Making the decision to become a landlord is a big one, calculating the risks involved in purchasing a property and balancing that with rental income requires a degree of trust that the rent will, in fact, come through. Rental income is, of course, essential to the equation, so late payment is an issue that should not be taken lightly.
The key business of being a landlord is to make money on your investment in rental property. Losing money, and wasting time chasing money you are owed is stressful, not to mention detrimental to your cash flow.
Unfortunately, tenants are only human, and as such, it can be extremely difficult to predict how they will behave. Tenants paying rent late is something most landlords deal with occasionally, and it can be a distressing time. Fortunately, there are a number of measures you can take to prevent late payments from occurring, and if they do, to regain control of the situation by ensuring payments resume as quickly as possible with minimal disruption.
Steps to Prevent Late Payment of Rent
There are a few early steps you can take to minimize the risk of tenants paying late. It all starts at the tenant screening stage. It is essential to have a robust system in place, ensuring you choose financially responsible, employed individuals to inhabit your rental property and protect your investment. This should not be rushed; taking the time to follow up on references can make all of the difference.
Once you have handpicked the best possible tenant through your screening process, you should communicate all of your rental terms clearly – including payment particulars such as due date and late fees. These items should be incorporated into the lease agreement to prevent confusion and ensure you are protected from a legal standpoint.
Deciding how much to charge as a late fee is often something landlords struggle with. The first thing to consider is whether there are local laws governing upper limits for such charges. Whatever happens, don’t be tempted to waive the late fee, no matter what situation has caused the late payment.
Receiving late rental payments is an inconvenience that should be avoided as much as possible. One available tactic is to charge a relatively steep late fee, within the limits of any local laws, which should act as a deterrent to your tenants and prevent late payments from becoming a habit.
Why You Must Take Late Payments Seriously
You are probably aware of the costs incurred if your mortgage payment to your lender is delayed, regardless of the reason for your late payment. Additionally, late charges are only part of the story as your credit rating may also be damaged. Therefore, it is more than a mere nuisance when rent does not come through on the date you are expecting it. Take a look at the following excerpt from nolo.com about what you can expect to be charged if you pay your mortgage payment late.
“If your mortgage payment is late, you may be charged a late fee. Most mortgage contracts include a grace period of ten or fifteen days after which time the loan servicer will assess the fee. Late fees can only be assessed in the amount specifically authorized by mortgage documents. (The late fee provision is usually found in the promissory note.) Generally, the late fee will be in an amount equal to 4% or 5% of the overdue payment.
State law may limit the late charge amount. If the state limit is lower than what the loan documents allow, it will generally override the loan documents.
Late fees can quickly stack up, adding hundreds of dollars to the amount you owe the lender.”
Once you are put in the position of being owed your rent payment, it also adds a strain on the landlord-tenant relationship. Confrontation can feel awkward, and often people find the situation highly stressful. The issue can be further exacerbated by habitual late payments. For this reason, it is important to take a hard line … and stand by your decision.
What Action to Take When Rent Payment Is Late
When the due date for rental payment comes and goes without receipt of money, it is time to take action. The important things to remember are:
- Be firm but fair
- Keep communication lines open
- Remain consistent
- Be professional at all times
- Treat all of your tenants the same
- Control your emotions, not getting angry, panicked or sucked into sob stories
- Never threaten your tenants
- Be timely in starting the eviction process
Keep in mind the history of the tenant, in terms of adhering to the tenancy agreement, and their track record of paying rent. Establish whether the late payment is a one-off event, or if it is the result of a significant issue that will likely escalate into further late payments down the line.
Some individuals simply aren’t responsible enough to manage their finances well and don’t take their rental due dates seriously. Take a look at a few of the more amusing excuses landlords have received over the years from their tenants. It isn’t fair that these problems are passed onto you!
1 I had a flat tire so I can’t pay my rent/can’t get to your office.
2 The government hasn’t mailed my check yet and I don’t know when I’ll get it.
3 I just got out of jail so I didn’t work last week.
4 I lost my job.
5 My daughter had a baby.
6 My power bill is too high – can you lower my rent?
7 We just bought a new car.
8 They messed up my check at work.
9 The banks are closed by the time I get off work so I can’t get your cash.
10 How much do you need today?
11 My (insert yet another family member) died and I have to go out of state to the funeral so I won’t have time to come by.
12 The check shouldn’t have bounced. The money was in my account when I gave it to you.
13 I’m not even really that late.
14 My (fill in the family member) took the money out of my purse.
15 I had to use the money to fill up my gas tank or I couldn’t get to work.
First Steps to Take When Rent Is Not Paid
Always keep a close eye on the due dates for your rental payments so that you are not caught unaware when tenants are late. In the event that payment is not received by the expected date, act quickly, stay calm and keep confrontation to a minimum.
The first action to take is to reach out to the tenant, informing them that you are aware the payment is late and establishing when you should expect to receive your money. The method of this initial contact is a topic of debate among landlords. Some prefer to make a phone call, while others feel that a visit is the best way to go. The decision ultimately lies with you and depends on what you are most comfortable with.
Whatever you decide to do, it is wise to keep a record of the interactions between you and your tenant. This should include promises made and reasons given so you can follow up if necessary. A written record will also ensure you are legally protected if you are ultimately forced to start eviction proceedings.
When it comes to late payment of rent, you should regard the issue as a serious one and more than a mere inconvenience. Use robust screening methods to prevent late payments wherever possible. If it does happen, do what you can to discourage further late payments by enforcing late fees and remaining firm.
At the same time, you must always act professionally and remember that being a landlord is a business. Your tenants must always be treated with respect and dignity – regardless of how they may appear to disrespect you. Stay within the limits of the law, record everything and be ready to start eviction proceedings if necessary.
Ultimately, late paying tenants are not something you should have to accept, and the good news is they are not the norm. Most tenants respect the terms of their lease agreement and pay on time, every time. With the guidelines provided in this article, you have the tools you need to deal with the problem if it arises.