November 23, 2021 |
Updated April 27, 2022
Owners and operators are leveraging payment plans and FinTech to improve rent collection.
Making on-time, in-full rent payments is difficult for many modern renters. Some residents live paycheck to paycheck and struggle to make ends meet. If anything, the pandemic cast a spotlight on the challenges facing renters and their housing providers across America.
In recent years, local regulations have made it increasingly difficult to develop new housing, accelerating an already severe housing affordability crisis. This added pressure on renters has led them to submit rent payments with credit cards, make partial payments, pay rent late and, under the Centers for Disease Control and Prevention’s (CDC) nationwide eviction moratorium, not pay at all.
Owners and operators rely on rental income to pay their own bills and maintain housing quality for residents, and many bear the brunt of rent payment issues. Some operators tried to assist residents by implementing different types of payment plans or leveraging FinTech resources to break up rent payments based on the cash flow of renters. While this has been a helpful resource in multifamily housing, owners and operators generally don’t have the same type of flexibility when their bills are due.
The housing providers who implemented flexible payment options and technology-powered financial resources often experienced success with rent collection and discovered long-term benefits of continuing to use these methodologies.
“Allowing residents to pay rent when they get paid instead of having a definite date of when rent is due, or even splitting up their rent payments significantly helps them out, and that impacts us as well,” said Sheila Jones, Vice President of Gates Hudson. “It helps residents to budget better and positively impacts their finances, making it a lot easier on the resident to make on-time, in-full rent payments and avoid delinquency.”
Proactively Eliminating Delinquencies
Economic research firm Moody’s Analytics estimated the typical delinquent renter was almost four months and $5,600 behind on their monthly rent and utilities as of the January 2021 payment, with another $50 per month of late payment penalties. This equated to about $57 billion owed by renters behind on their monthly payments at the close of 2020.
Flexible rent payments are not all created equal, and optimal methods provide a proactive approach to eliminating delinquencies and mitigating bad debt. The most effective flexible payment plans work by aggregating increments of rent in advance, based on renter cash flow, to ensure all the rent is paid on time, in full, on the first day of the month.
Proactively reserving smaller amounts that equate to a full month’s rent helps the resident pay based on their pay schedule without having to absorb the enormous late and legal fees. These fees add up over time and further exacerbate the financial problems for residents
Bad debt burdens the multifamily housing industry. Looking at the data, it’s virtually impossible for operators to recover rent after a delinquent resident has left the community.
“If residents weren’t offered flexible payment options and the ability to pay rent on a biweekly basis, those residents probably could have been at risk of later being evicted and put out of their homes,” Jones said. “Utilizing flexible payment resources has kept residents in their homes with less fees to pay, and that considerably reduces bad debt to the owners.”
In 2019, 20.4 million renter households were rent burdened, meaning they paid more than 30% of their incomes for housing. According to a 2020 Lending Tree survey, 53% of Americans live paycheck to paycheck. Rent is currently due when residents have the least amount of cash available, putting many residents at risk of default of their highest and arguably most important monthly expense.
“At the end of the day, we want to help residents get caught up on their rent, provide resources to help them budget for future payments and support their ability to financially take care of themselves,” Jones said. “The flexibility is really beneficial all the way around, from residents and onsite teams to the community owner/operators.”
Reimagining Receivables Management
Rather than looking at receivables management in silos, flexible payments and new technology platforms have given owners and operators a holistic view of an essential process. The sooner operators address the issue of a resident struggling to pay rent, the less likely the resident will reach the point of delinquency, and for operators, the collections process.
“We were inundated with reaching out to residents struggling to pay rent all through 2020 and even the first quarter 2021,” Jones said. “It’s been really troubling to see how many residents were falling behind on rent and it’s also very taxing on the onsite staff when they’re trying to reach out to the residents and see how they can help.”
Technology platforms with rent payment resources have automated data processes to allow third-party teams toreach out to residents behind on rent. These customer service-
oriented teams serve as an extension of the property management team and communicate with residents on solutions for budgeting and payment options to streamline rent recovery and foster future on-time, in-full payments. This alleviates the onsite burden of collecting rent and provides a personalized payment option for residents to consistently pay and not face delinquency.
According to data from financial solution provider Till, operators using its proprietary platform experienced a 50% increase in on-time collections, and it is expected to cut evictions by as much as 50%.
“All of our team members really welcome additional resources and voices that can help residents and let them know we’re here for them,” Jones said. “It adds an extra layer of financial help that really supports both residents and the onsite teams. If you have something that makes a positive impact on residents’ ability to stay in their apartment homes, it’s a crucial facet to this industry that assists struggling renters and proactively eliminates delinquencies.”
Integrating Flexible Payments Long-Term
The bottom line is apartment owners and operators and their communities depend on rental income. While there isn’t room for owners and operators to have flexibility with their bills, budgeting tools and flexible payment options, although nuanced, have one thing in common: They set the resident up to make on-time, in-full payments consistently. This improves rent collection across the board, reduces bad debt for owners and increases asset value.
“There are some submarkets where it’s necessary to assist residents in budgeting and helping them to manage their finances,” Jones said. “Some markets have really high rent, and residents will work two jobs to make ends meet, so these additional resources are really helping residents and their families, which helps the industry in the long run.”
Flexible payment options may be viewed as a short-term solution, but owners and operators can experience immense value when residents continue to utilize these resources. Stabilized cash flow and optimized budgeting increases on-time, in-full payments and mitigates delinquencies. Bad debt is a reality in the industry, but these tech-powered resources are proactively reducing it by addressing issues at the very start, before it spirals into delinquency.
Morgan Dzak is Account Manager for LinnellTaylor Marketing.