If you are a landlord of rental properties in the Bothell, WA area, I'm sure that there has been a time or two when rent was late in arrival, partially paid, or even non arrival at all. This can be a huge problem and cause so much stress and cost for the landlord. I'm sure that there are many landlords who have spent their first two weeks of the month staring at their bank account, wondering and stressing about where the rent money is.
The mechanics, the laws and the practices of "effective" rent collection to make life for Bothell landlords as smooth as possible.
The Problem With Casual Rent Collection
Rent Collection Methods for Rental Property Owners in Bothell and surrounding neighborhoods. Whether you are managing your rental property yourself or hiring a Property Manager in Bothell or surrounding Snohomish County area, you may wonder how to collect rent each month. We see many landlords make the following mistakes with collecting rent.
It feels fine until it isn't.
One of the rental property owners we work with has a single-family home in Bothell. The owner collected rent from the tenant using Venmo and never kept any records of payments. When the owner issued a 14-Day Pay or Vacate Notice for nonpayment of rent, the owner was unable to produce any documentation of prior payments. The owner had to spend a lot of time gathering together documentation to try to prove when prior payments were made, and in the end, the delay was three weeks. That would have been almost $12,500 in lost rent for the owner, since average rent for a single family home in Bothell is about $4,210 per month.
These kinds of methods seem to be the low-friction way to collect rental payments. That is until they become a problem.
Washington State's Rules Actually Work Against Informal Landlords
Many people do not realize that the Residential Landlord-Tenant Act in Washington State is a very tenant-protective piece of legislation. Many of the procedural steps that must be taken by landlords in evictions are intended to protect the rights of tenants. The key to following these steps is having proper documentation to support the steps that you are taking.
A proper 14-Day Pay or Vacate Notice for nonpayment of rent is required to be served on the tenant under RCW 59.12.030 prior to filing an unlawful detainer (eviction) lawsuit. That clock starts ticking when the notice is properly served on the tenant. Until then, the landlord has not "gotten to" the point where they can file a lawsuit for nonpayment of rent. In Washington State, for example, where most lawsuits are filed in King County or Snohomish County, that would then mean that the landlord would proceed through the Eviction Resolution Pilot Program required by law for mediaton prior to filing of an unlawful detainer lawsuit. This can be problematic for landlords who don't serve the notice properly to begin with, causing them to fail at case start for reasons that are outside of their control.
The process from the time a 14-Day Pay or Vacate Notice is served until a writ of restitution is issued in an unlawful detainer action typically takes 45-90 days and can cost $3,000 to $6,000 or more in attorneys' fees, lost rent and other costs to get a tenant out. Disorganization in record keeping and other areas will only serve to increase these costs.
Screening is Your Best Collection Tool
Most people think that the work of collecting rent starts after their new tenant has moved in. That it is something that is handled after they have started paying their full rent on time, month after month. We disagree.
The most important component of any rent collection system is to verify a potential tenant's ability to pay before showing them the unit. Ideally this can be done in the application process itself by thoroughly scrutinizing their provided income history as well as other supporting documentation to assure that their verified monthly gross income (on an annual basis) exceeds 3 times the requested monthly rent. It is important to make certain that they also have a stellar payment history and lack any previous derogatory information such as past due debts or prior evictions that would pose risk to landlord. In an example where a $4,210 per month home would have rent collected 100% of the time from a tenant having a monthly gross income of $12,600 or greater.
All things considered, screening for rental property applicants is perhaps the most critical and most effective instrument of a landlord or Property Manager to collect timely payment of rent from tenants prior to their move-in dates.
Automated Billing Isn't a Luxury
For those rental property owners who are still treating their collection of rent money as just more handshake deals, the biggest tip of advice we can give you is start treating the payments of the rents and security deposits due on your rental properties in a far more formal, organized, structured and systemized manner.
We use Rentvine for our property management. We allow tenants to pay rent, see their balance, set up automatic payments, and receive reminders in an online portal. All payments and transactions are time and date stamped and are documented. This is a very valuable tool for us and alleviates a lot of headaches for owners and property managers.
Late Fees: Enforce Them or Lose Them
Late fees are often considered a hassle but in actuality they are the best protection that there are late payments. Most people will avoid charging a late fee if they can, but as a policy late fees should be charged every time that rent is late.
Most landlords have an initial late charge that they waive for their first late payment as they consider this to be polite to charge for the first late payment. However, we consider waiving late charge(s) to be poor policy and to create late payment issues as tenants believe that the late payment is just optional.
It takes some guts to admit when you have screwed up and a good property manager can help save relationships when a landlord inadvertently cultivates late payments. This occurred when a Kenmore town home owner allowed the same tardiness over and over again. It took several months but the owner's finally admitting to problem ultimately caused great tension before a lease addendum to specifically state payment terms and a very difficult conversation could be set up. This all could have been avoided by a simple written waiver of late charges each time it was necessary rather than verbally each time.
