Rent is due on the 1st of the month for your Naperville rental property. Most of the time, the rent is paid on time. Occasionally, there is a late payment. As a self-managed landlord, late payments are on you. The text. The call. The confrontation. The math.
Month after month of being in the uncomfortable situation of negotiating with a tenant to collect rent on time is no fun for a landlord.
This post is written for the tired landlord who is sick of treating rental payments as a negotiation that occurs every month. How late payments work, the costs to you of late payments, a complete outline for the process of late payment enforcement and finally, how the system you are using (management software for tracking payments, etc) is just as important as the lease you signed (written out in contract by attorney).
In This Guide
- The Real Cost of a Late Payment
- Friendly Isn't Efficient
- What a Real Collection Process Looks Like
- Illinois Eviction Process & Collection Best Practices
- The Screening Connection Nobody Talks About
- Lease Renewals vs. New Tenancies
- What Consolidated Reporting Actually Does for Multi-Unit Owners
- What 21 Years in This Market Actually Means
- Before Problems Develop: Set Up Your Collections Process Correctly
The Real Cost of a Late Payment
Late payments appear to be nothing more than an inconvenience for a landlord but in reality are cost draining to the owner that rents out real estate. Two weeks of late payment for a $2,000/month rental would total $1,300. Of course this can be avoided by enforcing all late payments in accordance with contract written by local attorney that is experienced in real estate law.
This has been the pattern with one of our client's, an owner of a rental property in Elmhurst. His tenant has always paid on time, but not on time. The owner would wait until the 6th or 7th of the month for the rent to be paid. It seemed like no big deal and wasn't worth jeopardizing a good relationship. However, the owner did not make an effort to enforce a late charge in accordance with the lease, and as a result, the tenant is now paying on the 12th of the month for a $2,000 per month property. That's $1,300 in lost time-value over a one year period. That's not counting the increased likelihood that the tenant will be late in the future.
This, of course, is just a minor case of late rent payments. A formal eviction can cost $3,000 to $5,000 or more in attorney's fees, court costs and lost rent before the owner can even re-rent the property out.
Friendly Isn't Efficient
Friendly landlords get paid late more often.
A friendly landlord-tenant relationship is not necessarily a healthy relationship. We have had owners in the past tell us that they like to treat their tenants like friends and that is fine. But if the landlord knows the tenant personally then he is more likely to accept verbal promises of payment rather than following the lease in regards to payment. If the landlord treats the tenant like a friend then he needs to treat all tenants the same. This can create a problem where the landlord is giving preferential treatment to one tenant over another. And in the long run this can create problems for the landlord and the tenants in other rental units that the landlord owns.
Making concessions for your tenants (and being friendly with them) doesn't have to work against you in terms of rental payments. Until it does. There's a very fine line between building a great relationship with tenants and letting them run all over you when it comes to your rental property cash flow. A lot of friendly landlords find that the relationship they have with their tenants can cloud their judgement in situations such as verbal agreements for payment or when accepting partial payments from tenants who are struggling to make ends meet.
Having a professional manager between you and your tenants puts a layer of protection between you and your tenants. In good times it can make for a great relationship and in bad times it can help to protect you from tenants taking advantage of your friendly relationship. Once the policy is in place the manager can send the late notice and the owner is out of it.
What a Real Collection Process Looks Like
Note that technology can't solve late payments for you. And we hear from many landlords who have set up an online portal to collect rent, but that hasn't solved the problem of late payments. Unless the portal is linked to late fee automatic assessment and payment, and there are set reminders for the owner and/or tenant, and the lease spells out what happens when and why, then the late payments are likely to continue.
We utilize a technology platform called Rentvine to collect the majority of our rent payments. It is a online portal where our tenants can set up their accounts and pay their rent online. The portal also tracks payment history and will send automated late notices for any rent payments that are made after the due date. Our manager will then send a notification to the owner, and the owner can then deposit the rent into their account via direct deposit. The manager also has the ability to track in real time whether or not a tenant has paid their rent for the month. In the winter months (December, January, February) when finances may be tighter due to holidays, etc. the automated late notices are sent out automatically, 7 days a week, 24 hours a day, whether the manager is in the office or not. This ensures that all rent payments are collected consistently.
