BiggerPockets

The #1 Reason To Collect Late Fees…

The majority of my deals come from absentee owners. And a lot of these calls involve miserable landlords who have tenants that haven't paid rent in forever or tenants that destroyed the property and left it in shambles.

So do you want me to tell you how things got this way with these landlords? It's because they didn't keep control of their tenants and most likely they never had control in the first place.

You see, "controlling" a tenant starts from the moment you meet them. When they are filling out an application for one of your properties you should let them know that your company is very strict and expects two things from them: 1) That they always pay rent on time 2) That they treat the house with care. You then tell them if they don't do either of these things your company will evict them in a heartbeat.

You want to give this "firm" talk upfront because it will scare away people who were planning on taking advantage of you and who didn't intend to pay rent. These are known as professional tenants.

So what does this all have to do with collecting late fees? Collecting late fees is part of controlling the tenant and showing them that you take this business seriously. If you don't enforce the late fee then the tenant will no longer respect you and then won't bother to pay their rent on time. And why should they? If there is no penalty for paying rent late then they will get it to you whenever they feel like it.

How does my late fee policy work? Rent is due on the 1st and late after the 5th. After the 5th I impose a 5% penalty. For example, last month I had three tenants who were late. I got a $65, $90, and $70 fee. That's a nice $225 in extra income I got for the month, but most importantly, all of my tenants know how strict I am and actually called me ahead of time to let me know they would be late. (You want to train your tenants this way).

So... if you haven't been collecting late fees in the past, now is the time to change. You can always tell your tenants that you got a new "supervisor" who is very strict and you'll lose your job if you don't start enforcing late fee payments. I promise if you start doing this you'll have less tenant headaches and they'll learn to take you more seriously... which in turn makes your life a lot easier and of course puts a few extra bucks in your pocket.

Comments

• 

  Clint Darby — about 2 years ago

  I agree, you MUST be firm with regard to getting paid on time. My leases specifically state the rent is due on the 1st and is late on the 2nd. There is no grace period. Each month the tenant has a 30 day grace period. It is remarkable how few late payments I receive...

• 

  Whitney Weert — almost 2 years ago

  So if they do call ahead and let you know they at going to be late do you still charge them a late fee?

• 

  Ty Joseph — over 1 year ago

  I like that "30 day grace period" @1st comment. Good and true article...

• 

  Ty Joseph — over 1 year ago

  *2nd comment