Rent Collection Agencies: A Guide for Landlords

For landlords, dealing with unpaid rent can be a real headache. Fortunately, individuals seeking to recover financial losses have various options at their disposal. One approach is to enlist a rent collection agency, aka a debt collection agency, to collect on your behalf.

In this guide, we’ll break down everything you need to know about rent debt collection companies, including what they do, how to choose a reputable one, and the methods they employ to help you get your rent money.

Perhaps more importantly, we’ll discuss how property management software like TurboTenant might eliminate the need for a rent collection agency in the first place. However, if you need to recover unpaid rent debts now, we cover everything you need to know in this guide.

Key Insights

• Rent collection agencies can help landlords recover unpaid rent and streamline the collection process.
• When choosing an agency, landlords should consider experience, fees, communication, and reputation factors.
• Rent collection agencies typically operate on a contingency basis and charge a percentage of the collected rent as their fee.
• Rent collection software can help landlords collect rent before sending it to collections with autopay, late rent reminders, and an automatic late fee application.

Understanding Rent Collection Agencies

Attempting to collect unpaid rent can be a pain in the rear for landlords, leading to financial woes and neverending paperwork. Enter rent collection agencies — they act as middlemen between landlords and tenants when the landlord can’t collect unpaid rent.

These agencies typically operate on a contingency basis; they only get paid if they collect rent. Most agencies charge a percentage of the collected rent as their fee, ranging from 25% to 50%.

In addition, the agency will:

• Send demand letters to the tenant
• Make phone calls
• If necessary, file a lawsuit on behalf of the landlord
• Work with credit reporting agencies to report the tenant’s unpaid rent, which can affect their credit score

When to Use a Rent Collection Agency

People don’t get into managing rental properties to spend all their time chasing around tenants. Landlords are busy people and often don’t have the time or resources to pursue tenants who would rather not deal with their unpaid rent debt.

The most common reason for using a rent collection agency is when a tenant has fallen behind on their payments and isn’t responding to the landlord’s attempts to contact them. In such cases, the agency can help recover the unpaid debt.

There are obvious advantages to using a collection agency. They can take on the responsibility for:

• Collecting rent
• Chasing late payments
• Dealing with difficult tenants
• Freeing up the landlord’s time to focus on other aspects of their business

However, there are some pitfalls of using an agency to collect unpaid debts that you may want to be aware of:

• Fees: Collection agencies may do the heavy lifting for collecting money, but it comes at a cost: typically 25-50% of the debt collected.

• Damage to Your Reputation: We live in the social media era. Word spreads fast, especially for landlords who always send their renters to collections. Do you want to be perceived as harsh and uncaring? Such a perception may hinder your ability to acquire and keep good tenants in the future.

Choosing a Rent Collection Agency: Factors to Consider

A simple Google search may result in an abyss of information for your rental collection agency query. So, how do you choose one? What factors should you consider? Here are five factors to ponder:

1. 1. Experience: Your best bet for finding a good agency may be to look for a company with a history of successfully collecting unpaid rent debts.
   2. Fees: Compare different agencies’ fees to find one that offers a fair price.
   3. Communication: Choose an agency that responds to your questions promptly.
   4. Reputation: Finding a quality collection agency can be as simple as reading online reviews and asking other landlords for recommendations
   5. Fair Debt Collection Practices Act (FDCPA) Compliance: Make sure you choose an agency that follows the guidelines laid out by the FCRA. Tenants who get hassled by a rent collection agency may seek to damage your reputation.

How Rent Collection Agencies Work: The Process

Again, nobody wants to deal with unpaid rent situations.

Lucky for you, a debt collection agency can help. Here’s what you can expect from this process:

• Tenant notification: The landlord notifies the tenant that they are in arrears and will typically provide a grace period to pay the rent.
• Demand letter: If the tenant doesn’t pay the rent during the grace period, the landlord can send a demand letter through the debt collection agency.
• Phone calls: The agency will then make phone calls to the tenant to try to collect the rent.
• Credit reporting: If the tenant still hasn’t paid the unpaid rent, the agency may report the tenant’s unpaid rent to the credit reporting agencies, damaging their credit score.
• Legal action: As a last resort, the agency may sue the tenant on behalf of the landlord.

Legal Considerations When Using a Rent Collection Agency

Landlords must know several legal considerations when using an agency to collect rent debt.

Here are a few things landlords can do on their end to ensure they stay legally compliant:

• Check that the agency is licensed and bonded in their state to protect the landlord in case of any wrongdoing.
• Obtain a written contract with the agency outlining the terms of their agreement, including fees, scope of services, and a timeframe for collecting rent.
• Provide the agency with all relevant information about the tenant, such as their contact information and rental history.
• Monitor the agency’s activities to ensure they are acting ethically and legally.

Alternatives to Rent Collection Agencies

While rent collection agencies can be helpful, there are several alternatives that landlords can consider.

Set Up a Payment Plan

Rent collection agencies charge a significant percentage of any unpaid rent they can recover from your tenant. Alternatively, consider setting up a payment plan with your tenant so your money stays in your pocket.

File an Eviction

While eviction isn’t the most hassle-free method to recovering your unpaid rent, simply alerting your tenant that you plan to file an eviction may force them to get the ball rolling on their end and come up with the unpaid rent. Evictions could make it extremely difficult to secure future housing, so they may opt to pay you and avoid eviction.

Small Claims Court

Landlords might opt to sue their tenants and bring them to small claims court to collect the owed rent. Just make sure you’re prepared because you may need to use the court again in the future, and your credibility is at stake with every case.

How TurboTenant Can Help with Rent Collection

Rent collection agencies can be valuable for landlords looking to recover unpaid rent. However, landlords must carefully consider experience, fees, communication, and reputation factors when choosing an agency.

The best thing to do is avoid using an agency in the first place, though.

TurboTenant offers tenant screening services to help landlords find qualified tenants who are more likely to pay their rent on time. With a thorough financial check that includes credit and eviction histories, where allowed by law, you can feel good about who you hand the keys to.

When you have the right tenant, utilize TurboTenant’s rent collection service to streamline the entire process. Rather than waiting for the mailman to deliver the rent, let your tenants pay via ACH, debit, or credit card. We’ll even send automatic reminders, apply late fees, and enable automatic payments.

It beats paying 25% to 50% of your rent to a debt collection agency.