Being a landlord is a balancing act. You want to be understanding of your tenants' challenges. But you must ensure you're getting the return on your investment you expect.
Late rent payments can eat into that return. You may be tempted to look the other way if a tenant is late with a rent check. You want to maintain a good relationship, right? But it's not a good idea. Tenants should have some accountability for past-due payments.
Our Plano property management company recommends landlords add a fee for late payments. Yes, there is a punitive aspect of charging a late fee, but punishment is not the only reason late fees are a good idea.
Read on to learn why you should charge renters late fees.
Late Fees Motivate Tenants
There are times when a tenant legitimately needs a couple of days to make rent. In these cases, tenants may be willing to incur a late fee for the privilege of paying late.
But some tenants are simply forgetful. They may be late with payments due to their own carelessness. Since that impacts your finances, tenants need to be motivated to pay on time.
Charging a late fee will encourage tenants to pay on the first of the month (and hopefully sooner). No tenant wants to throw money away unnecessarily. That's why the threat of a late fee serves as great motivation to pay on time.
Late Fees Stop Bad Habits
If a tenant is allowed to consistently pay late, bad habits will develop. That's why you should stop the practice immediately. If rent is due on the first of the month, that means your Plano property management firm should receive tenants' rent payments by the first. Not the 2nd. Not the 3rd. And definitely not the 10th.
By allowing tenants to pay late without penalty, you're encouraging them to push the envelope even further. Tenants who are allowed to pay late even once will assume they can follow suit for the duration of their lease. It's not a habit you want to encourage.
Late Fees Help Tenants
Here's the brutal truth. Some of your tenants live paycheck to paycheck. If they fall behind on rent, even by a few days, it could be difficult for them to catch back up.
Most younger renters spend about half their income on rent. So they may choose to put rent on the back burner and pay smaller bills first. That's a recipe for disaster.
By charging late fees, you force your tenants to make rent a priority. They'll recognize there's a financial benefit to paying their rent first. It's a win-win for both you and your tenant.
Late Fees Prevent Gossip
Like it or not, if you have multiple units, tenants will talk. If one finds out you haven't charged another a late fee, they'll assume they won't be charged a late fee either. Soon, everyone in your block of apartments will be paying rent on the 15th instead of the 1st. That can cost you thousands of dollars.
Establish the late-fee policy from the beginning. Make sure every tenant knows that the policy applies to everyone. A Plano property management company can help implement a new late-fee policy for your existing tenants.
Late Fees Avoid Embarrassment
It's no fun to track down a tenant and ask for their rent payment. It's embarrassing for them and frustrating for you.
When tenants pay on time, it helps maintain the tenant-landlord relationship. Encourage them to pay on time with a late fee policy.
How Much Should You Charge for Late Fees?
In Texas, landlords can charge between 10 and 12 percent of the total rent as a late fee depending on the number of units in the building. The average rent for a two-bedroom in the Dallas metro area is around $1,200. If that's your case, you can charge no more than about $60 as a late fee. Even then, that's real money any renter would want to avoid paying.
An important caveat; the state of Texas says late fees can't be levied until the rent is two days past due.
You can set up the late fee structure in a couple of ways:
- As a one-time fee if the rent is not paid on the correct day.
- As a daily charge, meaning you levy a fee for each day the payment is late.
Regardless of how you structure it, you must clearly identify your late fee policy in your lease agreement. Otherwise, you can't charge late fees.
Let Our Plano Property Management Company Help
Implementing a late-fee policy takes time and organization. If you're a DIY landlord, putting this into place may take more time than you have. Let us help.
Our comprehensive property management service takes the responsibility off your shoulders. We handle everything from screening tenants to collecting rent and charging late fees. Get in touch today and find out how we can help you manage your North Texas rental property!