Dealing with late rental payments is one of the most stressful parts of managing a rental property. When piled atop the diverse workload that comes with managing real estate rentals, mitigating the ill-effects of late payments can seem like a huge burden. However, by having a solid system in place, you can make this a lot easier on yourself. Use this guide for an in-depth look at how property managers can deal with late fees for rental payments.
What Is the Average Late Fee for Rent?
There are many different late fee laws by state. As such, you should study up on your region’s specific laws before moving forward with a late fee for rent. Many states do not have laws governing this matter, leaving it to the sole discretion of the landlord.
In California, for example, the law states that the late fee for rent should be a “reasonable estimate of the amount that the lateness of the payment will cost the landlord.” This means that exorbitant or arbitrary late fees cannot be applied in the state. Within the same domain of tenants’ rights, California state law mandates that there be a grace period, allowing a handful of extra days before a late fee is instated.
In states which do not mandate a certain figure, how much should a late fee be for rent? This usually depends on a handful of different factors. But most often, the standard late fee for rent will be 5%. Therefore, a tenant paying a monthly rent of $1000 would incur a $50 rental late fee. This would be considered reasonable for all parties: it foremost compensates the rental property manager for the added work of dealing with the late payment and its consequences. But as well, it is not so large that tenants will struggle to pay it. Of course, this percentage can and should increase as more time progresses. If the payment is very late, it would not be unreasonable to charge 10%-15% as a late fee for rent.
Should I Have a Grace Period?
It is most often recommended that you have a grace period when it comes to your late fee for rent. This allows for some understandable leeway, since some circumstances may be outside of the tenants’ hands.
Many individuals receive their paycheck on the first day of the month. Since most Americans manage their finances on a month-to-month basis, a delay from their employer can lead to issues with rent payment. Therefore, a short grace period can offer a lot of relief when this matter is beyond the tenant’s control.
Tenants may also face other circumstances, such as the first falling on the weekend, thereby disallowing them to make financial transactions. Otherwise, if rent payments are due on a holiday, many will be impeded from making the payment on time. Therefore, a rent grace period should almost always be used.
How Can I Instate a Late Fee for Rent?
If tenants do not pay their rent by the date specified in their lease agreement, you first need to provide them with a late rent notice. You should do this on the first day of the grace period, and inform the renter very clearly what procedures will take place next. Property managers should inform tenants of the length of the grace period and the size of the late fee for rent in the lease agreement. If they are informed of the consequences and the expiration of the grace period, they will be much more likely to make the payment promptly.
How Should I Handle Late Fees for Rent Payment?
When it comes to late rent payments, you’ll want to pursue formal communication with your tenants to avoid legal issues down the line. Rather than in-person conversations or text messages, official documents such as a late fee for rent letter may be better suited to discuss these matters. This can show the progression of events and provide a reliable archive of the issue.
Some landlords may immediately jump toward the eviction process. While this may be warranted in the case of consistent tardiness with rent payment, you should keep this as a last resort. You may unwittingly ruin your occupancy rate if you develop a reputation as an unfair property manager among your tenants.
Related: 10 Best Ways to Boost Resident Retention in 2020
However, though it may be unfortunate for all parties involved, you may want to pursue an eviction if rent payments are made late consistently, or if a tenant refuses to comply with the dates in the lease agreement. A tenant not paying rent can cause substantial and undue stress for the property manager or property management company since it can interfere with your ability to make financial commitments in time. This can also place you in an uncomfortable situation with rental property owners if it is a recurring trend. It is, therefore, reasonable to pursue an eviction if a tenant regularly hinders your ability to meet these commitments.
How to Avoid Late Rent Payments
In addition to a system for late rent payments, property managers should consider taking some precautions to avoid late payments altogether. After all, making money as a property manager depends heavily on the satisfaction of property owners, and smooth transactions are the best way to maintain that. Here are a handful of things that property managers can do:
Related: How to Run a Successful Property Management Company: 9 Tips
Communicate well
The best way to avoid late rent payments is to communicate clearly and effectively with your tenants. To this end, be sure to carefully review the terms of the lease before your tenants sign their names. They should be fully informed about the date on which rent is due, how to calculate late fees on rent, and the grace period. You should also clearly state other consequences which may be faced if rent is paid late consistently, such as the risk of eviction.
Furthermore, you should consider sending reminders about rent payment when necessary. A scheduled mass-email to all of your tenants wouldn’t be very time-consuming; but may, in fact, have a positive impact on their punctuality.
Adopt online rent payment
One of the best things a residential property manager can do is to adopt online rent payment. These systems add a great deal of convenience to tenants, the property manager, and property management clients. This will add a lot of security to your rental property management business, as it dramatically reduces the risk of late rent payment. Many systems can also be customized to automatically charge a late fee for rent if payment is not received in time. Finally, these systems can add a layer of accountability, since you’ll have a clear view of when each tenant made their payments. If you can easily identify a recurring trend of late payments, it may inform your decision of whether or not to renew that tenant’s lease agreement. This is definitely one of the best ways to add consistency to your rental income collection.
Related: Why Property Managers Should Use Online Rent Payment
Screen your tenants
It is crucial that property managers screen prospective tenants thoroughly. To this end, you’ll want to request references from past landlords who can attest to their timely payment. You’ll also want proof of employment or other indications of financial stability. This will minimize the risk of late rent payments significantly. Being a property manager involves a lot of diligence, and putting in the time to properly screen tenants will make your job a lot easier in the long-run.
Bottom Line
The stress of late rent payments can be huge to a lot of property managers. However, the good property manager always knows what to do. By equipping yourself with some precautionary measures and a proactive approach, you’re sure to find a great system for managing late rent payments and late rent fees.