Last year I became a homeowner for the first time – exciting, isn’t it? Plus, I started managing my first rental property. You see, when I was in the process of buying a house I decided that I would split the cost of my mortgage by finding roommates. Fast forward a bit and I’ve got some people to hang out with. However, I’ve also found myself dealing with a common challenge many property managers – and roommates in general – face: late rent!
To solve this dilemma, I turned to a few of my financial advisors who also own rental properties. I asked him what his tips were on things like finding good tenants and (most importantly) paying them rent on time. Most of them said that the best way to deal with late payers is to charge a late fee (eg $25 for each late payment per week).
However, to me, charging someone who was clearly already struggling to pay rent was a bit counterintuitive. Instead, I started thinking about what naturally incentivized a tenant to pay rent on time, without resorting to additional penalties. I brought two:
- Pay rent on time to avoid conflicts with your property manager or roommates.
- Pay rent on time to maintain a good relationship with the manager for possible lease renewal.
The problem is that a lot of this depends on how “good” a person is. They don’t really put any financial incentive in front of the tenant to pay on time (or early). So I decided to implement what we’ll refer to as the Delay Avoidance Incentive (LAI).
Finally, I decided that if my roommates paid their rent before the first of each month, they would get $25 off their normal rent. For peace of mind, I decided that all utilities (washer, dryer, internet, and cable) would be included in the price of their flat rent.
Since these two policy changes went into effect, there has actually been a small cultural change in my household. Not only has the incidence of late rent payments been down (read: zero), one of my roommates has even tried to make me pay several months earlier in order to save hundreds of dollars over the course of a year.
So let’s do a little cost/benefit analysis:
Cost:
- I get $25 less per month than Tenet.
- I do not receive additional compensation for late rental.
advantage:
- Rarely do I have to bend the rules to pay the rent.
- I usually have the money to pay the mortgage payment well in advance of the due date.
- Roommates feel I am looking out for their best interests.
It’s been a year in my new home ownership system and I still haven’t received late payments from the roommates. Not even for a day. That doesn’t mean my system is perfect, or even that I’m getting the best deals. but money Is Regular. There is also an importance to not awkwardly chasing people for rent money. However, I would recommend that if you’re going to cover utilities (or any bills that haven’t been settled) that you make sure you put a cap on the amount you pay as the homeowner. are doing.
