We received this comment from David (Thank you!) on the grace period for rent post. I must say, I am leaning toward a very strict very aggressive stance in this area as evidenced by David’s example. There really are very few acceptable extraordinary reasons for ones rent to be late. Price point to me should not be the driving factor for policy. In the hierarchy of needs, this should be first and foremost.
David’s comment:
*My company started eliminating our grace period at all of our new lease-up projects in Atlanta (currently 3 properties; 1 in Midtown Atlanta and 2 in the Perimeter Center area north of Buckhead). Rent is due on the first and considered late if not received by the first. There is a $200.00 late fee if paid late. At first I wasn’t sure how this would work, but we haven’t had any complaints and our delinquency is actually lower than normal at those properties. Part of it might be attributable to the type of residents we attract in the areas the properties serve and at our higher than average price point, but to me it really boils down to instructing your residents on what you expect. Sitting down and clearly explaining their lease when they move-in is a big reason why this works.*
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Glad I could help Mike.
I just wanted to reiterate my point about telling your residents what you expect from them. You’re right, having a grace period or not having one doesn’t have to do with someone’s ability to pay or a price point. I’m sure you’ll agree that most people want to do what is expected of them and will follow rules that have been explained to them. Our residents are no different and they pay when you tell them to pay. For example, when you tell a resident “Your rent is due on the first and it is considered late after the first. There is a 3-day grace period to pay without penalty and after the third an additional late fee is due.” they understand that to mean that their due date is the third because that’s when the penalties start (coincidentally, the majority of our payments also came in on the third… hmm…).
I really feel like this is a simple idea that isn’t as hard for people to understand as we assume it might be. To me, it’s really as easy as telling them that rent is due on the first and late on the second instead of the forth. We did the same thing in Atlanta a few years ago when most large management companies transitioned from a 5-day grace period to a 3-day period. Two days wasn’t a big deal then and it’s not going to be much different now. 🙂
As a sidebar, providing a “grace period” feels like the right thing to offer, especially when considering the state of personal finance many are currently facing. Did our residents truly believe that they had a “grace period” or did they just understand it as a due date? If you think about this as change your “due date” (which is in essence what we’re talking about) it’s easier to buy into. Think about your credit card company. If they eliminated your grace period you’d probably be upset and you might even think negatively of them because some may interpret the change as a way to collect more fees. On the other hand, if all they did was change your due date (after notifying you in writing before the change) it wouldn’t be a big deal. Just a thought… I think we’re having conversations about it because we’re looking at the idea from the wrong perspective.
There is no question that grace periods are fraught with lost revenue risk. We’ve found the more aggressive we are the better our revenue quality remains.
Further, we have found on a side note that the source of renters proves to be a predictor of future rent collection issues. Our experience is renters driven from online sources are higher quality revenue sources (they don’t skip, they don’t fail to pay, their credit is better, the buy more stuff). We maximize this factor using our tool occupancy100.com