It is a process, and that's what has to be set up, and that's what has to be managed.
Illinois Eviction Process & Collection Best Practices
Here in the State of Illinois tenants are granted a 5 day pay or quit notice. This is 2 days longer than the 3 day pay or quit notice found in most other states. Every day you delay sending the notice can cost you valuable time to start the eviction process.
Another common landlord mistake – accepting partial payments without a written amendment to the lease. In most jurisdictions, a landlord has 5 days to give a tenant a 5 day pay or quit notice for nonpayment of rent. After that, the landlord can file an eviction complaint with the court and wait for the court process to drag on for weeks or even months. In the meantime, the late paying tenant is living for free. If an owner accepts a partial payment of $500 on a $2,000 unit without a written amendment to the lease, the 5 day pay or quit notice starts over – the tenant only owes $1,500 and the landlord has to start the process over again. It is always better to be firm and not accept partial payments without the tenant signing a written amendment to the lease stipulating the terms of the partial payment.
Then, of course, there is the other pitfall that waiting to send a notice of late payment can land. Some leases contain provisions allowing rent to be paid late (i.e. within a few days after the normal due date for a fee), in which case, acceptance of late payment by landlord can essentially start a new 5 day notice pay or quit cycle over again. So long as landlord waits 30 days to start proceedings (at which point a court may grant a 30 day stay of judgment as an matter of right under section 2-2002 of the Illinois Code of Civil Procedure to allow tenant additional time to pay the amount in arrears), it can seem as though accepting payment late in order to keep peace in the neighborhood is the easier option. However, this is not always the case. In some circumstances accepting a portion of a late payment in order to keep a tenant 'current' can actually serve to undermine an owner's collections process in the long run.
The Screening Connection Nobody Talks About
Even the absolute best of collection processes can get shut down by one bad approval.
Screening has always been a huge part of finding the right tenant. Our average time to place a tenant is about 8 days. If we are talking about a $2,000/month unit, a 30-day vacancy would cost $2,000 in lost rent. We put our applicants through strict criteria and normally verify their income at 3x the monthly rent. This tends to filter down to only the highest quality applicants. In the Naperville rental market, many of our tenants are corporate relocation and have good payment histories. This sub-1% eviction rate starts with our strict criteria for the screening of potential tenants.
Screening applicants for potential renters is where we get our sub-1% rate of evictions from. The probability of any payment issue with a new tenant declines rapidly before a lease is even signed and a payment is late.
“A formal eviction can cost $3,000 to $5,000 or more in attorney's fees, court costs and lost rent before the owner can even re-rent the property out.”
Lease Renewals vs. New Tenancies
Here is a comparison between lease renewals and new tenancies that we frequently share with our owners.
A lease renewal Yellow Key Lease renewal fee is $200. A new tenancy Yellow Key Leasing Fee is a full month's rent. So on a $2,500 per month rental property, leasing a new tenancy would cost the owner $2,500 in leasing fee. Plus the cost of the vacancy in between!
Maintaining reliable tenants in Lease in effect can be as cost effective for a landlord as collecting rent on properties that are already Leased. If a tenant continues to pay their rent on time, does not require as much maintenance, and/or allows for Lease renewal then the collection of a single renewal fee for Yellow Key is a cost effective collection method for a Landlord. We have seen numerous instances where a reliable tenant was lost due to various reasons, and had to be Leased again with all of the above costs incurred for Yellow Key to begin collecting rent.
What Consolidated Reporting Actually Does for Multi-Unit Owners
One of our multi-unit owners in suburban Cook County had used his time as money while managing the collection of rent on the properties he owned in the Downers Grove / Geneva area. Naperville rental property owner questions about the way he had collected rent on the properties prior to turning the collections over to Yellow Key were typical. There were a variety of due dates for the various tenants for various properties. The payments were made by a variety of different methods (on line or by check / cash) and there were different deposit times for the various payments. The result of the collection of the rent for the various properties was that what had been a source of passive income had, instead, become a part time job.
