What would you do with this late paying tenant?(LONG) - Posted by Jim IL

Posted by Skip (CA) on May 09, 2000 at 14:25:04:

Since they are consistently late, but always pay the late charge, have you asked them why?? Maybe there is a good reason. If the reason relates to date they’re paid maybe you can renogiate their rental payment date (still prior to your due date obviously). I know this will eat into your extra cashflow, but you won’t be having that cashflow much longer. If you do renogiate the due date you could also document the reasons for their previous late payments (did you report these to Experian?)with the mortgage broker. Just a thought. And no, I’m not usually a softie but some tenants I’ve had were good and I don’t mind helping the good ones. My .02

What would you do with this late paying tenant?(LONG) - Posted by Jim IL

Posted by Jim IL on May 09, 2000 at 13:27:52:

Hello all,
I have a T/B’er in one of my L/O’s that pays late EVERY SINGLE month.
In the past I have served them with the 5 notice to pay or quit, and they almost AWLAYS pay on the 5th day. (some times I have accepted the rent in two payments, just to be “helpful”, but always with a stern warning that this may not always be the case.)
The good news is that they also pay the late fees, which frankly has increased my cash flow, and that is not too hard to take. (an extra $100 or $200 per month is not a bad thing is it?)
Here is the kicker though;
This T/B’er asked me last month, “will we still be able to buy the home at the end of our L/O term?”.
Of course my answer was rather simple, I told them, "sure, IF you can get a loan, but remember, these late payments are certainly NOT going to help."
I will do what I can to direct them to a good mortgage broker, but even good ones are not miracle workers.
I even worked with this T/B’er in the beginning explaining to them what steps they needed to make to obtain financing later. We helped them write out a plan to rebuild there credit, and even had them sit down with the mortgage broker I know. He told them the same thing I did, and that was the fact that the ontime payments to me would be VERY importnant to get them qualified.
So, this is there own fault if they cannot qualify, and frankly, an extension will not be up to me, since the soon to be ex will have the deal by then.

I have thought a few times of evicting them, after not accepting the late rent, or fees, but frankly do not want to carry this property in the mean time.
Plus, this is a property that will be turned over to my soon to be ex-wife really soon.
I have to admit, I do enjoy the added cash flow every month from there late fees etc.
The other thing is that these people have made the home a lot nicer since they moved in, by doing some improvements to it. (Nothing major, it just has more curb appeal and the inside is freshly painted and clean.)
I guess what I am asking is this;
Since I can afford to carry them a few days each month, and still collect those fees, but know fairly well that they will NOT be able to exercise the option, do I go ahead and kick them out and find a new T/B’er, or just let it go and give the deal away in the divorce as is?

The good news is that when I bought this home I did it with seller financing, and I wrote the note and all its provisions.
My payments are not due until the 20th of every month, and if I am late, (I have NEVER been late.) my late fee is only $20.

I had thought about going ahead and evicting them, and then finding a new T/B’er for the place, and making some more cash real quick before I give the deal to my ex, and of course, she’d get some of the new T/B’ers option $$.


I can just let it slide into my ex’s hands and be done with it.

what would you do?

Thanks for any input,
Jim IL

P.S. I know I can make this decision alone, and will, but was just curious what others would be thinking if they were in my shoes? I just do not want to waste any time or energy on this if I can avoid it.

P.P.S. And “Yes”, my ex knows about what has been happening, but has ZERO input on it, she simply does not care either way.
Thank goodness I can assign this and be released from liability on it, since I already had my seller sing a CYA release for me.

Sounds like a good tenant to me, and… - Posted by SCook85

Posted by SCook85 on May 09, 2000 at 21:43:01:

I’d be happy to have tenants like that all the time, in every one of my homes. Like Piper said the payments have to be more then 30 days late for a lender to be upset about it.
The main reason that I am posting is the situation dealing with your ex. Forget about it. Operate your business as if she were not in the picture. I was always so worried about my ex that I held myself back. If I would have spent the effort that I did to hide things from her on making more money, I would have made so much I wouldn’t have cared how much she got. It’s negative energy being spent on your part, use it for something positive.


Thank you all! - Posted by Jim IL

Posted by Jim IL on May 09, 2000 at 21:28:57:

Hello all,
Thank you for your input. Honestly, pretty much what you ALL said was what I was leaning toward on this anyway.
Sometimes it is nice to “check our thinking” with somewhat like minded people.
So, I will continue to collect increased cash flow from the late fees, and then pass the whole mess on to my soon to be ex wife in another couple of months.
Let her decide what to do.
With the cycle the way it has been with these tenants, that will probably be the month the actually pay on time!
Lucky her.

