Direct deposit: is the rent late or on time?

Rental Property Investor · Centerton, AR · Member since 2014 · 54 posts · 28 votes

To avoid confusion, it should spell out exactly in your lease that you must "receive" rent by the 3rd or there will be a late fee. I have seen leases stating that mailed rent check must be "post marked" by a certain date; that way the tenant can't blame other factors. Military members get paid like clockwork on the 1st and 15th. Since he is already doing direct deposit, why don't you request that he set up auto-pay through his bank? I have two military tenants and both have direct deposit auto-pay set up... I have never had to worry about late fees.

1 Reply

Paul S.

Investor · Valparaiso, FL · Member since 2014 · 374 posts · 76 votes

11y

I am military as well and if he has one of the same federal credit unions then there is not much that can be done. I have seen these issues with other people paying me from credit unions and the payment comes but not as fast as I would like. I guess you could look at it the way other places do, if it is postmarked by the due date then it is ok.

1 Reply

John Teachout

Rental Property Investor · Concord, GA · Member since 2015 · 3k+ posts · 3k+ votes

11y

Unless your lease specifically spells it out, it seems that if he initiated the payment during the "window" that would be acceptable.

At least the rent is being paid every month...

3 Reply

John Thedford

Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes

11y

I put in my lease that payments must be postmarked by a certain date and I use the date of the money order as the postmarked date. My goal is not to inflict late fees on tenants but rather to get them to pay at the first part of the month. IMO, if they initiated the payment on the 3rd, why rock the boat (especially if they are good tenants). Will adding a late fee created goodwill or tension? Is it worth it to split hairs? If they take good care of the place and pay on time (initiating payment before the 4th, take their money, be happy, and keep the money coming.

4 Reply

William Allen

Investor / Wholesaler · Nashville, TN · Member since 2014 · 1k+ posts · 667 votes

11y

@Ed S. Something similar to this was happening with one of my tenants when they first moved in. They would initiate the payments at the end of the month (had to be broken up into two payments because their bank had a max). I wouldn't get the payments into my account until the 3rd or so. Then February came around and the large payment didn't go through at all because there was he put a date on it after the 28th. I told him he needed to push the payment back to ensure it hit my account by the first of the month.

To some of the other posters who say don't worry about it, I think there are two things wrong with this. You are allowing him to continue to pay late as per the lease (in my opinion). However, the biggest point here is that it sounds like his payments are hitting your account after your mortgage is getting paid. I write my leases such that the tenants have their money in my account prior to my money going out on the monthly mortgage which I set up for the 5th.

Either way, I think you need to address it and ensure it is reaching your account before the date stipulated in your lease.

0 Reply

Colleen F.Pro Member

Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes

11y

To me its late but when the first two payments were late what did you tell him. Did you say that it needed to posted by the due date or received? I would let someone go who initiated in enough time but it did not get to me because it was a longer transfer go but this does not sound that way . If you were clear previously charge the fee.

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JD MartinBusiness Member

Moderator

Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes

11y

My take is this: this is probably just going to be a part of accepting money electronically through a no-fee setup. I am dealing with the same thing this month with Cozy (see my thread elsewhere in this forum), but the tenant has it set up for automatic payment and I can see the payment was initiated as it should have been. So while I don't particularly care for waiting a couple of extra days - and it "screws up" the late fee setup - she is a good tenant who has it set up to automatically pay the rent pulling directly from her account and pushing into my account, and that is a good set up for me.

How I would deal with the late fee would be if someone could not prove the payment was initiated before the late fee cutoff date.

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Maggie Tasseron

Investor · Palm Desert, CA · Member since 2015 · 215 posts · 64 votes

11y

Originally posted by @Ed S.:

Hello BP,

I'm thankful for such a place where I can get experienced advice.

Here's my situation. Rent is due on the first and my grace period is 3 days, so on the fourth its late. I haven't had a problem with any of my tenants direct depositing till now.

On the fourth we texted our tenant to see if everything was ok because we haven't seen a deposit. His answer was bank issues ( of course it's the banks fault) and he sent us a picture of it withdrawing from his account on the 3rd.

Shortly after contacting I noticed a pending transaction to be paid on the 8th (due to the long weekend and Labor Day). I called both banks and they basically said he initiated it on the 3rd.

The way I see it he essentially put the check in the mail on the 3rd and he's trying to say he paid within my grace period.

If it hasn't actually deposited (not pending) into my account by the 3rd but withdrew from his account on the 3rd is it late?

Thanks in advance for any help advice.

A little background, the first 2-3 payments were late as well because of direct deposit issues and I was gracious because he is military and I took his word for it figuring he was good either way.

Generally, I have accounts at the banks my tenants deal with so that when they go in to cash their checks they can deposit the rent into my account at the same time. These days, however, there are all kinds of ways to transfer money quickly so I would check those out. Question for you: Is he a good tenant otherwise? If so, I would try to set up a more efficient way for him to pay you and not create bad feelings by charging him late fees.

