Hey! It’s Lou Brown. I’m back with another of my 101 cash flow generators. I hope you love this. This one is about the discounted rent. Now, years ago I invented this idea and the thought was, Hey, if we set the rent at a certain amount and then we Mark it up, say $100 per month, then when they pay on time they earn a discount down to the amount that we would actually like to collect. And if they don’t pay on time, then what happens is they pay the higher rent, they didn’t earn their discount, so it’s an earned discount and the way they earn their discount is agreeing to pay on time. And so when they pay on time and they pay the lower amount of rent, which is actually the amount of rent that you would like to get for that property, and when they don’t realize that you’re going to have to spend time, energy, you may have to even spend resources to collect that.
It takes time. It takes money. And so therefore the markup, so to speak, in the collection is to pay you for that additional energy. Now, I want to emphasize that this is not a common occurrence. Only about 10% of your residents don’t pay in any given month on time. And so whereas you are building your portfolio, and as I say, one property at a time, you’re building up your cash flow, you’re building up your retirement, you’re building up your equities. Then recognize and realize that collections are part of our business. And it’s important that you have certain incentives built into your agreements so that it incentivizes your resident. If they only have a certain amount of money that they’re going to pay you first because it makes sense to pay you first. And maybe they defer payments on someone else if they only have a limited amount of funds to work with. So this is one of the many, many different ways that we have been able to coordinate receiving our money timely.
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