Trouble Collecting Rent on Time? Try Flexible Rent Payments

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One of the biggest challenges for landlords is collecting rent on time. If you are a rental property owner, you know that late rent payments cause so many problems. Not only does late rent affect your cash flow, but it also results in tensions between you and your tenants. No tenant likes being slapped with late payment fees for missing a few days. After all, there could be legitimate reasons why they are late with the rent.

Flex rent payments are one solution to encourage regular, on-time rental payments. Allowing tenants to pay rent on their schedule has tremendous benefits both for you and your tenants. Not only do you minimize late fees, but you also provide a better all-around service for tenants.

What are flex rent payments? When can arranging to collect rent on a flexible schedule benefit your landlord business? This article examines the many benefits of setting flexible rent payments.

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What are flex rent payments?

Flexible rent payments allow tenants to pay rent on their schedule. So, instead of having rent due by the first of the month, you collect rent in installments during the month. This flexible payment system allows certain renters to budget better and ensures they make their rent payments in full every month.

Why offer tenants flexible rent

Many people now work in the gig economy, are self-employed, or don’t receive regular paychecks. So, the traditional way of paying rent may not suit everyone. This can sometimes result in late payments if a tenant doesn’t get paid when they expect to. Flex rent payments can address these problems.

Traditionally, landlords collect rent on the first of the month. And for many tenants, this system works fine. Leases usually start on the first of the month. Also, most people get paid at the end of the month, so it makes sense to collect rent by the first, right after getting a paycheck.

For landlords, collecting rent at the start of the month also seems logical. It’s easier to track rent payments if all your tenants are on the same system.

However, technology and rent collection apps make flex rent payments easy to manage.

The COVID-19 pandemic also highlighted the benefits of switching some tenants to a flex rent payment schedule. According to the National Multifamily Housing Council (NMHC), offering flexible payment plans can help many families manage expenses better. In many cases, the best solution for collecting rent is to match due dates to a tenant’s payment schedule. This could mean that landlords collect rent in the middle of the month—or whenever the tenant gets paid. Or they could collect rent twice rather than once.

It’s vital to remember that flex rent isn’t the same as deferred rent payments. Nor does it mean allowing a tenant to rack up a pile of debt. Flex rent payments are an alternative way for landlords to get full rent regularly every month.

Benefits of offering flex rent

Flex rent has benefits for both you as a landlord and your tenants. Of course, flexible payment schedules aren’t necessary for everyone. And for many—even the majority—of your tenants, collecting rent on the first of the month is ideal.

But for self-employed tenants, gig workers, and others, flex rent is a perfect solution to a common problem—paying rent on time.

Let’s look in detail at the five benefits of flex rent.

1. Prevent late fees

Tenants who always pay rent on time never pay late rent fees. Imagine a tenant who receives their paycheck on the fifth of the month. They may have to pay late fees regularly because they don’t have rent money on the first of the month. However, if you adjust the payment schedule according to their payday, they can pay rent on the due date.

2. Make your tenants happy

Renters who work in the gig economy or who are self-employed are more satisfied with flexible rent payments. Apart from avoiding paying late fees, they have less stress, knowing that they never have to get behind on paying rent.

3. Boost your reputation

Adjusting the rent payment schedule in line with a tenant’s income cash flow shows you’re a caring landlord. After all, tenants probably expect that they must come up with rent by the first day of the month. That’s the way it is in the rental business. But for some people, that schedule isn’t practical.

So, imagine offering a self-employed worker the chance to pay rent twice a month? Or you find out that your tenant receives their paycheck on the fifth of the month, and you set their due date for the tenth. You will soon build a stellar reputation as a responsible landlord.

4. Reduce evictions

Because flex pay minimizes the risk of tenants paying rent late, you end up have fewer evictions. Evictions are costly. And during the eviction process, you are unlikely to receive money from your tenant. After you evict the tenant, you face the additional hurdle of filling a vacancy fast to keep a healthy cash flow.

In some cases, flex rent payments reduce the stress of dealing with tenants who can’t pay rent regularly.

5. Gain an edge

Offering flex pay to responsible tenants sets you apart from other property owners. You may find it easier to fill vacancies if you offer flexible payment schedules during the interview.

Imagine the situation. A financially secure, self-employed worker is looking to rent an apartment. They are considering two similar properties—yours and another one. However, their income flow varies from month to month. So, you offer the possibility to pay rent twice a month, but the other landlord insists on payment on the first. Which rental unit will they choose?

How to set up flex pay

If you manage a few rental properties, it can be easy to set up flexible payment schedules. It is vital to ensure that the lease agreement clearly states when rent is due, the grace period, and your policy on collecting late fees. Then, you need to have a system to track rent payments as per the tenancy agreements.

Another way is to use a property management app for landlords and tenants with a flex pay feature. You can set the appropriate payment schedule and have it in the rental agreement. With tracking tools, you can easily track payments to ensure that all tenants pay rent on time.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.