Hi readers, I am pleased to update you on my first property purchase, which we have now begun the refurbishment works at. If you would like a little tour, check out my Facebook Live here,and I did a further video update here. Things are moving quickly as I have great builders on the job. I will keep you updated as we progress as well as with my ongoing party wall dispute!
I recently attended a networking event and one thing that seemed to come up again and again in conversation was making sure that the rent keeps coming in and right next to it is very often the fear that it may not. This is not often a topic that is written about but is one that is absolutely key to get right.
Ensuring that the rent keeps coming in is vital for any property business, as it provides the cash not only to pay the bills, but to continue investing and growing your portfolio. This is the first of a two-part series which looks at rent collection and what to do if it stops (which is arguably one of the worst nightmares for a landlord!).
In most cases, rent is paid by standing order however there are also times when Direct Debit, cash or cheque may be preferred by different landlords. The advice that I often give to landlords is; make things as easy as possible for your tenants to set up and clear payments to you.
This article looks at the four main ways to collect rent along with the pros and cons of each for both tenant and landlord.
Collecting by: Standing Order
This is by far the most common method of rent collection. It does not cost you anything to process and it means that rent will come in on a predictable date; meaning that it is easy to track.
When it comes to your tenants, they often prefer this method as it puts them fully in charge of the payments that are made from their bank account. It means that their landlord cannot change the amount taken each month without their permission.
The only downside to standing orders from a landlord’s perspective is one of the upsides for your tenants as it means that if a payment is missed, or standing order set up for the wrong amount, there is nothing a landlord can do.
Collecting by: Direct Debit
Direct Debit is generally the most reliable and secure way to collect rent, however it can be a little tricky to set up yourself. Each payee will need to complete and sign a mandate before the Direct Debit can be activated and payments collected. There are, however, several third-party suppliers who can provide this service.
The main positives of this option are for the landlord. Whilst there is a small fee to pay, Direct Debit means that landlords know their rent will be collected on time and automatically through a system that they oversee. If there are rent increases for example, the landlord will not have to rely on their tenants to remember to make the necessary changes to their standing order as the landlord can action these from their end.
Whilst there are several positives for the landlord, tenants are covered by the Direct Debit Guarantee, which means that any errors to payments are covered and they are guaranteed to get their money returned. In addition, the tenant can always cancel the Direct Debit if they are not happy with the arrangement.
Collecting by: Cheque
I must confess, I cannot remember the last time I owned a cheque book, let alone wrote a cheque. However, for some tenants (largely, those who may be older), this is still the preferred method of payment.
The positive for the tenant is that unlike a bank transfer, they are fully in charge of the payment and it does not leave their bank account immediately. It does, however, require time to write and payment from the tenant of a stamp to post!
This method of payment, however, is not preferable for pretty much all landlords that I meet. Not only do you have to wait for the cheque to arrive in the post, it needs to be taken in person to the bank and then can take 3 – 5 working days to clear. If this was not bad enough, there are very often processing fees that accompany it (particularly if you are operating with a business bank account)!
Collecting by: Cash
Cash payments are rare, but some tenants still insist on them (in my view, this should not even be an option)! The main problem with receiving payments by cash is the amount of time that goes in on the landlord’s part. A visit needs to be arranged to collect the rent, then a trip to the bank and the associated costs such as travel expenses and bank processing fees.
If you have multiple properties, collecting payments by cash can really be a nightmare as it is not really a practical use of time to visit each property every month to collect the rent; particularly in the case of a HMO where you will have multiple tenants. If a tenant insists on paying cash, I would tell them to deposit the cash with a transfer to your bank. Doing this places the burden on the tenant to do the time-consuming trip to the bank.
For those landlords who do collect payments in cash, the main thing to do is make sure you have a signed receipt by both parties that is kept safe in the event of a dispute. This simply just adds to the hassle of cash payments.
Whilst most rental payments are made by standing order, it would be really interesting to hear your thoughts or experiences on Direct Debit payments and weather this has worked any better for you? Maybe this is something that would be considered by HMO landlords!
Rent collection is part of our management service and if you would like to discuss this further, then I will be more than happy to help. I run strategy workshops and portfolio review sessions. If you want more information about that, please email me at firstname.lastname@example.org.