State Caps Late Fees, What About Early Pay Discount?

2 Replies

My state caps late fees. For some price points, this means a late fee is a pretty weak motivational tool.  What if I instead offered an early payment discount?  So lets take a property at $1,000/mo.  My max late fee is $100.  What if I instead rented it at $1,100 with a $100 early payment discount, plus a $110 late fee?  

Pros:  I can effectively charge a late fee on day 1 of it being late instead of the state mandated 5 day grace period.  

         I can set the penalty at what makes sense to me.

Cons:  I might have more difficulty getting a tenant into the property, because I would need to advertise at the full rate (I think)

          There might be laws against me setting it up like this (though I doubt it).

Has anyone structured things this way?  If so, does it work the way I think it does, or is it an idea that doesn't really pan out in reality?          

Run it by an attorney. I've heard of this idea, but I think any state that is tenant friendly enough to restrict late fees, also has the potential to view your "discount" as a late fee in disguise.

I agree with @Andrew B. what you are proposing is a hidden late fee factored into the rent.  It will depend on how it is structured. You can give an early pay discount, but to give a discount for paying on time will raise eyebrows. 

Another option is to offer an annual discount based on payment history.  Example:

six months of time payments will provide a discount on the 7th month rent. In your case, instead of offering $100/mo discount (10%),  you offer them 50% discount on the 7th month. Do the math, the money is the same