At the end of the day, real estate investors become landlords as a means of generating a return on investment. You can talk about how you purchase rental properties for any number of reasons, like rebuilding the community and providing people with safe, reliable housing – both of which are good and honest sentiments – but it all comes down to the ROI. If there were no payoff, why would anyone invest?
The irony of being a Houston landlord is that the primary reason for investing in real estate – getting paid – is also the biggest point of friction. Collecting rent can feel like a never-ending uphill battle. And if you don’t have a plan, you’ll end up frustrated and broke.
There are very few, if any, industries that operate like rental real estate. Whether it’s buying groceries at the supermarket, purchasing a ticket to attend a baseball game, or hiring a mechanic to fix your engine, quick and sufficient payment is required. If you don’t pay the cashier at the supermarket, you can’t take your groceries home. If you don’t buy a ticket, you won’t be admitted into the baseball stadium. If you fail to pay the mechanic, he’ll keep your keys.
With a rental property, there isn’t as much leverage. If your tenant doesn’t pay his rent, you can’t just kick him out and change the locks. Bad tenants know this and will game the system by skipping rent payments and then occasionally making a payment just to invalidate the eviction process from beginning.
Even good tenants will push their rent payment to the backburner on occasion. They’ll come up with excuses and/or pay you late. And when you try to collect, they’ll make you feel like a bad person – as if you have no sympathy for their plight (real or imagined).
But it doesn’t have to be this way. With a smarter and more strategic approach to rent collection, you can increase your odds of getting paid in full and on time.
Before diving into a few of the techniques successful Houston landlords use to improve their rent collection efforts, let’s take a brief moment to address unique circumstances – like COVID-19.
The COVID-19 crisis has been unprecedented on many fronts. And while it’s certainly not the most serious issue of all, government orders passing temporary bans on evictions has created real issues for many landlords. It’s basically given tenants a free pass to not pay rent.
In situations like this, what is the appropriate, ethical, and smart response?
While it’s hard to know exactly what to do, it comes down to the following:
On top of all this, you should reach out to your lender to see if they can delay your payments, defer interest, or do anything else to ease the burden of your mortgage.
It’s possible that COVID-19 will be a distant memory by the time you read this, but it’s important to remember that events like this can happen again. Being prepared is critically important.
Under normal circumstances, here are some techniques landlords often use to make rent collection an easier and more predictable process:
If you want rent collection to be a breeze, it all starts with meticulous screening before ink ever goes to paper. While you can’t always weed out late payers, you can certainly reduce your chances by keeping an eye out for warning signs. (The best piece of advice is to talk with current and past landlords to get a feel for their rent payment habits. You can also call up their employer to verify income.)
Rent payment and collection is something that should be clearly explained on the front end – when signing the lease agreement, immediately after move-in, and in advance of the first rent payment. By setting expectations, you give the tenant less room to wiggle their way out of making a payment. It also makes it clear that you’re serious about payment. (Some tenants have past experiences with past landlords who were timid and non-confrontational. This may have led them to believe they can take advantage of anyone.)
The best way to get tenants to pay on time every time is to require an automatic rent payment via some sort of direct deposit or auto-deduct system that transfers money from their bank account to your own. (This eliminates human error and excuses, such as “forgetting” to pay.)
A policy doesn’t mean much if you don’t follow through with consequences. When a rule is broken and rent is paid late, you can’t afford to give out free passes. Enforcing your policy with penalties and fees will show your tenant that you take prompt payment seriously. It might require an uncomfortable conversation, but it’s unlikely that they’ll do it again.
Do yourself a favor and send out reminders prior to payment. Something like a text message five days prior and on the day of payment will usually suffice. Again, this helps prevent those situations where tenants “forget.”
If you’re going to be tough on tenants who don’t pay, make sure you reward your tenants that consistently pay on time. This creates a positive system of reinforcement where tenants feel like you’re on their side. Rewards can be monetary – like $50 cash back any time a tenant makes three consecutive rent payments on time – or may involve a gift, like tickets to a sporting event.
As a general rule of thumb, never accept cash rent payments. It may be tempting to accept cash when you aren’t getting paid otherwise, but it creates a host of potential issues. It offers no paper trail, can’t be reimbursed if lost, and could be an indicator of illegal activity. Just say no!
Don’t want to deal with rent collection? At Green Residential, we make life easy on Houston landlords by streamlining the rent collection process and making it totally hands off. Just contact us today and we’ll be happy to tell you more about our comprehensive Houston property management services.
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