Why Not Sticking to Your Late Fees is Hurting Your Landlording Business

1A grace period is additional time given to the tenant to pay their rent before they will be charged a late fee or given eviction notice. For example, rent may be due on the 1st of every month, but the tenant has until, say, the 5th to make their payment. Grace periods can be anywhere between 2–“X” number of days. They are actually a requirement in some states, and in others they are not, but we have found that they are useful for a couple reasons:

  1. Many tenants are on a fixed, government income and don’t get paid until the 3rd of the month, and
  2. It shows the tenant that the landlord gives them flexibility in when they make their payment. Nice guy.

However, the flexibility is on the landlord’s terms. We always let our tenants know that rent is still due on the 1st, so technically if they take advantage of the grace period, they are considered late, though we won’t initiate eviction notice and penalties until the 6th of the month.

Whatever you do, make sure all your tenants are on the same schedule. Don’t change due dates and grace periods to suit the tenant when they move in (because they will ask). It may work out fine for the first few tenants, but as you continue to acquire more rentals, you will want everyone to be paying at the same time so you can keep track of who has paid and who has not.

Our grace period goes through the 5th of the month. If rent has not been paid by the 5th, they will get a late fee, currently $50. Additionally, we charge them an extra $10 per day after that until they have paid their rent in full. For example, on the 6th they receive a one-time $50 late fee, on the 7th an additional $10 is added to the $50, on the 8th an additional $10 is added to the $60, and so forth. Every day gets a little more expensive.

Stick to Your Late Fees—No Matter What

When your tenant pays late, it is vital that you follow through with the late fees. This bears repeating: It is vital that you follow through with the late fees. Don’t waiver, as the late fee’s sole purpose is to motivate your tenant to pay as quickly as possible. Take away that motivation, and good luck getting your rent—that is, until the tenant gets around to paying it. If there is one simple piece of advice in this entire book that you should listen to it is this: always follow through with late fees.

Let’s be real: The number one reason most tenants are late on their rent is not because of an emergency or some unforeseen necessary expense, but because of priorities. They are late because paying rent on time has not been made a priority. The best way to make timely payments a priority is by following through on the late fees. Tenants, and America in general, usually live above their means. In other words, there’s always more month than money. Therefore, every month requires sacrifice and prioritization of bills: food, clothing, rent, cable, a new TV, a game console, tattoos, medical bills, Starbucks—these are all expenses your tenant is internally trying to prioritize.

Naturally, the bills with the highest penalty for negligence are usually prioritized the highest. Those will be the bills that get paid first. So the question is, is the consequence for paying rent late greater than or less than the consequence of having the cable turned off or having to go without their daily coffee or smoke fix? Despite what tenants think, late fees are not about lining the landlord’s pockets. Late fees are designed to give rent a place of high priority because of the consequence. You may feel bad or think you’re being cruel by charging a late fee, but by following through, you are helping your tenant prioritize the most important bill they have: their housing.

This last month we had a tenant call us a couple days before her grace period was up to let us know that she had some unexpected expenses come up, wouldn’t have the full rent in time, and wanted to know if she could pay the rest at the end of the month. We told her we needed to follow her lease, and the lease says her full rent payment is due the 1st and late after the 5th.

Any rent not paid would trigger both late fees and eviction notice. Guess what? On the 5th her priorities suddenly changed, and she paid her entire rent payment. From past experience, this particular tenant knew that we take non-timely rent payments seriously.

The One Alternative

We do offer our tenants one alternative to the late fee penalty, but it requires their planning ahead and communication. We call it the rent extension, and it is not something we advertise to our tenants. However, if a tenant calls us before the 1st to let us know they will be late on their rent, we will offer them a rent extension up to the 10th for a $20 penalty. If they don’t follow through on the 10th, they are hit with the full late fees and eviction notice. The reason for the rent extension is to reward responsible behavior:

  1. They planned ahead to deal with the problem,
  2. They communicated, and
  3. They initiated the communication, rather than waiting for us to call them once the rent was already late.

Source: biggerpockets.com

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12 “Sure” Deal Breakers When Screening a Prospective Tenant

1If you are a discriminating landlord, you surely have a number of conditions on which you will disqualify a prospective tenant. As long as you discriminate legally, and not against any fair housing laws, we may share the same “Deal Breakers” below. Some of these can go either way, depending on the needs of the landlord. Please let us know if you have any “sure deal-breakers” not listed.

  1. Bankruptcy
    Do you know what a person has to go through before deciding to declare bankruptcy? It can sometimes be years of dodging creditors and bill collectors. It is a process that teaches an individual how to get around paying creditors. It is not a pleasant experience, and it usually educates and hardens a person towards all creditors.
    I don’t mean to say people who have gone bankrupt are not nice people or will not be good tenants!I mean to say that I prefer not to rent to people who are not afraid to damage their already damaged credit.

