Incentives to Encourage Tenants to Pay On Time?
Investor · Buda, TX · Member since 2016 · 137 posts · 55 votes
Incentives to Encourage Tenants to Pay On Time?
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Investor · Brookfield, WI · Member since 2014 · 110 posts · 99 votes
9yHere's an incentive. If they pay the rent on the first they wont get served with eviction papers. Unfortunately you need to pay off your bills on their due date. I am pretty sure your bank wont give you a discount just because you honor your commitment. If you start giving pay or quit notices they will realize that they need to keep you at the top of their priority list instead of you nnow telling them its ok to do other things with their money instead of pay rent.
56 Replies
- Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes9y
@Eric Barnett I wouldn't do it. You hear enough stories about why they don't have the money now. They probably won't have it the first month you start any kind of program. So then they won't be eligible but they might tell other tenants (that pay on time) and those good tenants will want the the same opportunity. So it won't solve your problem and you've now got an expense to collect rents that would have otherwise been paid on time.
Maybe you could put together something where if they pay early they get a discount. At least then you have the net-present value of the cash to (internally) justify it. Companies will do that on receivables if you pay them in 7 days vs. 30 days vs. 90 days. Still, I can't see it making much sense here. But that's me being an old negative curmudgeon.
I think my "nice guy" side comes out when if I have a tenant that pays like clockwork I'm less likely to raise the rent. Why mess up a good thing? Others will wholeheartedly disagree.
- Real Estate Agent · Hamilton, NJ · Member since 2013 · 464 posts · 311 votes9y
Like @Andrew Johnson has said, I have heard where landlords "discount" the rent by some amount (usually around $50-$100 in my area) if the tenant pays the rent before or on the 1st of the month. I know my aunt specifically does this and she has said it's been pretty successful. One thing she does though is inflate the rent a little so that the $50-$100 is absorbed.
Say she ran the numbers of market rent being $1,300, she would advertise the rental for $1,350 with the $50 "discount" if rent is paid on time. That way the $50 discount isn't felt.
- Investor · Buda, TX · Member since 2016 · 137 posts · 55 votes9y
@Andrew Johnson thanks for the advice. Rents are relatively low per unit ($600) so the next time around I will definitely consider a discount and inflate the rents a bit, thanks @Christopher Giannino
- Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes9y
I write my leases for $100 more than I actually want. The leases state the tenant may take a $100 deduction for early payment if postmarked by the 7th. Still some pay after that. I have asked two tenants to leave at the end of June because they NEVER pay and take the discount, and often pay around the 20th or after. I am done dealing with the headaches and will move in other tenants hoping for a better outcome.
- Investor · Arvada, CO · Member since 2017 · 109 posts · 112 votes9y
The lease is a binding agreement, you don't need to change terms to get tenants to pay on time. Charge late fees as soon as the grace period expires and be ready to give them a three day notice if it gets to that point. You are the owner and have laid out the rules, if you start bending rules or offering incentives they are just going to ask for more or something else just to do what is expected to be the norm. Late paying tenants are frustrating but stick to your lease, and if you operate within the law you will collect your rent or be ready for new tenants. Good luck!
- Investor · Brookfield, WI · Member since 2014 · 110 posts · 99 votes9y
Here's an incentive. If they pay the rent on the first they wont get served with eviction papers. Unfortunately you need to pay off your bills on their due date. I am pretty sure your bank wont give you a discount just because you honor your commitment. If you start giving pay or quit notices they will realize that they need to keep you at the top of their priority list instead of you nnow telling them its ok to do other things with their money instead of pay rent.
- Investor · Saint Louis, MO · Member since 2016 · 970 posts · 1k+ votes9y
I think punishments are felt harder than rewards. maybe cause im Asian and my parents treated me that way. but honestly threaten eviction if they constantly don't pay on time.
- Investor · Louisville, KY · Member since 2013 · 20 posts · 9 votes9y
I like the idea of offering a discount, but you could also add the stipulation that the prospective tenant would need to put down a bigger deposit in order to get the discount. This also serves the purpose of protecting you from nonpayment of rents and vacancy. Typically, if someone has the cash to afford the bigger deposit, it might indicate this person is not living paycheck to paycheck and has the means to pay timely. Also, don't ever take partial payments and make sure you get the Notice to Pay Rent on the door the day after rent is due and its not in your hand. Not only is this important for legal implications should you find yourself needing to evict, but you're also setting the expectation early in the lease.
