The Dalles, OR · Member since 2017 · 12 posts · 15 votes
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 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.
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.
Don't know where your properties are but here in Georgia, a "grace period" is not required. So you can have rent due on the 1st and it would be late on the 2nd if that's how you wrote the contract. If you have a 5 day grace period (pretty standard) any time within those 5 days is going to be considered "on time" by both the tenant and landlord. (our late fee doesn't kick in until the 6th and then escalates from there.
Investor · Member since 2019 · 17 posts · 11 votes
6y
I think it is a good idea as long as the rent on the first is a market rent. If I counted correctly, 3 people have tried something like this and it worked for 2 of the 3. The third person (@John Pierce) apparently accepted the reduced rent on the 5th. In my mind, if they paid the discount rent on the 5th, then they actually did not pay the full rent and they then would need to pay a late fee + full rent. Since some states require a 5 day grace period, it also seems possible that a judge might think that the owner is actually renting for the discount price and trying to get by without a grace period.
Contractor · Nashville, TN · Member since 2014 · 1k+ posts · 1k+ votes
6y
We use the "pay by the first" discount as well as a late fee. It's basically two late fees, but it incentivizes them to pay by the first rather than the 3rd or 4th. Plus, the problem with a 10% late fee is that as soon as the grace period ends, there's no penalty for another 30 days. What's the point in paying on the 7th if that's their pay day if the next late fee isn't for another month. As another person said, make sure it's a good bit more than $10. $50+ probably.
Rental Property Investor · Portland, OR · Member since 2018 · 45 posts · 10 votes
6y
@Mark Lira me personally I would rather they pay late so I can get that 10% late fee. It’s all the same to me as long as it s paid before I goto the courthouse.
Professional · Parsippany, NJ · Member since 2013 · 384 posts · 262 votes
6y
I get where you are Going with this. I have dealt with late rent and it is obnoxious. Unfortunately, in this case it looks they are doing you a favor by paying on the 1st of the month and they should be rewarded for SAID behavior. Paying on the 1st should be MANDATORY!!!
Rental Property Investor · Concord, GA · Member since 2015 · 3k+ posts · 3k+ votes
6y
I agree that if late fees don't escalate, there's no urgency to pay them or the rent. Our late fee is $75.00 on the sixth plus $10 for every day past that.
Rental Property Investor · San Diego, CA · Member since 2010 · 366 posts · 314 votes
6y
In CA even late fees can be a problem (courts don't acknowledge them in evictions). There is also a mandatory grace period.
My guess is that the person had a problem enforcing the discount also didn't file an "insufficient rent" notice to the first person, he or she told everyone else & the rest just took advantage. As far as they "why not pay until the end of the month" the answer needs to be that because at 8am on the 6th day there is a 3 day pay or quit notice handed to the tenant in person or posted prominently on the front door.
Property Manager · Brooklyn, NY · Member since 2016 · 10 posts · 2 votes
6y
I think that giving a discount for paying before the first, would cause less problems for the landlord, then giving a discount for paying on the first, becouse on the first rent is mandatory, and by giving a discount is will represent the opposite.
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
6y
@Mark Lira really there is no difference between charging a late fee and giving a discount for paying on time. You are basically charging a late fee on the second, but doing it in a way that is unnecessarily complicated. It is just hiding a late fee as a discount.
I don't like this approach simply because it is outside industry standard how rent is paid. Industry standard rent is due on the first with a few day grace period before late fees occur. There are two reasons I like being consistent with the industry:
1. Tenants are used to industry standard. It avoids confusion by not trying to explain something new to them. You can end up with more tenant disputes by doing things outside the ordinary. I could easily see rent appearing on the second and the discount being taken anyways.
2. If you end up in court, doing things outside the standard method can become a problem. The judge could take issue with a pay on time discount and late fee. It really just appears to be two late fees.
People who are doing the early pay discount think it is helping them, but it is no different than having late fees start on the second. Whether you call it a discount or late fee, it is ultimately a penalty for late payment. Either way it is a "stick" and not a "carrot". Tenants are smart enough to know it is the same thing.
Rental Property Investor · Baltimore County Maryland and Tampa Florida · Member since 2013 · 2k+ posts · 2k+ votes
6y
You are creating more book-keeping work and more details to track if you do this. Now you gotta keep track of who paid when. Some will pay late but pay the discounted rate. Or they will argue you on when they sent the rent.
Keep things as simple as possible for you. There is rent at one amount. If not received by a certain day, rent court/eviction is immediately filed (and late charges incurred).
Sunnyvale, CA · Member since 2018 · 191 posts · 178 votes
6y
If you’re that worried about tenants paying rent on time, maybe move to a higher class of properties. Better tenant screening.
If theres a inconvenient repair or a holiday, I’ll send $50/100 in gift cards saying thanks for paying rent on time/being patient.
I’ve heard on a podcast that this guy who owns apartments has a drawing for their tenants if they pay rent on time for the year, they’re entered to win a tv, which is pretty cheap these days.
Rental Property Investor · Rockford, IL · Member since 2019 · 471 posts · 342 votes
6y
@Mark Lira
This is my idea about that. I have had it for years, and will practice it with my next lease agreement.
Say rent is $1450 per month on the1st.
If the payment is in my bank before then, you among the other leases who do so, will be entered into a chance to get a $50.00 gift card.
I also am working on cutting the December rent on half, for current payers. This also would be in the form of a gift card. This way, the books show even payments. My gifts, are my gifts!
Contractor · Osterville, MA · Member since 2018 · 41 posts · 30 votes
6y
@Mark Lira
What about setting up an ACH or other automatic payment that gives them slightly better rate if they sign up for it. Once it’s set up, shouldn’t be much to worry about
Rental Property Investor · Baltimore County Maryland and Tampa Florida · Member since 2013 · 2k+ posts · 2k+ votes
6y
@Daniel Smyth What does it mean when you say, "I also am working on cutting the December rent on half, for current payers."?
If it means that you'll cut December rent for tenants who pay on time vs ones who are not paying on time, you're only setting yourself up for trouble.
Treat ALL tenants the same. Do not give gifts or rewards to some, but not others. You're asking not only for drama, but also the possibility of being accused of something such as discrimination of those with financial hardship and taken to court.
This is a business, why would you reward a tenant for doing what they're supposed to do?
Why not tell them "If you pay on time for 11 months the 12th month is Free".
Plenty of businesses give discount for prompt payments, which this would be similar....
and any good business would bake in the cost of this discounts so they don't really impact the bottom line.
So, is a late payment considered an on-time payment? Typically, to get a discount you need to show a history of on-time payments.
I'd argue that if there's a grace period (say 4 days) payment isn't late untill the 6th day. Payment on the first would be prompt = discount and then nothing after, then late fee on 6th. Pay or quit posted 6-10 day then move fwd eviction on 15th day.
And plenty of businesses offer discounts if you can negotiate something of value. I've seen people toss out 10% for same day payments because of cash flow problems. Same goes for end of mo/quarter/year typically great opportunity to get discounts if you can act quickly.... But that's an entire different discussion that doesn't translate to managing a tenant ....
Rental Property Investor · Sylva, NC · Member since 2019 · 37 posts · 26 votes
6y
In John Schaub's book, Building Wealth One House at a Time, he goes over how he implemented a similar system that also factored in tenant complaints/service calls. It is a great book on SFH investing.
In John Schaub's book, Building Wealth One House at a Time, he goes over how he implemented a similar system that also factored in tenant complaints/service calls. It is a great book on SFH investing.