I’m going out to dinner tomorrow night, courtesy of my tenants and there late fees. Yippee.

Thanks and happy investing to you all,
Jim IL

P.S. I cannot believe that the great Lonnie Scruggs responded to one of MY posts, wow! what a feeling. Thanks Lonnie. (and others too Õ¿Õ)

Re: What would you do with this late paying tenant?(LONG) - Posted by Lonnie

Posted by Lonnie on May 09, 2000 at 19:35:36:

Hi ,

This is an excerpt from one of my books. Maybe it will help you have an “attitude adjustment” also. Like Joe says, send them a gift and hope they keep paying late. I have several that pay late every month, and I hope they never stop. Late fees are one of the best yielding “investments” you have.


Late Payments Are Great

Have you ever had something that just bugs you to death? Some little problem that has a way of waking you up at four o’clock in the morning and keeps you awake the rest of the night? Yeah, I guess we all have. Well, I’m having some degree of success in turning these kind of problems into pleasant experiences. I’ve discovered that sometimes it’s just a matter of how we look at the problem and changing our way of thinking. Let me go over one of those problems that I did have.
This one concerns people that won’t make their payments on time. If you’ve ever had rental property, or sold anything and carried the note, you know what I mean. Regardless of how well you screen tenants, or how good the credit report is on that person, somebody just won’t make the payments on time. It’s their lifestyle, and you can’t change them. This used to irritate the devil out of me. But not anymore, now I welcome late payments. WHAT?! Welcome late payments!?

I Love Late Payments

You’re probably thinking, "Old Lonnie has been staring at that computer screen too long, he needs a break to clear his head Well, let me explain why my thinking has changed on late payments. See if you agree with me.
We sold a mobile home one time to a couple and carried the note. Their payment was due on the first day of each month, and they could never manage to make the payment when it was due. But I could count on it coming in between the 15th-20th of the month, with the late charges. This became such a routine thing that I knew I would receive that payment late every month, and it bugged me.

I Have Been De-Bugged

Until…one night I was trying to relax in my easy chair after dinner. I couldn’t really relax because I was thinking about the payment that I hadn’t gotten from this particularly buyer. Then the thought struck me, “Wonder what kind of penalty this couple have voluntarily placed on themselves by being late every month?” So I grabbed my trusty calculator and started punching buttons. When I finished punching buttons, I had a smile on my face. Let me show you what that calculator told me.
This couple’s payment was $200. If received after the 5th of the month, there was a $25 late charge, plus $2 per day after the 5th. Doesn’t sound like a lot, but here’s is what my calculator said to me.
If someone owes you $200 on the 1st day of the month, and they pay you $225 on the 20th of the month, you have really made them a loan at 150% interest. WHAT? 150%! Punch those buttons again. Sure enough, that’s what this couple is paying every month they are late.
Let’s make another table, I want to see this in print. Only this time, we have to add another block for future value (FV.) Our table shows that if we loan someone $200 (PV), get no payments, and one month later we get back $225 (FV), we are earning 150% on our $200.

1 150 0 200 225

The payment was usually 15-20 days late but I’m using one month as the number. I won’t try to get into figuring days. Check our table and see if I punched the right numbers.
Now I realize $25 isn’t big bucks, but what if you had 10-15 people like this couple. Then it starts to add up considerably. Let me give you a real eye opener comparison.

They Never Learn

We had one man that bought a mobile home from us ,and his payment was due the 1st of each month. He never could pay on the 1st, but on the 15th, he made the payment, together with the late charges. And this went on month after month.
After about a year, he asked me if I could arrange to make his payments due on the 15th, because he hated having to pay those late charges. So I changed his due date to the 15th. (I’ll bet you’ve already figured it out.)
Sure enough, the very next payment that was due on the 15th of the month, was made the following 1st of the month, with a late charge. And he continued doing that until he paid the home off. If I had told this man that I would have to raise his payments $25 a month, but I would eliminate the late charges, he would probably have thrown a fit. People are strange, huh?
At one time we had about 70 rental units. (Yuck.) There were some months that we collected more in late charges than some people were earning by working a full time job.

