How do you structure your late fees?

General Landlording & Rental Properties
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How do you structure your late fees?

Brian Barfoot
Realtor · Minoa, NY · Member since 2015 · 125 posts · 56 votes

I'll start by saying: I know I'm too soft on the tenants. 

We have a late fee in our lease of $25 for rents that run 1100-1200 per month but it's a one-time fee no matter how late they are. I also have a bad habit of forgiving the fee if the tenant is proactive about telling me why they're going to be late. I know all about training tenants and may have to do what Brandon was talking about on the podcast this week and hire someone to be the mean guy for me. That said:

How do you all set up your late fees? Is it one time or daily and compounding? How much grace time do you give? Do you grace by postmark or arrival date? 

It's time for us to get better at this since we're starting to be taken advantage of.

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Michael Noto
Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
9y

@Brian Barfoot A $25 late rent fee is not going to make anyone think twice about paying rent late.  We ad a 10% late charge if the rent is not received by the 10th of the month which in CT is when rent is considered "late"

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  • Rosston Smith
    Investor · Warner Robins, GA · Member since 2015 · 1k+ posts · 490 votes
    9y

    My late fee is 10% of their monthly rent. A $25 late fee is way too low.

    I recommend having an additional amount ($10) added on for each additional day its late. Example

    $500 / mo rent
    Day 1 late - $50
    Day 2 late -$60
    Day 3 late $70

    After that pay or quit, then eviction.

    1Reply
  • John Thedford
    Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    9y

    I offer my tenants a $100 discount for early payment if it is postmarked by the 5th

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  • Matt H.
    Real Estate Broker · CA · Member since 2016 · 243 posts · 226 votes
    9y
    8% of monthly rent after the 3rd. I give one freebie per 12 months if you let me know in advance. I also inherit a lot of lease and they are all over the place.
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  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    9y

    There may be state laws limiting late fees. In MD it is 5%

    1Reply
  • Brian Barfoot
    OP
    Realtor · Minoa, NY · Member since 2015 · 125 posts · 56 votes
    9y

    @John Thedford, what are your rents? I assume you artificially inflate rents so that you get your desired cash flow if they pay by the 5th and then anything else is gravy?

    @Rosston Smith How soon before the fees kick in? Day 1 (ie rent is due on the 1st so 2nd arrival means $50 fee)  

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  • Rosston Smith
    Investor · Warner Robins, GA · Member since 2015 · 1k+ posts · 490 votes
    9y
    Originally posted by @Brian Barfoot:

    @John Thedford, what are your rents? I assume you artificially inflate rents so that you get your desired cash flow if they pay by the 5th and then anything else is gravy?

    @Rosston Smith How soon before the fees kick in? Day 1 (ie rent is due on the 1st so 2nd arrival means $50 fee)  

     If rent is due on the 5th, late fees begin on the 6th, and additional $10/day starts on the 7th.

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

    @Brian Barfoot

    If the minimum desired rent is $1100 I write the contract for $1200 per month and give the tenant the incentive to pay early and save $100. If they don't pay early that increases my ROI but my intent is to get rents early without problems. Sometimes it works and sometimes it doesn't. Also, sometimes courts have not enforced late fees in many cases so in the event I do find myself in court attempting to collect they won't refuse to grant the full amount of rent due. I haven't had this tested in court yet. Many local courts have definitely refused to grant the late fees.

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  • Michael A.
    Investor · Richmond, VA · Member since 2016 · 164 posts · 114 votes
    9y
    I'm in VA, and we charge $50 if paid 5 days after it is due. State law does not cover late fees. If nothing is mentioned in the lease we are not allowed to charge one, so we try to be very clear in our leases. We do not charge a returned check fee, which is limited to $50 by state law. Dialogue and communication is very important to us. We're all humans who encounter the same ups and downs. I would rather work through the problem and strengthen our relationship with someone as a first course of action. Last resort is to threaten eviction, etc.
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  • Brian Barfoot
    OP
    Realtor · Minoa, NY · Member since 2015 · 125 posts · 56 votes
    9y

    @Michael A. I feel the same way in general. I'm not a major investor (four properties at the moment) and all of the tenants are people I like on a personal level. I have it very clear in the lease about the late fee and we have wording that they will pay our lawyer fees if we have to take them to court which can be a good incentive. I would rather have happy and slightly late tenants than angry and prompt. 

