Collecting Rent on Time

[jarrettvaughan]

I am wondering if any one has had success with discounting rent if it is paid on time? For example, rent is advertised at $1000.00 if paid on time and $1200.00 if paid late. Has this been successful and how much of a discount do some of you offer? Also, has this left a negative impact on the renter when they find out this form of motivation?

Thank you for sharing your experiences.

 

[DianneDachyshyn]

QUOTE (jarrettvaughan @ Nov 14 2007, 11:36 AM) I am wondering if any one has had success with discounting rent if it is paid on time? For example, rent is advertised at $1000.00 if paid on time and $1200.00 if paid late. Has this been successful and how much of a discount do some of you offer? Also, has this left a negative impact on the renter when they find out this form of motivation?

Thank you for sharing your experiences.

I don`t have experience collecting rent, but I think that delivers the wrong message. It says to me that you expect people to be late, so you are going to reward those who are on time. I think a better message would be that the rent is $1200 and we expect it on time.

 

[invst4profit]

I agree. Discounts sends a very bad message to renters. It says it is OK not to pay on time.
It would be better to tell them if they are late they pay a $50 (eg) penalty for late payment plus $10
per day after that. Also, depending on the province, make sure you serve them with an eviction notice as soon as legally possible. If they pay you withdraw the eviction notice and hopefully they learn it is never OK to be late. Either you are in control or the renters are.

 

[jarrettvaughan]

From what I understand, you are saying that discounting is not a good idea but penalizing is. I also agree. Is it legal to penalize for late payment (assuming it is written in the contract) on a scale approach as has been suggested and has anyone used the approach?

Thank you for your responses.


QUOTE (invst4profit @ Nov 14 2007, 11:10 AM) I agree. Discounts sends a very bad message to renters. It says it is OK not to pay on time.
It would be better to tell them if they are late they pay a $50 (eg) penalty for late payment plus $10
per day after that. Also, depending on the province, make sure you serve them with an eviction notice as soon as legally possible. If they pay you withdraw the eviction notice and hopefully they learn it is never OK to be late. Either you are in control or the renters are.

 

[KrustyKrabs]

Hi,

I am not an investor..........yet, and hope nobody minds newbies posting here.

But I have just read Don Campbell`s, "Real Estate Investing in Canada" and "97 Tips for Canadian Real Estate Investors" and now am really pumped about my future.

Both of these books are surely invaluable......and I haven`t even begun yet.

Specifically in: "97 tips for........."

Tip #90 gets into the nitty gritty of collecting rent---pro-actively.

What it boils down to is that your investment must be protected right from the start.

This begins with the lease itself, by defining the exact terms of when and how the rent will be collected.

Secondly, by outlining the penalties, should the rent be late.

These penalties must be on a per-day late, and not a defined amount. It is my opinion that a defined amount of penalty just hands the renter with a license to decide on just how late they wish to be late with their rent payment, which inevitably causes problems for you in paying the mortgage on-time.

Never take cash for a payment, even if it`s late! Too difficult to prove.

Never, buckle on your arrears policy, that just sets the stage for your financial difficulties, and sends a message to your tenants that you aren`t really serious that the rent shouldn`t be late.

The other thing, worth mentioning is the fact that every region has different landlord/tenant laws, so I wouldn`t even begin writing a lease until I have researched all of the local laws first.

My suggestion is that if you haven`t read "97 Tips For Real Estate Investors in Canada", in addition to "Real Estate Investing in Canada" by Don Campbell.......then do it......you will be glad that you did.

 

[TylerUzelman]

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!

 

[jarrettvaughan]

That is great adivse Tyler, I really appreciate your expereince based opinion. Thank you.

 

[KrustyKrabs]

Tyler,

That is some excellent advice, I am going to write this one down. It really does make sense and not only that, you are keeping the emotions of the tenant in check......which in the long term would seem to benefit the landlord.

Thanks for the lesson!

