— By Stephen Baker of Zego —
Paying rent on the first of the month has been the gold standard in the multifamily real estate industry for decades. The origins are a bit murky, but the practice likely stems from the landlord’s desire to simplify operations. Property owners use rent payments for expenses such as unit repairs, cleaning and maintenance. Collecting funds at the start of the month streamlines business operations.
But this system presents a significant challenge in the “gig” economy. According to Pew Research Center, 16 percent of all Americans have earned money from an online platform under a freelance contract. These types of arrangements don’t always produce a predictable biweekly or even bimonthly paycheck. The impact is especially acute for millennials, who make up the largest proportion of apartment renters. According to Statista, 45 percent of American renters are millennials born between 1981 and 1996. Millennials are more likely to be gig workers and account for more than half the nation’s independently employed workers — 53 percent according to the Bureau of Labor Statistics.
The needs of renters should be balanced with those of property managers and owners, who rely on consistent resident payments in order to effectively operate their communities. However, for many renters, whose cash flow is either irregular or spread out over the course of a month, practical alternatives to the traditional rent payment model are few and far between. Late fees can become problematic, and payday lenders encourage a potentially unhealthy cycle of debt to pay for basic needs.
Today, operators are increasingly concluding that extending payment flexibility to renters can actually help them achieve their occupancy and rent-collection goals.
Most companies, regardless of industry, realize that providing a variety of payment options, including “buy now pay later” solutions, makes them more attractive to consumers. For multifamily property managers, the outcomes can be similar when they introduce payment flexibility. Their communities can become more attractive to renters while also improving timely collection of rent and customer relationships.
How Flexible Rent Payments Work
Offering flexible rent payments in a structured, responsible way can be a win-win for both property managers and renters. My company, Zego, for example, recently introduced a new model for flexible rent payments. Renters can use the tech to sign up for flexible payments directly within their community’s rent payment app. From there, a flexible payment provider completes on-time payments on a renter’s behalf, while allowing him or her to split rent into smaller installments made to the flexible payment provider.
With flexible rent payment models like this one, property managers can protect their revenue by making it easier for residents to make payments. Because they continue to receive rent payments on time and in full from a known party, property managers avoid the hassle, cost and relationship impacts of dealing with late or incomplete payments from residents. Additionally, the modern digital platforms that power these newer flexible-payment processes can help eliminate traditional rent collection practices, like check depositing, which can reduce the labor associated with taking checks to the bank. More importantly, property managers aren’t charged to offer the service because residents pay a fee directly to the provider.
For residents, the benefits of paying rent in installments are equally significant. These new flexible rent payment services provide a range of payment amounts and timing options while helping residents avoid interest payments. Renters who use the services pay a small, monthly subscription-style fee — they are not charged interest or a percentage of the rent that the third party fronts for them.
Flexible rent payment solutions also do not involve a long-term commitment. If a resident chooses to pay his or her rent in full any given month, he or she is free to do so directly to the property without penalty or contract complications.
Flexible Payments Improve the Resident Experience
A search for better apartment management is among the top reasons renters leave their communities, but with added payment flexibility, property managers can offer a more attractive, resident-friendly experience. Resident experience – or the curation of personalized and frictionless touch points throughout a renter’s tenancy – has become a major focus for property managers, and it can make or break a community over the long term. In fact, a whopping 81 percent of renters say their experience with their current management company would influence their consideration of another property in the company’s portfolio.
While raising rents may be unavoidable for multifamily communities operating in an inflationary environment, property managers can improve the resident experience, save time on collections and curb turnover by simply offering more payment options to residents whose cash flow does not mirror a traditional multifamily rent cycle.
Flexible payments have proven to be a positive force for consumers and merchants in other segments of the economy, and they are poised to be a compelling offering for the multifamily industry and renters nationwide. As the multifamily industry continues to navigate the ups and downs of a challenging economy, flexible payment solutions are one way to smooth out the bumps for everyone.
Stephen Baker is president and general manager of Zego, which is a Global Payments (NYSE: GPN) company. In 2022, Zego launched a flexible payments solution that helps people pay bills on a schedule that best suits their cash flow.