Monthly rent collection is often the main way commercial properties generate revenue. As such, it’s important to have systems in place that streamline the way you manage rent collection and protect this important source of revenue.
Rental income is the lifeblood of commercial real estate investing. In this article, we discuss best practices for collecting rent, as well as some ‘don’ts’ to avoid.
Guide to Collecting Rent: Key Takeaways
- A good landlord-tenant relationship starts with communication. In contract form, specify details such as the due date for rent, your grace period for late payments, and any late fees or consequences of missing a payment. Always stick to the terms that you set in your lease agreement and be consistent from tenant to tenant.
- Online software management systems and softwares allow landlords and property owners to centralize their processes, while placing the onus on the tenants to pay their rent on time. Online management will also save you time and hassle.
- If you have a large number of tenants in your purview, you’re experiencing tenant issues, or you simply want to focus your active efforts elsewhere, you should consider bringing on a residential property management company. A property management company will take on monthly rent collection, maintenance issues, tenant complaints, and occupancy.
- Avoid collecting rent in person, avoid collecting cash, and never give your home address out to tenants. As the landlord or property owner, it’s important to set parameters with your tenants from the outset that dictate the specifics of rent collection.
- In Ontario, rents can be increased once every 12 months. That said, tenants must receive at least 90-days written notice before such increases occur. There are also guidelines in effect that dictate how much rents can be increased yearly.
- Rental income is subject to taxes in Canada. That said, your rental property may also qualify for certain deductions.
- If you have a tenant in arrears, you have provided them with written notice, and you are unable to come to an agreement regarding payment, you can file for eviction with the Landlord and Tenant Board.
Collecting Rent: Best Practices
Establish clear communication with your tenants (and get everything in writing!)
A good landlord-tenant relationship starts with communication. This means making sure that your tenants understand and are agreeable with your chosen mode of rent collection. A written contract is the best way to hammer out the nitty gritty of your lease agreements. Make sure to get details like the due date for rent, your grace period for late payments (if you have one), and any late fees or consequences of missing a payment in writing. And beyond just having these kinds of details in writing, make sure you stick to them and are consistent from tenant to tenant. Having a written contract in place is important because it will put you in a better legal position should a rent dispute arise down the road.
Whenever possible, collect and manage rent online
The best way to manage rent collection these days is through an online management system or software. Online tools allow landlords and property owners to centralize their processes, while placing the onus on the tenants to pay their rent on time. Utilizing an online system or software will save time, establish a paper trail, and make operations much more scalable. As an example, Buildium is a one-stop-shop for property managers. Buildium’s software can be used to manage rent collection, maintain rent ledgers, and log maintenance requests.
Of course, there are some caveats to going the tech route, as not everyone has access to online resources or the digital literacy necessary to maneuver a technological approach to rent collection. Depending on your tenant-base, you may need to offer an alternative method, such as a mail-in method or a rental dropbox.
Consider a professional property management company
Property management can quickly become a full-time job. In addition to collecting monthly rents, properties require consistent—often daily—upkeep. If you have a large number of tenants in your purview, you’re experiencing tenant issues, or you simply want to focus your active efforts elsewhere, you should consider bringing on a residential property management company. Not only will a residential property management company manage your monthly rent collection, but they can also take on things like maintenance issues, tenant complaints, and occupancy. They can also help you to realize a higher NOI by identifying inefficiencies.
Collecting Rent: Don’ts
Avoid collecting rent in person and avoid collecting cash
Thanks to modern technology, there’s really no reason to chase down your rent. There’s also little reason to accept cash payments. With cash, there’s less of a paper trail and more room for error. Moreover, dealing in cash can be dangerous. As the landlord or property owner, it’s important to set parameters with your tenants from the outset that dictate the specifics of rent collection. Doing this will set you up for efficiency and accountability down the line.
Never give your home address out to tenants
In any line of work, it’s important to maintain boundaries between your professional and personal life. As such, you should keep your tenant dealings out of your home. This is also important for the sake of safety. If you choose to accept rent payments through the mail, there are alternatives to giving your home address to tenants. For instance, you can consider registering for a PO box or setting up a rental dropbox.
Don’t leave anything to hearsay
Part of the reason why many landlords have shifted away from traditional methods of rent collection is that they allow for errors and excuses. For instance, if you accept payments through the mail, you could end up dealing with things like misplaced payments or the age-old excuse: “my cheque got lost in the mail.” To avoid these kinds of rent-collection-horror-stories, keep your tenants accountable every step of the way. One way to do this is by asking your tenant to obtain a ‘proof of mailing’ document at the post office.
The Nitty Gritty
In Ontario, rents can be increased once every 12 months. That said, tenants must receive at least 90-days written notice (in Landlord and Tenant Board-approved form), before such increases occur. There are also certain guidelines in effect that dictate how much rents can be increased yearly. You can find out more about the rules for residential rent increases in Ontario here.
Like any income, rental income is subject to taxes in Canada. In other words, you are required by the Canada Revenue Agency (CRA) to report any revenue produced from your income property. You can learn more about your tax obligations as an income property owner here.
With that said, you might also be eligible for certain deductions. For instance, you can claim short-term operating expenses as well as capital expenditures that improve your property’s value. You can find out more about these kinds of considerations here.
Your legal rights
In Ontario, you have rights when dealing with a tenant in arrears. If you have been unable to work out a payment plan or a mutually satisfactory agreement, your first step should be to provide notice in writing that the tenant is required to move out. The notice should specify the amount of outstanding rent as well as a compliance deadline. If the tenant remains on the premises, landlords or property owners can file with the Landlord and Tenant Board to obtain an order for eviction. You can find out more about Ontario’s laws pertaining to rental evictions here.
Sidestep Property Management and Invest with Crescendo Equity
The great thing about real estate investing is that anyone can get their foot in the door. That said, it helps to be backed by an experienced team of investors. So, get in touch to find out how you can get in on the action and invest through Crescendo Equity. Crescendo Equity is made up of a team of dedicated senior real estate investors committed to identifying and managing high potential assets, while securing maximum cash flow and exceptional investment returns to partnered investors. Find out more about how Crescendo Equity makes real estate investing simple by visiting our website.