Owning an investment property can be one of the most financially rewarding decisions you can make. When property investment runs smoothly, your tenant covers a large portion (if not all) of your mortgage repayments and you gain the benefits of capital growth with minimal ongoing outlay.
But it’s not always smooth sailing and one of the most common issues investors come across is a tenant who doesn’t pay their rent on time. Sometimes this is unavoidable due to relationship breakups, job loss, illness and so on. But other times, it’s simply a case of poor tenant selection or communication.
The key to making sure tenants pay their rent on time starts with your property manager doing a very thorough application checking process, giving plain instructions on how the rent is to be paid, setting rental payment expectations at the beginning of the tenancy and being clear about what happens if the tenants fall behind.
Here are my top 10 tips for keeping tenants paying their rent on time:
1. Make sure your tenant can afford to pay the rent.
Stick to the 33 per cent rule: if the rent is more than 33 per cent of the total household income, the tenant is at high risk of not being able to pay their rent.
2. Be clear from the start.
Explain your expectations in terms of rental amount, when the rent is due and how often, what is covered by the rent, penalties for late payment and what happens if they don’t pay their rent.
3. Make sure your instructions are understandable and non-negotiable and give them to your tenants in writing.
Explain the document to them before they move in so they understand exactly what they need to do and when.
4. Give your tenants a “rent due date” calendar at sign-up.
For those tenants who need a reminder of when their rent is due, try sending them a text message or email before the due date.
5. Set your tenants up on a direct debit if possible.
If this is not feasible, get them to schedule a regular online transfer. Avoid cash payments if you can.
6. Avoid multiple rent payments from share tenants.
Insist on a single payment. Also, never accept part payments if a tenant or share tenant falls behind.
7. Always enforce your rules around late payment.
If you are entitled to issue a breach, do so; you can always rescind it if you need to.
8. Give a tenant notice to vacate on the 15th day that they get behind with the rent.
Don’t give them any slack and don’t let emotions get in the way of a business decision.
9. Do not renew the lease of a tenant if you have constantly had to chase them for arrears.
Their behaviour is not likely to change after their initial 12-month lease period.
10. Keep all communications in writing.
In case of legal action, be meticulous with your records.
Article supplied by Marcel Dybner from Besser & Co.
Disclaimer: this article is supplied for general information purposes and does not constitute advice. We recommend readers obtain professional advice before making any financial decisions.