Discount rent for on time payments.

53 Replies

Hello

We all like to receive rent on time. With that in mind, I had a thought of advertising rent slightly higher than I need and offering a discount for payments made on the day I want it. For example if I need $860/month due 1st of the month, I then advertise for $870/month with a $10 on time discount for payments made on the 1st.

Department stores use a similar strategy where they mark up an item, then have a "sale" on it at regular price. It seems logical but a bit unethical at the same time.

Is this a good idea and something people commonly use in real estate? Or deceptive and unethical?

Any advice, thoughts or opinions would be fantastic. Thanks!

Originally posted by @Mark Lira :

@Don Konipol

To there perspective they are gaining by paying on time rather than punished for being late.

No they're not.  Besides, I would never give anyone a discount for doing what they are supposed to do...and signed a contract that guaranteed it.

 

It's part of their contract to pay on time. I believe if you can rent the property for $870 a month then it should all go to you. Not sure if you'd receive any benefit from this but you can test it out.

Originally posted by @Mark Lira :

Hello

We all like to receive rent on time. With that in mind, I had a thought of advertising rent slightly higher than I need and offering a discount for payments made on the day I want it. For example if I need $860/month due 1st of the month, I then advertise for $870/month with a $10 on time discount for payments made on the 1st.

Department stores use a similar strategy where they mark up an item, then have a "sale" on it at regular price. It seems logical but a bit unethical at the same time.

Is this a good idea and something people commonly use in real estate? Or deceptive and unethical?

Any advice, thoughts or opinions would be fantastic. Thanks!

I hear what you are saying and I like it. I'd bump it a little higher; $10 won't buy much these days.  

@Mark Lira

I think it could also backfire...if they’re a little short there’s not much stress to just not pay on time, ya know? “Eh it’s $10 screw it I’ll pay next week.” Just a thought.

Morning:

You have a good idea, but what is the win win if they are simply doing what they already committed to do?  On the Bigger Pockets podcast a couple of months ago, one of the investors tweaked the strategy.  

Discount if paid before the 1st

Standard rate on the 1st

Late Penalty after the 4th

Try it with your next tenant, what is the worst that could happen?  You are going to get paid.

David Spatz

Here's what my landlord (property manager) has found ...

When it comes to the point of eviction, the judge always awards the amount of the rent due - no discounts. Where as, had there been a late penalty, the judge does NOT award that in the judgement against the tenant.

For example, if the rent is $900/mo with a $100 on-time discount, and tenant is three months late, the judge will award $2,700 in the judgement against the tenant. However, if the rent is $800/mo with $100 late fee, the judge will award only the back-rent of $2,400 and not the $300 in late fees.

So, by "doing the unthinkable" you actually come out ahead.

That's here, of course (Northern Illinois outside of C(r)ook County). Your local situation may differ.

I tried this for the first time on one of our properties recently, I increased the rent  $50 over what I wanted and prominently advertised the discount of $50 to pay before the 1st and yes there is a late fee if it’s late.  So far (6 months) rent has been paid before the 1st each month.  

@Mark Lira

I do it. But I do MINIMUM $100 and often $200. Ads say "rent price includes applicable discounts". Why? Because it allows me (not me, my on site guy) to have the following conversation at lease signing:

T- “but the ad said $1,000 rent and this lease says $1200!!”

L- “yes, but this form over here that we’re going to sign says that as long as you pay by noon on the 1st you instantly get $200 off so you pay only $1,000. You will NEVER pay $1200 unless you pay late, and we can even set you upon automatic debit so you don’t have to remember anything just to be sure. Are you going to pay late?”

T- “....no... “

L- “perfect. Because if you were worried about paying late I couldn’t rent to you.”

Framing it this way helps me screen. It also brings the pain/ punishment if they screw up. And since the lease reads $1200 the banks like it also. I always send along ALL docs including the instant rental discount form at qualifying time but I suspect most lenders skim those docs at best.

I love it!!

I have a tenant who pays their rent at the last hour of the 5 day grace period even though their rent is due on the first. I end up writing up an e-letter in preparation for them being late the night before and low and behold, they've submitted their payment literally within the last hour before their late payment actually kicks in. I’ve communicated to the tenant that the grace period is in place as a convenience not as an alternative to the due date of the 1st and yet it’s still an on-going occurrence.

I’ve been trying to figure out how I can give incentive to getting the tenant to pay their rent on the due date while allowing the grace period should a real emergency come up followed by a late fee should the extend past that.

@Mark Lira I think what he means is that lets say rent is dues in 1st til 4th you get a discount if u pay the 1st. And after that penalty honestly not a bad idea.

The instant discount agreement also states that the second time it happens the non-discounted Rent becomes standard for the remainder of the term. So one screw up brings the hurt, and two makes it permanent hurt. I’ve had a handful of of first time offenders and not even one repeat offender. That’s little over a decade and 12 units.