No one likes to be taken advantage of, and even less, when dealing with money.
To build a relationship, there must be a strong foundation of trust. By giving your tenants a little extra time to make their rent payments can form a long-term relationship.
Working with your tenants shows patience and understanding, and in a small gesture of good faith, your tenants will appreciate working with you. This can make for a win-win situation for both parties involved.
However, if no reprimands are handed out for breaking such trust, there is no telling what kind of behavior or how far will a tenant go to test your level of patience. This is where problems begin. According to a TransUnion survey, 84% of landlords reported that late payments are their top concern in managing their business.
When to provide a grace period?
Well, what is a grace period? A grace period is a provisional agreement between the tenant and the property manager or landlord. Normally, an acceptable grace period is from one to five days from the agreed due date to make the monthly payment. After such time, the landlord or property manager can legally issue late fees, however, it must be written into the lease and signed by both parties. As a rule of thumb, it is recommended that landlords or property managers include late fee verbiage in their lease, both the fee amount and when it will be charged.
Legal Grace Periods
In some states, there is a legal grace period that must be stipulated. States that require grace periods want to provide the tenants the extra time to present payment due to the transfer of funds not always being instantaneous. An example would be a mailed check, given that a check sent through the mail takes time to arrive or in some cases it might even get lost and will need to be resent. Grace periods come in handy when tenant pay periods vary.
Should Late Fees be Charged?
Yes! Late fees are used to encourage on-time rent payments while also compensating the landlord or property management company for the hassle and risk that goes along with collecting late payments.
How Should You Go About Charging Late Fees?
The most common late fee amount is between $20 and $50 usually per day. You can also choose to set the late fee as a percentage of your rental price. However, make sure you check with your local and state laws to determine what the laws are around late fees amounts.
Ultimately, the late fee amount should compensate you for the inconvenience and risk of not receiving rent on time and motivate the tenant to pay rent on time. Keep in mind that you do not want the fee to be so high that if the tenant falls behind on payments, he or she can’t afford rent plus late fees, and becomes hopeless as a result.
If you have a tenant who goes beyond their grace period, here are some tips to follow to avoid such an event:
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