As a landlord and investor, you rely on your tenants to consistently pay you on time. It’s how you pay the bills, maintenance, repairs, etc. Creating a rule to implement late fees can be confusing regarding finer details like when the charge should take effect, how much to charge, and how long the grace period is. Keep reading because we’re going to answer those questions!
What Are Late Fees?
Late fees are an extra charge added to your tenant’s existing rent payment when they don’t pay on time. A majority of landlords charge these as long as it’s written in the lease agreement from the beginning.
There are pros and cons to charging late fees. The advantages are it helps encourage on-time payments and can help compensate for the bills you’re late on due to their lack of payment. The disadvantage is it could make paying rent more difficult for your tenant if they’re in a financial bind.
How Much Should Late Fees Be?
Late fees will vary by state and county as there can be laws about how high the fees can go. In Texas, landlords are allowed to collect a “reasonable” late fee if any portion of the rent is unpaid after two days it was due. This must be written in the lease agreement. Section 92.019 states a landlord can’t charge unless:
- The fee is written in a lease
- The fee is reasonable
- The rent has remained unpaid for two full days after it was initially due
It also states that the rent cannot be more than 12% of the amount of rent for the rental period under the lease if it’s a structure with no more than four dwelling units. If it has more than four dwelling units, then the late fee cannot be charged more than 10% of the rent for the rental period.
Most landlords charge around 5% of the rent or a simple, flat fee from $50 to $75.
Late Fee Best Practices
Implementing these practices will help make late fees a lot more straightforward.
- Include your late fee policies in your rental agreement.
- Have a grace period. The typical grace period is three to five days between when rent is due and when the late fee will be charged.
- Prepare for late fees to be ignored by tenants.
There’s never been a better time to invest in Austin real estate, and Sage Wilson Property Group has the investor experience and tools to enrich your portfolio. The first step is to schedule a Real Estate Investor Consultation so that we may learn more about you and your wants and needs. Learn how to invest with Sage Wilson Property Group by clicking here.