Guys - Charge late fees (from a call I had)

[Cody L.]

I really do try to 'pay it forward' with regards to the help I got from friends I met while starting my own real estate journey.  So that means replying to messages from BP when I have time, and checking in on forums from time to time.  Even taking the random call 

Anyway, I got a call from a guy that just bought his first multifamily in Houston. A 16 unit. He had 2 SFH that he bought as flips, but kept as cash flow properties (oddly this sounded way too close to my start)

He said he doesn't charge late fees.  I asked him why.  He felt it was wrong as long as he got paid for the month, why?  I told him there are a few reasons.  

1. Set tenant behavior.  3 days late turns into 10, turns into 15, turns into skipping a month, getting behind, and you finally evict and lose $.  Use software to automate it. Don't let the blame fall to you to adding them. The blame is on them for letting the software do it by not paying on time to stop it. 
   
2. TIME VALUE of your effort to collect rent.  Imagine you had a 16 unit and, on the first, people just paid (online ideally).  Contrast that with having to knock on doors, listen to "I'll have it next week, promise" every day, etc.  F that noise.  Your time is valuable. Act like it.
   
3. $ Yes, $. People always run their little calculators to determine what a property will return. But that doesn't mean anything if you don't run it correctly. Money is made in the MARGINS. A "6 cap" property can be a 4 CAP to some, or an 8 CAP to others.

To prove the point I ran a GL report for late fees in my system for this year.  It's damn near $100k.  Let's assume for a minute that charging late fees didn't also cause more rent to be paid (I think it does).  Just that $100k made (and by the end of the year it'll be higher) will be about 2 million in value (@ a 5 CAP on the portfolio)

(This totals $96k, and there are 4 months left.  So it should be about $125k by the end of the year. The reason there are two figures is I have two GL codes for late rent.  As to why, that's a bigger story)