Late Again? Thank You

Let me describe another late payor that used to irritate me until I changed my way of thinking. This involves a man we sold a single family house to many years ago. He was a constant pain in my neck, until I learned just how much he was paying me.
His note states that if any payment has not been received by the due date of the next payment, the loan will then, at the option of the note holder, be declared in default and all remaining principal and accrued interest becomes due and payable in full. Other words, if a payment is more than a month late, the note is in default. This is what is known as an acceleration clause.
This man would wait until the very last day to make the payment. And he didn’t seem to mind in the least paying the late charges. But after a couple of years, he slipped up and failed to make the payment within the 30 day period. His note was now in default. Gotcha! After all that time and frustration of not getting my payments on time, he triggered his trap. Now, it was time to do some renegotiating.
I really didn’t want that house back, so foreclosure was the last option for me. But I didn’t let him know that. Instead, I mailed his payment back and informed him that his loan was now in default and under the terms of the note, I had the right to demand payment in full of all remaining principal and interest.
But, I would be generous and give him a choice. He could either agree to an amendment of the note, pay all delinquent payments and late charges, or pay the entire loan balance off, or loose his house in foreclosure. He chose to amend the note. Here is how I structured the amendment.
The original note was a straight amortized loan payable over 20 years. The amended note I drew up states that interest would be computed on a daily basis. This means that interest is figured on the number of days that have elapsed since receipt of the last payment, to receipt of the next payment.
The amendment states that the late charge would now be 10%, instead of 5%, and there will be no grace period. His payment is due the first day of each month, and must be in my hands by 5PM on that date. Otherwise, a late charge is due and must be included in with the mortgage payment.
Also, all payments must be in certified funds, no personal checks would be accepted. (He had given me several bad checks in he past.) And I gave him 10 days to return the amended note and all money owed to bring the note current. If he failed to do so, I would turn the matter over to my attorney and start foreclosure proceedings.
Before 10 days were up, he had the amended note signed, notarized and all the money owed to bring the note current. Now, he could be 30 days late and I didn’t really care. I explained to him that he could now decide how much interest he would like to pay. If he pays early, he pays less interest, if he pays late, he pays more interest.
Guess what? He didn’t learn a thing. His mortgage payment is $637.His late charge amounts to $63.70, and he pays late at least 10 out of every 12 months. But hey, I’ve learned to like this guy. What’s my yield on this payment?
But, as the saying goes, all good things must come to an end. Several months ago, his father took over paying his bills and I’m now getting my payments on time. Sure do miss that little bonus I was getting all those years. (And this man is a school teacher. Is it any wonder why kids finish school and know nothing about money?"

Re: What would you do with this late paying tenant?(LONG) - Posted by laure

Posted by laure on May 09, 2000 at 19:21:45:

I would let good enough be alone. Why give yourself the extra aggravation? That’s just my thoughts, but I guess it depends on your personal financial situation, and if the extra option money is worth the vacancy, and the expense and aggravation of it all.

Laure :slight_smile:

Send them a turkey at Christmas . . . - Posted by JoeKaiser

Posted by JoeKaiser on May 09, 2000 at 18:59:59:

Late fees are an excellent source for additional income and the chronic late payer is welcome to rent from me.

Our rent is considered late after the first (they lose their discount), and a 5% late fee becomes due and payable after the 5th. I have one gal who’s paid me late every month for over three years and the late fee is just a given. In fact, a few months ago she actually paid on time . . . but included the late fee just the same.


Talk about late fees - Posted by pboone

Posted by pboone on May 09, 2000 at 16:28:11:

We too are in the “added value” late fee business, but get this… We started charging the maximum allowed by state law which is 10% of the rental amount. Now when someone is late it hurts (usually 75-125 per mo) and talk about added cash flow.
We do put a provision in the l/o agreement that states “Any payment to exceed 10 days nullifies this agreement” The results are some late fees and a few given back

Re: What would you do with this late paying tenant?(LONG) - Posted by JPiper

Posted by JPiper on May 09, 2000 at 15:26:07:

I wouldn’t evict them because:

  1. The late fees are a good source of additional cash flow

  2. What the lender is concerned with is 30 day lates, not 5 day lates.


Re: What would you do with this late paying tenant?(LONG) - Posted by TomC (Md)

Posted by TomC (Md) on May 09, 2000 at 15:11:37:

If the tenants are keeping the property maintained and not a PITA, and you get the lates fees, I would keep them and pocket the add’l income.

I have one tenant that almost always pays late. I used to files the eviction papers if she was more than 10 days late. That cost me an hour of time at the courthouse and $9 filing fees. And she would always pay the rent and late fees before the court date.

The late fee is 5% of the rent. Even when she pays 10 days late, thats a darn good return on investment. Try annualizing 5% for a year, and you see that you are getting an incredible return!

My “dream” tenant would pay on the 11th (in Montgomery County, MD late fees are not enforceable until the 11th)of the month, and include the 5% late fees and keep the property in great shape.