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Five Ways to Encourage Residents to Pay Their Rent On Time

Making sure residents pay their rent on time and in full: it's possibly the most important task facing an apartment operator. Without the expected cash flow from renters, operating expenses become tough to cover and a community's bottom line takes a pounding.

So how can operators encourage their residents to fulfill the terms of their leases? Below are five suggestions.

Report rental payment history
When operators report their residents' positive rental payment history to the credit bureaus, they help those residents build their credit history. A strong, positive credit history makes it easier for them to secure car loans, credit cards and mortgages – and to do so at favorable interest rates. When residents understand how they can create a better financial future by paying their rent on time, they will be highly motivated to do so.

A couple of studies have demonstrated the significant impact of reporting positive rental payment history. In 2013 and 2014, the Credit Builders Alliance conducted a pilot project in which eight affordable-housing providers reported the rental payment history of more than 1,250 low-income residents. Nearly 80 percent of the residents saw their credit scores increase, with an average rise of 23 points.

Similarly, an Experian RentBureau study on the effect of positive rent reporting in nearly 20,000 subsidized housing residents revealed a considerable beneficial impact on the thickness of the renters' credit files. According to the study, 23 percent of thin-file residents moved to the thick-file category after their positive payment history was reported.

Bottom line: reporting rental positive history has big benefits for renters – and consequently, it can be a powerful motivational tool that operators can use to encourage on-time payments.

Implement online payment 
One of the easiest ways to encourage residents to pay their rent on time is to make it as easy as possible for them to do so. And for so many of today's renters – especially millennials and members of Generation Z – the most convenient way is online. According to the 2015 National Multifamily Housing Council/Kingsley Associates Apartment Resident Preferences Survey, 78 percent of residents prefer paying online.

Operators should also consider giving residents the option of setting up automated withdrawals from their checking or savings accounts to meet their monthly rent obligations. Offering small discounts on rent – say $10 per month or less – for automated payments can further motivate residents to pay this way and make sure your community has the cash flow it needs.

Credit Education Classes
Financial education can provide a powerful boon to residents' understanding of how delinquent bill payments can harm their credit history and hamstring their ability to buy a car or home, or open up a new credit card account. Accordingly, apartment communities across the nation — especially those in the affordable housing sector — are providing financial literacy programs to give their residents a brighter future and drive home the vital importance of paying their bills on time.

Here's the catch, though: Communities offering these programs have found that simply offering classes is often not enough to persuade residents to participate. It’s only when the communities give residents the option to have their rental payment history reported to credit bureaus that interest in the financial literacy programs usually takes off.

For example, officials with the New Hampshire-based Affordable Housing, Education and Development Inc. (AHEAD), which owns and manages more than 400 affordable housing units, report that resident participation in the organization’s financial education classes was minimal for a decade before AHEAD began offering to report rental history to credit bureaus. Once residents learned that they could build their credit history by having their rental payment history reported, attendance at the educational workshops increased greatly.

Home Ownership Programs 
Younger apartment residents have long been stereotyped as wanting to live their entire lives in urban apartments. But as millennials age, they are feeling the siren call of home ownership. In fact, the
Wall Street Journal recently reported that the home ownership rate has reached its highest level in three years at 63.9 percent due in large part to home purchases by millennials.

With resident motivation to buy a home rising, operators can set up programs by which a portion of a resident's monthly rent payment is set aside in the form of credits to help purchase a new home. These programs are often limited to companies that also build single-family housing and can offer discounts on the new home price or free upgrades on new homes, such as Quartz countertops.  The credits can only be applied when rent is paid on time and in full.

Consistently Enforced Late Fees 
Carrots in the form of reporting rental payment history or helping residents work toward a down payment on a home are great ways to encourage on-time payments. But sometimes operators need a stick as well. Significant and consistently enforced late payment fees can provide that stick.

With late fees, communication is key. Make sure residents know what the fees will be and how soon after the payment due date they will be charged them. Consider sending out monthly email or text reminders to remind residents to pay their rent on time and outline the penalties for not doing so.

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  • Russ Newbanks II

    Very interesting and would love to implement some of these with my community. Who or how would we report good payment history to credit bureaus?

  • Amy Richards

    We offer an ontime rent discount to our tenants: if they pay on time, they get a $50 or more discount on their rent. Those that miss the discounted rent time frame, pay the full monthly rent. A discount is always more palatable than a fee. It works quite well for us.

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