Rent collection is a part of being a landlord that can go wrong in a number of ways. For the Greater Richmond Area landlord, the money isn't guaranteed on the 1st of the month. It is not guaranteed in a few weeks.
This post is written for all of the property owners across the Greater Richmond area who are worried about and deal with issues surrounding the rent collection on their rental properties.
The Illusion of the Simple Landlord
So many property owners come into this investment as if paying rent on time is the least of their worries. "I'll deal with the vacancies/maintenance when they occur." Wrong. Many times it is the easy collection of rent that can and often does cause the most problems for the uninformed landlord.
We hear this constantly. And then we hear from those same owners six months later after they've spent three weekends texting a tenant about rent.
Even when rent is only a couple of months behind, the dollars quickly add up. First there is the lost rent, then there is the landlord's time spent contacting the tenant to get the late rent paid, then there are the late charges, and then there are additional charges for collection of the late rent. It is not until all of this is added up that one realizes just how costly it can be when dealing with a tenant who does not pay on time. A single month of slow pay can end up costing a landlord far more than the single late check!
Past Due Rent In Richmond, How To Collect & Avoid Unlawful Detainer
This same mentality can get you in a lot of trouble as a landlord in the state of Virginia. Virginia is NOT a landlord-friendly state, and following the Residential Landlord and Tenant Act (VRLTA) for the state of VA can be cumbersome and a huge headache. We deal with many different cities and areas, including: Henrico, Richmond City, Chesterfield and Hanover.
The typical span of time for an eviction to run in Virginia is approximately 45 to 60 days. During this time the amount of past due rent that you will lose will be approximately $2,700 to $3,600 for a property that is rented for $1,800 per month. Also, when serving a 5-day pay or quit notice, the landlord must give the tenant the full amount of rent due, as well as any late fees. However, the late fees as set by statute in Virginia are capped at 10% per month of the total amount of past due rent. This would result in a maximum late fee of $180 for a property that is rented for $1,800 per month.
Late fees are capped at 10% of the monthly rent (Virginia Code § 55.1-1245). For a property like the one above that is rented for $1,800 per month, the late fee would be a maximum of $180 per month. As can be imagined, late fees rarely, if ever, equal the time and expenses incurred by a landlord to attempt to collect rent that is past due.
The Richmond General District Court at 400 North 9th Street in Richmond is typically the venue where a landlord would file an unlawful detainer. It is not uncommon for a first hearing date to be 3 to 5 weeks in the future. In Chesterfield and Henrico, where most of the rental properties are located outside of the city of Richmond, a first hearing date is typically within 1 to 3 weeks. However, this does not seem to be soon enough for a landlord who is losing money on a rental property.
Flexible Payment Plans Can Be Expensive
Just to make it clear, we're not saying that property owners are not kind people who wish to assist a struggling renter. We know that there are plenty of decent property owners out there. But we can't stress enough that working with a tenant who's not paying rent is not the same as working against yourself.
We had an interesting property to manage for a while. It was in North Chesterfield and had a long term tenant. The owner had, for 2 months, verbally agreed with the tenant to pay rent when he could. No written payment plan had been put in place, no formal late notice had been put in writing and served on the tenant. The owner thought he was helping the tenant but in reality, he was just losing a lot of money. By the time we took over the property and worked through the eviction process, 3 months had passed and the owner would have been out almost $6,400 in lost rent plus the cost of the eviction.
Late rent acceptance can establish a pattern that the court will recognize as a "modified" lease term, undermining the landlord's efforts to enforce late rent payment terms and seek possession of the rental unit. So, while being flexible with delinquent tenants may seem to be kind to them, it can have negative consequences for the landlord.
The Partial Payment Trap
Another common mistake made by landlords of rental properties is to accept partial payments from tenants with an understanding that the balance will be paid in full at a later time. However, if no written notice of such an agreement is ever entered into by both parties, the acceptance of the partial payment could potentially be used by the tenant to prove that the landlord has waived his or her right to seek the entire amount of past due rent, due to lack of proper written notification.
Accepting partial payment for rent in Virginia can have the unintended effect of estopping a landlord from collecting the entire amount owed for late rent. For example, one of our new investors from out of state was behind on his payments for a Richmond investment property and thought that accepting half of the rent due for the month would be sufficient. After several months of attempting to correspond with the tenant regarding the outstanding balance, the landlord finally came to us for assistance in eviction proceedings. In the end, it took several months to sort out and collect all of the outstanding past due monies.
Paperwork is always a pain and, more often than not, can seem like completely unnecessary "red tape" but documents are the protection of a landlord and help to prove the landlord is in the right.
How Automated Systems Change the Game
Shift in Terms of Payments from Tenant to Owner: While 'texting' the landlord when a tenant can pay the rent to assist the landlord in collecting was common practice a year or so ago, it can result in delays for the landlord in collecting the rental proceeds, ultimately jeopardizing mortgage payments when there is no replacement rental income. As a result, managing landlord clients can greatly benefit by having a payment process of all rental proceeds online and automated to facilitate distribution according to their specific disbursement schedule.
All rent payments for properties that we manage are entered through Rentvine, the platform for collection of rent payments for the properties that we manage. The processing of ACH payments take two to three business days to process. The payment of disbursements of all accounts that are current with payments, are distributed on a monthly basis, in accordance with the scheduled monthly payment and accounting distribution.
One of the biggest advantages we have when we step in and begin to manage properties for our clients is the ability for our clients to have access to their most current property reports 24/7. This means that all of our clients have a current snapshot of where they are on all of their properties at any given time. One of our property management clients was excited to tell us the biggest advantage he has seen since adding us to help manage the 17 rental units that he owns, is that he can see at a glance on Rentvine how much is being collected in rent versus what is still owed for each of the properties he owns. Before, the owner advised, he had not had a clear way of knowing if he was being paid on time or not and had often found out that he was behind only after a significant amount of time had passed.
