How do you handle late rental payments? Do you assess a penalty for late payments and if so, what are the terms? If you’re a new landlord this will be something you’ll need to address and have language in your lease agreement clearly spelling out when rent is due, any grace period and when latehandling late payments penalties kick in. With a mortgage on a house,

 loan documents typically require the payment be made on the first of the month and is considered past due beyond that with a late payment penalty of 5.00% of the past due payment. If the mortgage payment is $1,500 and it’s not paid by the 15th, an additional $75 is assessed. So what should you do?

The first bit of advice is to fully evaluate your tenants with rental histories, credit and background checks. Fair enough but any real estate investor who has been around for a few years will tell you that late payments are a fact of life. Keep them few and far between mind you, but they will most likely occur at some point.

There are different types of penalty amounts and when they’re assessed but many lease agreements state rent is due on the first, a five day grace period then late penalties begin to accrue. If the rent isn’t paid by the fifth, a $50 late penalty is assessed along with another $5 daily charge. If rent is not paid by the 15th, another $50 is due.

Another option is to encourage early payments. If the rent is due on the first, have you considered reducing the rent by say $25 or $50 if the rent is paid before the first of the month? Or, if the rent is paid on the first each month for the term of the lease, the deposit will be returned with a bonus. Either way, with penalties or incentives, keep a sharp eye on receipt dates. Discourage late payments and reward timely ones.