 

  1. Prior Eviction
    Any tenant who has been evicted probably has very bad credit and may feel confident in gaining a few months free rent in an eviction should the need arise.

 

  1. Criminal History
    I’ve been asked by a few landlords, “Am I allowed to discriminate against someone with a criminal history?” Of course you can! Yes, it is legal to decline an applicant because they have a criminal record.
    It may notbe politically correct to decline criminals, but Criminals are not a protected class…. Yet. Obviously, you need to use your common sense on this. A DUI or speeding ticket, for instance doesn’t necessarily make someone a bad tenant, while a conviction for domestic violence could be more of a warning sign.

 

  1. No Money
    Are you a landlord who needs to collect the rent? Or are you a charity who takes in unfortunates who don’t have all the required move-in money?
    If you want to survive in the landlord business, you need tenants who can afford to move in and pay the rent every month.
    It is a major RED FLAG when a prospect is unable to provide you with the necessary security deposit and rent. I am amazed at how many landlords allow tenants to move in without first collecting the rent and a deposit!

 

  1. Bad Credit
    What is the purpose of running a credit report on a prospective tenant? You’d be surprised at how many landlords run credit reports that come up BAD and still accept the applicant anyway. For me, bad credit history is a sure denial. Otherwise, why bother running a credit report? Needless to say, credit history is often indicative of how your rent will be paid.

 

  1. Tenant Unable or Unwilling to provide satisfactory references
    If they’re not willing or able to comply with your rental application, why in the world would you expect them to follow the rules of your lease?

 

  1. Tenant unwilling to agree with your lease
    That’s a no-brainer. DECLINED!
    I am surprised at how many landlords are willing to sacrifice important landlord protection lease clauses simply because the tenant wants them to. Of course, you need to to be sensitive to the tenant’s needs, and weigh certain arguments on a case by case basis.

 

  1. Bad Attitude
    That’s a no-brainer. DECLINED!

 

  1. Alcohol and/or Drug Problem 
    I know you want to be fair and help people, but steer clear of these kinds of problems, especially when they are obvious. You are looking for a responsible tenant who you can rely on.

 

  1. Smoking
    This is a judgment call. I try to keep my properties smoke free whenever possible. I find it is difficult to rent a unit to non-smokers that had smokers in it before. Rental re-prep involves a vacancy and is usually more painting and cleaning, and still may not eliminate the odor.

 

  1. Pets
    This is also a judgment call. I try to keep my properties pet free. I learned that it can be difficult to rent after a pet was there, for allergy reasons, odors, etc. Rental re-prep usually includes more painting and cleaning and often new carpeting, and still may not eliminate all the odors.
    On occasion when I have great applicants and have inspected the previous home and the pet, I may make an exception, but I am still reminded of the immortal words of my landlord mentor, Nick Koon: “No dog every improved the value of a rental property.

 

  1. Tenant Unable or Unwilling to see the rental personally or meet landlord before application being accepted
    Big RED FLAG. Do a search of “Scams” in the LPA Landlord Q&A Forum.
    Even if the tenant is legit, you should not be deprived of the right to do a proper screening, including the opportunity to meet the prospect so you can decide if you will be comfortable renting to him or her.

About the author:
As a Real Estate broker / investor in New York, John Nuzzolese has been involved with rentals and investment property since 1979. Besides owning and operating two real estate businesses, he is president and founder of The Landlord Protection Agency, Inc. , an organization specializing in helping landlords and property managers avoid the hurdles and pitfalls and expensive blunders common when dealing with tenants.

More information on The Landlord Protection Agency is available at www.theLPA.com

 

Bev Roberts Rentals Will Be Closed Good Friday

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Dear Landlords & Tenants,

Bev Roberts Rentals will be closed on Friday, March 30, 2018 in observance of Good Friday.  We will return to regular business hours on Monday, April 2nd at 9:00 AM EST.  As customary, we will remain available by phone and appointment while the office building is closed.  The outdoor drop-box is checked daily. The online portal system is available during non-business hours as well.

Tenants… As a friendly reminder, please be aware of the lease terms due to the Federal Holiday:  “All rents shall be paid in advance on or before the first day of each month.  Tenant shall pay the late fee if any rental payment is five days or more late.  Tenant understands and agrees postal delays, envelope post-mark dates, bank discrepancies, online payment system errors, weekends or holidays, or any other pretext does not constitute a waiver of late fees.”

We wish everyone a Happy Easter!

Sincerely,

The Bev Roberts Rentals family