Rent is the monthly income you collect from tenants for living in your property. It’s what most landlords – unless they are lucky enough to have bought the house or apartment outright – use for their monthly mortgage payments. Rent arrears are when the tenant falls behind with the rent, and consequently so do your mortgage payments (if it’s scheduled to be paid around the same time every month).
Tenants get into arrears for all sorts of reasons, but that’s for another blog post. In this one, we’re focusing on tenants who do pay their rent faithfully on a monthly basis – and the ways in which it’s possible for them to pay it.
Different methods of collecting rent
Cash. There is the old-fashioned way, of course, where you as the landlord go around to your property on the same day every month and collect it in cash (a bit like an old-fashioned debt collector would). This is time-consuming and not possible if you live abroad or simply too far away from the property. Even if you lived relatively near to the property, it would still cost you in terms of petrol expenses. And if you have a decent-sized property portfolio with four or more houses/flats being rented out, then it could take a whole evening to collect all the rent. Then there are the receipts to be made out and the trip to the bank to deposit the cash. We’re tired just writing about it…
Cheque. Yes, you can still find cheque books these days! It’s just that very few of us ever use them, preferring to use something more modern such as bank transfer or Paypal instead when buying goods or services. However, you can bet your tenants will have cheque books. The hindrance with receiving rent by cheque is that it can get ‘lost in the post.’ And even when you do receive it, you then have to trek down to the bank to deposit it. And then you’ll have to wait up to five days until it clears! So, definitely not the best or most efficient method of collecting rent.
Standing order. This is when the rent (by means of a fixed amount of money) is paid direct into your bank account by the tenant’s bank at the same time every month. However, it relies on the fact the money has to actually be in the account at the time – otherwise the rent doesn’t get paid.
Direct debit. So far, the most reliable method of getting rent that we’ve mentioned. But you’ll have to get a mandate signed by your tenant agreeing to it. A property management company could organise this for you and ensure the rent gets paid, for which you’ll pay a small fee. It’s easy to increase the rent via direct debit and it’s a safe and secure means of money transfer.
Automated service. As you might imagine, there are quite a few third-party rental collection services around today. Their purpose is to make sure landlords get paid on time. Two of these are RentScore and TheHouseShop. Both have a link to Experian, so that if a tenant continually pays on time, their credit score goes up. Alternatively, if they miss a payment, it goes down. This type of service can provide a great incentive for a tenant paying on time. However, there will be a fee and if you have a high turnover of tenants, then it could cost you quite a lot to continually register new tenants (HMO landlords in particular might like to forget this).
Speak to Andy Smith who specialises in investment property.
Call 0333 123 1330