Collecting rent: the key to cash flow.

Collecting rent: the key to cash flowI’m sure you’re aware that owning investment properties can be a profitable business. Not always at first, but in the long-run that is the aim (otherwise why do it?) But if you want to be profitable from the get go – on positively geared properties – the key is cash flow. Ask any business owner about their day-to-day headaches and I would say that 99% of them would mention cash flow at some point. They may have money coming in, but if it’s all in December, it makes it difficult to survive the other 11 months. The same goes for owning investment properties. If you don’t have the income (rent) coming in on regular days throughout the year, it will make it difficult to cover bills.  Which means it puts your properties at risk. So what do you do?

There is a stereotype that renters are irresponsible – if they were responsible they would own their own home and wouldn’t need to rent! Lets take that idea to the next step. Since renters are ‘irresponsible’ it means your tenants won’t pay their rent on time. Here’s something you may not like – if your tenants are not paying their rent on time  – it’s your fault!

To avoid being the one at fault put systems in place and you will circumvent many irresponsibility issues. Make sure these areas are rock solid:

1 – Automatic payments.  You’d be surprised to know that even in this day and age there are landlords who still don’t have their tenants set up with internet banking! It’s true. Make it easy on yourself and make technology work for you. Get your tenants to set up automatic payment from their bank to yours.

2 – Choose your tenants wisely. Do your due diligence on their work history and tenancy history, and make sure they are reliable tenants.

3 – You need to set up expectations from the get go. How much they pay, when they pay, what the penalties are for not paying and when you would be forced to get the tenancy tribunal involved. Lay it out in the beginning. I mean go through each and every point out loud from the rental agreement. Don’t just say: “Read and sign it” and hope that they read the fine print.

4 – Be responsible yourself. Follow up on any maintenance and repairs. Be courteous and respectful to your tenants. If you treat your tenants as valued customers, they will (hopefully) treat you with the same respect.

5 – Enforce the rules. You may like your tenants, but that gives you no excuse when it comes to enforcing the rules. You said they would need to pay a penalty fee if they were 5 days late – so bill them. The sooner they know you’re serious, the better for everyone.  But before jumping to conclusions, talk with them. You never know what’s being going on in their lives: there may have been a death, an illness or some other unforeseeable issue that understandably made life difficult. Be firm but fair.

On the flip side, it’s nice to reward good behavior. If your tenants have been fantastic consider rewarding them in some way. It could be bringing the date forward on some property improvements, a Christmas gift or a voucher to the local pizza place. However you do it, make sure the good tenants are rewarded so they will continue to pay their rent on time – allowing you regular cash-flow.

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