One of the biggest pains in the butt for landlords is rent collection. Any landlord who has been in the business for more than a year or two could write a book on excuses for late rent.
What a headache!
Well, it’s time to stop putting up with it. Time to stop thinking so much like a landlord, being sympathetic to struggling tenants. Instead it’s time to start thinking like a bank, which is not very sympathetic to struggling landlords. (See how that works?)
Try using some of your tenant’s excuses on your bank, the next time your mortgage payment comes due.
Think you will get: ‘Oh, that’s okay. Pay us when you can.’
Um, no!
Most likely you will receive: ‘We’ll get that foreclosure notice over to you right away, Mr. Landlord.’
Use Banking Tech on Your Tenant
Banks can also be your friend. There’s a reason they sometimes offer discounts if you are willing to directly deposit your mortgage payment to them each month:
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You are probably a better risk if you feel confident you will have enough money in your account.
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You won’t ‘forget’ to send the check in if it is automatically taken out of your account.
Banks use an ‘Automatic Clearing House’ transaction, or ACH, for taking money out of your account each month. It’s the same system that deposits working-stiffs paychecks into their checking accounts. And the good news is this system is not just for banks anymore.
Banks offer this system to businesses as well, especially because it encourages businesses to bank with them. Why not take advantage of it?
Imagine setting your ACH transactions to happen on the first of the month. Because you are a nice landlord, you send out an automatic email to all your tenants a week prior letting them know money will be coming out of their account on the first.
On the first, all rents are automatically collected and deposited into your account. You will know right away who has paid and who has not. ‘Pay up or quit’ notices can go out quickly to those who ‘bounced’ the ACH transaction.
You don’t start:
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Making phone calls
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Driving out to see people
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Wondering if ‘the check is in the mail’
You just act like a bank.
You want to either encourage or mandate your tenants to use this system. With a good rental market, tenants who do not agree to this service can just be rejected and a new one found. In a tough rental market, you might have to encourage tenants through discounts in rent and other incentives.
Most banks offer this service. The prices for the service are pretty low. Especially when you consider your time trying to collect and reconcile the payments. Banks might charge fees in one or more of the following ways:
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Initial set-up fee
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One-time fee for so many transactions
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Additional fees for any transactions over the limit
Try calling your bank today and see what they can do to set it up. If you have been a good customer for a long time, you may also be in the position to negotiate.
But I Don’t Like My Bank’s Terms
What if your bank seems REALLY expensive? Or you just may not like the banker you are dealing with.
Time to turn to the Internet.
Head on over to a website called ClearNow, which is specifically set up to create ACH transactions between tenants and landlords. Of course, all of this could work for owner-financing deals as well.
ClearNow also works with your tenants to set them up for automatic payments. As a landlord or property manager, all you have to do is set yourself up with an account.
Your tenants just fill out the automatic payment agreement and send it in along with a voided check. That means your tenants do not have to have a computer to enroll. You can print out the payment agreement and give it to them.
As a landlord, you get to select which day you want the rent to come out of the tenant’s account. You can also select the twice-monthly option, in case a tenant needs to pay half each paycheck.
How much does all this cost? You can find the pricing here, or just look at the screen shot below:
Not too expensive, especially when it makes sure all rent is collected on time.
How about if the tenant doesn’t have the money in their account? Then ClearNow will notify you as the landlord that they were unable to collect. The nice thing is that ClearNow either collects the whole payment or nothing. Some cities and states will look at a partial payment of rent as a reason to stop an eviction.
ClearNow will also allow you as a property manager to send payments to property owners automatically. For this service, you can provide owners piece of mind, not to mention the bill for the transaction.
For no additional charge, ClearNow can also keep track of bills for each rental property. Then at the end of the year, it will print out a report that can easily be used for your Schedule E on your tax forms.
Regardless of what service you use (your Bank’s, ClearNow’s or some other), finding a way to make it easy to collect payment will provide much more ‘beach time’ for real estate investors.
Lemme Hear from Ya
Do you use one of these systems to collect rent? Tell us about it in the comments section below.
Collect Easy – Look at how experts (like banks) are collecting money and copy them.
Set Up Rules – Create a property handbook explaining how you do business. Then tactfully explain to customers (tenants, owners, etc.) that it’s either ‘my way or the highway.’
Ensure Compliance – Make sure people follow through on what they say they will do. Use leases, contractor bid contracts and purchase agreements to enforce what’s agreed upon.
JP Moses
is a real estate investor in Memphis, TN, with experience ranging from land lording to note buying, rehabbing, and wholesaling. However, wholesaling is the area that he enjoys most and where he bring the most experience and expertise to his students.