How to handle the Late Fee

Question

Say the lease states, rent is due on the first and every day after that its late is a $5 fee per day until up to 5 days. Then if not received by the 5th you can go ahead with the pay or vacate letter or whatever but my question is how do you handle charging the $5 late fee per day, because anytime I have had late payments its just the original rent amount i get and it doesn't really seem worth bringing up at that point, like hey take the $1000 check back i need you to rewrite it for $1,005. This is the one reason I am leaning towards an automatic late charging renters software like Cozy. I like the idea of a third party website holding the renter accountable so I don't have to communicate with the renter , "hey your 1 day late thats an extra $5" . Has any one tried something like cozy for utilizing this?

Kristi Gray · Answer

I know each state is different, here in delaware we are allowed to charge a one time fee up to 5% of one month’s rent ; example if rent is $1000.00 & is late the new rent for that month is $1050.00. In our experience be sure to only accept the total $1050 because if you accept only $1000 “because thats all they can come up with” or whatever reason they come up with- good luck ever getting the late fee and you’ve trained them on leinancy and they’ll think the fee is negotiable.We recently (in the past 6 months) just started using Cozy and so far I absolutely love it! Good luck!

Devin Gordon · Answer

@Corby Goade okay thanks sounds like I just need to do a flat fee, higher on the the fifth, drop the per day and use a website that applies it automatically.

John Pierce · Answer

I disagree with a "per day" late fee. I can envision the hassle that would come along with debating how many days late the rent is with tenants on the phone.I charge a flat 10% late fee whether the rent is 25 one day late or 30 days late.Never turn down rent from a tenant. Accept it "with reservation."

Connie Chan · Answer

@Devin Gordon Tellusapp.com! I use them for my rent collection (also free, it’s great for mobile and my tenants prefer that). It has a lot of late fee optionality. You can add per day or one time and specify at which date to start collecting. Best of all you have the option to waive the late fee whenever you need to. And the balance shown to tenants for what they owe includes the late fee. The visual presentation of how much money they owe helps make things 100% transparent. It greatly reduced the number of times my renter is late. For the payments I get receipts each time to see what day the payment was initiated and when it hit my bank account. Also I turn on notifications so it notifies me when rent paid or when it’s late. The latter helps me the most, I don’t have to check my bank each month anymore.

Devin Gordon · Answer

@Asury Johnson great advice thanks!

Joe Splitrock · Answer

I have been doing it this way for 16 years. I never had any hassle and minimal debate. Tenants know when they are late. I have a 5 day grace period, which makes it hard to argue. It is late after the 1st and late fees start on the 6th. When I used to get checks mailed to me, I always kept the envelope, because the post mark doesn't lie. If a tenant tried to claim they mailed it on time, I would just point out the post mark and they shut up. Now I use electronic rent payment, so a dispute wouldn't even be possible. The problem with flat late fees is that it removes incentive once they are late. If a tenant knows each day is costing $5, then they will hustle to get the money to me. If they can pay on the 6th or the 30th with the same late fee, what is the motivation?

Corby Goade · Answer

The "per day" late fee is really tough to collect, for the reasons you've stated. We have a flat late fee on the fifth of each month, it's added to the tenant ledger online automatically on the fifth and we don't accept partial payments- anything other that the full rent AND the late fee is a partial. We manage a lot of properties and there are always a couple stragglers. A couple side notes- if someone is on time 11 out of 12 months, and they are proactive about needing a couple extra days, we work with them- but they still pay the late fee. If someone habitually pays on the fifth or sixth, that's fine with me. A $50 late payment every month adds $600 per year to my profits.

Casandra M. · Answer

A lot of investors on this site utilize Cozy and recommend it (I personally do not use a software). When our renters are late on rent, we complete out the month to see how many days late they are, then send out an invoice before next month's rent is due, showing the balance of what they will owe with next month's rent + the late charges. My in-laws had issues with this a few years ago. They have a small portfolio (<10 units) and were in a year where they were going to raise rents by $25 a unit, so they started a $10 discount for anyone that had rent postmarked and in the PO box after the 20th and before the 30th (rent due on the 1st). All late rent payments literally disappeared. They were concerned that people would just short their checks by $10 regardless but hasn't happened yet (they rent in a B class neighborhood). For them, it was worth not having the late payment headaches.

Anthony Wick · Answer

@Devin GordonMy lease states rent due on the first, with a late fee of $20 per day up to $100 per month, beginning on the third. Now, it also states any money received will first be applied to all late fees, then applied to rent. So, if rent is $1,000 and they pay on the third, they would owe $1,020. If they pay $1,000, they still owe $20. If they pay $1,000 the next month, they have paid $20 late fee from prior month and $980 rent. They would then be short on rent and owe $20 per day for a max of $100 per month, again. And so on and so forth. If they never paid those late fees, it would be a bill at move out, to the tune of $100 per month as they never paid their full monthly rent.

Joe Splitrock · Answer

@John Pierce I am renting in B neighborhoods now, but I have had properties in C or C- in the past. @Devin Gordon I use Cozy for rent payment for a couple years now. The only issue is the payments take a few days to reach my account. I consider it paid when sent, which can be easily tracked on Cozy. I can add late fees and it shows outstanding on their account until paid.