It's also very important that late charges be consistently and fairly imposed. The state of Washington allows a late charge of up to 1.5% per month of the rent, with a maximum late charge of $50 per month. On a $4,210 per month rental, that would be $63.15 per month. But, in practice, it is usually better to have a flat late charge, of say $25 or $50, per occurrence. This way, there is less room for argument as to why a late charge was not fairly imposed. And, ideally, the imposition of late charges should be entirely handled by a third party (i.e. property manager), so that the owner is not put in an awkward position of having to collect a late charge from a tenant.
What Happens When Rent Is Late Anyway
Even with great screening and a solid billing system, you will occasionally have a late payment. The question is how fast you move and how clean your process is.
Of course late payments will occur from time to time, even with the best screening and billing processes. It is crucial that the owner acts quickly and in the most consistent manner. A late notice that meets Washington law should be served within 14 days of rent becoming late. It is easy to let a few days pass while verbal warnings are given or even sent as texts or phone calls to the late paying tenant. The late notice serves as documentation of the fact that the owner is treating all tenants the same in relation to the late payment. This documentation is what is required for legal action in the future should it become necessary.
Also note that if you have property in Seattle it will be subject to the Just Cause Eviction Ordinance. This means that there are specific procedures for eviction as well as recognized causes for eviction.
The Real Cost of a Vacant Month
Late payment of rent causes problems for landlords but the real problem is the potential for a vacancy. The cost of a vacant property is the lost rent for the month, plus other costs to re-rent the property. In Washington State, the typical lost rent for a month would be the monthly rent, and after that, an additional $500 to $1,500 for cleaning and repair. In extreme cases, an eviction could cost $5,000 to $6,000 or more before the matter even goes to court.
A single month of vacancy on a rental property in this market could potentially cost $4,210 in lost rent. And then there are the typical estimated costs for turnover including cleaning and repair of $500 – $1,500 plus the typical estimated amount for re-leasing of $500 – $1,500. Thus a single eviction or abandonment of a lease could cost an owner as much as $6,000 prior to entering into any legal process.
Problems With Your Current Rental Income Process
Are you collecting rent in an informal manner? Waiving late charges? Finding out on the 15th of the month whether you will be collecting all of the rent for the prior month? All of these are indicators that your current system is not adequate and more structured documentation and a real platform of processing rents and corresponding with tenants is required.
A real platform, a consistent policy, documents created from day one of a tenancy, and great tenants who were properly screened are the basic things needed to avoid the problems associated with rent collection. All of these things can be set up by yourself with a little planning and then you can reap the rewards.
If you feel managing all of this is more than you would like, then let's have a chat.
FAQ
What is the required notice for nonpayment evictions in Washington State?
There is an additional requirement in the state of Washington for nonpayment evictions. In addition to a written 14-Day Pay or Vacate Notice (RCW 59.12.030), the landlord must allow the tenant to attempt mediation prior to filing an unlawful detainer action. In King and Snohomish Counties, this process is managed through the Eviction Resolution Pilot Program.
How much can a landlord charge for a late fee in Washington?
Per state law RCW 59.12.050(9), the late charge on a rental is 1.5% per month on the base monthly rent. Thus, for a rental of $4,210 per month, the late charge is $63 per month. That the landlord consistently charge a late fee (and enforce late fee charges in collection efforts) is far more important than the above fee amount.
Does Bothell have rent control?
Bothell does not have rent control currently, however landlords with month-to-month tenants must give 20 days written notice before increasing rent as stated by the state of Washington in RCW 59.12.030. Many cities, such as an example in Seattle RCW 59.18.130-140, state that a written increase in rent requires more than 20 days.
How can I create a reliable rent collection system?
A reliable rent collection system begins with tenant screening for risk. That means verifying a tenant's income to be 3x the monthly rent, reviewing their past payment history of payment, and checking for any prior evictions. Once a tenant is screened for risk, automated portals like Rentvine can collect rent payments, send reminders, and document all communication with the tenant in one place.
Is it worth hiring a property manager just for rent collection help?
Whether or not you need to hire a property manager to help with the collection of your rent is largely based on your goals and how much time you want to devote to management of your investment. A simple Lease Only arrangement could be all that you need in order to get the right tenant for your home, with a property manager handling the placement and screening of applicants for you. On the other hand, given the amount of time that is required to coordinate all of the aspects of rental property, it may well be worth your while to hire a full service property manager in order to help you maximize your return. Whatever your choice may be, the most important factor is to have a system in place for collection of rent that is consistent and fair.
