Should I renew the lease when tenant always pays late?

27 Replies

Hello BP Community,

I am new to real estate and this forum. I converted my primary residence to a rental property in October 2017. The house is in Los Angeles and the lease will be due in October 2018. From November 2017 to May 2018, the tenant had been paying rent late every month. June was the first month she paid on time. The rent is due on the first of every month. However, she always made the payment on the 5th, and there were at least three months she paid the rent after the 10th. I have been sending her e-mails to remind her the due date of the rent is the 1st, but I guess she has some cash flow issues that she usually cannot pay the rent on time. Overall, she paid all of her rent and 5 % penalty if it was kicked in. The timing of collecting rent has been a challenge to me.

There are four questions I would like to ask:

1) Do you think I should raise the rent on the upcoming lease? I think she is a good tenant, except for the fact that she made the payment late all the times. She stays on top of the house maintenance issues. She would contact me immediately if she notices anything that needs maintenance. She keeps my front and back yard very nice and I like her to be my tenant, except late payment.

2) If the answer of question 1 is yes, do you think raising the rent by $100 is appropriate? That means the rent would come from $3,100 to $3,200 for a one year lease, which is a 3.2% increase. My property tax increased 2.4 % last year.

3) Would it be unusual if I want to renew the lease as a 20 months lease instead of the typical one year lease? I heard there is a belief that doesn’t let your lease end in late autumn and winter. Since the renewal due date is October, I am afraid it may be hard to get new tenant during winter. In related to a 20 months lease, the new lease term will end at the end of May 2020. Do you think it would be a little too long for the tenant?

4) I am trying to renew the lease myself instead of having a real estate agent doing it. What should I pay attention to? I don’t think rent control kicks in since the property is a single family house.

Thank you all for the valuable inputs! I am glad to find this forum and meet all professionals here.  

She sounds like a great tenant. Is it worth the risk and expense of a turnover just to receive rent 5 or 10 days sooner? Not for me. I'd keep her in place. 

If the only complaint is that she pays late, then I would renew the lease, unless you're making your mortgage payments late because you aren't receiving her rent on time. Have you asked why she's paying late? Does she work on commission/rely on bonuses? If it's because she can't really afford the rent, then increasing the rent and keeping her doesn't seem like the best idea. There's another thread about keeping a good tenant who can't afford an increase in rent. Sometimes it's better having a good tenant and less cash flow than the other way around. 

For question number 3, I don't think the time of year for lease renewal matters as much in LA. I think that rule of thumb is more for states that get into the single digits and get 8 feet of snow every winter. 

First you dont sound like you are ready to do the lease without an agent. You still have too many questions and with a late paying tenant you could have trouble. For price what does the market say? Raise it to market and give a ' discount ' for paying ontime. A carrot for paying on time. She pays late and pays late fees? My guess is she is close to the max she can afford. That said if you need her to pay ontime figure on what vacancy will cost you before doing anything. You could also offer a shorter lease to see how it goes with ontime payments.

I agree with Colleen as I had a lot of success when  I wrote my leases with a discount for paying on or before the 1st.  My out-of-state management doesn't do that, so I've moved away from it, but I can't remember one late payment in the 4-5 years that I used it.   I would explain to  her that you think she is a very good tenant and prefer she stay but that you cannot allow late payments,  then set her up with a month-to-month lease with a small rent increase and let her  know that any future late payment past the grace period (so 5 days, I think) will result in you sending her proper notice to vacate.   If that solves the problem, wonderful.  If it doesn't, then you turn it over with another well-screened tenant at a higher rent, and stress that you do not allow late payments.  

@Lynn M. A good tenant pays on time. I would not renew. A tenant that pays late every month tells me that their are other things more important to them than paying rent on time. Hopefully you did a credit check as well as verified employment. I require 3x monthly rent in income. If they meet that requirement and still have trouble paying rent on time then I know they are overspending in other areas and rent isn't high on the list of importance. Food and housing should really be one and two. It won't be long before someone who pays late every time decides it's not a big deal to not pay at all. I don't want to sound heartless but they are putting you in a bad position by not paying on time. Just my opinion, but I rather find an equally good tenant who doesn't cause stress every month. 

Also, this is the very reason I don't do long term leases. I want the option to not have to renew a lease after a year if a tenant is not a good renter. 

Good luck! 

I’ve heard people in a similar situation offer weekly rent drafts to help a good tenant stay on track if budgeting & cash management are the issues.  Turnover is expensive. 

1. You absolutely must raise your rent every year. Your costs will increase every year. Not raising a tenant to market rent, regardless of what that is, means you are supplementing your tenants rent out of pocket. This is a poor business practice.

2. $100 is a arbitrary number. Raise your rent to market. Good tenants pay market rent.

