tenants always late--do we renew lease or not

Investor · Allen Park, MI · Member since 2015 · 18 posts · 4 votes

One of our rental properties is free and clear, and the tenants have been in the home approximately 3 years. This property is being taken care of through a property management company. This past year, the tenants have ALWAYS been late, sometimes 30 days. Legal paperwork is always filed and they ALWAYS pay. Problem is, their lease expires Feb 1, 2016 and my wife and I are not sure if we should renew their lease or not. Any suggestions or comments would be greatly appreciated. Thank you.

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Nicole Clemens

Residential Real Estate Agent · Philadelphia, PA · Member since 2013 · 82 posts · 33 votes

10y

I am in the same boat.

My tenants are good tenants. They take care very good care of the house, treat it like their own and told me that they made it their home and would like to stay for at least 3 more years, if possible. Buttttt.....they are always late. From 1 week to 3 weeks late. But they pay. And they pay their late fee. Their lease is up at the end of the year and I told them that we'll do month to month until the summer and then we'll renew if they've improved on their payments. I personally would have late paying tenants who are decent people, taking care of the house over the next tenant who could be potentially horrific....and I'd rather not deal with the turnover. Just my opinion :)

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Alex Franks
Rock Hill, SC · Member since 2015 · 1k+ posts · 597 votes
10y
A paying tenant is better then a non paying tenant.
I guess I look at things from both perspectives.
For the Tenant
So every month they are bringing you a check for your retirement. I would try to find out why there late. Now I don' t want to get flamed. I have Lowered not raised a lot of my rents. Yes we do own free and clear so that helps. In todays economy a lot of people are struggling. So I want to be part of the solution, not the problem. So listen to the tenant and see if there is a reason. Maybe lowering a bit could help. Never know until you ask.
Now from our point of view .
I explain to our tenants this is a business and these are investments. I owe the bank X amount and I have a payment on X date. If I don't pay the bank they take property away. So this is why I need to know why your late. if this continues we make a change.
Again I set things up like this FMR $650 month. Pay on time and rent is $550. Keep in mind that is by the 5th ( rent is due 1 - 5 th ) On the 5 day till the 10th the rent is $650 So really we have built in late fee. I guess some times its just a play on the words we use. After the 10th eviction time. Again every situation is different.
Bare with my jumbled thoughts
At the end of the day, renting properties. We are really in the people business. This is an huge service that we are providing. Same time listening and being fair is just the right thing to do. Some money, even late money is better then no money and starting over.
Goes back to our real estate plans. When buying rentals one must always to have a reserve Fund for what IFS...
Like what if my tenant is late, and I have a bank payment.
Alex
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Alex Franks
Rock Hill, SC · Member since 2015 · 1k+ posts · 597 votes
10y
Oh one more things
A great Management company ,are worth they weight in gold.
My wife left the business years ago after managing our personal rentals. ( the stress)
Just my two cents
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Account Closed
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
10y
Originally posted by @Michael Noto:

raise the rent, increase the late fee, and convert to a month to month. Make it worth it for you to deal with their shortcomings
I agree. You've got a sitting tenant that always pays. They may or may not be trainable. But I'd give it a shot by at least making it worth your while. Send a letter with proper advance notice of the rent increase and the new late fee amount and that you are not renewing for 12 months but month to month. They'll get the message. See how it goes.
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Simon Shih
Investor · Houston, TX · Member since 2012 · 354 posts · 186 votes
10y
Rent is paid. Whether they are late or not isn't a huge issue. I'm assuming the property management company is taking care of the issues, since that's what they are getting paid for. I'm also assuming they are paying a late fee. I'm also assuming the late fee is a certain cost plus an additional cost for each day late after that. If they are paying the rent and paying the late fees, then the property is cash flowing and if you're not the one having to deal with it then why not renew? The property is free and clear so you're not witting for the rent to pay a mortgage. I say run with it.
Are all my assumptions correct?
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Michael Hayworth
Contractor · Fort Worth, TX · Member since 2015 · 379 posts · 740 votes
10y
My bookkeeper and I self-manage 15 properties. All my tenants pay via ACH autodraft. If it bounces, there's a late fee + the NSF fee.
Since I'm not having to chase checks, I'm often willing to split their rent payment up into two payments per month for those people who get paid on 1st and 15th, or 26 payments a year for those who get paid biweekly. The key is to suck the money out of their account as soon as they get paid.
It reduces a lot of hassle and sometimes turns tenants who take care of the house, but would always be late payers into good tenants.
If they keep bouncing ACH's, we don't renew. Too much hassle.
You can set up ACH payments through your bank, or use eRentPayment.com. (The latter can be set up to report to credit bureaus, giving tenants who are trying to rebuild their credit another reason to be sure to pay on time.)
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Chris K.Pro Member
Investor · Baltimore, MD · Member since 2012 · 1k+ posts · 655 votes
10y
I would definitely lean toward finding a new tenant but if for some reason you give them a chance definitely do month to month.
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Charlie A.
Accountant/RE Investor · Saipan, MP · Member since 2014 · 11 posts · 1 vote
10y
Method of payment could play a factor; however, in this case, probably not. Although, if they're paying via check, then I would try to get them on a recurring direct deposit/bill pay arrangement since paying by check is really just an inconvenience for both you and the tenant. Plus this way, they never forget to pay.
Second, I would probably raise the rent like other recommended and if they don't like it, they can leave. Anyways, let us know what you decide and the result when you get the chance. Cheers!
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Frank Eimiller
Rental Property Investor · Fond Du Lac, WI · Member since 2015 · 261 posts · 78 votes
10y
Rent is 30 days late? Are you sure you're using the right property management company
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Adam Anderson
Developer · Palm Harbor, FL · Member since 2015 · 307 posts · 96 votes
10y
Originally posted by @Ryan Mullin:

