Have you considered offering multiple rent payment options for your residents?
It is a great way to increase your cash flow and help your tenants manage their finances.
Jeffrey Taylor, “Mr. Landlord,” has advocated for this idea for years. And since the:
- US Bureau of Labor Statistics reports that private business with employees earning less than $20/ hour are typically paid weekly.
- Time Magazine reports nearly half of all Americans live paycheck to paycheck
This idea makes a lot of sense.
Did you know 70% of construction workers are and 50% of all manufacture workers are paid weekly? Why not collect rent weekly and get in sync with them!
70% of construction workers are and 50% of all manufacture workers are paid weekly.
Yes, more frequent rent collections are more work for a landlord, but the service fees and additional rent makes the effort worthwhile.
What is a Payday Rent Plan?
A Payday Plan gives a renter the option to pay rent weekly or bimonthly in accordance with their payday schedule. A service fee is added onto the payment to compensate for additional handling and bookkeeping.
What Makes It Profitable?
A payday rent plan makes additional income in two ways:
- Additional Service Fees
Your resident pays a $10 fee each time they make a payment. So if they pay weekly, you end up with $40 extra at the end of the month.
- Additional Rent Payments
In the case of weekly payments, the monthly rent is divided by four and collected 52 times per year. Meaning four additional payments are made over the course of 12 months.
For example, if the monthly rent is $1,000 then the weekly payment would be $250 ($100 /4) plus a $10 handling fee. This totals $260 per week.
There are 52 weeks per year, so the total amount collected would be $13,520 (52 x $260). This is $1,520 more than a traditional monthly rent schedule.
In the nutshell, for the example of $1,000/month rent, you stand to collect 11.2% or 9.5% more rent if you collect weekly or bimonthly respectively.
Is This Plan Predatory?
When I tell people about this concept they immediately try to compare it to a Payday loan. However, this practice is not at all predatory.
Here are the facts:
- Cheaper than a Payday Loan
This plan charges a fixed $10 handling fee which is equivalent to 15 minutes of a bookkeeper’s time. This is 75% cheaper than a Payday loan which charge $45 for an advance (391.07% APR). There really is no comparison.
- Helps Tenant Utilize Family and Friends
Lower income renters are better able to borrow small amounts from friends and family than larger lump sums. Payday rental plans help renters access their network.
- Avoids Cash Advances
This plan helps renters avoid the temptation of using a quick money cash advance to come up with large rent payments.
- Better Money Management
Payday Rent plans help renters manage their money. The structure helps them budget. You catch their pay/cash before they spend it on other things.
Breaking Down the Payday Rent Payment Plan
Let’s drop this idea into a breakdown table.
|Payday Rent Payments|
|What:||Increase profits by monetizing tenants’ need to spread out rent payment.|
|Why:||On a yearly basis, you can collect up an extra month’s rent plus service fees by helping your tenants align expenses with their paychecks. Your tenants will appreciate having a payment option that syncs with their lives.|
|Increase Net Income By:||
|The Extreme Version:||All of your renters choose to pay on a weekly plan.|
|Possible New Income Streams:||Finance charges from other items you refinance for resident and pay weekly (or bi-monthly).|
|Steps to Implement/Test:||
There are some drawbacks to a Payday Rent Plan:
- The Lease Must be Modified
You will need to update your lease materials to incorporate the various due dates within the terms of the lease – this HAS to be done to enforce the change to the lease.
- Payment Regardless of Month Length
You will need to clarify that even though the month has five weeks, an upfront rent payment is due every payday (every Friday).
- Some Renters Will Not Understand
You stand to be misunderstood by people who don’t understand this is an optional program where the pros may outweigh the cons.
You can make more money collecting rent at a frequency that matches your tenants’ payday schedule.
Empathize with your lower income residents. Give them the option to pay you when they get paid and reap the benefits.