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Updated almost 9 years ago, 01/18/2016
Tenant could not pay full rent. What would the pros do?
So here's a little background on my situation. Just wanted to get some input from you guys on how one should handle this particular situation. I purchased my first rental property, a bank owned townhouse approx. 1 year ago. I spent a little time cleaning it up and had it rented within 60 days or so. My property manager said he had tons of potential tenants but finally settled on a single woman in her 40's, who also held a respectful paying government job. However, she mentioned going through a rough divorce and foreclosure in 2009/2010 which left her with a terrible credit score (I know, first red flag). Property manager supposedly performed all other screenings and spoke highly of her regardless of the credit score. So, fast forward 10 months. She has paid perfect rent, sometimes even a couple days early. This month was different (assuming she spent her rent on Christmas?). I contacted the property manager on the 4th asking if he had heard anything because the contract clearly states that rent is due on the 1st and will be charged a daily $40 late fee after the 5th. I received a response stating that her check has not been deposited yet and that she could only come up with $975 (rent is $1000) until she gets her check. That's right, she apparently couldn't scrounge up $25? My property manager collected the $975 on the 5th and told her that there would be a $40 daily late fee until the rent is paid in full. I finally received a text from the property manager (as I am typing this) stating that she now only has $100. A little math $25+40+40=$105. I know its only $5 but come on! I feel like she is toying with me? If a 40+ year old woman that makes $75k a year cant pay $5 to keep a roof over her head, she has way bigger problems. I also feel as if my property manager is a little inexperienced and soft. So what would you guys do in this situation? Should I set a date stating that if the rent is not paid in full by xx/xx/xx I will do XX? Sorry for the long post. I may be overreacting but this is my first experience with this. Thanks for the future advice!
Originally posted by @Aaron Sizemore:
Originally posted by @Darren Budahn:
Forget the $5 and be lucky that she hasn't questioned your $40 a day late fee which is probably either illegal or unenforceable.
Yeah I never really paid much attention to the $40 late fee in the contract. Not sure where the property manager got the number from. What is the going rate for a late fee?
Maryland law limits the late fee to 5% of monthly rent, so on $1,000 rent, $50.
I think if I were faced with this situation I would offer to waive the late fee the first time in exchange for the tenant agreeing to automatic rent payments through eRentPayment. (I use Cozy, but I think for your tenant's situation eRentPayment is a better solution.) eRentPayment reports payments to Transunion, so your tenant can build up her credit. Conversely, she can harm her credit if she pays late again. She will be more likely to prioritize her rent above other bills if non-payment or late payment will harm her credit.
Originally posted by @Account Closed:
So she has always been on time and now she has paid you $1100 of a $1000 rent for being seven days late?
I would have just said "Happy New Year don't worry about the $5."
The time it took you to write the post was worth more than $5.
That's what I would do this once for a tenant with good history and it being $5, and since she paid the full $1000 rent. I would enjoy the $95 late fee successfully collected.
I also would never accept partial rent that's hundreds of dollars off- as that could prevent starting eviction. Full rent a handful of days late with late fee just the once... I'd say it's lucky.
It does seem laughable that a $70K salaried tenant doesn't have access to $5- with savings, credit cards, loans, friends, penny change, or whatever. Sounds dreadful with money at best, but I'm glad you recouped at least your standard rental rate plus some of your late fees.
I hope she's able to pay you next month.
I feel for you. I have my first tenant right now who had a failed payment, so I'm crossing my fingers for myself too.
Originally posted by @Aaron Sizemore:
potential tenants but finally settled on a single woman in her 40's, who also held a respectful paying government job. However, she mentioned going through a rough divorce and foreclosure in 2009/2010 which left her with a terrible credit score (I know, first red flag). Property manager supposedly performed all other screenings and spoke highly of her regardless of the credit score. So, fast forward 10 months. She has paid perfect rent, sometimes even a couple days early. This month was different (assuming she spent her rent on Christmas?).
I would not assume anything and it bothers me the way you speak of her, seriously? This is a people business. Take the late fee money you made off this lady and buy some books like How to Win Friends and Influence People for starters.
Originally posted by @Amanda Sutherlin:
Originally posted by @Aaron Sizemore:
potential tenants but finally settled on a single woman in her 40's, who also held a respectful paying government job. However, she mentioned going through a rough divorce and foreclosure in 2009/2010 which left her with a terrible credit score (I know, first red flag). Property manager supposedly performed all other screenings and spoke highly of her regardless of the credit score. So, fast forward 10 months. She has paid perfect rent, sometimes even a couple days early. This month was different (assuming she spent her rent on Christmas?).
I would not assume anything and it bothers me the way you speak of her, seriously? This is a people business. Take the late fee money you made off this lady and buy some books like How to Win Friends and Influence People for starters.
Yes ma'am, will do. Thank you for your input.
@Aaron Sizemore Holy Moly! $40/day? In NC, the max we can charge is 5% per month, so no more than $50 on a $1000 rental....for the whole month!
I did a quick google search, and it seems like SC doesn't cap late fees, so maybe this craziness is customary in your area.
