more money-minded articles, check out the other posts on our blog.
