Late Fee Pricing

52 Replies

I have a rental property in Mississippi an I charge $50 dollars late fee with an additional $10 dollars late fee every day after the 5th of each month. My question is what is a good price to charge for late fee an what is a good price to charge after the 5th of each month.

Markus,  I've managed properties in one of the most competitive rental markets for 4 years here in Boulder, CO.  Our policy is pretty simple :  It's due on the 1st, late on the 3rd by 5pm.  After that point it's $20/day until received.  Obviously, this is in a pretty wealthy student market, but residential could be treated the same as well.  But find a balance, to where a tenant isn't scared to pay late, but still will by when you absolutely need it.  Late fees generate income for you.  Take advantage of it.

I have worked at multiple rental properties. Each with late fees. The latest was $25 if paid after 5:00pm on the 5th. Then $5 a day after. That was in upstate NY. I believe what you are charging is reasonable. After all they signed a contract stating they are responsible for paying rent due on the 1st!

@Katie @Scott Thanks for the advance. I spoke with an property lawyer in Mississippi he told me to be careful with that price he didn't explain why I asked why he stated that an his remarked was just be careful with that price. That why I am asking my friends here on BP for their input on this matter.

For me. Rent is due on the 1st. I can post a notice to pay or quit on the 2nd. Late fee of $25 on the 3rd with $5/day starting on the 5th. The tenant needs to let me know if rent will not be in on the first and I can work with them. I believe your lawyer expressed caution as ultimately you need to defend those fees as reasonable to a judge which is why balance is important.

@Kyle Thanks for the advice on this matter

@Markus March

What the lawyer is saying if the tenant went to court the judge will not let you collect all those fees. I think you need to sit in on one or two eviction courts and see how the judges rule. 

Joe Gore

Check your state to make there isn't a law regulating late charges.  In North Carolina we can only charge a maximum of 5% of the rent for a late fee.  Due on the first late after the 5th, eviction filed on the 10th.

@Joe Gore 

I almost agree with you for once ! In A Texas Eviction, the Judge will only award past due rent, Court costs, Attorney fees(maybe or maybe not) and post judgement interest

However a separate civil suit for late fees, damages and other expenses maybe filed.  With Texas being a very difficult state to collect a judgement, collecting will be about the same chance as SMU coming back to beat Baylor right now.  31-0 Baylor at the Half

@Greg Hall

I know it is hard for you to agree with me when i am right. 

Joe Gore

10% of rent in my market after 5th...

@Rolanda, @Greg, @Joe Thanks I will look more into this matter

@Bill Sargeson Do I need to google to fine what does my state say about a fair late fee price or how does I fine out this information.

@Joe Gore 

Not hard at all.  I will acknowledge someone when they are right and acknowledge when I am wrong.  Like I said, it is possible to collect late fees in court separate from an eviction correct ?

@Greg/@Joe Can I do judgment against them to get my money for late fees 

@Markus March  

We were just talking about Texas. I am not familiar with the laws in Mississippi . 

@Greg ok thanks look like I need to do some research on this information that I need to know about.

I believe some states put a cap on the total amount of late fees you can charge. For others it is a matter of what the judges will determine is fair. I suggest you look at what is usual and customary in your town. Network with some folks in your local REIA or landlord association. Or look at the policies of the big apartment complexes in your area... it may be on their websites, or call them and ask!

@Markus March  your lawyer could be concerned that your "late fee" might be construed as usurious interest.  But that's really more of a concern with owner finance.

On my owner finance properties, we make the late fee low.  But in that situation we are collecting interest, so its easy to see how the late fee could theoretically be construed as interest.

For my rentals, rent is due the 1st, a $25 late fee is assessed on the 2d, plus $5 per day thereafter (none of this 5-day grace period... that tells tenants rent really isn't due until the fifth). I don't want a flat late fee, because then there is little incentive for the tenant to come in once they are late. HOWEVER, when we evict someone, we never bother asking the judge for the late fee.  Just rent, filing fee and closing cost.  Not worth the argument.

One tip that has worked great for us- we offer tenants a $25 DISCOUNT if they pay early.  Not only does it increase on-time payments, it also makes our late fee seem reasonable.  "Pay before the 1st and you get $25 off, pay on time and we're even, pay late and you pay $25 extra".

But first, rather than researching the issue.... I would call your lawyer back up and ask "hey, WHY should I be careful?"  Sometimes lawyers don't have solid reasons for their warnings, and I'd ask for clarification before taking the warning. 

As per the city landlord/tenant ordinance, I am limited to charging 5% of the unpaid balance of rent per month. Caps on late fees are very common in urban areas, so I would encourage you to look up your local ordinances.

When dealing with low-income tenants, I've observed that it makes no difference whether the late fee is $5 or $500--if they don't have the money, they aren't paying. A very high or punitive late fee is going to do nothing but dig the nonpaying tenant into a deeper hole that's harder to pay their way out of. 

I used to charge $10/day outside of city limits but then I soon noticed that every month there was a missed payment, the choice basically came down to either waiving most of the late fees or evicting the tenant. So now I simply charge the 5%. Some tenants pay late consistently, which just means I'm making more profit for a minor inconvenience.

Here's another consideration about daily late fees.

Do you pick up the rent in person or does your tenant mail the rent? If it's the latter, then there's a problem with determining late fees. With a flat late fee, your tenants knows s/he's late and will often include the late fee in the payment. If the late fee is assessed daily, you won't be able to tell them how much they owe until you receive the payment, which means you're probably not collecting the late fee in the current month.

@Christian, Marcia, David The information you guys giving me is some good information to look at an to take in an study more about.

@ Christian Carson I pick up my rent every month

Originally posted by @Joe Gore:

@Markus March

What the lawyer is saying if the tenant went to court the judge will not let you collect all those fees. I think you need to sit in on one or two eviction courts and see how the judges rule. 

Joe Gore

Suggesting you attend eviction hearings in your area is a good idea so that you learn the judge(s) and the rules for that location. 

And the judge will use some discretion in setting any monetary judgment that is awarded. In some areas, only rents are included in judgments; some judges will eliminate late fees that appear to be usury. In some areas the discount for on-time payment suggested by another post will be considered to be a disguised late fee and the judge will catch that. So that us why you want / need to learn what the local judge will disallow. 

Sure, late fees are a source of income so collecting a bunch of those is beneficial in a way, but ...

As another post stated, the tenant being late with a daily late fee will be digging a hole really fast. Consider that rents are usually 1/4 to 1/3 of the household income and that rent is the single largest expense for the household. Once they reach a certain point in being late, some will just give up on trying to get caught up and you will have to evict unless they move willingly. In either case you face a vacancy. So sometimes you have to understand from the tenant's perspective what might be fair / reasonable. They sign the lease because otherwise they don't get the place; the late fee is just one of those "agree or else" things. 

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