3. M2M is the best option in regards to controlling your property and your tenants. Any term lease places your tenant in control of your property. Why care what your tenant wants, it's your business.  20 months is too long for a landlord with a bad tenant.

I personally never keep any tenant that I can not teach to pay on time every time. No tenant should ever be taught, or allowed, to ever pay late. This is a indication of a landlord not properly managing their business. Regrettably you do not have the ability to manage your tenant and would probably be better off using a PM.

I would inform this tenant now that I will not be renewing their lease if they pay late again and, assuming they do pay on time, I would put them on a M2M lease that would be terminated if they ever pay late again.  You created the problem now you either fix it or live with it.

I am about to send a Notice to Vacate to one of my inherited tenants.  Primarily because every.single.month., without fail, I have to text her asking about the rent.  Usually twice because she doesn't respond the first time.  It is always at least a week late.  And then, if that were not bad enough, she'll often cop an attitude with me about it.

Yes she always pays...eventually.  And yes she takes care of the house fine.  But it is just not worth the hassle to me, especially when there are so many great tenants out there.  In this case, I'm planning to fix up the house and sell it.  However, I would have been happy to have had her as a tenant for many more years if she had a sense of responsibility and wasn't so difficult to work with.

For a little background, she's actually been my tenant about 3 years, though I bought the house with her living there.  But S8 was paying 90% of her rent for the majority of that time.  Then in this last year, (I think) her p/t job went to f/t, and now she is responsible for 75% of her rent.  It was a huge jump and I was very concerned when it first happened.  Apparently for good reason.

I hate to be the bad guy but You have allowed this to fester into the problem it is today . It is like giving a dog a biscuit every time it craps on your carpet . Use this as a learning experience and rid yourself of this woman as soon as possible. Permitting tenants to be late is training them that it’s okay to do and as a result you lost the power position early on

@Chris Szepessy The tenant is a self employed tour guide working in the travelling industry. She is usually having tours out of town. She told me she was too busy to check her emails during tours even though I sent her 3 emails for late rent payment. Another time is related to switching bank accounts. I can tell she has some cash flow issues due to the industry's peak and slow season. When I reviewed her bank statements through the process of lease application, I saw her bank statements had a lot of cash coming in and out in the same period.  The reason why I think about increasing her rent is if she cannot afford the higher rent, she would move out herself and I will find another tenant. The fact even though she is late most of the times, she paid her rent and 5% penalty if I did not receive the rent by the 5th. I am more like neutral about her staying or leaving.

@Keith Smith I hired an agent to screen the applicants at the beginning of the process. We ran her background check  and her credit score was over 700. Her income reported on her last two years tax returns were over $130K, which is more than 3 times of rent payment. Accordingly, she met the requirement. She was willing to pay two months rent in advance to get the house. But I only took one month rent based on my agent's recommendation. I knew her son is going to a private school. 

I completely agree with you we should have good tenant. I totally lost sleep during the period when she paid the December rent on January 15th. I will think about doing month to month lease with her. 

@Cathie Kovacs This could be a good idea, but sounds a little time consuming. I would agree turnover is expensive and now I am at a point of having a turnover or having a relatively not good tenant

@Thomas S. @Dennis M.   I hired an agent to run the screening process, and she is a qualified candidate since her credit score is over 700 and her annual income is 3 times more than annual rent. I started self manage the property once the tenant moved in. The due date is the 1st, but the penalty won't kick in until the 5th. My approach is if I did not receive the rent on the 3rd, I would send her an email, the following is an example:

"This is a reminder that monthly rent is due on the first of each month. Therefore, January rent is due on January 1st, today is January 3rd and I still have not received the rent. Please note the rental agreement states that a late fee of 5% of rent will be assessed if the rent is not received within five calendar days after the due date. Please send the check to XXXXX and contact me at XXXXX if you have any questions."

I always sent her multiple emails, one is on the 3rd to remind her, another one on the 5th to charge 5% penalty, another emails if I don't receive any response from her after the 8th. 

Since you guys have property management experience, what would you do if your tenant meet the requirement to be a qualified tenant, but they start paying rent late on the second month, and they still pay the rent late even though you sent them two to three emails every month to remind them paying rent? Since the lease just started and they already started paying late in the second month, would you terminate the lease immediately and have a turnover less than one year? What would you do to deal with this situation? I would like to pick your brain on that. Again, this is my first rental, I know I have a lot of room for improvements. Thank you!

Analyze your budget and ask yourself, "Are the late fees contributing to my cash flow?" If they are otherwise good tenants then its probably a safe bet, and should act on the opportunity to capitalize. 

