I HAVE COME FOR THE RENT !
Sounds ominous doesn’t it? It should. Collecting rent is serious business. For the Resident, paying rent should become a habit. For most of our Residents it is an obligation that is taken seriously. Non payment can harm your credit rating; cost money in the form of late charges, returned check fees, and attorney fees. The end result may be eviction from your rental apartment or home and a court appearance.
Let’s go back a few years and look at the progression of how rent was collected. An apartment ‘Manager’ might consist of a ‘Man and Wife Team’. This meant that the couple lived in an apartment on site and the husband normally was the ‘Handy Man’ who unstopped toilets, mowed the yard, and generally looked after the physical property. His wife handled the leasing, paper work, took complaints and collected the rent. Their apartment doubled as the property ‘Office’. Their apartment rent and utilities was part of the compensation paid them for these services.
If a Resident was late paying their rent, the Manager was generally tasked with collecting it in person. This method had several drawbacks:
- The delinquent Resident could very well have become a friend or close neighbor of the Manager
- In a property where one or more Residents living in separate units happen to be relatives, and one of them is delinquent with the rent, the collection process by the Manager can get very personal, and may create a hostile situation
In the past, Managers were allowed to take cash for the rent. This process had obvious issues such as security, safety, logistics and of course, honesty and trust.
Long ago, in a galaxy far away, I was involved with a property that had just under 1,000 apartment units. We accepted cash. The front office was designed similar to a bank lobby, meaning there was actually a long counter with three ‘teller’ stations, glass enclosures, the ‘speaker ‘grille’ and cash drawers. NIGHTMARE. Between the first of the month and the tenth of the month the office might receive upwards of $30,000 in cash on a given day! I personally would have to make two or three trips to the bank (2 miles away) per day with cash, and a security guard!
Back to the present: Obviously, almost no properties accept cash now. The days when the Manager was instructed to go to each delinquent Resident, knock on the door and announce, “I Have Come For The Rent” are no more. Can any of you explain why the specific language “I have come for the rent”?…….because, if you were to ask “When are you going to pay your rent?” the answers were usually “when I get paid”, or “next week”, or “I get paid on the 1st and 15th”. Here’s a real one: ” We bought a water bed and had to make two payments up front”. My response: “Will it fit in your car?”
Typically, apartment rent is due on the first day of the month and a late fee kicks in on the sixth day of the month, which allows for the five-day grace period that is also typical in most southern states. This is printed prominently, and generally on the first page of most leases. If you use a typed in lease, PLEASE have the Residents initial the margin where this is stated. You’ll be glad you did when you go to eviction court! On the new computer generated leases, Residents can sign each page on an iPad, or online. This is all well and good, and convenient and quick. However, during a move-in, when your clients are anxious to start unloading, they are focused on anything BUT the lease.
I did a survey on Twitter that asked readers to choose what day their rent was DUE. The choices were: 5th day of the month, 6th day of the month, 1st day of the month, 10th day of the month…….less than 30% chose the 1st!!
The follow-up survey asked what day of the month was their rent LATE. 5th day of the month, 6th day of the month, 2nd day of the month, 10th day of the month………I’ll let you that read these choices answer on our e-mail – firstname.lastname@example.org – some of you pro’s are going to get this one wrong too!
There are so many options for rent payments in our current economy and banking system that it boggles the mind. Here are just a few:
- E- Check – (Online) Usually does not have a fee
- Credit card – (Online) Usually IS a fee, sometimes pricey
- Auto withdrawal – Properties that have utility billing that varies by a dollar or so monthly will probably show + or – variances on Residents ledger
- Money orders
- Regular check
- Kiosk – Like a drive-thru teller (really) very cool
So why is it so important to not only collect the rent, but to collect it on time? Well, the mortgage on your property is usually due the first of the month and is usually delinquent on the 16th. How does this figure in to the economics of rental property? Because it’s important to PAY THE BILLS! Typically in this order:
- Management Fee
Why in this order you ask? Well, this comes from the days when most property management was called “fee managed”. Property management companies and firms managed properties (commercial and residential) for owners, investors and capital companies for a fee. This fee could be structured in various ways: A dollar amount per unit per month, a percentage of the “Net Operating Income” (NOI), or any type of compensation that was agreed upon. The reason that the mortgage was paid last in this example is due to the fact the Management Company typically did not have any ownership in the property.
Now that we have delved into the area of finances, the next installment of this post will get into “where does the rent money go”? The wonderful area of budgeting and how to forecast and create an accurate annual budget. Remember, there are three key tools that a Manager has to work with in order to successfully manage their owner’s asset:
- The Lease
- The Budget
- The Staff
Until next time, Homer says:
“Good judgment comes from experience, and a lotta’ that comes from bad judgment”