How to Manage Cash Flow With Residential Real Estate Rentals
Why you should always make deposits of rent payments the same day they're received
If you do it right, and follow a few simple steps time after time, managing cash flow is one of the easiest things to do with residential real estate rentals.
Tenants tend to think that if you own a rental property, you must be wealthy, and therefore not paying the rent on time isn't a big deal, since you've got the money anyway.
Clearly nothing could be further from the truth. Putting aside for a moment the issue of "wealthiness", imagine what happens if not one, or two, but all of your tenants takes this attitude!
Here's what one experienced residential real estate property owner that we know does.
She receives monthly rent payments from about 30 residential real estate tenants, and obviously not all come in on the due date, so running to the bank every day to make a deposit could become a bit of a hassle.
While it's tempting to make batch deposits every few days this landlord refuses to do so and sticks with a daily visit to the bank.
She told us she learned to do this the hard way with her residential real estate rentals:
•Most tenants, residential or commercial, will look at the float time between when a rent payment is made and when the check clears their account. The longer it takes for the payment to clear the more tempted the tenant will be to write a check for funds not actually in their account. By taking several days to make a deposit you're training the tenant to expect this.
•If you're dealing with a new tenant or have taken over management of a property with existing residential real estate tenants, making daily deposits sets the right expectations with the tenant right out of the box.
•If the rent payment is going to bounce, the sooner you know this the better. We've seen banks take as long as a week, sometimes more, before returning a check as NSF. Unless you monitor your bank account online daily, by the time you get the NSF notice from the bank you could be two weeks into the month.
•Many municipalities are tenant friendly when it comes to residential real estate rentals. The longer it takes to start the eviction process, the more free rent a tenant gets and the greater the odds that the property will be damaged when they finally do move out. We've seen some markets where over the Christmas season the sheriff will publicly state they no evictions will be done. If you rent to a tenant that knows this, then watch out!
Another benefit of going to the same bank frequently is that the bank employees get to know you. This was actually advice that I received from my accountant years ago.
Why should you care if the people at the bank know you?
I've personally benefited in these ways:
•When I'm recognized I often will get faster service from the teller.
•Large deposit amounts are not questioned or put on hold because the bank knows who I am.
•My company maintains several property management trust accounts in addition to our business accounts. Whenever I have a question on one of them I'm not asked to prove who I am each time.
•It's nice to be recognized, especially knowing that a bank branch deals with potentially hundreds of people each day. A little egotistical, but true!by
Jeffrey A Roark
Why you should always make deposits of rent payments the same day they're received
If you do it right, and follow a few simple steps time after time, managing cash flow is one of the easiest things to do with residential real estate rentals.
Tenants tend to think that if you own a rental property, you must be wealthy, and therefore not paying the rent on time isn't a big deal, since you've got the money anyway.
Clearly nothing could be further from the truth. Putting aside for a moment the issue of "wealthiness", imagine what happens if not one, or two, but all of your tenants takes this attitude!
Here's what one experienced residential real estate property owner that we know does.
She receives monthly rent payments from about 30 residential real estate tenants, and obviously not all come in on the due date, so running to the bank every day to make a deposit could become a bit of a hassle.
While it's tempting to make batch deposits every few days this landlord refuses to do so and sticks with a daily visit to the bank.
She told us she learned to do this the hard way with her residential real estate rentals:
•Most tenants, residential or commercial, will look at the float time between when a rent payment is made and when the check clears their account. The longer it takes for the payment to clear the more tempted the tenant will be to write a check for funds not actually in their account. By taking several days to make a deposit you're training the tenant to expect this.
•If you're dealing with a new tenant or have taken over management of a property with existing residential real estate tenants, making daily deposits sets the right expectations with the tenant right out of the box.
•If the rent payment is going to bounce, the sooner you know this the better. We've seen banks take as long as a week, sometimes more, before returning a check as NSF. Unless you monitor your bank account online daily, by the time you get the NSF notice from the bank you could be two weeks into the month.
•Many municipalities are tenant friendly when it comes to residential real estate rentals. The longer it takes to start the eviction process, the more free rent a tenant gets and the greater the odds that the property will be damaged when they finally do move out. We've seen some markets where over the Christmas season the sheriff will publicly state they no evictions will be done. If you rent to a tenant that knows this, then watch out!
Another benefit of going to the same bank frequently is that the bank employees get to know you. This was actually advice that I received from my accountant years ago.
Why should you care if the people at the bank know you?
I've personally benefited in these ways:
•When I'm recognized I often will get faster service from the teller.
•Large deposit amounts are not questioned or put on hold because the bank knows who I am.
•My company maintains several property management trust accounts in addition to our business accounts. Whenever I have a question on one of them I'm not asked to prove who I am each time.
•It's nice to be recognized, especially knowing that a bank branch deals with potentially hundreds of people each day. A little egotistical, but true!by
Jeffrey A Roark
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