Collecting rent on time is one of the major responsibilities of property management, and arrears and late payments can seriously affect the cash flow and profit margin. Even when you have screened tenants thoroughly, there are marvelous chances they may not pay the rent on time for various reasons.
This can further complicate relationships with tenants and lead to several issues. However, most of the problems with rent collection can be avoided by having a reliable and convenient collection system, professional attitude, and setting down certain strict rules.
Convenient Rent Payment Options
On most properties, there is an automatic deduction system or ACH for withdrawing the rent money from the tenant's account directly. The tenant will sign an authorization document, which enables property management to withdraw a fixed amount on a recurring basis. This is the most convenient system; however, the tenant should make sure there is enough money in the account for the rent withdrawal to go through.
Other than automatic payment solutions, setting up an online payment portal is the next best option. Tenants have the convenience of making payments from anywhere and at any time of the day or night, before the due date. Secondly, updating accounts becomes much easier and tenants can receive their payment confirmation in a flash.
Do not Accept Cash
Implement a strict no-cash policy for rent payments, since cash is easily “lost”, and there is the risk of staff committing fraud which falls under the “lost” category. Secondly, it is very difficult to keep a paper trail on cash transactions, and in many cases, tenants who are involved in illegal activities mainly prefer to pay in cash. Therefore, by having a no-cash policy, you can eliminate several risks.
Spell Out the Policy for Rent Collection in the Lease
It is important to have a strict rent collection policy and the best way to inform tenants about this, is in their lease. The lease document should clearly state:
The exact amount due as rent each month
The last date for paying rent each month, and grace period if any
The various options for making a rent payment
Penalties for late rent payment and bounced checks
Consequences of repeated late payments or non-payment
Apart from mentioning these details in the lease document, the property manager can also inform new tenants directly about rent collection policy.
When to Cut Slack and When to be Strict
This is a tricky decision for property management, and cutting a renter some slack can sometimes backfire. Tenants are likely to fall on hard times; however, feeling sorry and not charging a late fee on a regular basis is just not prudent.
If it is a stellar tenant and he seems to have slipped up just this once, then cutting them some slack could be a long term smart move for you to make. But it should not be the norm and if it is crossing that boundary, then you should warn this person that cutting ties with them is not out of the question. Under no circumstances should you compromise and enable tenants to take advantage of you.
Adhere to the Law
Follow the legalities and rules while taking punitive measures in case of the non-payment of rent. It should never be a protracted battle. If someone is late on their rent payment and not listening to the increasing fines that are being levied on them for every passing day, then you need to evict them. You should only want to be around responsible people.
Pinpointing the right rent price for a property is often a challenging task for property management. Charging the right dollar amount is not only important for maximizing profits but also for keeping vacancy rates as low as possible.
If the returns are not appealing or the retention rates are falling, then it is time for property management to review their pricing policies and make the required changes to get back on the road to success. Here are certain important points that can help a property manager make the right decision about the rent they should be charging.
Economic conditions in the area or country affect rental rates largely. However, apart from these conditions, trends, commercial development, and changes in inventory also drive price fluctuations. Therefore, having a flexible approach to rent structure is a better approach for property management, where the rent is adjusted responding to local developments and market or economic conditions.
Such an approach may not be possible when you are targeting specific tenant categories such as the highest earners or the Section 8 crowd. However, separate tiers can be laid down for the three main income groups of low, middle, and upper.
Aligning Profit Expectation and Tenant Expectation
According to a recent survey, about two out of ten tenants feel that they are being overcharged for the amenities and services they are receiving on the property. This can be easily remedied by upgrading amenities, engaging in renovations, and improving maintenance and repair services. A fresh coat of paint or change of carpets could make all the difference to tenants.
If that does not work then property management can consider upgrading amenities and/or making serious renovations. Or lower their revenue expectations and the price they charge for rent.
