Owning a rental property is a lot of work and getting paid at the end of the day (or rather, each month) is why you signed up to be a landlord in the first place. After you’ve found the perfect property, the next step is finding a tenant and signing a lease. But before you can sign on the dotted line, there are a few things regarding rent collection you should determine, even before you list your property for rent. Here, we’ll break down the basics of collecting rent, everything from setting the right rent price to finding the right rent collection method for you.
Calculating the Right Rent Price
In order to make a return on your investment property, ensure that you set the monthly rent to a reasonable amount but also a lucrative one. After all, you aren’t a landlord merely for the fun of it. You’ll want to find a fair market rent price that’s based on the value of your home and the state of your rental market. This way, you’ll attract the right renter, increase your chances of getting paid on time, and of course, make money.
If you set your rent too high, you could outprice renters and struggle to fill your vacancy, leaving you without a steady stream of rental income, but if you set your rent too low, you might miss out on thousands of dollars over the course of the lease.
To start, you can review the U.S. Department of Housing and Urban Development’s fair market rent report that they generate annually. For a closer look at your city’s or neighborhood’s rental trends, look at Zumper’s rental data and monthly rent reports.
Next, browse for-rent properties in your area to see what similar units are renting for. If a 2-bedroom, 1-bathroom single-family home with a garage and backyard is listed for $2,000/month, you can comfortably price a similar home within that range. However, the exact rental value of your property will depend on several factors such as its location, the number of bedrooms, square footage, amenities, onsite or in-unit laundry, available parking or storage, if it’s furnished, and if you have updated appliances or recent home renovations. If you have a larger 2 bedroom home or an additional bathroom, you might list your property closer to $2,300/month and possibly more if you offer more amenities, have newer appliances or more modern finishes than your neighbor.
Set a Due Date
Getting paid on time is paramount when you rely on that supplemental income for your mortgage payment or other rental property expenses. It’s crucial that you are clear about how and when you want to get paid. So, once you’ve determined the monthly price of your rental, it’s time to set a due date.
Typically your rent due date coincides with the start date of your lease unless otherwise stated. Since most leases begin on the first of the month, rent will, therefore, be due on the first. Regardless, you must clearly state when rent is due and ensure the renter understands what is expected of them and when.
Grace Periods
Given that your due date could fall on a weekend or holiday, you have the option to give tenants a grace period to pay their rent, up to 5 days for example. This means that although the technical due date might be the first of the month, their payment will not be considered late up until the fifth of the month. Look to see if your state has any specific laws regarding grace periods, as some enforce that you have one.
Late Fees
Speaking of late payments, depending on the state your rental property is in, you may have the ability to charge late fees. Review your state’s policies on late fees and then clearly communicate your policy in your rental agreement. If you are allowed to charge a late fee, the amount is typically a percentage of the tenant’s rent. Bear in mind, there may also be regulations on when you can charge the fee. If your tenant repeatedly fails to make rent on time you may also consider filing for eviction.
How to Prorate Rent
In the event a tenant wants to move in halfway through the month or wants to extend their lease for a week, you will need to charge them accordingly. It wouldn’t be fair to keep them on the hook for the entire month if they’re only residing there for several days, so you can prorate their rent for those days. To do so, take the monthly rent and divide it by the number of days in the month. Then, take that number and multiply it by the number of days they’ll occupy the unit.
$2,200/month divided by 30 days = $73.33/day.
$73.33 multiplied by 12 days = $880
You would charge this particular tenant $880 for 12 days, and charge $73.33 for every additional day.
Security Deposits and Fees
As you write the lease terms for your rental regarding paying and collecting rent, you should also decide the amount and terms of a security deposit. Collecting a security deposit protects your rental income in the event that your renter skips and doesn’t pay rent. If your unit has been damaged by a renter upon move out, you can hold them responsible by keeping some or all of the deposit for repairs. If you are a pet-friendly property, you can also collect a pet deposit or a one-time fee for potential pet-related damages or cleaning needs.
Keep in mind that there are many federal, state, and local ordinances that regulate security deposit amounts as well as how you manage those funds throughout the duration of your lease. You should ensure the security deposit amount you intend to collect is in compliance with these local regulations and that you place it in the proper bank account.
Choosing the Best Rent Collection Method For You
Cash
While collecting rent in cash may seem like the quickest and easiest way to get paid every month, we strongly advise landlords against it. Cash payments are nearly impossible to track and therefore can lead to disputes about when rent was paid and how much was collected. Protect yourself against renters who could take advantage of this and choose an alternative method.
Check
Having your tenant write out a check every month is a tried-and-true way to collect rent that many landlords prefer. The downsides of rent checks are the inevitable trips to the bank, waiting for the check to clear, and the potential that the check will bounce due to insufficient funds.
Direct Deposit
Most banks can set up a direct deposit, or ACH, for your renter to send funds from their account to yours every month for a small transaction fee. Similarly to cashing a check, the downside of this method is that the withdrawal can bounce due to insufficient funds. Also, this method isn’t the fastest way to payday, as it can take up to a week to process.
Peer-to-Peer Apps (P2P)
Peer-to-Peer payment apps such as Venmo and Chase QuickPay may seem like a great solution for processing rent payments, however, these tools are not designed with renters and landlords in mind. It’s hard to export or track your payment history, and you’ll also have to account for the time it takes to transfer the funds into your bank account.
Zumper
Zumper offers a free, online rent collection tool that streamlines rent payments for landlords and renters. When you collect rent with Zumper, you’ll enjoy peace of mind with bank-grade security, lightning-fast deposits with next-day payment processing, and a convenient dashboard to manage rental payments. With Zumper, you can sit back and relax while rent is automatically deposited into the bank account of their choosing every month. You can track payments from one simple dashboard, set up new payment schedules, charge one-time fees and deposits, and renew your leases, all in one place.
Your renters will appreciate the ease of one-tap rent payments sent right from their phone through the Zumper app. Give them the option to pay with either bank transfers (ACH), credit or debit card, as well as Apple Pay so they never have to write or mail paper checks again. All payments made with a credit or debit card incur a 2.95% transaction fee, always paid by the renter, however, bank transfers are always free. With AutoPay and Smart Payment Reminders we make sure your renter has all of the tools to pay rent on time.
With the right rent collection tools in place, clear expectations between you and your renter, and firm rent collection terms in your lease agreement, collecting rent will be less of a hassle every month and one less landlord task you have to worry about.
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