To become a profitable real estate investor, you need to cultivate a good relationship with your renters. But how do you find a balance between being a good landlord and making the most of your investments?
If someone is having trouble paying their rent on time, you might be tempted to play the Good Samaritan. Unfortunately, that can often backfire. As a property investor, it's important to understand the importance of a late fee, and why you should charge one.
It is also important to understand what happens if you don’t charge a late fee and how to prepare for the worst-case scenario. Stick around to find out the top six reasons why Richmond property management professionals say you should charge late fees.
1. For Finance’s Sake
You have bills to pay, and rent money is should help you get that done. Delayed payments result in extra costs, even for you as a property investor. As if that wasn’t enough, not paying on time could result in a credit score reduction. Remember, yours is a time-sensitive business, and even a few days of delay could cause a chain reaction of debt.
2. It’s an Incentive
The great thing about late fees is that they encourage renters to pay the rent on time. Many people live busy lives and oftentimes it is easy for them to forget even something as important as their rent payments.
If they know there is a penalty for not meeting the deadline, they will want to avoid being slapped with that penalty by paying as soon as they can. There’ll be no point in holding on to that money because not only will they risk misusing it, but the late fee will also deal with them.
3. It’s Hassle-Free
With a late fee put in place, there won’t be a need to go knocking door-to-door collecting your money. You are not in the business of debt collecting; you’re a real estate investor. Besides, nobody likes being chased for their money, and not a single property investor can say they enjoy doing the chasing. Make sure you’ve got a late fee to spare you both the discomfort.
4. Tendencies End in Fees
It’s not hard to imagine that someone might want to delay payment because they’ve gotten away with it before. Renters can take advantage of your kindness, so you shouldn’t leave too much room for bending the rules because before you know it, they’ll be broken.
You can’t have a pattern of late payments because if you give them an inch, your renters will end up taking a mile.
5. It Keeps Renters Sharp
A late fee will encourage your renter to have a spending plan with proper priorities. Rent money must be taken as a serious expense which is better paid off sooner rather than later. Late fees will force anyone occupying your rental units to plan out a good debt reduction strategy. When they know there’s a consequence of not paying on time, they'll be more likely to budget accordingly.
6. Word Spreads Fast
If you have more than one renter, or you plan on having a few, it would do you well to have a non-negotiable late fee for rentals. If one renter happens to tell another renter that you let them pay their rent late, you could end up with everyone paying late because you did one person a favor.
Remember that renters want to be treated equally, so if it seems like you’re treating someone better than everybody else, everyone will demand the same treatment. Set a standard late fee that no one can question because if one person discovers they can negotiate with you, it’ll give others hope that they can too.
Don't Be Late
You would be surprised how much of a difference a late fee can make, especially when you have multiple renters or rental properties. Setting a late fee is a great way to show your renters that you're serious about receiving rent on time, month after month.
You cannot afford any unpleasant surprises, especially ones that have to do with money. The late fee is a safeguard against an unexpected delay in your finances. It is not enough to know that you’ll eventually be paid; compensation is necessary to make up for all the convenience caused.
Now is the time to decide how much your late fee should be. Inform all the renters that it is non-negotiable, watch as your rental property makes you more profit than you ever dreamed of, and enjoy a respectful relationship between you and your renters.
Do you need help structuring a late fee policy? Consult with an experienced Richmond property management firm today and fortify your investment.