Renewing lease on late-paying tenant? Increase Security Deposit?

Question

We have a townhouse that rents for $1,100/mo in Birmingham.  Professionally managed. We live out of state.  Signed new tenant in July of last year always paid on time.  Beginning in Jan of the tenant started to get 15 days late on the rent.  The lease has a $100 late fee split between the PM and us.  The lease is up in four months.  Here is my question:  Should I just refuse to resign the lease or just ask for a bigger security deposit with renewal (like $3,300?).  Reason I ask is that the PM will charge one month rent to find a new tenant plus vacancy and I figure asking for that big payment will cause the tenant to really ask herself if she can afford to stay there.

Brandon Sturgill · Answer

@Michael Zagorsky you may be hard pressed to get that large of a deposit from a tenant that is struggling to pay rent as is...a couple thoughts if you decide to renew:

1) go month-to-month so ending the tenancy is easier if she fails to pay rent in the future... (simply elect to not renew with a notice period you specify)

2) collect rent on a more regular basis...I find that a lot of folks have difficulty budgeting for an entire month, so I collect rent via direct deposit every two weeks...

3) as a last resort to avoid costly turnover, reduce rent to a figure that she can meet that still alows you to cover expenses...once she demonstrates ability to say...pay $950 for two months, raise rent to $1,000 a month for a couple months...then go back to full rent...

It would also make sense to verify if she has had a change in financial circumstances and can no longer afford the rent...if that's the case, it doesn't matter what you do...she will continue to fall further behind on payments

Deanna McCormick · Answer

So your collecting 50 % of late fee extra every month.. so that's an additional $50.00 income.

Choose your poison.. you either renew and put up with tenant that will pay the late fee for an additional term as they are now.

Or, if you decide not to do that you will be having a unit that will be vacant in 2 months and will incur turn costs and vacant fees and rate to PM for finding new tenant..

If it were me I'd do an inspection of the unit before offering a renewal.. it's the renewal inspection. that will let you know if the unit is being well taken care of so you'd consider giving a renewal schedule 2 weeks prior to renewal due date to be done. Have your PM take photo's and give you a idea of condition of current status of unit.