How do you do your late fees?

Question

I have a rental house and the rent is due on the 5th of the month. I give a 5 day grace period after the 5th. Say that they pay on the 13 of the month. Do you charge your daily rate for them being late or do you let it slip. One of my houses in consistent on being late by a few days. Just curious on how everybody handles this. I understand that people have problems that come up. Thanks in advance for your input.

Account Closed · Answer

If you have a lot of properties you will want all rents to be due at the same time, otherwise you will be in court for non-payment of rent every single day of the week, if all your tenants have different due dates.

My rents were due in my office on or before the  1st of the month.  On the 2nd of the month the tenants would receive a Notice to Quit for non-payment rent.  (It is just a Notice.  It doesn't go against their credit report or good name  as a Notice to Quit is just a NOTICE.)

I charge a late fee if rent is not received in my office on or before the 5th of the month.   (Courts don't like the daily fees.  They consider it gouging).

If rent isn't received in my office on or before the 5th of the month then on the 6th I send them a bill for late fees in the amount of $25.00.  They now owe for rent for the month and a late fee which all must be paid within 7 days or else that NOTICE will truly become a legal document if I have to file it in a court of law.  Until then, that Notice is just a Notice.

In Michigan a Notice to Quit is a 7 Day Notice.  And we  must allow two full days to mail it to the tenant.  So they really have 9 days to get that money into my office.   If they don't we go to court and now they have in addition to everything they owe me, legal fees.

This is a business !!!  Did I tell you that this is a business!  Do you know that this is a business?

Why do we, as landlords, feel we need to give everyone a break.  Gosh I'd love to get a break on my utilities.  They went up $30 this month.  My medical bills are sky high, where's my break?????

Yet if we don't give our tenants a break somehow we feel guilty!   Why?

You lease a car, you have payments, does the repo man feel guilty because he repossessed the car when you didn't pay?

What about our Mortgage Company.  Hmmm, they dont' seem to care whether I have a ton of vacancies and nobody's paying their rent.  Where's my break!!!!  :(

The eviction process takes  along time.  Let me give you a time line in Michigan.

The first of the month tenant doesn't pay the rent.  (January 1st)

The second of the month I send a Notice to Quit - they have 7 days to pay or I file the Notice in Court.  (Actually they have 9 days to pay because we have to allow 2 full days of mailing and we can't count the day we mailed it.  So really it's 10 days that the tenant has to get their rent in my office.  (So that takes us to January 12th)

The 5th of the month I charge a late fee

If the rent is not in my office by the 11th then on the 12th I can start the eviction process.  But unless that Notice to Quit is sent, I wouldn't be able to file for eviction at all.  That notice must be sent first.

So on the 12th of the month I file the Notice to Quit.  It takes about 10 days (sometimes longer) before we can get a court date.   This puts us now on the 22nd  the month and I still haven't received rent.

We go to court, and the Judge gives the tenant another 10 days to pay rent or move.  This brings out now to the second month (February 1st)

The tenant doesn't move so now we need to get a Writ of Restitution and pay a lot of money to a court appointed official to remove the tenant from the home.  That can take 3 days or 3 months)

We are now into our second month of no rents or money collected. (Maybe longer)

The later you put off mailing your Notices the longer your eviction is, especially if you have a street smart tenant.

The tenant can appeal.  They can say you never fixed the furnace and is why they haven't paid rent.   The judge will believe them (Most times) and  give them another 5 days for you to fix the furnace even if the furnace is working fine and the tenant lied.  Then you have to come back to court.

The tenant can postpone a court date because they may be busy, or out of town.  So your court time  has been delayed.  Sometimes you know about it and some times you know about it when you get to court.  Depends on your Court .

Have you ever heard the saying that "No good deed goes unpunished"?  It's true.  You give your tenants time and you are the one that suffers.

If you want to do good deeds, and we all do, don't use your business to do it with.  That is your income.  Volunteer your services somewhere where you can help others, but don't mix charity and doing good to others, when you are a business, especially and Industry like ours, where time is of the essence.

Nancy Neville

Stan Butler · Answer

I use to use the daily rate strategy for collection late fees, but I found that over time it became an administrative headache.  Plus, unless I went to the PO box every day after the due date, it would never know exactly which date it was received.  Many of my tenants just drop off the rent and do not mail it.

I have now gone to a flat 10% late fee if received after the due date with eviction proceedings beginning on 11th day after due date.  This more than covers the daily amount I used to charge for the 10 days.

Michael Clemson · Answer

@Arlan Potter, good call moving to a $/day late fee instead of $/week. It gets the person to think in terms of "days" instead of "weeks."

Mike S · Answer

I use electronic rent collection via erentpayment.com. Late fees are automatically enforced at $10 per day from the 4th to the 11th. Rent is due on the first and the grace period extends to the third.

IMO it's the best way. Totally automatic and mandatory to pay prior to the rent.

John White · Answer

I'm inheriting two tenants in a duplex that I'm closing on a few weeks.  The current owner allows for a three day grace period.  My new leases (going forward, when the current leases expire) will not allow for a grace period.  Rents are due on the 1st.  They will be considered late on the 2nd, and the late fee will be collected.  I've never paid a bill late in my life, and really don't want to send the message that I'm okay with the rent being paid late.

Adam Morgan · Answer

@Barbara Long be careful with the early payment discount. I have rentals in VA and they view this practice as a hidden late fee and not good.

Adam

Barbara Long · Answer

I have rentals as well. The first of the month is a good practice. Sometimes I just want them filled ..especially in the winter months so I do what ever at the time. I use the 10% late fee charge too. I recently started a new game plan. Making the rental payment $100 over the usual rental payment and telling them if they pay a couple days early they will get a $100 discount. It's the same thing "It just sound better"  Discount Offer rather than penalty. ((It works ! :) It really works! LOL!

Arlan Potter · Answer

At our last landlord and Re investors assn. meeting one landlord told me that he had all his rent collected for the month. Our meeting was on the 3rd of November. I asked how many rentals he had, he said 17. I was fit to be tied. My rent was not all collected, I am even depressed about some of my properties. He told me he was fair, but firm about collecting, he also has a late fee policy of $20/day after the fifth.

My $25/week is not working. But in 2015 we are starting a $10/day late fee and hope to greatly improve our collection times. $50.00 on the 6th and $10/day thereafter. I am fed up with late pays.

Pat P. · Answer

Thank you Nancy for some well written information.  I have had a problem with a few of them with consistant lates.  I have adjusted due dates to fit the tenants, it usually works out best for them.  On the 5th day I start the late fee of $25 a day until paid.  The tenants have paid it and after a few of those, they have been on time.  I serve notice to quit on the 11th.  I would prefer never to get a late fee.  I like knowing when the money is coming in as I have bills to pay also.  This is a business Nancy.  Did I tell you this is a business.  I had to tell myself that the first three years when I was giving them all every break in the book.  Now,,, it is strictly a business - nothing else.  Makes it so much easier - no more drama.  I have never been in court so I am not sure what the judge would think of the charges.  I should go and sit in on a couple of cases and find out for myself.

Thank you Nancy for a well written article.

Patricia - Brownstown - Downriver

Paul S. · Answer

My rent is due on the 1st of the month and must be received by the 4th (this is due to holidays and weekends etc) and on the 5th of the month they owe an additional 10% of the rent that is owed. No grace period, in my mind if you have a grace period of an additional 5 days just make it due on the 10th. I would say charge the late fee this is tenant training. Do you know why they continue to be late? because you let them be late.

I agree with @Nicole W. I might give a break once but beyond that you have to abide by your lease or the tenant will run all over you.

How do you do your late fees?

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