What Do You Do With Tenants Who Pay Late?
Tenants who pay late are very common. If you are lucky, they call you and explain why they are paying late. Other tenants don’t bother to let you know and just randomly pay.
These late paying tenants are a serious problem if you count on the rent money to pay your mortgage. Even if you don’t depend on the rent money to pay any bills, it is very annoying when your tenant continually pays rent late.
Procedure For Handling Late Paying Tenants
Unfortunately, you cannot force anyone to pay. You need to fall back on your procedures for ensuring that the tenant knows what happens next.
Always send out the appropriate late notice. Know the laws in your area. Be sure and consult with an eviction attorney so that you can give the proper notice to your tenant. I live in Louisville, KY and we send a 7 day notice that basically says pay or get out.
Once notice arrives, the tenant will usually touch base with me. If this tenant has already called, this person was warned that they would be receiving the 7 day notice. I do occasionally run across a tenant who is offended that I won’t just “trust” them to pay the rent as soon as they can. I explain that company policy require me to send a 7 day notice to every tenant who has not paid on or before the 5th day. We have a 5 day grace period.
The late notice should list the past due rent and any late fees. I have a $50 charge on the 6th and $5 per day after that. So, if the tenant pays on the 10th and their rent is $1,000, the tenant would owe $1,065. I don’t charge for the actual day they pay. It is in your best interests to insist that the late fees are paid along with the rent. There are times that I will allow a payment plan, especially if the late fees are high. For example, if the tenant paid rent on the 25th day of the month, late fees would be $140. Many tenants won’t have that much extra money. But, I only allow it to be split in half.
The main issue is that when a tenant pays this late in the month, the chances that they will pay late the following month increase dramatically. Then you are on the path of a tenant who pays chronically late and can’t afford the late fees. At some point, this has to stop and the tenant needs to move. I usually sit down with the tenant and try to get them to move out but I will evict them if I have to. It is much easier and cheaper to get them to willingly move. Not every tenant will be agreeable to just moving but it is what I try first.
Always Pays Late But Pays Balance In Full
I have a couple of tenants who pay late roughly 5 or 6 months out of 12. For one of them, I moved the rent due date because she went on disability and SSI and her payment often didn’t arrive until the 10th or the 11th of the month. She was never going to get caught up and it was just easier to move her due date.
For the other tenants, they randomly just pay late and they always pay the late fees. While this is annoying because I still send the 7 day letters every single month, they always pay the late fees and they never complain about paying them. The company makes more money every month and for now, it seems to be working.
Improved Screening Of Applicants
This issue drives me crazy. I did a review of these tenants to see if I could have spotted these issues during the application process. There were no red flags during the application process that I could find. I always send over a questionnaire for the previous landlord to fill out and none of them flagged these tenants as late payers. It is possible that the landlords just wanted to get rid of these tenants and didn’t say anything.
One thing that stood out on two of them is that while they met the income requirement of 3x the rent, they had no extra money. One tenant ended up losing their job and the new job didn’t pay as much. There was no way to predict that this would happen.
Another tenant had a lot of student loans that they started paying on which reduced their spendable income. Very few landlords count student loans or medical bills but I have started to see some issues with this. Remember, at some point they will have to start making payments on their student loans and those payments can be quite high. In many cases, those monthly payments will cause the tenant to not meet the debt to income ratio. You need to have a process for considering student loans because it can significantly reduce your tenants monthly income.
3 Strikes Rule
Many landlords I know have what I call a 3 strikes rule. Typically, they only allow 2 late pays or 2 eviction filings per year before they move to evict. Once the tenant pays late the third time or has an eviction filed against them for the third time, the landlord will no longer accept the rent. The landlord will move to evict these problem tenants.
I personally don’t have this rule because it is very costly to turn a house and get it ready to rent again. I work with the tenant within reason. I follow the process but if the tenant comes up with the money for the past due rent, the late fees and the court fees, I will accept the money. This is strictly a business decision on my part.
Neither way is wrong and you will need to decide what works for you.
Follow Your Procedures
Late paying tenants seems to be one of the top problems that landlords have. When you have this issue, have procedures in place and follow them.
- Spell out in the lease what happens when a tenant pays late and follow through.
- Send the late pay letter and charge late fees.
- Be prepared to file an eviction against them.
- Decide at what point you will no longer accept payments.
- How many late pays or eviction filings will you allow?
Following Your Procedures Makes For Better Tenants
The most important thing to always remember is that you are setting expectations for your tenants. When you follow your procedures every single time, they know what to expect. If you don’t follow your procedures every time, you are teaching your tenants that it is ok to pay late. Why should your tenant pay on time every month if you don’t charge late fees or you never start the eviction process by sending out a late notice?
It is your job to make sure this tenant stays on track. It is my belief that bad paying tenants are created in part by landlords who don’t enforce their rules. These tenants never learn that they have to follow the rules.