- Dawn Brenengen
- Podcast Guest on Show #101
Ok ok I get it guys, $40 late fees are excessive. I did not create the contract and assumed the property manager knew what he was doing when he wrote it. It will most definately be changed on the next contract. As I stated earlier, this IS my first rental property so I am a total newbie. None of my friends or family invest in real estate so I rely on my property manager and the Biggerpockets community. However, it sounds as if everyone here has never been a newbie and made mistakes. Thanks for making a new investor feel awesome.
@Aaron Sizemore, hang in there. Yes, some BP posters can be a bit abrasive. Learn to take how they say something with a grain of salt. I am not personally invested in your situation but I even I was taken back by the tone of a couple of your respondents.
Anyway, try to take a look at this thread and determine who provided the best advice and follow it if appropriate. If you haven't already send them a colleague request. Follow what they say in other posts to get a good perspective of their experience. As a newbie experience is what you lack. It appears that you have the drive and desire and you just need to gain experience to help guide you in the application of the principles that you already understand.
Best of luck to you in your future endeavors. Keep plugging along doing the best job you can and you will do fine. However, doing the best job you can includes seeking out the counsel of others when you are unsure of the appropriate course of action. You may need to develop a tougher skin because the counsel will not always be diplomatic or what you want to hear.
Originally posted by @Jeff James:
@Aaron Sizemore, hang in there. Yes, some BP posters can be a bit abrasive. Learn to take how they say something with a grain of salt. I am not personally invested in your situation but I even I was taken back by the tone of a couple of your respondents.
Anyway, try to take a look at this thread and determine who provided the best advice and follow it if appropriate. If you haven't already send them a colleague request. Follow what they say in other posts to get a good perspective of their experience. As a newbie experience is what you lack. It appears that you have the drive and desire and you just need to gain experience to help guide you in the application of the principles that you already understand.
Best of luck to you in your future endeavors. Keep plugging along doing the best job you can and you will do fine. However, doing the best job you can includes seeking out the counsel of others when you are unsure of the appropriate course of action. You may need to develop a tougher skin because the counsel will not always be diplomatic or what you want to hear.
Thank you for the kind words sir. I understand that people can be abrasive and I figured it would happen. I also understand that I tend to be a perfectionist and micromanage on occasion and when one wheel gets out of balance, I panic. I think I just need to relax a little I guess. But one good lesson I have learned, $40 is way too much of a late fee haha.
Originally posted by @Amanda Sutherlin:
Originally posted by @Aaron Sizemore:
potential tenants but finally settled on a single woman in her 40's, who also held a respectful paying government job. However, she mentioned going through a rough divorce and foreclosure in 2009/2010 which left her with a terrible credit score (I know, first red flag). Property manager supposedly performed all other screenings and spoke highly of her regardless of the credit score. So, fast forward 10 months. She has paid perfect rent, sometimes even a couple days early. This month was different (assuming she spent her rent on Christmas?).
I would not assume anything and it bothers me the way you speak of her, seriously? This is a people business. Take the late fee money you made off this lady and buy some books like How to Win Friends and Influence People for starters.
Just merely reading here I feel bad about the late fee. I think part of it should be refunded or something similar. Amanda, as a lady you may have suggestions. Your book recommendation is something like my GF wound come up with.
The information we have so far from the OP is that this is a good tenant. We know she makes near $100k annually. So we know this lady is learned pretty much. What if she gets to thinking about the hefty late fee and decide to do some digging or make a few calls?
If this decision came from lack of experience on the part of both owner and property manager, I think a quick remedy to it may end up been smart and an inexpensive option!
As long as it's a one time thing I wouldn't get too worked up about it. If it turns into a pattern, that's a different story.
And maybe this is a local phenomenon. but I never see a "good" credit report. Even those with good jobs and incomes all seem to have credit issues. Usually because of divorce, student loans, medical bills.
I can't believe the tone of some of the answers to Aaron. This is a business and a landlord should treat it as such. Try telling a bank to just forgive the late fees that are built into their contract and see how well it goes over. My personal opinion is that a landlord needs to enforce their lease. I am not against telling the tenant that I am willing to work with them this one time; providing that they have let me know in advance and I am not chasing them. My lease is an automatic late fee of $50 for anything that arrives after the 5th of the month and $5 per day for any additional day. I have forgiven the daily fee but NEVER the automatic $50. I want my tenants to know that paying me late is more painful that paying their car payment or student loan late. My rentals are mainly student housing and are in high demand based on location. I have learned the hard way that educating my tenants early and firmly works best for me. Bottom line, you will have to weigh out what works for your business. Good Luck and don't let the "You are a rotten person for charging too much for a late fee" people get you down.
You said she had paid on time and even a little early every month. It is not for you to question why she could only manage $975 out of $1000. A lot of tenants would not have paid as much as 97.5% of the rent if, for whatever reason, they could not manage the whole $1000. Your late recognizes this reality. I would not have charged any late fee. I think you should return $75 of that final $100 just to remove the bad taste you have probably left in her mouth over this incident. Since your relationship with this tenant is mediated by a PM, she really has no reason to share her personal details with you. Maybe she thinks you would not care anyway. She may be hunting for a new place even now, one with a less unreasonable landlord. Think about you would feel if you were in her place. I agree with others that your late fees are excessive and may make you vulnerable to legal action in the future.