    Thanks for the responses everyone.

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  • Michelle Fenn
    Real Estate Agent · Cleveland OH · Member since 2015 · 216 posts · 275 votes
    9y

    City of Cleveland Oh limits me to 5% of rent and thus that spills over to my suburban rentals as I do not want any issues with Fair Housing.   I allow one late payment per year with notice and thereafter I require late payment fees.   Rent my be direct deposited and is later on the 6th.  Tenants with consistent late payments even with the late fee payments, will not have their leases renewed.  

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  • Steven J.
    Urbana, IL · Member since 2012 · 1k+ posts · 425 votes
    9y

    Check with lawyers/judges in your area. They may have a limit on the late fees that is applicable. In my area, for example, they cap it at 10% of the rent rate. Its less than we charge for late rent but late rent generally gets paid. 

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  • Steven Anderson
    Investor · Spring, TX · Member since 2015 · 126 posts · 38 votes
    9y
    Rent is due on the 1st, late on the 5th. On the 5th it's an $85 fee and it's $20 per day thereafter.
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  • Shawn AckermanPro Member
    Real Estate Entrepreneur · Mid West, East Coast · Member since 2015 · 3k+ posts · 1k+ votes
    9y

    @Brian Barfoot there are a number of ways to set up late fees with your tenants. However YOU MUST follow through on what you set in stone otherwise you run the risk of losing control of your business.  Also I'd take into account the tenants finances before setting up you late fee schedule.  Incentives for paying early is a good way as @John Thedford laid out, however if you must go on the back end, $50.00 if paid by the 5th(4 days late), then a 5 day pay or quit notice, then a formal eviction notice if rent is not paid by the 10th.  In my market you can evict easily so there is a good deal of leverage setup by the landlord tenant laws.  

    1Reply
  • Michael Noto
    Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
    9y

    @Brian Barfoot A $25 late rent fee is not going to make anyone think twice about paying rent late.  We ad a 10% late charge if the rent is not received by the 10th of the month which in CT is when rent is considered "late"

    2Reply
  • Ian WalshBusiness Member
    Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    9y

    10% after the 5th

    0Reply
  • Rick SantasierePro Member
    Real Estate Broker · Granby, CT · Member since 2015 · 695 posts · 317 votes
    9y

    @Brian Barfoot.  @John Thedford is on to something.  I have used this strategy for years.  Where if the minimum amount of rent to be received = $1,000, the lease is drawn up at $1,050 or $1,100, with an incentive (reduction, bonus, whatever you like to name it) to pay on or before the 1st of the month.  @Michael Noto mentions CT and the "late fee" as it relates to the law.  This is also extremely important to follow based on your states' landlord/tenant law.  In CT, not being "allowed" to charge a late fee until the 10%, but being able to file a Notice to Quit on the 5th, and a full eviction on the 11th, doesn't really make much sense.. The way our law is written is that on the 10th, the person CAN be charged a late fee, but then on the 11th you can officially evict. Create a system that works for you and your state.  The incentive thing is a great discussion "up front" with your brand new tenant.  It is the best way to educate them on the importance of rent being due on or before the first of the month.  I know most people don't want to have to pay another $50 or $100 just to pay their rent a few days late.  Although, I do have some habitual tenants who just like to pay on the 10th.. More $$ for my investor, which makes me look better (for his ROR), but it sure does add some headache for me. Good luck with whatever you decide.  

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

    @Rick Santasiere

    Headache! You have that right. Just had the pleasure of driving 80 miles to post a notice to pay or vacate. I WISH these people would pay on time. Most of my tenants like that early payment discount and take advantage of it. Late fees can be tricky so the OP needs to know their state laws (we all as landlords need to know our state laws). Print out your statutes and stick with them. You can't go wrong being "legal". 

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  • Jim Adrian
    Architect · Papillion, NE · Member since 2015 · 1k+ posts · 840 votes
    9y

    I have a flat $50 late fee after the 5th.  Its too hard to deal with different dollar amounts each day.  Keep it Simple!

    0Reply
  • Brian Garlington
    Realtor · Oakland, CA and a Real Estate Investor with Multi-Family Units and a Self Storage Facility · Member since 2016 · 2k+ posts · 2k+ votes
    9y

    Rent is due on the 1st. It is considered late after the 5th. $50.00 late fee if not paid by then,....and $10.00 per day late fee afterward.  