I would increase. I don't like tenant turnover but if it is always late anyway and you have reserves to cover it, take the late fees. They aren't a great tenant so if this makes them move of their own volition great, otherwise keep collecting those late fees. Is the late fee capped at 5% there? Do you have to wait until the fifth? When you sign a new lease maximize the late fee to whatever is legal and minimize the grace period. I used to have grace periods but after a year or so I learned my lesson. If it says no late fee until after the 5th, guess which day my tenants paid?

@Peter M. You are totally correct. I have a feeling that the tenant intentionally not pay on the 1st and pay on the 5th since the penalty won't kick in until the 5th. 

The penalty is capped at 5%, hence, it does not matter to her whether she is going to pay on the 5th or 20th. I am thinking about adding daily penalty after the due date, so it could have an incremental warning impact to the tenant. 

I believe you can train your tenants to pay on time by being very clear about when payments are due... which is the 1st of the month - and it comes around exactly the same time every month so they don't need to worry about checking email when they're on a trip to see if it's time to pay rent.  You can also train them that it doesn't matter by being too casual and not enforcing your lease with exactness.

If you have a grace period of (5) days, you should send a notice to pay or quit on day (6) and assess a Late Fee that is sufficient to motivate on time payment - something like $50 - $75 and then a daily late fee of $10 per day (subject to Landlord Tenant Laws in your State).  A fixed 5% penalty doesn't increase the pressure to make the payment before the end of the month, you want to increase the pain point each and every day your tenant is late.

I would be willing to renew this tenant with the understanding that I expect payment to be on time.  The suggestions of an incentive or small discount if paid early might be something worth trying but I wouldn't make it very big, maybe $25 - $50 if paid before the end of the month.  If payment was made on the 1st per the lease I wouldn't give a discount.

I would not do a (20) month term with any tenant, especially not one I was having trouble collecting on time rent from.  I personally prefer (12) month lease terms but in the case of this tenant a M2M lease might be the best option.  You could explain that if she continues her late payments you will not allow her continued tenancy, if she pays on time for 6 months you might be willing to reconsider a bit longer term... but not more than (12) months so you can raise the rent to market... and you want to do that every time you can.

Don't worry about timing your lease expirations, I believe LA will be very similar to my market (Phoenix) and it doesn't matter what month a property becomes available, we always have plenty of potential tenants to quickly fill our vacancies... usually in less than a week.

Good luck!

Grace period ? What is this but a window of time for her to take advantage of you each month without consequences? . You have allowed this is take place . Why do I keep hearing how she’s a good tenant ??Look A tenant that pays late is not a good tenant ! Do you really want to chase after your money every month with this fool ? Are you that desperate that you’d let people exploit you consistently . I hope not

It never fails to amaze me how many people in the Continental US don't realize that California does not see the four seasons lol. It's  a hot in the summer and then it cools down a little and then the leaves fall off the trees, then it warms up again and the leaves grow back. I for one had no idea how beautiful each and every season is outside of Cali. One of the reasons I'll never go back!

    I've been in property management for over 40 years. You have a responsibility as a landlord to screen your tenants credit, background, their lease application, and now a days, their social media profiles. Don't ever lower your standards, not that who have much to worry about what I'm about to say, since you're only own one rental, but say you owned every other house or more on that block, or even several blocks on several streets, and you lose your back bone and let one tenant slide, and guess what you just did? You just gave the okay for all your tenants to do the same thing. Poor management doesn't keep good tenants for long periods and have more frequent turnovers. Poor landlords with little or zero skills in marketing their vacancies get nervous when their rentals sit vacant, and the longer they sit, the more nervous they get and then they do the worst thing they could ever do and lower their standards and out of despair and hopelessness they become super marketing landlords and plaster for rent signs on every telephone pole, supermarket, parked cars in parking lots, on their property's front yard, in the subway stations, newspapers, etc. And because they needed these units released like two weeks ago (or longer), they offer and even outline in bold raised and even highlighted rainbow colors waiving last months rent and sometimes even waiving first and last, or last and security which is even more brainless, just to get how ever many vacancies they had filled fast. You've now branded yourself to the public that you have the cheapest move-in costs in town and who's eye did you catch with all this last resort mercy publication? Prospective LOWER CLASS tenants only. And now that you let one coachroach in your building, you have to let them all in right, gotta treat everyone equal. Your buildings her tore up, you don't have security deposits to repair your units, so you market them as filthy and damaged as when they were vacated. Now you've just had a county appraisal and now your property has a PR in the condition box. From there, like an airborne disease, the infestation spreads to all the other properties, crime rate goes up, drugs being deal in the alleys and the street corners, drug deals fone bad, shootings, murders. Then any higher class home owners or rental income property ,owners sell and relocate to a better, safer part of town. 

    Don't be the landlord responsible for turning an upper-middle class development and/ or community into a depreciated, valueless lower income crime infested project.

