Lower Income Tenants
I just bought a 4 unit in a C neighborhood and inherited all of the tenants. They are lower income and though we've only collected rent twice, 3 of the 4 units paid late.
I came from a lower income and understand that some times a penalty can snowball into other problems. I don't want my tenants to be stuck in a trap or feel that they need to take out a Pay Day loan to pay me, but I don't want to be paid late.
Any advice on an appropriate late fee and how to handle habitually late tenants?
I was thinking of putting in an incentive for early payment. Anyone have experience with this?
@Zech Ehnert Hi Zech…Great question. My wife and I own three three-family units in a lower income area. We also inherited tenants in two of the buildings with one being habitually late from day one. I allowed this tenant to catch up rent and I stopped moving forward with an eviction. As soon as they were caught up on rent, they were late once again with a multitude of excuses. Based on this experience, these are my suggestions:
- Be fair, but firm – For my tenants, payment is due on the 1st of the month. After the 5th day (per my lease), I can charge a late fee ($25). Are your tenants in leases? Is there a late fee?
- Be wary of the “professional tenant” – After a two-month appeal eviction process, I just received notification from the supreme court of my state that the tenant’s appeal was denied and I can move forward with the eviction
- Be as compassionate as possible, but understand this is not a “personal situation” rather a business transaction
- One strike policy – I’m a big believer in second chances….but not third chances
- State Laws - Make sure you understand the eviction laws and procedures in your state
- Follow your gut – I didn’t have a good feeling about the tenant I discussed above but didn’t listen to my gut
I haven't given much thought regarding incentive for early payment. However, I did consider maybe offering an incentive if the tenants pays on-time, let’s say, for 6 months in a row.
Good Luck!
When people are unable to manage their money, they will always pay somebody late. If you are the softest creditor with no penalty for being late, guess what...you get paid last. The only way to get on time payments is consistently enforce the lease. Have a late payment in there and collect it every time. Then you get paid first. By being lax on this, you will not really help or improve your tenants life in any way. In fact you will just continue to enable the poor money management on their end. Now this is assuming your screening makes sure that tenant income can pay rent. If their income is too small for the apartment you have a different problem and need new tenants.
when my friend was renting a place in college i remember she got a 25$ discount every month if it was deposited directly in the bank by the 31st or 30th etc... the day before the 1st of the month when it was due and than the late fees kicked in on the 5th of the month so she was always getting to the bank and paying early to save the 25$ but than again not everyone is as frugal as college students...
Originally posted by @Peter John K:
when my friend was renting a place in college i remember she got a 25$ discount every month if it was deposited directly in the bank by the 31st or 30th etc... the day before the 1st of the month when it was due and than the late fees kicked in on the 5th of the month so she was always getting to the bank and paying early to save the 25$ but than again not everyone is as frugal as college students...
I tried this with one of my properties and I gotta tell you, it works like a charm with these particular tenants (college aged, but not in college). The rent is in my account before the 1st, every single month so far. I'm thinking of trying it on the rest of my leases as they turn over.
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Ask them what date they will be able to guarantee payment by , make that their payment date and impose late fees if they miss it.
yea only confusion might be with an elderly tenant who thinks they have until the 31st of the month that the rent is due and pays 31 days late without the late fees and 25$ short lol
I have tenants renting $750 homes from me. I would consider them lower income but employed. After a recent tour of all my rental properties, I quickly lost what little sympathy I had for late rent. Most of them had a bigger TV than I do, many had newer model cars and the women all had expensive nail and hair jobs. I figure they can afford all that, they can pay the rent on time!
@Zech Ehnertcongrats on your new rental.
I'm hoping you signed a new lease agreement with theses tenants. If so, then enforce your lease.
If you're working on a grandfathered lease, then have tenants sign a lease directly with you. Include a clause that states payment is applied to late fees first THEN towards rent. This will help you if you need to evict.
