Looking for opinions on offering a Rent Discount?

Question

Hi all,

New landlord here. I have my first vacancy which I need to fill, just thought I'd ask what everyone's opinions or experiences are with offering a rent discount for paying early? For example, the rent is $1000/mth and due on the 1st of the month. However, if they pay before the 1st of the month they would get a 2% discount and only have to pay $980/mth. I was thinking this would just encourage tenants to pay on time.Pros/Cons? Thanks

Jen R. · Answer

I wouldn’t want to take that kind of hit each month. Also, I feel like once tenants get used to that as their rent, they’ll come to expect it (for example, they’ll send the same amount even if they forget to pay early one month, then you’ll have to go after them for the $20). So, not really any different in my mind than charging a late fee, except the late fee goes into my pocket instead of out of it each month.

If you want to offer an incentive, I would much rather offer something like a $50-$100 gift card upon lease renewal, if they’ve paid on time every month for the whole year. I think Mike Butler talks about offering something along those lines in his book, Landlording on Autopilot (an excellent read, by the way).

Anthony Wick · Answer

"Rent is due on or before the 1st of the month. If rent is not paid by the third of the month, there is a $20 per day late charge, up to $100 a month, as allowed by law".

My discount is not being charged a late fee when you pay on time.

Ned J. · Answer

If its illegal to charge late fees, then if you want to rent it for $1000, then set the rent at $1050 and offer a discount if you pay early of $50......

The rent is due when its due...... I'm not setting up some reward incentive for actually doing what the tenant is supposed to do....and eating $$ in the process.

If you really want to do that, I would position the system in a way that I still actually get the rent I want....... like "buy 3 tires and get one free"...... you didn't really get anything for free, you just got a discount and the price they set for those tires was already built into the original price

Daniel McCain · Answer

To encourage our tenants to pay on time, we go the other way.  Instead of incentivizing paying on time, we penalize paying late.  We charge a $50 late fee that escalates by $5 every day after it's late.  I've learned the key is to hold them to the terms of the lease and enforce the late fee - no exceptions.  Once they've had to pay $50 extra for being one day late, they're a lot less likely to be late again.

Dion McNeeley · Answer

Hi Aj,

I haven't tried this with tenants yet. It is something I do with the business I run and some of the vendors we use offer the same deal to us. It works great in the business world.

With tenants though I have a different mind set. If the cash flow is extremely close and you must have the rent before the mortgage is due or something similar then this may be a good incentive. I try to make the cash flow not as time sensitive. I have no problem waiting two or three days past rental due dates and getting $20 a day in late fees. Also it is a good bargaining chip I have used on occasion. If a renter has an issue and the rent is not on time with a good reason you get to offer not to charge the late fee, building a good rapport with the tenant. I would just try to not let this become a habit or a pattern.

Good luck,

Joe Splitrock · Answer

@AJ Alexander the only people who will pay early are the ones who would have paid on time anyways. You are just giving a discount for no benefit.

I do offer a $10 discount for online rent payment. It avoids those "check is in the mail" responses. I can see they second they schedule payment.

AJ Alexander · Answer

Thanks everyone for the insight so far!  @Jen R. I like the gift card idea, that's pretty clever.

Only reason I'm asking is that in Ontario we have a lot of restrictions around the leases....more so we are not allowed to charge a late fee.  From my understanding we are allowed however to offer a discount for paying early.  If I would normally charge $980/mth, maybe try to list for $1000/mth and offer the $20 discount for paying early.  It's just a way of getting around being able to charge a late fee.

Andre Debs · Answer

You have to be careful of your local laws. In Massachusetts for example, a discount clause is illegal since they consider a discount clause to be a late penalty in disguise and in Massachusetts, you’re not allowed to charge a late fee prior to the payment being 30days late.

Jaysen Medhurst · Answer

@AJ Alexander, I think is @Jen R. is right on. I don't see any upside to losing $20 and only getting your rent 1 day earlier. Better strategy may be to get them on autopay / auto ACH withdraw each month. Then the $50 gift card upon renewal as a "thank you."

Heath Ryans · Answer

@AJ Alexander i think thats a lot of extra work to keep up with. And People will try to stretch that discount. They’ll try to argue that the discount still applies on the 3rd because . Their encouragement to pay on time is not being evicted.

Looking for opinions on offering a Rent Discount?

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