Rent collection is important for obvious reasons. Most states have different rules and requirements for what constitutes a valid lease and Landlords usually charge Tenants on a monthly basis. Landlords will charge rent based on the terms of the Lease Agreement and Tenants must remit the monthly payment as a condition of residing on the property.
Components of a Lease Agreement
Before a Landlord can begin collecting rent, a Landlord should have a written lease agreement signed by the Landlord and the prospective Tenant. Having this document written out can save future headaches and puts down expectations on both sides. Different states and locales may have different requirements around what constitutes a valid lease but here are some of main parts:
- Tenant Name(s) - This is the person who is accountable for paying the lease. In some cases, the Landlord can request the Tenant to provide a guarantor if there are risks associated with the Tenant's credit.
- Landlord Name / Entity - If the property is held under the Landlord's own name, this will simply be the Landlord's own name. If the property is held under an LLC or Trust, the lease may need to include the Entity's name.
- Property Details - It should be abundantly clear that the Lease Agreement is intended for one specific unit, one specific room, or one specific property. Spelling out the exact address and unit number will clarify confusions here.
- Term - This is the amount of time the lease was signed for. Commonly, leases have 12, 18, and 24 month terms. Some leases will include a breakage fee if the Tenant decides to leave early.
- Deposit - There are many laws that govern what a deposit may be used for, how to return the deposit, whether the deposit needs to be held in an interest-bearing account, and when the deposit will be returned. Generally speaking, a deposit is a set-aside security measure that protects Landlords against potential damages and skipped-out rent. Deposits should not be recognized as income unless the Landlord rightfully earns it.
- Rent Details - The Landlord should stipulate Rent Details such as when rent is due, how the payment should be paid, and how much the rent is due on a monthly basis. To protect against Tenant delinquencies, the lease may also include an eviction clause.
- Fees - In the event there are any mishaps like late payments, lost keys, or city fines, the lease will clarify who pays the fees and how much the fees are.
- Responsibilities - Landlords, in most states, must maintain a standard of habitability in order to continue renting out to Tenants. Landlords will document how the Tenant should contact the Landlord or Property Manager in the event there are issues.
- Use - Landlords can stipulate that the residential property should be used as a residence and that illegal activities will not be permitted nor tolerated. Additionally, irreversible alterations to the property is usually not permitted.
- Access to Premise - Landlords will usually want to retain the right to access the property but will want to stipulate that they will provide some notice prior to coming in.
- Other Requirements - Landlords may also add in other requirements like mandating Renter's Insurance or prohibiting smoking and pets. Some Landlords may also prohibit a Tenant from being able to sublet.
One major callout, real estate is protected under many discrimination statutes. Please make sure your lease and rent collection methodology complies with Fair Housing Act requirements -- not just because it is good for business, it is also the right thing to do.
What do I charge to Tenants?
Tenants will often need to pay for a couple things:
- (Monthly) Base Rent - "Rent" is a fixed amount the Tenant pays to the Landlord on a monthly basis. In the United States, monthly apartment rent is $1,468 on average.
- (Monthly or Bi-Monthly) Utility - This amount is a variable amount the Tenant pays to the Landlord or a utility company. The variable element comes from a Tenant's internet, water, gas, electric, sewage, and/or trash usage. Some Landlords choose to pay some or all utility bills for the Tenants.
- (One Time) Deposit - In many cases, a Landlord will ask the Tenant to provide up to one month's rent as a deposit. This helps shield the Landlord from unexpected losses but it may turn away some Tenants as it is difficult to come up with an additional month of rent.
- (As Needed) Fees - Landlords can also decide to charge a fee if there are any Tenant issues. Fees can discourage behaviors like smoking, paying rent late, or causing significant noise at night. Landlords should exercise discretion when charging fees because it may unnecessarily burden Tenants or be a genuine mistake.
How should I collect rent?
Based on the stipulations provided in the Lease Agreement, a Landlord will want to specify details about the rent payment. Landlords can typically require a Tenant to use a certain system (eg. Venmo, Check, Cash App) to pay rent and Landlords can specify how much the late fee would be.
Some easy options, for DIY landlords, to collect rent include:
However, most of these services require some amount work to set up and requires good accounting and record-keeping so potential auditors can figure out which property or unit the rent is for. To fully automate this work, Landlords will be able to use Nophin.
Landlords use Nophin to get their rental income upfront
This means Nophin will front-load all the money you're expected to earn (ie. your Free Cash Flow) over the course of the year and adjust a slight discount based on the risk and service. We look at your rental property performance and determine what you can afford based on your leases and financial history.
Our goal is to provide liquidity to landlords -- so you can go ahead and treat yourself, reinvest in your business, or use the money to address any life events that come your way.