Dont increase the rent. Increase the late fee. Who keeps the late fee the PM or you? or some kind of split?
I agree with this idea if you decide to renew. I have a tenant who pays late just about every other month but it's usually only 4-5 days late. My lease has a $35 fee after the 3rd day and $5/day after that. Personally, I'm Ok with a few days late but I think 30 days late would make me to uncomfortable and I would remarked the property now.
Adam
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Roy N.Pro Member
Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
10y
Originally posted by @Samuel Sedore:

Have them sign a new lease with a NSF penalty of 100$ or more. I bet they will start paying on time if they don't move out.
That cannot legally be done in all jurisdictions. For example, where we are in New Brunswick, we are allowed to charge an NSF or late fee that is not to exceed the charge levied by our financial institution for an NSF/returned item. Where you are in Ontario, you are allowed to charge a fee equal to the bank charge plus an additional administrative amount not to exceed $20 dollars.
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Michael Lee
Investor · Coppell, TX · Member since 2008 · 2k+ posts · 646 votes
10y
Originally posted by @David Yuhaz:

One of our rental properties is free and clear, and the tenants have been in the home approximately 3 years. This property is being taken care of through a property management company. This past year, the tenants have ALWAYS been late, sometimes 30 days. Legal paperwork is always filed and they ALWAYS pay. Problem is, their lease expires Feb 1, 2016 and my wife and I are not sure if we should renew their lease or not. Any suggestions or comments would be greatly appreciated. Thank you.
Hello! It all depends how this effects you. I would say if you are OK with it personally then that is good enough. Even if they usually pay it is probably OK. Even if it is late. If they are good tenants you probably ought to let them stay with a raised rent. Just raise their rent and let them stay if you think the market is tight. If there are a lot of renters just let them go and hope you can rent it out to a better person.
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Steven J.
Urbana, IL · Member since 2012 · 1k+ posts · 425 votes
10y
I'm curious about some of the suggestions about raising the late fee for the specific tenant and/or offering the discount if paid by X date. Is this legal to do with one tenant or must this strategy be employed with all tenants in all units? I'd be very cautious that you would be entering some fair housing litigation if someone found out they are paying $40 for a late fee but then someone else gets a $50 discount for making their payments.
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Account Closed
Real Estate Agent · Grand Rapids, MI · Member since 2014 · 493 posts · 200 votes
10y
Don't raise the rent...it is consider retaliatory…you’ll get hammered if it ever goes to court.Your lease should have a clause in it that states that you can evict for the tenant repeatedly failing to pay the rent on time.If you have such a clause, proceed with a Notice to Quit, with the notice period equal to rental payment period (most often monthly which equates to 30 days).Be prepared to defend this in court, i.e. receipts given for late rent (if in cash) or your bank deposit records and copies of the checks.
If your lease doesn’t contain this clause, you can add it to the lease with an addendum at the end of the next lease term.If the lease term is month to month, you can send them the addendum 30 days in advance of the change.If they are late repeatedly after that, you can evict for this reason (three times would likely be sufficient).Note: If you take cash for rent, it is always a good idea to give them a receipt.
Another possibility, if the tenant pays the rent late every month because the first of the month doesn’t coincide with the date they get their income, you could consider amending the date the rent is due.This is sometimes the case with disabled folks, etc.
This issue is another great reason to use a good lease, written and legal for use in Michigan, and that is tested in the courts.Many leases available online are none of those things.
(I’m not an attorney and this is not legal advice.If you feel you need an attorney, I’d recommend consulting one.)
All the best!
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Account Closed
Real Estate Agent · Grand Rapids, MI · Member since 2014 · 493 posts · 200 votes
10y
@Steven J....to answer your question about whether or not increasing the rent and then discounting it if the rent is paid on time is legal: the answer is: yes, it is illegal. Advisable--maybe not. Some courts frown on this and will essentially say that your rent is the discounted amount, i.e. you'll only be able to collect the discounted amount if you ever go to court. Some courts limit the amount that they will award for late fees to a certain amount. Grand Rapids, MI court limits it to $35 per month. The judges in GR get perturbed over discounted rent clauses in leases--not a good way to start a hearing. Otherwise, the late fee in Michigan can be anything that is "reasonable." What's reasonable? What the judge tells you it is when he/she decides the case.
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Account Closed
Real Estate Agent · Grand Rapids, MI · Member since 2014 · 493 posts · 200 votes
10y
Ooops...Sorry, the posting above should have been "yes it is legal" to discount rent.
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Steven J.
Urbana, IL · Member since 2012 · 1k+ posts · 425 votes
10y
Do you have to hold that policy with all tenants at that point? I can't imagine you can pick and choose who it applies to. For me, personally, I would feel that could lead to courts proving you are discriminating and you get hit with a fair housing fine
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Margaret Martindale
Investor · Burns, TN · Member since 2015 · 29 posts · 8 votes
10y
I have a similar situation currently. The tenants have gotten divorced since signing the lease. Now they are in month to month. She has always been late paying but does pay each month and will send me a message telling me the day she will pay and always does. I hate to give her notice but.all my other tenants pay on time. She is not being paid child support and is going back to court to have the support deduction from her ex's payroll check. We could get more rent each month for this property. How would you handle this situation?
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Terrence Arth
Investor · Scottsdale, AZ · Member since 2012 · 12 posts · 7 votes
10y
David, you have a ton of great advice here, for both sides the agreement. In the end, it all comes down to your tolerance level. You have a PM so you are not on the front line, probably a good thing in this situation. The house is free and clear you said so while you lose the use of your money, you are not fronting cash to make mortgage payments. I'm in Arizona, you are in Michigan so the market could be and probably is, vastly different. With all that said, it's a business. If you were selling flowers or skydiving jumps you'd want cash up front. You however, give the use of a highly valuable asset to a person who has repeatedly proven to be less than honorable. Its not a matter of IF, but WHEN you finally get the shaft. Remember, if they can't make ONE month's rent payment, how the heck can they ever make 2 payments in one month? It's never going to happen. At some point they will be so far behind they will just walk away or make you force them out and you will wonder why you waited so long.
Good luck,
T
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Jeff Gates
Investor · Cathedral City, CA · Member since 2014 · 481 posts · 170 votes
10y
Better to find a new tenant
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Stephen Hundley
Realtor · Lafayette, LA · Member since 2011 · 297 posts · 175 votes
10y
simple answer, no
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James S.
Detroit , MI · Member since 2015 · 40 posts · 15 votes
10y
if the tenant has not self employed and has a job id say have the tenant enroll into an auto payment program. sounds like the tenant just has poor money management. the US government used to have a terrible time collecting taxes when it used to have citizens pay up once a year but as soon as they started deducting taxes straight out of pay checks their financing problems went away. by the sounds of it your tenant is a good person and i would keep them but force them to auto pay on each paycheck. most bad tenants turn into good tenants as soon as they do this