Other's reporting shows that 7 to 14 days are typical time frames for self-managed landlords who recover from owners late rent payments before contacting a delinquent tenant for payment. This equals two to four weeks of free rent that have been given to someone on the owner's dime.
Strict Policies Actually Attract Better Tenants
This is the contrarian take most landlords don't expect to hear.
One might expect that setting up automated late charges or establishing a firm payment due date could scare off good tenants but this could not be further from the truth. As more and more properties are being managed by "professional" property managers, as well as the increasing number of "professional" tenants in the submarkets of Short Pump, Glen Allen and Midlothian, the tenants expect a online payment portal as well as automated late notices and follow up. Many of these tenants even expect you to accept online payment by check or money order and if you do not have a online payment portal in place, they will not even consider renting your property.
Clear, consistent rental payment and late fees policies indicate that a landlord that runs a professional property rental operation. Tenants actively seeking housing, look for clear rental payment terms.
Section 8 Payments and Split-Payment Tracking
If a portion of the payment is made by Housing Assistance Payments (HAP) from RRHA then there are a few extra items to consider. First, there is a schedule for when the payments will be dispersed. The landlord needs a system to track the payments that were made by the tenant and the payments made by the HAP portion of the rental payments. This must be able to reconcile the payment made each month to ensure all of the payments are accounted for. As mentioned before, Rentvine provides a solid Reporting Structure that includes a Split Payment Reporting feature to report HAP portion of payments.
We manage Section 8 properties for our clients and track all Housing Assistance Payments reporting from within the Rentvine system. There is no worry for the owner of a "lost" HAP payment as all payments are accurately tracked and reported each month as part of the trust accounting provided to the owner.
What Happens When Maintenance Gets Delayed
The other major aspect of rent collection that has a significant impact is the issue of maintenance or repairs that are not completed in a timely manner. Tenants can place their rent payments into escrow if the landlord fails to make repairs in accordance with Virginia's Rent Escrow statute (§ 55. The worst thing for a landlord is to have a good tenant leave early because the landlord failed to make timely repairs. It is our policy to respond to maintenance issues within 2 hours during business hours. In the event that repairs require a licensed tradesman, we use professionals for HVAC, electrical, and plumbing issues. We can have a service person out to the property within hours to complete any repairs necessary to address a maintenance issue. And, in emergency situations, we are available 24 hours a day to address issues as they occur.
Building a Rent Collection System That Holds Up
The root of all problems when it comes to collecting rent payments is the lack of a solid operating system to track delinquent rent payments. That is why many of the properties that we manage across the 20+ properties for 29 owners have sub-metro operating systems. No written late notices are sent. No online payment system exists. Payments are collected by check or money order and there is no documentation of communications with tenants and no schedule to follow for sending out late notices. As a result, delinquent payments continue and accumulate over long periods of time until it becomes a huge problem that is difficult to recover.
No written late notices, no payment portal, no documentation of correspondence, and no written out-reach schedule. Many of the problems that we see in terms of late rent payments and collections could have been avoided if a simple written late notice had been sent prior to putting the tenant's rental payments into arrears.
If you are struggling to collect all of the rent due on your properties every month we would be happy to set up a system to do it for you.
FAQ
What's the typical timeframe of an eviction process in Virginia when a tenant stops paying rent?
Evictions in the state of Virginia typically run 45 to 60 days from the time of the first missed payment in rent. For Richmond City the time from filing with the court to the first hearing date can be as long as 3 to 5 weeks, after the 5 day pay or quit notice has expired. This is why it is important to send out late notices as soon as payment is late.
When a landlord accepts partial rent, what written protection is required?
When a landlord accepts partial payment of rent, he must issue a written Reservation of Rights to the tenant. The Reservation of Rights letter states that the landlord is accepting partial rent for the time being but that doing so does not constitute a waiver of his right to seek the entire unpaid amount of rent plus any applicable late charge, as well as pursuit of an eviction in court. Without a written Reservation of Rights, accepting partial rent will be deemed a waiver of any right to unpaid rent.
What is the late fee cap for rentals in Virginia?
Ten percent of the monthly rent for late charge purposes is 10% of the unpaid portion of the rent for other purposes. For example, $1,800 per month for late charge purposes is $180. That will rarely cover the time that is spent going after a delinquent tenant for the entire delinquent amounts.
Can Landlord/Tenant Statutes Apply In Other Counties Than Richmond City?
The rules surrounding late notices, partial payments and remedies for tenants apply across the state of Virginia and thus are equally relevant in the areas of Henrico, Chesterfield and Hanover.
How does a property manager handle rent collection differently than a self-managing landlord?
Most property management companies today utilize an online payment portal to collect rent. When late charges are assessed, the landlord/manager automatically sends out late written notices. The company maintains trust accounting records of all received monies with exact dates of receipt and postings to ensure that all monies are properly disbursed and documented. Our paper trail will help to verify any disputed transactions and serve as evidence in a court of law should there be a dispute between the tenant and the landlord/manager. Most self-managed properties do not possess a comparable written documentation of monies received.
What is the Virginia Rent Escrow law and how can it interfere with your rental income?
Tenants are also permitted to pay their full contracted rent in escrow under the Virginia Statutes at Section 55.1-1234 when their landlord is not addressing necessary repairs in a timely fashion. As a property management company we hope that any good tenant would want to continue to be a great paying tenant and address the repairs first – this obviously does not always work. And as mentioned above when repairs are addressed promptly maintenance issues can make a poor tenant great and ultimately mean money for you in continued rent payments.