0 Reply

Bryan C.

Investor · Spokane, WA · Member since 2014 · 733 posts · 155 votes

11y

What does your lease specifically state? That is the starting point. Also what did you say the first few times? That sets precedence. Since they are military there is the option of setting up an allotment through MyPay. This takes 1/2 the payment out of the 15th paycheck & 1/2 out of the 1st paycheck and makes payment on the 1st of every month.

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Brandon Ingegneri

Rental Property Investor · Providence, RI · Member since 2015 · 1k+ posts · 594 votes

11y

The way I do it with direct deposits is to consider the payment on time if the transaction is initiated within the grace period. If it is a physical check, I need to have possession by the last day of the grace period or they are getting hit with the fee.

0 Reply

Chin P.

SILVER SPRING, MD - Maryland · Member since 2015 · 77 posts · 43 votes

11y

This is a common question in retail business. Lookup the mailbox rule in your state and also see if your lease specifies it one way or another.

2 Reply

Seth Kitchka

Rental Property Investor · Muskegon, MI · Member since 2014 · 60 posts · 7 votes

11y

In my opinion this would be late. It's similar to a tenant putting the check in the mail on the third and showing a mailing receipt. Our lease states:

"Rent is not considered 'paid' on the day it is mailed, rent is 'paid' the day the Landlord receives it. Delays in postal services should be considered in determining when to mail the rent."

You're already giving a three day grace period. Maybe you can use this as an opportunity to tell them this is considered late, but you will waive the fee since this is their first time. I was military and always had my rent paid on the 1st. With that pay schedule there's no reason not to. FYI for future tenants, USAA always deposits a day early. I always had my pay, and still do with my new job, the day before payday.

0 Reply

Mike H.

Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes

11y

Interesting notes to see how everyone here determines late fees.

I'm kind of a hybrid of the ones above.
I give a grace period and the lease states that, if they mail it, it must be received by the 4th or else its late. However, if its submitted via my online payment service by the 4th its good.

I don't really care whether it hits my account by the 4th. As long as I can see the payment has been submitted, I'm happy. Its another renter I can cross off my list as having made their payment. Ultimately, thats the goal.

I'm guessing I'm at about 90% of the tenants using the online payment service and thats why I do it that way. It also helps me with retirees and the like who get their checks on the 1st thru the 3rd. Most have auto deposit so all they have to do is setup the payment to go out every 4th and they're good. And my collections have become so much easier these days.

When I had 10 to 15 houses, it seemed like I was constantly tracking people down for their payments. I'm now over 40 but have almost everybody converted to the online payment service and the collection process is 10 times easier.

I'm actually convinced a lot of the excuses for not paying have dropped off because they no longer have to make an effort to send the rent. Its a button click. No stamp, envelope, etc.

In terms of this tenant though, I don't know that I would ding them for late fee. My question would be why is it taking so crazy long for the payment to go through if he's initiating an electronic transfer on the 3rd????

Why not get an online service where you can see that the rent has been submitted immediately - even if it takes a day or two to get to your account? That would simplify things quite a bit and alleviate the stress of not knowing if the payment was made as well and would eliminate your need to call and do all the leg work to verify that it has.

That just seems like way too much work to me to check on the rent.

2 Reply

Steve Vaughan

Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes

11y

No way. Trying to charge a tenant a late fee and saying it was late because the draft was initiated on the 3rd is splitting hairs and cause for discontent.

As a renter or consumer, I would assume a bank draft to be faster and more definite than the mail and not consider it the same. I may inform him there are delays in the ACH system and ask him to initiate a day or 2 sooner, but I wouldn't accuse him of being late.

As one grows in the LL business in size and experience we better learn how to choose our battles.

For perspective, view a current posting of someone dealing with an eviction: http://www.biggerpockets.com/forums/52/topics/2273...

5 Reply

Seth Kitchka

Rental Property Investor · Muskegon, MI · Member since 2014 · 60 posts · 7 votes

11y

This is good info. We're going setup for EFT payments soon, this is good to see. Maybe remove your grace period on the lease with future tenants, then if they pay a couple days late it'll still be within the time you actually want!

0 Reply

John Thedford

Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes

11y

Great variety of opinions here. I have a favorite speaker whose mantra seems to be "money will fix any problem" and he has paid out lots of money to fix oversights, etc. Fighting over a few bucks IMO just isn't worth the time. I agree we all have rules. Choosing a fight due to an ACH being delayed or mail being delayed is a waste of time. I am taking two listings over the weekend. I am looking at another house I may purchase for my own investment. I also have another under contract for purchase. If my tenants checks don't show till say Wednesday or Thursday...am I better off raising a fuss and chasing $75 or dealing with positive real money making deals? I am NOT saying to disregard rules and deadlines...but I am saying, as Steve posted...choose your battles wisely. The exception to my post is: if this is a problem tenant, then that should be dealt with. Otherwise, smile, keep making money, and don't let the little things ruin your day.