     It's been proven since the beginning of the human race, that we can each be taught, and that we have the ability to learn through coaching/ discipline. The graduating sliding late fee is the perfect strategy in correcting the behavior of a habitual late rent paying tenant. Offering a small reduction or credit in rent for posting rent payments prior to it's due date of the 1st of every month helps reinforce your tenant the practice of paying rent on time. Assessing your 5% late fee for rents paid after the 1st through the 5th, and then subject to $10-20 per day thereafter up onto the 10th of the month at which time rent still remains unpaid, tenant is served a three day notice to pay or quit as stated in the lease agreement. ALWAYS PROTECT YOUR ASSETS and clearly state clauses that subject your tenant in violation of your lease agreement. State that any violation in the written lease agreement gives you, the landlord the right not to renew lease at which time rent will be increased at a certain percent. Whenever your tenant has successfully terminated their lease with no violations, you reward them with only a small increase in rent to accommodate annual cost of living for another term of 12 months. Offer them a 6 month at a slightly higher percent rent increase, and increase at the highest percent on your units continuing to lease only month to month which can be subject to monthly rent increases. Try to get your good tenants LOCKED IN and your bad tenants locked out. But before all else, first try to  correct poor tenant behaviors. Locking in tenants is less stress, assuarity that you will get that 12 months of payment for the duration of the lease.

              Good luck in Landlording,

                        James

I still cannot grasp the concept of booting a tenant who is great in all aspects aside from paying consistently 5-10 days late. If everything else they do is acceptable (taking care of the property, phone calls & maintenance requests only when warranted etc) how does it benefit you to get rid of them?

If you and I are managing identical houses with identical tenants who pay 10 days late every month and you evict your tenant and I keep mine, who has more money over the course of a year? I do.

Shooting yourself in the foot to prove a minor point never made any sense to me. Do you want to be right or do you want to be rich? I'd rather be rich.

I agree with you Ryan, however, we are taught at a very young age that it's important to not be late for  school and if we are, there's consequences. This routine of k-12 five days a week not only educates us, it serves as a daycare, and it preps us for the same basic routine of getting up in the morning and getting ready for work and clocking in on time, or there's consequences. 

    When I implement my lease agreements I expect every tenant to respect me as a landlord as I respect them as a tenant. While it's greatly appreciated that they caretake my personal property that they lease from me, they sign their name and initial that they acknowledge and are capable of complying with my rules and my expectations from each and every one of them for being my tenant. not abiding by my simple request to submit their monthly lease payment on or before the 1st of every month as outlined is disrespectful to me and as a consequence for violating our contract, I'm going to capitalize on it earn some extra income. And if you continually do this I'm perfectly fine with your choices, however, I'd rather see my tenants better themselves and not have to fork out extra money every month that I seriously doubt added to their monthly budget. By rewarding tenants a discount in their monthly lease for paying prior to it's due date, helps them to get back in step with business practices. This has proven successful to me as a landlord to receive my rents on time not just from one tenant, but all of them. Sure there's times things in life pop up, bit in reinforcing them to be accountable, they can learn measures to steer away from those obstacles. 

    When your working with a large number of units managed by a moderate number of paid employees who make up the property management team, there's a daily, weekly, and monthly schedule when certain processes and duties are performed. And there's property management companies who employ their CPAs full-time in the management office and assign other duties when processing all the rents usually on the 6th, and theirs companies that subcontract their CPAs for eight hours on the sixth of every month. When tenants are late paying rent, guess what, I just had to pay out of my pocket to have that CPA enter that late rent payment Into the books.

@Sharon H. I figured you probably did do a credit check and that's even more concerning. She makes plenty of money but yet can't pay rent on time. Paying rent clearly isn't a top priority to her and that's scary. I see what @Ryan Murdock is saying but I just completely disagree. If someone is consistently late then it's more than likely they continue to pay later and later until they may not even pay at all or start trying to give you partial payments. It shows a lack of responsibility and maturity. We're running a business. If you pay your mortgage company late every month they don't say, "well they're good homeowners in every other way except paying their mortgage on time."

In Tennessee we do have a 5 day grace period so some tenants literally take that as rent is due on the 5th, not the 1st. If they pay on the 5th, I don't worry about it because they're paying on time essentially.

I don't know how you accept rent but if you use something like Cozy, ask them to set up automatic payments. I like it because I can see the tenant has it set to pay automatically and it shows as a scheduled payment on my dashboard.

Obviously people on here have different opinions and you just have to do what's best for you. It's just my opinion there are two things that make you a good tenant, paying rent on time and taking care of the place. If you're not doing one of those, you're not a good tenant. Plus, I don't want the stress every beginning of the month.