However, before making a noteworthy investment it would be a prudent idea to check out the competition in the area. Visit other properties and see what they have to offer from the point of view of what a regular tenant would expect. This could provide fabulous insights into the changes that may be required on your property. Hence, it is important to align profit expectation with tenant expectations, especially when property management is considering a sizeable increase in rent.
Estimating Tenant Tolerance Levels to Rent Increase
High vacancy rates can quickly diminish return on investment (ROI). However, reducing the rent is also going to have the same effect, especially when the vacancy rate is 10% or more. At the same time, vacancies over a long term can reduce profit margins and reputation of the property drastically. This is one of the worst scenarios, and property management will have to be highly creative.
First, property manager will need to keep a close watch on the pulse of the market, the rental rates in the area on similar properties, and the outcome or progress of any promotional campaigns that have been initiated. Therefore, reporting can be a powerful tool in the hands of a capable property manager. The manager will have to keep track of online reviews and comments on social media about the property and competition, and evaluate the possibilities of a rent increase or a decrease. Or continuing with the status quo (the same rent price).
Many times property owners might flip the switch or approve a property management service because the property is in bad shape and wants or perhaps may need professional assistance to turn it around and make it profitable again. If property management has secured such a property, the first question would be how bad the situation is, and how long will it take to correct the issues?
Certain issues can be rigorously challenging and may require more time or acute strategies to fix them. Here are some of the difficult issues that a property can face, and the possible solutions that are usually successful in turning the property around.
Dramatic Increase in Vacancies
Increasing rate of vacancies is the number one problem on most distressed properties. However, there is no particular solution, as you need to know the possible causes for tenants to leave the property. Hence, the first step would be to explore things that are closely linked to this particular issue. For instance, property management can check to see:
The current reputation of the property
The condition of the landscape, structures, amenities, appliances, and the state of the inside of the units
The percentage of tenants making late rental payments or skipping out entirely
The recurring complaints that you have been hearing from former or current tenants
The number of evictions in a year that have to be carried out by a court order
Exploring these points can give property management a wonderful idea about where the main problems lie.
During hard economic times, most evictions were for non-payment of rent. However, bad tenants also contributed heavily to this number. In the past couple of years, the eviction rate has slowed down considerably, since some tenants were able to manage their finances much better.
Moreover, many people out there are financially stable, and property management needs to have a proper screening procedure in place, to weed out the non-payers and slow payers. Secondly, eligibility should not be based only on single events but rather on overall past performance, job history, and income of the tenant.
Improving the Condition of the Property
Take care of issues that have played a part in deteriorating the condition of the property. If it is a neglected lawn, have the landscape spruced up, if it is pest infestation, find a lasting solution, and get rid of the problem immediately. Pay special attention to the condition of the structure as well. Fix cracks and leaks, tidy up the common areas, and put a fresh coat of paint on the exterior. Most of these items carry a decent size investment, but the returns can be high since property management will be able to attract new tenants and retain existing residents.
Who wants to leave a place that has property managers that care this much? A basketball court could be on the horizon!
Creating a Reputation that Glistens
In the age of social media, you only need a couple of disgruntled tenants to tarnish the reputation of your property. The first step is to know what has been written on the web about the property, and then take steps to manage the criticism and negative comments.
While property management and property owners know the value of property coverage, there are very few properties that make renter’s insurance a mandatory requirement for a tenant. Even the ones who stipulate coverage do not have a standard policy for all their properties.
It would be simply unwise to risk losses due to fire, floods, strong winds, and other events that are not categorized under acts of God. Secondly, recovering the loss from tenants who do not have a policy is almost impossible, with current data showing 1:50 odds in collecting these types of liens.
If you are one of the few who is not concerned about renter’s insurance, here are some profound reasons why you should make it compulsory.
Reducing Exposure to Risks
Standards for insurance differ between states and there is good chance your property owner’s insurance will not fully cover you from liability. Certain renter’s insurance even covers medical expenses when a guest or resident is injured on the property. Property managers who might be living on the property could presume their homeowner’s policy would be adequate, however, in most instances it is not, and you need an additional policy.