- 9yJennifer T.Pro MemberInvestor · New Orleans, LA · Member since 2014 · 1k+ posts · 944 votes
I did a rental discount once, if the rent was paid 1 or more days early. It worked out great! Not sure why I only did it with that one set of tenants, lol. It was a $50 discount on an $1100/month rent. They were great tenants anyway. But knowing they would get that discount really motivated them to pay me early. They always paid at least that one day early, but it was often a few days early. Once, they even paid me two weeks early!
I can't take credit for this and I don't remember which BP member talked about this on a similar subject. But I thought this was a cute idea. That person mentioned they would mail 5 $1 scratch-off tickets each month their tenants paid on time. The poster said it really improved the on-time rent payments and was great goodwill. The tenants loved the fun of getting scratch-off tickets each month and would send happy messages when they won something. The poster was told stories of husbands/wives having friendly competitions of who could get home first to get the mail around the time the scratch-offs would be coming.
- Real Estate Agent · Greeley, CO · Member since 2017 · 26 posts · 15 votes9y
@Eric Barnett:
I've just been dealing with it and taking late fees.......
Would this not be Ideal? if your collecting the late fees, regularly and not leading into non payment evictions. wouldn't that simply increase your profit margin? if anything I would be considering raising the late fee.
- Investor · Burbank, IL · Member since 2017 · 49 posts · 21 votes9y
Easy fix.
1. Hit them with a late payment fee (check you state laws on what is allowed and appropriate)
2. Give them a notice (in my state its a 5 day notice for no payment)
3. If they have been paying on time for years and recently something happened, and you are feeling nice, ask them to make a good faith payment and see what they can offer. If your tenants are shady, I would stay away from this as in some states acceptance of a partial payment qualifies as a full payment if the tenant plays his/her cards right.
Note: Usually when they get the notice it scares them as it states you can evict them after X amount of days.
!!! Make sure your late payment fee is big enough to catalyze payments. I usually add on to the late fee each additional day they are late.
- Member since 2016 · 13k+ posts · 12k+ votes9y
The cause of late payments is always poor land lording. If you want tenants to pay on time you do not play games with them. Allowing them to pay late with a late fee slap on the wrist is playing games. When a tenant has not paid by midnight on the 1st the appropriate action on the part of a responsible landlord is to issue a cure or quit notice on the 2nd.
If it happens a second time you again issue the cure or quit notice and inform them that if they ever pay late again you will evict or non renew. If you are smart enough to have your tenants on M2M you are in control.
If you are not prepared to evict a late paying tenant then you have trained them that it is OK to pay rent when ever they choose and you live with it.
It is your choice as a landlord to train tenants to pay late or not. You have trained them now you must re-train them.
- Investor · Buda, TX · Member since 2016 · 137 posts · 55 votes9y
Thanks @Thomas S. I think I have been too easy on them at this point after inheriting 3 of the 4 and was told how he would collect 1/2 rent in cash and the rest in check later so it's the retraining that I'm currently working on.
- Investor · Buda, TX · Member since 2016 · 137 posts · 55 votes9y
@Thomas S. do you have a good example or template that I take a look at by chance? I live in Texas so will need to check against state and local laws but just curious to see this and forms others have used.
- 9yRyan MurdockPro MemberRental Property Investor · Austin, TX · Member since 2016 · 1k+ posts · 1k+ votes
@Thomas S. Your methods are not realistic once you grow beyond a duplex or two. I'd gladly have my entire portfolio pay after the specified late fee date. It's a great way to increase my revenue by the state-limited maximum of 4% every month by doing nothing but waiting a few extra days. Easiest money there is in REI.
You go much beyond that timeframe, however, and I will start gearing up for an eviction hearing.
- Member since 2016 · 13k+ posts · 12k+ votes9y
@Ryan Murdock Your suggesting a large business should not be operated efficiently. If anything the opposite is true. The larger you grow the more important it is to stream line your business. You will learn when you get bigger.
If you operate on the belief that late fees are a benefit you are operating a mom and pop business. Tenants paying late cost far more than late fees cover in wasted time and wages chasing down payments. You will learn when you reach the point of operating a business and you realise how valuable your time actually is..
Training tenants to pay on time is very easy and cost wise far less than dealing with tenants paying late.
If your lease says the rent is due on the first and you are not enforcing it then you have no reason to bother having a lease.
- Real Estate Agent · Souderton, PA · Member since 2016 · 591 posts · 414 votes9yFind new tenants. Or train these tenants to pay on time, and if they can't, then find new tenants that will.
