Discounting rent... positive or negative? Well, it seems that most people are not in favor of this practice because of how the renter may view it... I`m going to be the contrarian on this one. I have actually been using an "on-time rental incentive" for around two years now. I am a fan of it for two reasons...
1.) I don`t think it leaves a bad taste in a tenants mouth, I find it quite the opposite, maybe it`s the way it is explained. We explain it as an incentive for being on-time with rent, it`s a $50 incentive that is taken off every month but if they are late once, that incentive dissappears and the rent amount goes up for the remainder of the lease term. It`s really in their hands whether they keep the incentive. For people that know they are never going to be late, they view it as an incentive and positive, it`s the people that know they are going to be late who look at any fees the wrong way, and which tenant would you rather keep happy?
2.) The second reason is a little more technical, in our lease we have the base rent amount, then we have 2 incentives, an "on-time incentive" and a "post date incentive" each in the amount of $50. So if the base rent is $1,200, the rent after incentives is $1,100. We have heard from several landlords that use our lease that when they go to the bank to qualify for another property and they show the leases for income verification, the bank uses the base rent amount of $1,200. So that`s a bonus.
Overall though we have had over 100 tenants use our lease with the incentives, and a few have lost the incentive for being late. The ones that lose the incentive are usually the ones that are late in any circumstance and understand that it is their fault for losing the incentive, not yours. Where as a late fee penalty is most of the time seen as a negative from the tenants point of view.
When we changed our lease we changed it because we where trying to make it more positive, would tenants rather have a "late fee" or an "on-time incentive?" Both equate to the same end but we think the incentive makes the tenant feel better, especially if they are never late!
I`m not saying I`m right, but we have had a lot of success with this.
What I really think it comes down to though is:
"Do you sincerely care for the tenant or just out to make a buck?"
I think the tenant will pick up which you are no matter what you say and if you sincerely care, then whatever is in the lease will have a positive tone to it.
Happy Investing!