Collecting Fees

As a landlord, you know the expense and time-consuming nature of rental applications, background checks, and credit checks.

To offset these issues, you must ask tenants to pay fees so you can hire people to process the forms and ensure their information is handled quickly; you also need to cover the surcharges for all necessary service checks.

However, despite the initial hurdle, these fees end up helping everyone in the end.

Application Fees
When you charge an application fee, make sure you are within the bounds of state and local laws.

For instance, prospective tenants in Florida have paid application fees up to $550 per applicant, since Florida has not yet regulated how landlords collect application fees.

If you are renting out property there, you can charge as much as the market will bear.

Other states are not as liberal with how they regulate application fees.

California, for example, limits application fees to $35 for each applicant; this state also requires any funds not spent on background or other checks be refunded to the applicant.

States such as Massachusetts do not allow any application fees whatsoever.

You are thus cautioned to check into the legalities surrounding rental agreements.

You might want to investigate how your local municipality governs rental agreements.

A landlord in San Diego may be able to raise rents according to his or her view of the market, but a landlord in San Francisco is bound by rent-control statutes.

San Franciscans also have a robust rent board that oversees landlord-tenant relationships.

Late Fees
Late fees can crop up nearly every month. It is vital to ensure your tenants understand the due dates for rent and the implications for late rent.

After all, if it's not in the contract, there is no way a late fee can be enforced. While rules vary from state to state, most will require a certain reasonableness behind a late-fee agreement.

For instance, state regulators like to see a grace period before a fee is applied.

Generally, a grace period of three days after the due date is acceptable.

You might extend that up to five or 15 days, if you like.

When creating a late fee schedule, keep the fee under 5 percent of the rent.

This rate is generally considered reasonable, and landlords who ask such a rate are likely to be seen as acting in good faith.

However, if your state allows, you might increase that rate to 10 percent if the tenant is unduly late; after 15 days, you might want to increase the late fee percentage.

To stem a chronic problem, consider implementing a fee escalation for repeat offenders; the first late fee could sit at 1 percent of the rent, but you could add a percentage to that figure for every late payment thereafter.

Again, be certain to check state and local laws.

Fees Versus Deposits
In general, a fee is non-refundable.

While there may be cases where a fee is miscalculated, misapplied, or even negotiated to a lower rate or waived altogether, a fee is a considered permanent payment.

When a fee is considered refundable, you can consider that a deposit.

With this in mind, you may wish to avoid confusion around items such as a pet deposit and rename it a pet fee, so that your tenants don't seek reimbursement upon move-out.
Fees and deposits are a normal part of business as a landlord.

When you ensure you are in compliance with the law, you will be able to rest easy and focus on important parts of your job, such as marketing and maintenance.

Posted on Jul 17, 2015


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