1 Reply

Richard Redding

Investor · Round Rock, TX · Member since 2013 · 42 posts · 34 votes

11y

Give him a pass on this one but make very clear, verbally and in writing, that going forward, it's his responsibility, no matter what, to get you the rent on time.

He can start mailing you a check or sending the transfer earlier. It is his problem, do not let him make it yours.

Holiday weekend, banks fault, etc, it's all an excuse. If you told him he got $500 off rent every time he paid on or before the first, he'd be a week early every time. Your tenant has consciously decided it is not important to him if you get paid on time.

Again, be nice and give him a pass this time, but get your tenant trained early or this will continue.

0 Reply

Account Closed

Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes

11y

I think you guys are being too harsh. The guy pays every month right? So what if he sets up the bank transfer on the 3rd? If you do not even have one months mortgage balance in your checking account, you are running way too thin anyway. Maybe he gets paid on the 1st so sets up his transfer after. If it was me, if I had a tenant paying regularly through bank transfer I wouldn't sweat the 3 days or piss that tenant off.

4 Reply

Ed S.

OP

Anchorage, AK · Member since 2011 · 37 posts · 7 votes

11y

Thank you all so much for taking the time to help me out! We'll communicate our intent of having it by the first next time and will update my leases to specify ACH transfers more clearly.

0 Reply

Elizabeth Colegrove

Hanford, CA · Member since 2013 · 5k+ posts · 1k+ votes

11y

Respectfully if you have it pulled out of your account on the 3rd most banks can't have it delivered by the 4th. I personally tell my tenants it has to be received by the last day of my grace period or its late. I have a 5 day grace period so its late on the 6th. That's just me.

1 Reply

Richard C.

Bedford, NH · Member since 2012 · 2k+ posts · 1k+ votes

11y

Originally posted by @Richard Redding:

Holiday weekend, banks fault, etc, it's all an excuse. If you told him he got $500 off rent every time he paid on or before the first, he'd be a week early every time. Your tenant has consciously decided it is not important to him if you get paid on time.

Again, be nice and give him a pass this time, but get your tenant trained early or this will continue.

I notice you are in Texas, where all kinds of crap that would never fly most places seems to be the norm.

But in most states, there are state laws saying how holidays are to be treated. And those state laws control, not your lease.

0 Reply

Richard Redding

Investor · Round Rock, TX · Member since 2013 · 42 posts · 34 votes

11y

Richard C, holidays here in Texas also buy you an extra day. Not sure what the other 'crap' you're referring to.

My point is that this tenant has been late before and is making excuses (bank issue, holiday, etc) for why they are late. If they wanted to be on time they would be and if you don't train this habit out of them it will become the norm.

Some other people have commented about it's just a few days, so don't upset the tenant. I agree with that if this is a long time tenant with a good payment record. If it's someone you've only had a few months, they have not earned that courtesy.

1 Reply

Wells Lange

Indianapolis, IN · Member since 2015 · 125 posts · 50 votes

11y

I would treat the day the payment was initiated as the 'post marked' day. Maybe have him shoot you an email when he initiates? I would try to accommodate him because he's military.

0 Reply

Nathan Patterson

New to Real Estate · Castle Rock, CO · Member since 2014 · 172 posts · 66 votes

11y

While many make the point of you are getting the money each month so why rock the boat. Which I agree with because I wouldn't want to deal with an angered tenant. I do think that if you don't want to deal with this again, put in the lease that if they elect to have it electronically transferred to you. Then the money must be in your account by the 3rd day to avoid a late fee.

Him starting the payment on the last day is negligence on his part. The tenant should know by now that it takes a few days. What else will they neglect if you don't enforce this or will they try to get by on.

0 Reply

Paul S.

Investor · Valparaiso, FL · Member since 2014 · 374 posts · 76 votes

11y

Originally posted by @Bryan C.:

What does your lease specifically state? That is the starting point. Also what did you say the first few times? That sets precedence. Since they are military there is the option of setting up an allotment through MyPay. This takes 1/2 the payment out of the 15th paycheck & 1/2 out of the 1st paycheck and makes payment on the 1st of every month.

Not everyone gets paid twice a month, in fact most military members live pay check to paycheck. The tenant may not have any cash reserve to pay early, he also may want to make sure that his pay actually hits his account before the allotment goes out. Military pay can and does get messed up. Also set up an allotment through my pay? I have NEVER had one go through correctly in the 24 plus years I have been in. I would NEVER leave anything up to DFAS especially when it comes to paying rent.

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Direct deposit: is the rent late or on time?

Direct deposit: is the rent late or on time?

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