Give A Rental Discount = Collect More Money!

By Eric Peters

Probably the most significant aspect of collecting the rent happens before you have the tenant sign a lease. There are several parts to this, beginning with proper screening of a prospective tenant. Doing credit checks, tenant checks and even criminal record checks is critical to beginning a good tenant/landlord relationship.

It is important to realize that you, as the landlord, should entirely expect to be treated as the last landlord was. You will only know what that looks like if you call the previous landlord and ask the question. Calling the current landlord may not render an honest answer as the landlord desperately seeks to unload this current unwanted tenanted on to anyone else, including you. It is also useful to construct a lease that works in your favour. Two very useful parts to a lease include the late penalties and a “Hassle Free Tenant Discount.”

It is effective if tenants realize that the late penalty for rent paid on day 15 of the following month is not the same as the late penalty paid on the second day of the following month. For that reason, my lease calls for late penalties of fifty dollars plus fifty dollars per day additional day late. On the second of the month, the penalty is $100 but on the tenth the penalty is $500. While in lower courts, this is unlikely to be enforced, that isn’t the real point. If you are in court, your primary goal is to be rid of the bad tenant.

We offer our tenants a $100 per month discount for being on time with their rent and cooperative in their actions. The lease is written at a rate $100 dollars above the rent level actually expected for the suite. In the event that the tenant no longer qualifies for the discount, it can be revoked and the tenant begins to pay the additional $100 every month; which is essentially the amount already stated in the lease. One example is that if you pay your rent on time every month, there is a $100 deduction; however, being late twice will result in paying the ?full? amount.

Prospective tenants need to understand early that as a landlord, you are willing and capable of dealing swiftly and decisively with bad tenants. It is not unusual for me, when showing a suite to a prospective tenant, to point out that I take great pride in providing a great place to live and good service to my tenants. I also will point out that I am extremely familiar with the rules of tenancy and should they choose to be a problem tenant they will be moving out in very short order.

As a landlord, you need to be very aware of the tenant profile you are attracting, what their socio-economic status is, as well as the characteristics of your property that will impact who will select your property as a home. Some tenants are more concerned about a large screen TV or having parties than having a roof over their head. Are the prospects you attract able to access credit facilities like credit cards or debit cards? Sometimes the property itself is attracting the wrong kind of tenants because the curb appeal is non-existent. It can go a long way to simply hire professionals like The Local Tree Experts to tidy up the trees around your property to attract the right kind of tenant you want in your property. But if you aren’t sure what is wrong with your curb appeal have someone you trust give you a second opinion regarding the appeal of your property and if it falls short, do something about it. You can’t afford to not address this situation.

If you have dealt with these issues, you can move on to the actual rent collection. There are at least nine methods of collecting rent:

CASH is sometimes needed for payment and is a good method for payment as it NEVER bounces. There are situations where a tenant will bounce a check for whatever reason and there are many. So in situations like this, CASH is a good alternative for payment. When using cash make sure a receipt is given and it is a good idea to have the tenant initial or sign the receipt as well. This is all about making sure everyone is clear on the amount being paid and will prevent a he-said, she-said down the road.

CHEQUE is the second most common method, either postdated or provided monthly. This is convenient and cost effective, but falls short in providing no security as to whether there will be cash in the bank account to cover the amount of the cheque. Often you will not know whether a cheque has been dishonoured for up to 5 business days (longer if your bank is in a different province from the tenant?s). This method is a simple method and in some ways, an old school way of paying rent. This will work well with older tenants as most of them still use checks as a method of payment, whereas younger generations tend not to. If a cheque is returned for insufficient funds, it is still cash able if taken to the main branch of the banking institution. They will be able to certify the check at the counter. Also, when a check is declined, the bank will then mail you back the check and this may take weeks to get back. This delay will hugely affect the collection process.

BANK DRAFT or MONEY ORDER is similar to cheques in every way except that there is no need to be concerned about whether or not the payment will be honoured. Money is pre-paid or earmarked within the tenant?s bank account. The exception is that counterfeit bank drafts exist.

DEBIT CARD can be an effective method with low transaction fees and a flat monthly process fee of $100 – $200 for access to the system. The major drawback is the need to see every tenant on rent payment day to complete the transaction. This is not recommended due to costs of the machine and the time to collect rent.

CREDIT CARD is similar to Debit card except that the transaction fee becomes very significant at 2.5% or more going to the credit card company and charge for the machine rental. However, unless the card is maxed out, there is the ability to access ?money? outside of what the tenant currently has. Tenants can also collect points by using their card.

PREAUTHORIZED AUTOMATIC DEBIT (PAD) or Electronic Fund Transfer (EFT)is a popular system among larger landlords. Most banks require you to be a limited company to be able to do EFT. There is a cost to set up the system and monthly fees, it remains cost effective for landlords with a larger tenant base. Just like cheques it may take the bank up to 5 business days to decline a transaction BUT the system will tell you right away the name and the amount of the declined charge so this will speed the process up of collecting.

INTERNET/PAYPAL is always an option. It can be used effectively and with some certainty of the outcome, but for more than a few transactions each month it quickly becomes cumbersome. This is a great option for smaller portfolios but not so great for larger ones, as it is very hard to manage. The challenge with this method is that you as the landlord will be waiting for the tenant to pay you. You need to track and remember who owes and when they pay. Better systems are needed for this method.

EMAIL/TEXTING cash is a relatively new method but relies on the tenant to either set up a recurring payment or remember to do it each month. No banking information is given to the tenant; they either send money to the email address you give them or text it to your cell phone number. You must answer a pre-arranged security question and you are automatically directed to your banking website. Available at most banks and credit unions with a $1.00 fee (or less) charged to the sender. This is similar to PAYPAL in that you will need to track who has paid and when and how much. Better internal systems are needed as your portfolio grows.

TENANTPAY (tenantpay.ca) is a proven method of accepting payment. It is similar to tenants paying a utility bill in that they are provided an account number and they authorize payment from their account to Tenantpay. This is tenant driven and there are no set up costs for the landlord. Daily deposits are merged and email notices advise you of deposits made. Once advised of a payment, that payment is secure and there is no need to physically appear at the bank to do a deposit. The landlord pays the $1.00 per transaction fee. Tenantpay is a great method, but just like email transfers and PAYPAL, landlords will need to track this internally.

BITCOIN is a new digital currency. It is convenient, simple and inexpensive. It is, however, a speculative currency as its value fluctuates widely as a commodity. This may be an option for the future, but due to its volatility, it should be avoided. It is a growing market with many investors, from experts to novices, all trading as part of the cryptocurrency market. There are many resources available to those who are interested in investing in Bitcoins, revealing how to mine Bitcoin, how to trade in Bitcoin, and as well as how to short Bitcoin if they need to protect their investments. If you are using bitcoin for rent, you may want to do some research into how to convert your bitcoin into cash for the transaction. Luckily, you can head to xCoins today to learn more about converting bitcoin into cash so you can pay your rent.

There is no universally correct method of collecting rent. Keeping in mind your tenant profile and the related issues, as well as what works for you, select the method you want to use and move ahead. When I began researching this subject, I had not heard of tenantpay. I have since switched all my tenants to tenantpay and so far am pleased with the result.

Fundamentally, you want to establish a system that is simple for both you and the tenant to use, transparent so you have what you think you have and cost efficient.
Keep it safe and simple.

Eric Peters and his wife Karen have been investing in multi-family properties since 2003. Eric has personally managed as many as 60 units at one time, mostly in less than the best areas of Edmonton. Eric?s primary focus these days is on a Multi Family syndication project, but he continues to manage a number of doors as he does that.