In this particular case, a member of our team worked directly with a multi-unit owner located in suburban Cook County to help map out each unit on Rentvine, and put together a correct structure to help report financials under one unified reporting system. In the first quarter of using Rentvine to report for his properties, this owner finally had the clarity of cash flow that he had been so sorely lacking.
If you are managing a large portfolio of rental properties and are finding that you are spending to much time logging into 3 or 4 different systems to see if this month's rent has been paid then we can help you solve this problem.
What 21 Years in This Market Actually Means
We at Yellow Key have learned how to do things the right way from 21 years of rental property management experience. We started this business in 2004 when our founders bought a portfolio of rental properties in Geneva, IL. In the founders at Yellow Key have managed rental properties throughout the 2008 housing market collapse, the IL eviction moratorium caused by COVID-19 that ran from March 2020 through October of 2021 for over 19 months where landlords had almost no ability to evict tenants without proper documentation in place, and all of the slow winter rental seasons and hot summer leasing seasons in between.
Having 21 years of local experience here in Illinois is important because at some things can go wrong with managing rental properties and it's nice to have experience solving problems within a local market, in this case: DuPage County, Kane County, and the suburban parts of Cook and Will Counties where we serve. Typically, owners posting questions on online forums (like the local real estate sub-reddit for Naperville rental property owner questions) receive general advice which is applicable nationally, but does not take into account many local specifics (for example: the Illinois eviction process, local county court houses for eviction proceedings, the typical seasonal rental cycles).
Kane and DuPage have different courts to file for evictions and it can be a waste of time for a landlord if filed in the wrong court.
Before Problems Develop: Set Up Your Collections Process Correctly
Before a problem exists for you with a late payment from a tenant fix your rent collection process. We have seen tenants on property managed by Yellow Key where late payments have not occurred for months or even for years on a property that the owner self-manages.
However the collections process is set up initially, we have experience handling late payments, partial payments and even the dreaded bounced check. We recently came on board to manage a single family rental property in Downers Grove and, although there were two late payments in the owner's year prior to hiring us, and one of those late payments had even bounced, under our program at Rentvine all subsequent rent payments have been received on time, deposited directly to the owner's account every month.
That's what a working process looks like.
FAQ
What happens if a tenant doesn't pay rent in Illinois?
In Illinois a 5 day written notice of payment or quit must be provided to the tenant prior to filing an eviction for nonpayment of rent. By delaying the sending of the notice, each day of delay is lost as leverage to attempt to negotiate a resolution of the delinquent amount with the tenant. After the 5 days have expired and tenant has not paid rent or vacated the premises, the eviction proceeding can be filed with the court with typical costs of $3,000 to $5,000 or more to complete the eviction process through the court system.
What are the rules around accepting partial rent payments?
As stated above, accept of partial rent payments must be in writing and agreed to by both the landlord and the tenant. Should a tenant make an offer to pay a portion of the overdue rent, the landlord must document all terms and conditions prior to accepting any payment.
Does Yellow Key serve landlords outside of Naperville?
Yellow Key manages properties in areas including Naperville, IL as well as throughout the region of DuPage County, Kane County, in addition to most of the suburban Cook and Will County communities. This means we also have experience with: properties located in Downers Grove, IL, Elmhurst, IL, Aurora, IL, Bolingbrook, IL, Joliet, IL and many other surrounding Chicagoland suburbs. You can see a full list of the areas we serve on our website.
Does online rent collection actually reduce late payments?
Late payments can be reduced using an online rent collection platform when that platform is used in concert with automatic late fee assessment and lease language which clearly outlines such terms and consequences. The software that we use for our owners, Rentvine, was designed from the ground up to be the core of an effective collection process.
How quickly can a vacant rental property be placed with a new tenant?
For an owner with a $2,000 per month rental property, 30 days of vacancy will cost them approximately $2,000 in lost revenue. You can estimate your own exposure using our Vacancy Loss Calculator. The Yellow Key staff has the tools, technology, and contacts to place a rental property as quickly as possible. We typically put our owner's properties under rental contract within 8 days of placing them on the market for rent. However, we always go to great lengths to ensure that the tenant placed in a rental property is the right tenant for the owner and his or her investment.