also i am assuming you have only a single late fee, id change this policy. id implement a $25 extension fee if they dont pay within the first 3 days of the month and implement a $50 late fee after 1 week and a smaller daily fee for every day it is unpayed. if you enroll them in autopay you shouldnt have a problem collecting rent though. if your tenant makes over 3 times the rent amount ( wich im assuming he or she does) that tenant should be able to pay the full rent amount with 1 paycheck
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Roy N.Pro Member
Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
10y
Originally posted by @James S.:

...
also i am assuming you have only a single late fee, id change this policy. id implement a $25 extension fee if they dont pay within the first 3 days of the month and implement a $50 late fee after 1 week and a smaller daily fee for every day it is unpayed. if you enroll them in autopay you shouldnt have a problem collecting rent though. if your tenant makes over 3 times the rent amount ( wich im assuming he or she does) that tenant should be able to pay the full rent amount with 1 paycheck
James,
The Catch-22 is that such a program of late fees would be illegal in many jurisdictions.
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James S.
Detroit , MI · Member since 2015 · 40 posts · 15 votes
10y
Originally posted by @Roy N.:

Originally posted by @James S.:
...
also i am assuming you have only a single late fee, id change this policy. id implement a $25 extension fee if they dont pay within the first 3 days of the month and implement a $50 late fee after 1 week and a smaller daily fee for every day it is unpayed. if you enroll them in autopay you shouldnt have a problem collecting rent though. if your tenant makes over 3 times the rent amount ( wich im assuming he or she does) that tenant should be able to pay the full rent amount with 1 paycheck
James,
The Catch-22 is that such a program of late fees would be illegal in many jurisdictions.
Very true. Always check with local laws to be sure. My state does not have laws governing late fees nor does the city of detroit as far as I know. My General rule is 5% of rent after 3 days 10% a week after the first late fee
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@Michael Hayworth like the aussie's set it up weekly.. take ach each week.. there are 52 weeks in the year there are 48 weeks in 12 months.. think about it.. those Aussies they be smart.. I could never figure out why when I was blogging over there they always quoted rent in the form of per week :)
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