Looking for advice on how to charge late fees.

Member since 2023 · 2 posts · 1 vote

This is my first rental property (townhome - 3 units) and I am drafting rental agreements. For those of you with experience, what would be your recommendation on structuring late fees? Should I do one flat fee? Or charge a daily fee? (In Texas there is a two day grace period after the rent is due, so if I charge rent on the 1st, I can start charging late fees on the 4th)

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John Chong

Lender · Houston, TX · Member since 2023 · 235 posts · 255 votes

Up to 12% of the monthly rent in TX

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Richard F.
Honolulu, HI · Member since 2008 · 3k+ posts · 2k+ votes
3y
Aloha,
You first must find out what local LL/Tenant laws ALLOW you to charge. Then determine if you want to charge less, or not bother with it. Here, we are capped at 8% of the monthly rent amount.
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Edward Adams
Investor · Houston, TX · Member since 2020 · 111 posts · 64 votes
3y
When structuring late fees for your rental property, there are different approaches you can consider. The Texas grace period of two days after the rent is due provides a buffer before late fees can be charged, starting on the 4th of the month if rent is due on the 1st.

Based on the provided search results, here are some recommendations:
1. Flat Fee: Charging a fixed flat fee, such as $25, $50, or $100, can provide a straightforward approach. This is simpler to administer and easier for tenants to understand.
2. Percentage of Rent: Charging a percentage of the monthly rent, typically 5-10%, is a common practice. This can ensure that the late fee scales with the rental amount.
3. Daily Fee: Some landlords charge a daily late fee for each day the rent is overdue. This approach can serve as an incentive for tenants to pay promptly. However, this might require more monitoring and administration.
Ultimately, the choice between a flat fee and a daily fee depends on your preferences, the local market norms, and your willingness to manage the administrative aspect. Ensure that the chosen late fee structure is clearly outlined in your rental agreements to avoid misunderstandings. Consider seeking legal advice or consulting resources specific to Texas landlord-tenant laws to ensure your approach is compliant.
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Audrey Thomson
OP
Member since 2023 · 2 posts · 1 vote
3y
Quote from @Richard F.:

Aloha,
You first must find out what local LL/Tenant laws ALLOW you to charge. Then determine if you want to charge less, or not bother with it. Here, we are capped at 8% of the monthly rent amount.

Okay, thank you! We are capped at 12% in Texas.
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Melanie ThomasBusiness Member
Real Estate Broker · San Antonio · Member since 2022 · 1k+ posts · 489 votes
3y
Texas here also. We charge the maximum allowed. The maximum late fee for properties with four or fewer units, which would include SFH's is 12% of the monthly rent. The ceiling on five or more units is 10% of the monthly rent. Good luck & happy investing!
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John Chong
Lender · Houston, TX · Member since 2023 · 235 posts · 255 votes
3y
Up to 12% of the monthly rent in TX
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Nathan GesnerBusiness Member
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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
3y
Daily charges are confusing, harder to track, and get out of control quickly. I would charge a percent of the rent on the first day available.
My state has a three-day grace period, so we charge a late fee on the 5th without fail. The due date is clearly in our policies, in the lease, initialed by the Tenants, and then included in their monthly reminder email that we send on the 25th of each month. There's no excuse for being late so we never waive the late fees.
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John MorganPro Member
Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
3y
I have 19 properties and just do $75 late fees. I have at least 3-5 people every month that are late. I take my wife out on dates with those late fees. So I hope for lateness. Lol
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Jay ThomasPro Member
Real Estate Agent · Houston, TX · Member since 2021 · 1k+ posts · 715 votes
2y
A flat late fee structure is recommended for your rental agreements, particularly in Texas, for several reasons. Firstly, it provides clarity and simplicity, benefiting both tenants and landlords by clearly stating the amount due if rent is not paid on time. This approach ensures predictability and consistency, preventing potential disputes or misunderstandings. Importantly, a flat late fee aligns with Texas law, allowing landlords to charge a reasonable late fee if payment is delayed by two days. On the contrary, daily late fees introduce complexity and potential disputes, and they may lead to excessive charges, raising questions about their reasonableness and compliance with state laws. In summary, opting for a flat late fee structure is advisable, offering simplicity, predictability, and legal compliance while avoiding the complications associated with daily late fees. Clearly outlining the late fee policy in your rental agreements, including the due date and specific amount, promotes transparency and helps maintain positive landlord-tenant relationships.
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Wyatt WolffPro Member
Lender · Charlotte, NC · Member since 2019 · 467 posts · 279 votes
2y
@Lorien Wolff
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Lorien Wolff
Property Manager · Charlotte, NC · Member since 2022 · 138 posts · 87 votes
2y
Hey, Audrey!

In NC rent is due on the 1st, with a 5 day grace period, we charge a late fee of 5% of the base rent on the 6th, then file eviction on the 11th or 15th if rent still is not paid. If your property is in TX and there is a two day grace period, then yes, charge on the 4th! I believe that you can charge 12% if there are not more than 4 units in the dwelling, 10% if there are more than 4 units, and this is a one time fee, not per diem. Be sure to clearly state the late fee structure on the first page of the lease under the rental amount.

Feel free to connect! :)

Artfully,

Lorien
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Daniel TanasaBusiness Member
Realtor · Houston, TX · Member since 2019 · 351 posts · 174 votes
2y
Hey Audrey,
As stated above, in Texas for a 4 unit or less the max late fee you can charge is 12% and it can start from the 4th day.
I personally like to do a combination of both flat and daily fee because is incentivizing them to pay faster instead of "waiting until the 15th because they're going to pay the same late fee anyway" as it will be if you only have a flat fee.
I usually do a $125 initial fee on the 5th of the month and then $25 a day until they are current on rent, up to 12% of the rent where it will be capped.
I hope that helps.
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