- Investor · Akron, OH · Member since 2016 · 2k+ posts · 4k+ votes9y
This was one of the first things I had to learn to deal with. I bought a property that had tenants that had been allowed to prioritize other things higher than rent. My lease does allow for a three day grace period before eviction actions will be started.
In Ohio, If you are going to insist that a tenant who has been allowed to pay late start paying on time, you have to first send a letter that says, "Regardless of what has been permitted in the past from now on you must pay on time..."
While a tenant is in default on the fourth day after rent is due according to the terms of my lease, I realized that I did not want to start eviction proceeding the first time a tenant is four days late. So I wrote a policy that encourages tenants to pay on time but does allow me to be flexible. I think it's a fairly generous policy but it limits my losses to 15 days rent before filing and it gets rid of habitual late payers that can't/won't get with the program. I allow a maximum of
- four late payments per year,
- 3 late payments in a row,
- two late payment per year greater than 7 days late ( and less than 15 days late).
I keep track of lates in a spreadsheet. I do not count lates paid on or before the 3rd IF THE TENANT notifies me on or before the 1st that he'll pay on or before the third. I do wave the late fee the first time a tenant is late (but I make it crystal clear that this is a one time waiver)
I discount my late fee by 50% if a tenant notifies me on or before the first and pays th 4th- 7th as agreed. (lates still count)
When a tenant cannot pay on or before the 7th, I quit or pay on the 8th UNLESS the tenant gets on a payment plan. For a payment plan I calculate the daily rent and require that the tenant pay the late fee and enough daily rent to stay current through his next scheduled payment . Any failure to make an agreed payment results in an immediate quit or pay the next day.
Once a tenant has used the maximum permitted lates, tenants on a lease can stay if they sign a month-2-month agreement as long as they pay on time for the remainder of the year, and monthly tenants get a letter stating that their monthly rental agreement will not be extended (they will get a 30 day notice to vacate) the next time they are late. This policy has allowed me to be
- consistent when dealing with late pays,
- flexible enough to work with good tenants that have the occasional problem,
- it encourages good communication with late fee discounts (I send out a letter saying next time you can save money if you let me know in advance...)
- discourages habitual lates (tenants save lates for 'emergencies')
- limits my losses (at most I'm out 15 days rent before I file for eviction)
I'm probably going to add a fee for the delivery of quit or pay notices in all future rental agreements.
- Portage, IN · Member since 2017 · 10 posts · 0 votes9y
I agree with everyone else on serving a Pay or Quit Notice ASAP. In Indiana, you have to give a 10 notice before filing for an eviction, I found the notice on eforms.com. I bought my very first duplex that I was living in Feb 21. and inherited my neighbor as a tenant. She paid March rent without any problems, but then April 1st rolled around and she had all kinds of excuses. April 5th, she was served with a 10 day Notice to Quit and April 17th, I was down at the courthouse filing eviction papers. May 4th, was the court hearing, I was granted my eviction but the tenant (much to the surprise of everyone in the courtroom, including the recorder, sheriff, and bailiff) was given until May 30th @4pm to vacate the premises. The Sheriff secretary told me this was the longest stay any tenant has been given in a very long time and that was in all of Porter County. So I am out April, May, and maybe June because I have to get the place rent ready again. I totally disagree with doing anyone any favors.
- 9yRyan MurdockPro MemberRental Property Investor · Austin, TX · Member since 2016 · 1k+ posts · 1k+ votes
@Thomas S. Based on your consistent advice I'm fairly certain you are the one running a Mom & Pop business. Comments like "evict after 3 late payments","all of my tenants pay in advance with 12 post dated checks" and "I don't rent to anyone who hasn't been with the same employer for 3 years" are dead giveaways. Noble practice with a handful of units but that's "perfect world" mentality. There's no way those policies are scalable without a tremendous amount of vacancy to go along with it.
No need to swat flies with a sledge hammer. It's much more rewarding to keep cashing rent checks.
- Investor · Somerset, KY · Member since 2016 · 4 posts · 3 votes9y
Hey, I'm new to the landlord game, but we have had great success in the way we write our lease. We are only 6 months old, and while I have had a few here and there due to their hardships, most pay on time. When they say anything about a hardship / whatever excuse, we tell them we're sympathetic and let them know that's why there are late fees...to help with that. Our lease is setup as follows:
1. Rent is due on the first of every month. (we have one exception as they draw a check that isn't issued until the 5th)
2. If rent isn't deposited in the account / check received / whatever by the 3rd day of the month, a $35 dollar fee is added on.(we put it on the tenant to make sure we have the money...any other utility you know that comes around collecting their bills!??)