It is difficult to reform low income tenants. In reality, the money may simply not be there. You are likely facing a situation where you need to start fresh with a new group of tenants that you train to respect the lease.
Best to you (be nice but don't be a chump)!
I agree with much of what has been posted above. I bought my first property, a 4-plex, in what I would consider to be a C+ area about 6 months ago. Thankfully the previous property manager was very strict about rent being submitted on time and we have had no issues thus far.
We have made this a clear point of emphasis with our old tenants and now in our new leases. Rent is due on the 1st day of the month and late if not paid by the 5th. This 5 day grace period really gives the tenant no reason not to pay by the 5th.
I find the early payment discount an interesting idea, but why discount rent if you are confident you can collect by the 5th of every month?
My strategy has been one of focusing on really adding value with renovations. With a lot sweat equity we have dramatically improved our property and raised rents by nearly 20%. Give your property a competitive advantage within your sub-market and good tenants will be sure not to risk an eviction!
@Account Closed I know what you mean about big TV's and a pile of games next to the newest game system.
I have not pulled credit checks, but I assume that when you do, you will get a list of companies that they owe money to.
When you took over the property, did you have the tenants sign new leases? If you know that they worse than usual credit, to me that would be a flag that you will be paid late or not at all.
How long is left on the leases?
Is it hard to find low income Renters with decent credit? I used to try and screen buyers for my Dad's Mobile Home's but it was hard to do. Usually, but not always the Park Manager would do a background check and credit check as they buyers would have to be approved by the Park before we would be able to sell them a MH.
Did you sign new leases with the tenants?
My rent is due on the first of the month and they have a 5 day grace period. After the 5th, I start a $5 late fee per day. That is steep if they do not pay till months end. That is my mobile home parks policy and I adopted it as well.
If you implement a $50 late fee after the 5th, if yoru tenant is past the 5th they may just say screw it, I got the late fee and I will pay rent at the end of the month.
Thanks for all the ideas everyone! Most of the leases were up in a few months so we decided to let the old ones expire. We have 2 up for renewal this month, and are going through our new leases and wanted to know how to handle late fees.
Here's our late fee language, if it is helpful. We try to make our late fees a bit punitive, but not strangling to the tenants. If they are going to drag out rent collection past the first week of the month, I want at least a little bit of extra compensation for it. And I want to get paid at least partial rent before the first week has gone by or I get perturbed. Some will always just pay late, so set something you can live with. My husband is notorious for waiving the late fee, but he only does it to early offenders. With low income, the discussion is usually not about the late fee, its about the rent, and they are often horrible about communicating.
Any rent due not paid by the 4th day of the monthly rental period is subject to a $30.00 late fee charge with an additional $5.00 for each additional day that the rent remains unpaid. All late fees in a month will be cut in half if tenant makes arrangements to pay late in advance [declares and follows through with a payment date]. Accrued late fees in a month will be credited up to $10.00 if half of rent due is paid by the 15th. Accrued late fees in a month will be again credited up to $10.00 if an additional 25% of rent due is paid by the 25th. Landlord does not waive the right to insist on payment of the rent in full on the date it is due.
So our last uncollected tenant will hopefully pay tomorrow, with a $35 total late fee.
I like the idea of discounted late payments if the tenant informs you ahead of time. I am only six month into owning our 4-plex and have not had to deal with late payments yet, but I imagine not knowing when rent is coming in would be the most bothersome aspect of the tenants tardiness. My lease calls for a late fee if rent is not paid by the 5th, but this is something I may consider adding on leasing going forward. Thanks!
Originally posted by @Kevin Kovalsky:
@Zech Ehnert Hi Zech…Great question. My wife and I own three three-family units in a lower income area. We also inherited tenants in two of the buildings with one being habitually late from day one. I allowed this tenant to catch up rent and I stopped moving forward with an eviction. As soon as they were caught up on rent, they were late once again with a multitude of excuses. Based on this experience, these are my suggestions:
- Be fair, but firm – For my tenants, payment is due on the 1st of the month. After the 5th day (per my lease), I can charge a late fee ($25). Are your tenants in leases? Is there a late fee?