 

[invst4profit]

As an investor it is all about making money. Personally I see no reason to thank someone by giving a discount for paying me money I am owed. If the market supports $1200/month it makes no financial sense to charge $1100. I am already doing them a favour by renting my property to them and they thank me by paying the rent on time. For good renters I am the nicest landlord in the world, prompt to repair, offering improvements etc. For bad renters they are one day away from that eviction notice and when they pay up I get extra money. I believe in paying my bills on time so I can`t care what someone that does not have the moral fiber necessary to pay there debts on time might think of me. But everyone has there own rules in life. For me if I had 100 appartments there is no way I would give up $10,000/month income as an incentive to pay what they have legally agreed is owed.

 

[jarrettvaughan]

Hi Greg,

I think that you may be looking at this the wrong way. If the market can handle $1200.00 in rent, the contract would be written so the the tenant pays $1300.00 with a $100.00 discount if the rent is paid on time. Or, rent is set at $1200.00 with a penalty of an aditional $100.00 depending on what way you look at it. I agree with the previouse poster that uses this tactic and has found it to be very successful.



QUOTE (invst4profit @ Nov 19 2007, 11:29 AM) As an investor it is all about making money. Personally I see no reason to thank someone by giving a discount for paying me money I am owed. If the market supports $1200/month it makes no financial sense to charge $1100. I am already doing them a favour by renting my property to them and they thank me by paying the rent on time. For good renters I am the nicest landlord in the world, prompt to repair, offering improvements etc. For bad renters they are one day away from that eviction notice and when they pay up I get extra money. I believe in paying my bills on time so I can`t care what someone that does not have the moral fiber necessary to pay there debts on time might think of me. But everyone has there own rules in life. For me if I had 100 appartments there is no way I would give up $10,000/month income as an incentive to pay what they have legally agreed is owed.

 

[invst4profit]

Now that is a hook I can understand. With that system I would be more than happy to see them late with there first rent payment. Unfortunatly I would have two possible problems. First my potential renters are in a lower rent catagory and many would be turned away by the fear of the higher rent and second once they missed that first rent deadline there would no longer be the incentive to pay on time again putting more pressure on me to meet deadlines. Once they lose the incentive the eviction notice might become less threatning.
Safer for me to adopt the old saying "spare the rod, spoil the child". I know every situation is different and I think you have a more upscale, responsible renter pool.

 

[jarrettvaughan]

These are definetly valid points. One could arrange it so that the rent doesnt increase forever based on the fact that they failed to pay you one time. It could be arranged in such away that they are penalized or rewarded (depending on your perspective) every month, reducing the fear of higher rent for eternity. This was they can recieve forgivness if the first late payment was an error.




QUOTE (invst4profit @ Nov 19 2007, 01:33 PM) Now that is a hook I can understand. With that system I would be more than happy to see them late with there first rent payment. Unfortunatly I would have two possible problems. First my potential renters are in a lower rent catagory and many would be turned away by the fear of the higher rent and second once they missed that first rent deadline there would no longer be the incentive to pay on time again putting more pressure on me to meet deadlines. Once they lose the incentive the eviction notice might become less threatning.
Safer for me to adopt the old saying "spare the rod, spoil the child". I know every situation is different and I think you have a more upscale, responsible renter pool.

 

[TylerUzelman]

Jarrett, Greg,

That is exactly how our lease works, we set the rent for market rent after the incentives are given... ie. if market rent is $1,200 then our base rent is $1,300. We also include in our leases a late fee too! The rental incentive is something that makes good tenants feel better... We still charge a $100 late fee if rent is not paid by the 3rd of the month.
We thought about the same issue as you Greg, about if the rental incentive were lost then what is to make them pay on-time thereafter... We stress the importance of not being late with rent, but having the two options allow us to give grace to the tenants we wish, and only charge the $100 late fee and give them a break on the on-time incentive. I think it makes paying the $100 late fee easier to take if they feel they are getting a second chance for their rent not to go up $50 for then on...
But for the tenants who are always late, it`s fair compensation for dealing with everything that goes along with it...
Hope this helps,

 

[Ryan]

I like to expand on the "Gift Basket" approach.