3. every day after the 3rd day, an $8 a day charge is added.
4. Rent is NOT considered paid in full until all late charges have been paid for.
5. If rent is not paid by the 7th day of the month or satisfactory communication hasn't occurred with the landlord, an eviction notice is filed.
all plain and simple.
Hope this helps. Don't incentivize (lose money). Make it cost more to be late. And NEVER EVER EVER EVER EVER waive your late fees.....like ever! =)
- 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
not debating how tough you would be the issue is the asset class and the tenant class.
if your buying what you think is C class which could easily be D class.. this is what your in for as long as you won it.. a 600 dollar tenant is a 600 dollar tenant.. you will always have those issues. its just the asset class and tenant class.
most these folks who are talking eviction and training them etc.. thats all well and good but the 600 dollar tenant in the US this is their life and reality.. can you get a good one.. sure is it the norm nope.
this is why those that buy low end multi IE looks great on paper..
renters usually need 3X to qualify so for a 600 renter thats 1800 a month...
that leaves 1200 a month to live on total.. minus some income tax.. maybe a little less.
you have a 1200 dollar renter and they make 3,600 a month that leaves them 2,400 a month to live on minus a little income tax... HUGE difference .. they both have cars they both eat and have to cloth themselves.. this is why the 600 dollar tenant is so tough
Also you start evicting all these folks it will cost you usually one to two months in rent 1,200 plus probably another 1 to 2k in make readies.. so your out 2 to 3,500 each time you evict not including the eviction fee's time and stress on your self...
Myself and of course I am very much not the norm in my management style.. unless the people are really horrible IE they go 30 days or more.. I just keep them in place .. much cheaper and talk about work having to find another tenant is much more work than just milking them along.
the discount for early pay won't do much with a 600 dollar tenant either.. they simply have no money that cant pay what they don't have.. its like folks think these folks have savings accounts and are doing it on purpose.. one is social IE its simply not their priorities in their lives like it is in yours.
thats my take on C class.... if you don't like whats currently happening .. then sell and buy nicer property .
my A class everyone is on ACH never a worry.. my C class over the years is exactly as described.
- Member since 2016 · 13k+ posts · 12k+ votes9y
@Ryan Murdock You are correct I only have 30 units but all my tenants have been trained to meet my requirements. Mom and Pop landlords live with bad tenants, whine and complain about their troubles. Corporate landlords make no concisions for tenants irresponsible practices.
My family has been in rentals since the late 40s early 50s I know what I am doing in maintaining strict policy enforcement. When it comes to maintaining high screening standards that is a topic that has been hammered to death. Talk to any professional and they will tell you tolerating tenant bad behaviour will always cost more money than training or getting rid of them.
If you are not enforcing your lease and maintaining strict standards to train tenants to your requirements your are an amateur that will eventually be reputedly burned. If replacing tenants is creating a significant vacancy loss you are a poorly organised lazy landlord.
If you believe late fees, which are for the purpose of training tenants to pay on time, are supplementing your income it is obvious which of us is operating a mom and pop hobby investment.
Maintaining strict business standards and practices can be ignored by any investor with 1 unit. Strict standard enforcement is mandatory if you intend to grow beyond a hobby level.
Eric (OP) is determining how he can make that jump.
- Investor · Chicago, IL · Member since 2015 · 87 posts · 42 votes9y
@Eric Barnett Use should try Cozy's automatic rent collection tool. I use it for my rentals, it is very easy to setup. I give my tenants a 5 day grace period as an incentive to sign up for it. If they insist on paying by check, then the rent is due on the 1st and I enforce a hefty late fee if it is a day late. All of my tenants so far has been accepting of the automatic rent payments and collecting rent is stress free.
- 9yRyan MurdockPro MemberRental Property Investor · Austin, TX · Member since 2016 · 1k+ posts · 1k+ votes
@Thomas S. I'm not advocating to let your tenants run wild but I think there is a definite need to chose your battles.
Under your policy a tenant who has great income, great credit, long term rental history, takes fantastic care of the property, and is pleasant to deal with but who has paid a single day late 3 times will be evicted, or at the very least not have their lease renewed. Please give any of those folks my contact info. I'll gladly rent them.
I'm all for keeping tennats in line but there are times I'd much rather be rich than right.
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