How To Properly Charge Late Fees In A Mobile Home Park
|Mobile home park tenants are not rich. Most of them live from paycheck to paycheck. As a result, they frequently don't pay their bills on time - sometimes at all. To motivate these tenants to pay their lot rent on time, you must enact a late fee for rent that is not received by the due date. However, enacting such a plan is a lot more complicated than most park owners recognize. And messing up the plan can cause extreme legal and financial penalties. Here are a few initial points to consider:|
How Much To Charge The Tenant?
There is a law in most states as to the maximum late fee you can charge. It is not left up to your discretion. You are not allowed to charge a punitive amount. For example, if the lot rent is $150 per month, your late fee cannot be $100. The law is very specific on what you can and can't charge. Don't know the maximum amount allowed by law? You've got to get this data before you can go forward. Here is a list of Property Codes by State.
How Much To Charge the Tenant Within the Law?
You do not want anyone to ever be late. As a result, you should charge the maximum amount allowed by law to definitely get their attention. If the maximum is $50, then charge $50. I've toyed with this as much as anyone, but I'e found that you have to make it absolutely not an option to be late, or the tenant may rearrange his payment plan and pay for that needed car repair/case of beer/cell phone bill before your lot rent. I cannot think of any reason not to go for the full amount allowed by law.
When Do You Charge It?
You should charge the late fee after a certain grace period. For example, if the rent is due on the first of the month, then you might have a grace period of the 5th. Any rent paid between the due date and the grace period (and obviously before the due date) would not be assessed any type of late fee. However, any rent received after the grace period would receive a late fee. In our example, any rent received on the 6th or later would be charged a late fee.
How Do You Prove When You Got It?
The best way to do this is by postmark, assuming that you have the rent sent in to a P.O. Box as we do. If the postmark is after the fifth, then you will charge a late fee. What if the postsmark is on the fifth? Well, in some areas, if you sent it on the 5th, it can still reach its destination theoretically by that afternoon. So you are much safer just using the day after the end of your grace period for the postmark definition of late rent. And obviously, you want to save every late postmarked envelope as "Exhibit A" if you have to go to court over it. No judge is going to rule against you if the postmark is later than the grace period end date.
What About A Late Fee System That Increases Daily?
These systems, and we've tried them, are just too complicated. Although you may feel like it is going to motivate the customer, we've found that it really doesn't - they don't think that strategically. Basically, if they have the money in hand they'll pay you, and if not they can't. It's not like you are reminding them. Normally, if they miss the first of the month, they don't get paid again until the 15th, and as a result can't pay you again until the fifteenth, no matter what the penalty. Just keeping track of a daily escalating late fee will cost you way more in time than it is worth.
How Do They Know They Owe A Late Fee?
The best system is to send a monthly invoice, showing the rent plus a late fee, if they have one. Obviously, you have to have some kind of notification system if you want to be paid. If you let the tenant pay the rent in person at the park office, then the manager will need to keep a list of who owes it and collect at that time. If you send the rent to a P.O. Box, then there will have to be some type of system in place or you will never get your late fees. They can't pay it if they don't know they owe it. And don't imagine that they should know themselves - it doesn't happen in the real world. They always dream that somehow they got around the system, or you screwed up and forget to assess it.
Am I Being Mean Charging A Late Fee?
No. On the contrary, you are being a bad landlord if you don't. If the general tenant base starts delaying or stops paying altogether their rent, then the property will either go bankrupt or into disrepair. Neither scenario is for the good of the community. You must maintain order and keep the bills paid for these folks to have a home. And a late fee is the magic ingredient to help keep them paying, and at least create a small buffer if they don't. Would you rather charge a late fee or kick them all out on the street, because that's basically the choice you are making over the long run.
Can I Forgive The Late Fee Once Assessed?
Legally you can. However, if you do that for one individual, then word will spread, and you will be besieged by folks wanting the same perk. You are far better off to stay uniform in your treatment of tenants. If you want, you could spread the late fee over several months to make it less painful, The only exception would be for extremely mitigating circumstances concerning a tenant who has never been late. For example, an elderly gentlemen who was put in the hospital on the 29th and released on the 7th. Even then, I would come up with a spin on it like you kept the late fee, but gave him an early payment discount for the next month of the same amount.
Other Collection Considerations?
It has been our experience that the total late fees in a stabilized, seasoned tenant base equals the amount of bad debt. This is very important, as it theoretically eliminates your line item of bad debt, when offset by late fees. Without late fees, you will never have perfect collections. With late fees, you scientifically can. And that's essential for hitting your budget.
Late fees are an essential part of being a good landlord. And it is very important that you do them the right way for them to be fair and accurate. In addition, you have to build a system to assess the fees that it simple, consistent and not time consuming.
If you follow the system shown in this article, you will see an immediate improvement in your income and general happiness of your customers in your mobile home park.
|Dave Reynolds is a successful real estate investor that has specialized in the purchasing of Mobile Home and RV Parks for the past 12 years. He has the keen ability to quickly assess deals, cut through hype, measure upside vs. downside risk, and make sound decisions. He has owned and operated over 55 Mobile Home & RV parks over the past 12 years in 16 different states. He currently owns over $10,000,000 in mobile home park real estate.|
Dave Reynolds received a B.S. in Accounting from Mesa State College in Colorado in 1992 and attended graduate school majoring in Accounting and Taxation at Colorado State University in 1993-1994.
Frank Rolfe was born in Missouri, the "Show Me" state, and has been starting up businesses since high school. He has had two big successes: a billboard business that he sold to a public company in 1996, and a mobile home park business that he sold to various buyers beginning in 2004. He always has several start-ups in the hopper - currently an old time photography business, a web-based educational products business, an art school, and a return to the billboard business. Frank Rolfe holds a B.A. in Economics from Stanford University.
Dave Reynolds and Frank Rolfe have combined forces to bring the real estate market a better perspective on the multiple successes you can have with Mobile Home Parks. Together they have a combined experience of 20+ years and over $100,000,000 worth of deals under their belt.
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