The rules keep changing for real estate investors.
From the lockdowns of 2020 to nearly 18 months of ever-changing eviction moratoriums, from courts closing to Americans moving in droves, it seems like the ground beneath our feet just hasn’t stopped shifting. The best advice for collecting rents during the pandemic has already become outdated.
But as the worst of the pandemic-era disruptions pass into the rearview mirror, one question I hear repeated by burned landlords is simply “How can I ensure on-time rents moving forward?”
A simple question, but one with complex answers.
First: The State of Eviction Moratoriums Around the Country
Lease agreements went from being two-way enforceable, where both parties had legal channels to enforce their terms, to only being enforceable for tenants during the pandemic, as eviction moratoriums barred landlords from removing tenants who breached their lease.
While the Supreme Court eventually ruled the nationwide eviction moratorium unconstitutional in August 2021, some states and cities still impose their own eviction moratoriums. So the first step to collecting rents is simply understanding whether you can enforce your lease currently or not.
Double check the current status of laws in your state and city, and remove nonpaying tenants if you can.
7 Tips to Collect Rent Post-Covid
Moving forward, try these tips to avoid rent defaults among both new and existing tenants in your rental units.
1 - Screen for Pandemic Defaults
The last thing you want to do is sign a lease with a tenant who squeezed every free rent payment they could out of the eviction moratorium before moving as soon as leases became enforceable again.
Tenant screening starts with collecting a rental application and running tenant screening reports. Shockingly, only 37.6% of landlords do this with all tenants, according to a Porch.com study. Credit reports paint a broad picture of how fiscally responsible an applicant is, and eviction history reports reveal if prior landlords had trouble with tenants breaking their lease terms. Except during the pandemic, that is.
Call up current and former landlords to ask about the tenant’s performance, behavior, and attitude. If you catch even a hint of doubt or dissembling from the landlord, beware. Some landlords bend the truth to try and get rid of problem tenants.
2 - Report Rents to the Credit Bureaus
Not all tenants care about their credit scores, but many do. By reporting their rent payments to the credit bureaus, you offer both a carrot for on-time payments and a stick to deter late payments.
At SparkRental, we’ve started offering this feature with our online landlord software. It works particularly well among renters hoping to become homeowners one day.
As a general rule, you can tell how important a renter takes their credit score by simply looking over their credit report. But you can also ask them whether they want to buy a home in the foreseeable future.
3 - Collect Rent Online
Collecting rent online through landlord software comes with its own benefits.
First, some platforms (like ours) allow tenants to pay by either bank transfer or credit card. If they’re a little short one month, they can avoid a late rent fee by charging the rent to their credit card.
Online rent collection also moves faster than mailing a check and waiting for it to clear.
And of course many tenants prefer the ease of clicking a few buttons over physically writing out a check, addressing a paper envelope, finding a mailbox, and sending it by snail mail. They can do it in their pajamas at 11:30 at night, from the comfort of their couch.
4 - Enforce Late Rent Fees
If you give your tenants leeway on late payments, they’ll keep paying later and pushing your boundaries. After all, if their other bills impose strict late fees and their landlord doesn’t, they’ll prioritize those other bills over their rent.
Send an informal reminder if the rent doesn’t arrive on the first. When the grace period ends, send a formal eviction warning notice. Once that second grace period ends, file in court for eviction.
Many landlords are reluctant to enforce their leases because it feels “mean.” They’re in the wrong business, and have no business collecting bills from people who owe them money.
You are in business, and you need to operate like it. When tenants test your boundaries, they’ll learn the first time around to prioritize their rent if you act swiftly to enforce your lease.
5 - Consider Rent-to-Own
Some tenants would be happy to buy your property from you, in a rent-to-own arrangement. If you’re equally happy to sell it to them, consider working out a plan with them.
You can even build in an incentive structure for on-time payments, such as a small portion of each on-time payment going toward a down payment on the home. Late payments don’t qualify.
6 - Explore Other Contingency Plans
The pandemic hasn’t been an easy time to collect rents, but it’s certainly been kind to property values.
While home values have outperformed incomes for decades, home prices really accelerated over the last year. The Case Shiller Home Price Index skyrocketed a whopping 19.8% from August 2020 to August 2021.
So if you’re sick of chasing wayward tenants for rents, you can always sell. I recently cashed out on a property that had been giving me rent collection headaches for years.
Or you could change revenue tactics. Rather than chasing long-term tenants and hassling with evictions, you could always rent to short-term guests on Airbnb.
Explore all your options to earn passive income from real estate, rather than continuing to sign long-term leases simply because that’s what you’ve always done.
7 - Avoid Tenant-Friendly Jurisdictions
While many investors start by looking at the country’s largest cities when scouting the best places to buy rentals, consider delving a little deeper.
It turns out that in the first half of 2021, Americans continued to migrate out of the country’s largest cities. They largely went to either surrounding suburbs or to smaller cities and towns.
This smaller areas not only feature spiking demand for housing, but they also tend not to come with the lopsided tenant-friendly laws that many major cities impose.
After getting burned one too many times by Baltimore’s anti-landlord laws, I stopped investing in jurisdictions with similarly imbalanced laws.
Alas, no one silver bullet will solve all your landlord woes. But by consistently implementing best practices month in and month out, you can maximize your odds of collecting rents on time each month.
Or, of course, you could simply outsource it to a property manager. Just don’t make the mistake of assuming that will solve all your problems either, as you then need to manage the manager.