by Paul R. Bergeron III
Enforcing rent payment deadlines is a critical step toward reducing resident delinquency.
It is important that residents clearly understand that not paying their rent as they had agreed to based on their lease terms will result in consequences. Late fees and other described consequences must take place in order for owners to preserve their cash flow and reputation in the community, according to several owners and industry consultants participating in a discussion group on NAA’s Linkedin page in March.
For example, if payment is due on a Monday and the resident does not hear from the collector (management) for several days thereafter, the message being sent is that “being late really is not that important.” This mindset hampers owners.
When making a collection call, it is imperative that both the caller and resident clearly understand what action is expected, wrote Jorge Baldor, President, ResidentCheck. For example, “a payment by Monday” and “$700 by the first of the week” are statements that are not acceptable because they are too vague. “$700 by Monday,” however, is specific and acceptable as an arrangement.
One novice owner, unwilling to risk irking a delinquent resident, willingly accepted $20 here and $20 there to help reduce the debt. Later, that owner read posts on an apartment review site that the resident was critical of the community.
Apartment industry consultant Dennis Smillie wrote that it is crucial that “owners draw a line in the sand and make sure proper expectations are in place when all new residents sign on.”
“We instituted a process with new move-ins where residents were counseled on their expected payment behavior and were expressly shown what their monthly up-charge would be if they were delinquent (including legal fees, concession recapture, late fees, etc.),” he wrote. “We ‘did the math’ with them, had them sign their statement of understanding and then notarized the document in front of them.”
Smillie wrote that this community’s month-end delinquency was one-tenth of the pre-strategy amount within 90 days and stayed that way going forward.
Zach Karam, CPM, Owner, Jaxon Property Management, El Paso, Texas, suggested implementing collections through automatic debit. “They said it could never be done, but two years later, every resident is on auto-debit, and it is mandatory for new renters,” Karam wrote. “The property is 100 percent occupied.”
Several commented that it is always better to have a vacant apartment than have it occupied by “a deadbeat.”
Resident screening professional John Peden, Right Renter, Mapleton, Utah, wrote, “Initially, enforcing a strict policy will create a difficult financial situation for the owner. But once the residents that you don’t want in there to begin with have moved out, you’ll be able to create a better community and neighborhood.”
Smillie wrote about an owner with a similar situation on a 1,000-unit property. “There will be some spike in legal costs and move-outs will accelerate,” Smillie wrote. “The move-outs are by residents who were economically marginal to begin with and burned a lot of staff time and energy to collect. But most were replaced with residents who paid on time.”
Residents have had “social networks” in place long before technology formalized the social media concept, Smillie commented. “Just as word will spread among residents about a community’s ‘relaxed’ collections policy (“you can be late—they’re not really serious”), the word also will spread like wildfire that there’s a new ‘sheriff/owner’ in town who is serious.”
Peden described a situation where an owner he knew saw 50 percent of his residents move out within 60 days. “But 60 days after that (after the required repairs had been done) the apartment building was fully occupied and remained that way,” Peden wrote. “In fact, because he cleaned house, he now has a waiting list of applicants.”
Paul R. Bergeron III is NAA’s Director of Communications. He can be reached at 703/797-0606.