Most leases hold tenants responsible for any damage they cause to their units, irrespective of having coverage or not. However, the real question is whether it is possible for property management to collect based on the lease deed. In most cases, it is almost impossible for property management to collect because tenants hardly have any balance in their bank accounts. Well, who really does? This ongoing recession has not helped any in this regard either.
Installment plans are not practical, especially the ones that are going to exceed the term of the lease, which they often do. Property management can obtain a lien if the tenant suddenly vacates the property, but odds of collecting are extremely small.
Reducing Operating Expenses
The purpose of renter’s insurance is for providing protection against losses due to accidents. Losses can mean many things, apart from repairs to the structure or replacing appliances after a fire. For instance, who will bear the loss of rent when the resident has to relocate temporarily during the repairs? There is also the cost of temporary storage of the tenant's personal property during this relocation.
Moreover, when there is not any insurance, how much will property management will have to spend on legal fees for defending their lien claim? The best solution is renter’s insurance, which protects the tenants and property management or property owners.
Cost of Coverage is not Much
Insurance costs money and property management might have to find an adequate policy that is affordable. However, it is not difficult, as many insurance providers have comprehensive policies that provide protection to all stakeholders. Whether property management pays for the coverage and adds it to the rent, or makes coverage mandatory for residents, it is a matter of policy and strategy.
Some property management companies even agree to pay a part of the coverage cost, but most pass it on to the resident. However, the cost of such policies is nothing significant, and most tenants will not mind paying the cost when they consider the risk coverage or what they get in return.
It is important for property management to keep the communication lines open with tenants. It is much easier to discern the requirements of residents such as when they can communicate comfortably with the property manager or staff. This will provide an opportunity to know the true needs of tenants, which can play a major role in reducing vacancy rates.
The one-size-fits-all strategy does not work, as each tenant is different and he or she will have different personalities. Therefore it is important to treat tenants individually since they come from different backgrounds and may have different leasing requirements.
Apart from individual needs, general requirements of tenants might differ depending on the season. For instance, during winter, tenants appreciate pathways kept clear of snow and ice, whereas in the spring there might be a requirement for an area to be sectioned off so people can wash their cars.
In the fall, there could be many maintenance tasks and repairs, and tenants definitely appreciate an early response and fast resolution to issues that they have been waiting to get to after the summer dissipates and before the winter sets in.
One of the best ways for property management to open a comfortable channel of communication with tenants is to ask for feedback about the services provided and suggestions for making them better. When you ask for feedback, tenants are encouraged to speak openly and once they know they have a platform to provide feedback, relations can improve dramatically. Having a feedback platform is also necessary for knowing the level of satisfaction amongst residents. This can be an excellent reporting tool and property manager can take steps to improve services wherever there seems to be a shortfall.
Summer is a hectic time for property management in renting out units, and welcoming new tenants. During this period, it is possible to neglect some existing tenants, and this is the time most of them look for some gesture or offerings from property management. Organizing a community event during this period would be ideal since it can serve the purpose of indulging existing tenants, and getting to know new tenants that just moved in. Here are some of the events or activities that property management can plan for their residents this summer.
Summertime brings back memories of looking out for the ice cream van, and hence it would be ideal to hold a community event where all residents are treated to some ice cream. Such an event will provide a fun and comfortable environment for residents to open up, get to know each other, and property management will have the opportunity to find out what their tenants are doing and thinking.
Another event that is popular throughout the year is a barbecue. Hosting a community barbeque is a salient way of welcoming new tenants and appreciating existing residents.
When property management has been able to gauge the individual needs of tenants, then summertime is the best season for giving gifts to standout tenants, which caters to their specific requirements. Tenants feel most appreciated when you present them with something that they require at that time or which caters to their individual tastes.