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  • Keith Willey
    Investor · Tampa, FL · Member since 2016 · 26 posts · 6 votes
    9y

    We charge $20 per day after 3rd day of month. We go further to state that any payments given go to late fees first and to rent last, so the tenant needs to pay in full to have the daily fees stop. 

    We are in Florida market... and to be fair, we do work with some tenants but we always try to have them pay something so we can condition them that it will cost them to be late.

    0Reply
  • Mark Radford
    Investor · Indianapolis, IN · Member since 2013 · 80 posts · 64 votes
    9y

    No statute in Indiana law re: late fees.

    Our lease says 20% if received after the grace period. The properties are in a nicer area and we generally get young professionals who pay on time but we have enforced it and collected.

    0Reply
  • Curtis BidwellPro Member
    Rental Property Investor · Olympia, WA · Member since 2014 · 781 posts · 744 votes
    9y

    I charge $50 + $5/day. Rent is DUE on/before the first. So technically it is late on the 2nd. however we require it be received by us no later than the 5th (not postmarked). If they are late, fees accrue from the 2nd day of the month -the day it was late. 

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  • Lee Smith
    Residential Real Estate Broker · Indianapolis, IN · Member since 2009 · 477 posts · 304 votes
    9y

    We used to brag about our late fees.. Our old policy was due on 1st, late on 5th, and $25 on the 6th, and then $10-25 a day depending on the rent..  Tenants would get upside down and couldn't catch up..


    We switched to Zero-Tolerance policy. Due on the 1st, and $5 a day late fee. On the 2nd we send them a pay or quit notice, and tell them they have 3 days to tell us if they are going to pay or leave.. Our email on the 2nd says: If we don't hear from them in 3 days we will start eviction, and we don't stop eviction... 

    We have gone from lots of people being late, to 1-3. Of those who are late, they all pay by the 9th including late fees.  If they know they are going to be late they may say "I can have the money by the 9th!" If we are okay with that, we tell them "OK, *YOUR* plan is to have the money to us by the 9th. If we don't have it on the 10th, we start eviction proceedings, and there's no going back once we start that..."

    We've been doing zero-tolerance since January, and we get almost all of our rents by the 1st now.

    I prefer to give my money to charities.. My tenants are NOT my charities... Of the people we evict, most of them leave nicely. Our average switchout with a bad tenant is $500 in repairs.

    2Reply
  • Allison Ledee
    Wholesaler · South Bend, IN · Member since 2015 · 28 posts · 15 votes
    9y

    @Brian Barfoot 

    Hi Brian,

    Great question!  We charge a $50 late fee if rent comes in after the 5th, it is due on the 1st so there is a grace period.  We have occasionally had tenants pay later without a fee because they communicated with us ahead of time letting us know something has happened and they would be late.  And let's face it, life happens sometimes, and no one is an exception to that.  With that being said though, we make it very clear to our tenants that they are not to make a habit of it or late fees will not be waived. However, we make sure to remain respectful as we want to treat our tenants with the same respect we expect from them.  It sounds like you may need to hire a management company, just make sure it is a reputable one as you don't want upset tenants. Unfortunately too many people look at tenants as just dollar signs and don't work on building good working relationships with them.  Just be sure that you set clear boundaries with them and let them know what you expect.  Best of luck to you!

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  • Mindy JensenPro Member
    BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
    9y

    @Brian Barfoot , I've seen several responses that say rent is due on the first and late on the 5th.

    Nope. Even with a grace period, rent is due on the first and is late on the second. Check your state landlord tenant laws to be in compliance. Some states limit the amount you can charge. Some dictate a mandatory grace period. However your state handles it, you should post a pay or quit notice on the very first day you are legally allowed to do so.

    Your mortgage holder doesn't allow you to pay late.

    I do feel that it's a different story for someone who has paid on time every single month, then had to get all new tires or was in a car accident or some other unexpected expense and they are asking for an extension well in advance of rent being due, vs someone who is consistently late with no reason or warning.

    But even in the case of the on-time payer, I'd give them a warning if you decide to waive the fee. "I can only waive the late fee one time. I appreciate your giving me a heads up, so I'll waive it for you, but if you are late again in the future, I will have to charge you."

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