Owning rental properties is one of the most reliable investment to build wealth with, but it is also a business and should be treated as such. This is why certain things, like charging late fees on rent should be in place as part of that business.
4 Reasons Landlords Should Charge Late Fees
1.) Motivation for Tenants to Pay on Time
Who do you know that wants to spend more money on something than they need to? Your tenants don’t either and a late fee is exactly that – more money on what is essentially a fixed expense.
Late fees provide motivation whether we realize it or not. It is the same reason that sales events with expiration dates get conversion – motivation to save and/or keep money in the pocket.
2.) Late Fees Set a Precedent That is Better to Have than Not
If you don’t have late fees then there is no consequence for a tenant paying late or after the grace period. Have a 3 day grace period is the item that gives your tenant a little flexibility if needed, but if they pay after that and there is no late fee why will they pay on time next month?
3.) Late Fees Help Tenants Budget
Household budgets are usually set around, well housing. Whether a mortgage or a rental payment. This is generally the largest expense on a family’s monthly budget. Many households live paycheck to paycheck and have to budget accordingly, late fees are not part of that budget.
Falling behind on rent and other obligations make it harder and harder to catch up, thus a budget needs to be in place to keep the ship running.
4.) You need to keep a handle on your business finances
As mentioned earlier, real estate investing is a business. Every month there are bills to be paid, such as the mortgage. Rental income is used to make these payments. If your rents are coming in late then your ability to pay these obligations gets impacted as well.
Rules vary in many states on how much and when you can charge late fees. Some states allow a landlord to charge a late fee after 5 days while others give 30 days. Be sure to look them up or have a lawyer write then into your lease.