Receiving timely payments from your tenants is key to running a successful rental property. Having responsible tenants is the first step in ensuring you can count on these payments every time they are due. This is why conducting a thorough check on your potential renters’ finances and their ability to pay is so important. However, even tenants with an excellent history can slip up when it comes to payments. Life happens: whether it is the COVID-19 pandemic or family troubles or the loss of a job, it’s always best to expect the unexpected. As a landlord, you know you can’t plan for every single scenario. What you can do is be prepared by factoring late fees into your lease agreements, and enforcing them when the need arises.
How Late Fees Work
Landlords include late fees into lease agreements as a way to motivate tenants to pay their dues on time. While laws vary state to state and some jurisdictions may limit how much you can charge, usually late fees are about 5% or less of the total monthly rent payment. In the state of Colorado, late fees are limited to $50 or 5% of the past due rent payment, and no fee can be charged until the payment is late by at least 7 days. Also, you can only charge one late fee per late payment.
There are a few specific reasons why you should always include late fees in your rental agreement:
- A tenant shouldn’t get comfortable paying late. While tenants will appreciate a pass the first time, they shouldn’t get used to submitting overdue payments. It can easily become a habit that will hurt your wallet.
- You have a business to run. At the end of the day, you have to be able to look after your own finances. There are also the other tenants to consider. If others are paying on time, they have a right to a well-maintained property, and you can’t provide this if profits suffer due to late or missing payments.
- Being too understanding is a slippery slope. It’s always great to approach every situation with kindness and compassion. However, there comes a time when the amount that is due must simply be paid: late fees help enforce on-time payments you can count on.
While late fees are the best way to let your tenants know you take rent payments seriously, there are ways you can lessen the blow. More than likely, if they are missing payments there’s a reason beyond their control.
A grace period provides ample time for your tenants to submit their payments. There could be a number of logical reasons a payment might be delayed: a tenant could be waiting on a paycheck, a bank transfer may be postponed, or the tenant could simply have forgotten. These things happen. Offering a grace period shows that you’re considerate of others, and renters will be much less inclined to submit late knowing they have been given this courtesy.
The Importance of Communication
Above all, you should be communicating with your tenants regularly to avoid confusion, resentment and preventable negligence. Every individual’s situation is unique, so as a landlord it’s preferable to be aware of that. It helps all the parties involved if a landlord is willing to work with renters to reach a viable solution.
You may want to consider a few complicated scenarios in order to get a sense of the need for timely communication:
- Rent is due on the 1st of the month, but Jennifer just switched jobs and her paycheck doesn’t arrive on time anymore. Suddenly, she is using the grace period more and more. If you communicate with her, you will know why and you can implement a new payment schedule that works for both of you.
- Jonathan just experienced a death in the family and missed his rent payment. He is now past the grace period, but it is only because it slipped his mind. Perhaps if you speak to him one-on-one, you can offer a one-time half-price late fee since he normally pays on time.
- Rhonda always pays within the grace period, but her bank is extremely slow when it comes to processing transfers. Consider offering her the option to use a credit card or a digital payment platform like Paypal or Venmo to send it over faster.
How All County Denver South Can Help
All County Denver South Property Management is here to help property owners have confidence in the quality of their tenants and the security of their property through knowledgeable and trustworthy property management services. From managing tenant relationships to lease enforcement, we look forward to working with you to see how your investment can be a long-term, stress-free asset. For a complimentary quote, call us today at (720) 664-4550.