At no set intervals (3 months, then 5 months, then 2 months etc ... ) show up with an envelope for your tenant with a card saying how much you really appreciate them paying the rent on time and as a token of that gratitude, here are a couple of movie passes, or a family pass to the circus etc ... In the summer show up with an Oscillating Fan; you get the idea.

Basic psychology teaches that random positive reinforcement will help condition consistent positive behaviour with greater results than a system of static positive re-enforcement


Kind regards,

 

[invst4profit]

As a non member of REIN I have to ask is this system you are using, renter penalty/incentive, part of the REIN training.
Is this the type of hard knowledge what you get from membership or is this "school of hard knocks"
I ask that question because the original poster did not know what to do. I am trying to evaluate REIN.

 

[dwb]

QUOTE (Ryan @ Nov 19 2007, 10:34 PM) I like to expand on the "Gift Basket" approach.

At no set intervals (3 months, then 5 months, then 2 months etc ... ) show up with an envelope for your tenant with a card saying how much you really appreciate them paying the rent on time and as a token of that gratitude, here are a couple of movie passes, or a family pass to the circus etc ... In the summer show up with an Oscillating Fan; you get the idea.

Basic psychology teaches that random positive reinforcement will help condition consistent positive behaviour with greater results than a system of static positive re-enforcement


Kind regards,

Ryan, what an excellent post.

I personally use a combo of all the above, including incentives & late fees, but for me what goes the furthest are small token of appreciation (usually I do it at christmas time) that you mentioned such as movie passes, gift certificate, wine etc... for on time paying clients. (You`ll notice I said clients instead of tenants as thats what tenants basically are - our clients!).

These clients (tenants) are really thankful for this gift & the basic psychology that Ryan has brought up cannot be understated.... I`ve found that they often become long-term tenants as they are comfortable with the relationship & don`t want to venture out & start new with someone else. Not only that, but if they need to move for whatever reason (for example moving in with a boyfriend/girlfriend and need a 2 bedroom instead of 1 bedroom) then they`ll often ask me if I have anything available for them which can be very helpful.

The only downside is that it can make it difficult/awkward to raise annual rents, but for these types of clients (tenants) I think they`re worth the exception to not raise rents. That`s just me though. However, it is important to be selective as this isn`t for every tenant - just those special tenants that pay on time, are quiet, keep the place in great condition, fix small repairs themselves etc...

Anyways, just my 2 cents.

 

[RebeccaBryan]

All of the material on how to handle renters is discussed in the booklet we have about being a pro-active landlord. If REIN members are asking questions about what does and doesn`t work it`s because they are thinking outside of the box as we`ve been taught to do in REIN or else they have not read the material.

For Ryan above, we needed to ask our tenants to pay a couple of days before their rent was due in August because we were going on holidays for the month. The ones that did we brought them a gift along with a thank you card for our appreciation. We give random gifts as well to our tenants whom we appreciate.

Also when we interview our tenants, we explain why we need the rent payment on time. Reason being our mortgage payments come out on the first of the month. We tune them into the fact that we are human and have commitments that need to be made as well. Tenants tend to think the people that own properties are "rich", and while that may be true in the long run, when you are just starting to invest it helps to have payment ontime. It also saves us from transferring money from one bank account to another and mess up our accounts as we have each property set up separately in order to make our bookeeping easier.

We also give them a heads up on the eviction process that we use in order for them to understand that we intend to enforce our rights as landlords. It doesn`t bother any of the tenants that intend to pay on time. We`ve had great luck with this method.

Also to Tyler (above). We charge $100 late fee if they don`t pay by the 1st of the month. The rent is due on the 1st. If you charge a late fee after the 3rd of the month rent tends to be due by the 3rd in their minds. We ease up a bit on that only after we`ve had the tenants for a long period of time and we are comfortable with their integrity and they have proven to us they are equity building tenants.