- Be wary of the “professional tenant” – After a two-month appeal eviction process, I just received notification from the supreme court of my state that the tenant’s appeal was denied and I can move forward with the eviction
- Be as compassionate as possible, but understand this is not a “personal situation” rather a business transaction
- One strike policy – I’m a big believer in second chances….but not third chances
- State Laws - Make sure you understand the eviction laws and procedures in your state
- Follow your gut – I didn’t have a good feeling about the tenant I discussed above but didn’t listen to my gut
I haven't given much thought regarding incentive for early payment. However, I did consider maybe offering an incentive if the tenants pays on-time, let’s say, for 6 months in a row.
Good Luck!
I think Kevin hit the nail right on the head. It's all about being compassionate but firm. Giving them a 5-day grace period and free pass on their first late payment (after warning them of course) is more than fair. Be willing to work with people, but don't be a pushover!
Great ideas! I think this is the way we are going to go in the leases.
5 day grace. Which means rent will be paid then.
$10 late fee for every day after that. I will cut that in half if you discuss it with me before the 1st.
One free pass as long as you discuss it with me
Unless discussed with me, the 10th of the month I'm posting a 5 day to correct or vacate notice. This is the first step in an eviction in Wisconsin.
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- Severna Park, MD
I talked to the owner of a apt management company and asked them how they felt about evicting people . she basically said , feelings arent in my job description , my job is to run this complex , and make a profit , letting people live for free is not part of the job description.
Originally posted by @Zech Ehnert:
$10 late fee for every day after that. I will cut that in half if you discuss it with me before the 1st.
Zech, check with your state and municipality landlord laws. In NC, there is a cap on how much landlords can legally charge for a late fee. That is 5% of the monthly rent. So, even if a lease states a late fee of $10 per day, you couldn't legally collect more than 5% of the monthly rent as a late fee.
Also, in NC, a landlord cannot receive the full rent amount (minus the added late fee) but deduct the late fee from the rent amount and claim the full month's rent was not paid the following month and assess another late fee as a result. Legally, all the landlord can do is allow the late fee to hang around until finally paid. I guess a landlord could move to evict for unpaid fees (lease allowing, of course,) but in NC a single unpaid late fee cannot be used as a trigger for subsequent late fees.
I charge the entire 5% after the 5th of the month. I don't see the need to string it out day by day.
Wisconsin law doesn't directly deal with late fees. The reason for the daily fee is so that tenants pay as soon as they are able. At this point, I only have 4 units and even though we have a cash reserve, a 25% cut in cash flow can cause problems.
Originally posted by @Zech Ehnert:
Wisconsin law doesn't directly deal with late fees. The reason for the daily fee is so that tenants pay as soon as they are able. At this point, I only have 4 units and even though we have a cash reserve, a 25% cut in cash flow can cause problems.
Wisconsin law doesn't directly deal with late fees, however you don't want to charge too much and have it seen as "excessive" by a judge. I do the $10 daily late fee too, but I cap it at $50 so it won't be seen as excessive. There's been cases where $50 late fee was allowed, so I'm sticking to that.
Welcome to the Jungle. For a start, the "younger" generation definitely likes/can pay online. Are they month-to-month? Best to set up ACH or something similar and try "we won't raise your rent if you set up online and pay by 1st or something similar. Any new tenants set up online only at "discounted" rate (could actually be raised rent), and if you pay by check, etc. that would some many $$$ extra? Just my 3 cents (inflation of 50%) of advice.
Originally posted by @Matthew Paul:
I talked to the owner of a apt management company and asked them how they felt about evicting people . she basically said , feelings arent in my job description , my job is to run this complex , and make a profit , letting people live for free is not part of the job description.
I love this post!