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Why Late Fees Are So Important…

Jason Hanson
2 min read

I own a lot of properties. I won’t reveal how many because I’m a private person and I think it’s “bad luck” to show all your cards to people. But because I have so many properties, in any given month I have several people who don’t pay their rent on time.

You see, my rent policy is that after the 5th of the month the rent is late and there are no exceptions. I also charge a 5% late fee. The other day I was at my P.O. Box getting my mail and I was with a friend and I opened one of my checks to find a late fee for $65 dollars. When my friend asked to see the check I gave it to him and he was like “why in the world do you go through the hassle of collecting a $65 late fee.”

First, collecting a late fee is not a hassle.

All of my tenants are trained very well and know that I am extremely strict when it comes to on-time rent payments. Or should I say that my “bosses” are extremely strict as I’m just the lowly property manager. Often times I will have a tenant call me up on the 1st of the month and say “Jason, I’m not getting paid from work until the 6th, so the check isn’t coming until the 10th and of course I’ll include the late fee.”

The second reason to collect a late fee is because…

If you own dozens of properties the money can add up pretty fast. This month I had three tenants who paid late. The fees were $65, $90 and $70. That’s a total of $225. That’ll pay your grocery bill for the month or allow you to eat out several times during the month if you choose. Plus, that was only three properties. Imagine if you had 7 or 10 people paying late.

Now, the last reason to collect late fees is the most important.

And this is the reason that I emphasized to my friend. As a landlord, or property manager you have to maintain control of your tenants. And this control has to start from day one. When I am interviewing a potential tenant for one of my properties I let them know that I expect two things from them at all times. I expect them to pay their rent on time and that they treat the house with care. I firmly let them know if they can’t follow these two “rules” that my company is very strict and we will evict them in a heartbeat.

The best part about my firmness up front is that it scares away the “professional” tenants and I end up with quality tenants. In all my years and dozens of tenants, I’ve never had to do an eviction. (One time I did have to start one, but the woman and I came to an arrangement and she ended up moving out.)

Don’t be a sucker

As you can see, if you don’t enforce the late fees then the tenants will feel like they can walk all over you and they won’t have respect for you anymore. Before you know it the rent won’t be coming by the 5th anymore it will start to come by the 10th… then the 15th, etc. I mean, why should they care when they pay the rent, it’s not like they’re going to have to pay a late fee or anything, right?

In short, the late fee is an important symbol of your control over your tenants and the money is just an added bonus. So… if you haven’t been enforcing your late fees, make it one of your New Year’s resolutions to become a stricter landlord next year– it will make your business run smoother, your life will be easier and you’ll have extra spending money every month.

Photo: stopnlook

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.