Which Fees Can You Add To Increase Rental Revenue
Landlords often use the word “rent” to stand in for their income. But what they really should be saying is “revenue,” because, while rent is typically the primary revenue stream for landlords, there are many other great ways to increase your take home. Your goal should never be to charge tenants unfair rental fees, but still, there are plenty of opportunities to justly charge tenants in return for a product or service. There are also situations in which you could — and should — be charging tenants fees as a result of breaking terms of their lease.
Below, we break down various fees you can use effectively as a landlord to maximize your revenue as a landlord, we help you evaluate if you’re a good fit for the fee, how to start using it, and how much you can earn.
Pet Fees & Rent
Are you a good fit?
According to the Insurance Information Institute, 67% of US households own pets in 2020. As a landlord, if you deny tenants the ability to have pets in your units, you cut your potential tenant pool by more than half. Allowing pets in your units is a great way to attract tenants, and it can also be used as an additional revenue stream.
Although allowing pets can lead to greater liability and damage to your property, your potential profit will outweigh those concerns. It’s important to first understand your options, though. Deposits, rent, and fees are all various types of pet charges that landlords can choose. Pet deposits are much like security deposits, which are refunded if no damage occurs over the tenant’s (or pet’s) time in your unit. Pet rent is a monthly charge that is tacked on to the tenant’s rent. Lastly, pet fees are typically one-time fees paid when the tenant initially brings in a pet. We recommend going with pet rent. It is guaranteed money that you get to keep, and it will likely amount to more profit than a one-time fee would provide.
How to implement fees:
- Look into state laws. All states require that landlords allow service animals in their units, but some even prohibit pet fees. Make sure you are following your state’s rules and regulations.
- Determine your method. You must figure out if you will charge pet deposits, pet rent, or pet fees.
- Nail down a price. Generally, one-time pet deposits and fees are $200-500, and pet rent is $50-100 per month.
- Update lease agreements. If you are implementing new pet fees for pre-existing tenants, create an addendum for their leases. If the fees are for new tenants, write the agreement into their leases.
- Collect payments.
What you can earn:
Expected Cost: $0
How much to charge: $200-500 for one-time deposits; $50-100 for monthly payments.
Late Payment Fees
Are you a good fit?
Although being considerate and understanding of your tenants helps maintain a strong relationship, the health of your business hinges on enforcing payment agreements. Making exceptions and allowing tenants to falter on payments hurts your business. A good way to counteract late payments is implementing late fees.
Some tenants may see late fees as hostile and inconsiderate, but after being hit with fees once, they’re less likely to be late again. It is good practice to allow for grace periods so that tenants are granted some amount of flexibility. But once their time is up, it is important to consistently apply the late fee to their rent.
How to implement fees:
- Be aware of state laws. Some states have regulations regarding how landlords can implement late fees for rent payments.
- Settle on a rate. Landlords can make late fees a flat rate or a percentage of tenants’ cost of rent. Typically, flat rates run at $25-50, and percentage fess are 1%-5% of monthly rent.
- Determine grace period. Although grace periods aren’t required, they do help maintain cordial relationships with tenants. 3-5 days is recommended.
- Update leases. Once you have all of the logistics figured out, update your tenants’ leases accordingly.
- Collect payments.
What you can earn:
Expected Cost: $0
How much to charge: $25-50 for flat rates; 1%-5% of rent for percentage fees.
Applicant Fees
Are you a good fit?
Filling vacancies can be expensive. With the cost of screening tenants for credit reports, past landlord checks, employer checks, and county level criminal checks, your charges add up quickly. One way that landlords counteract this is by charging applicant fees.
Applicant fees are a good way to increase your revenue because there is no up-front cost, it doesn’t require much of your time, and it allows you to find better tenants. Keep in mind that some prospective tenants might be put off by applicant fees, especially if no one else in your area is charging them.
How to implement fees:
- Assess state laws. Every state has different laws about how much you can charge, when it is acceptable to charge, and more.
- Determine a price. Application fees should cover the cost of vetting tenants; it should not be a source of profit. It is illegal in many states to profit from applicant fees.
- Inform prospective tenants. Telling tenants about application fees doesn’t have to be the first thing you do in the showing process, but it is important to be upfront about it. Let tenants know how much you charge and that it is non-refundable.
- Charge the fee. You can collect cash, checks, or online payments. Be sure to document the payment.
What you can earn:
Expected Cost: $0
How much to charge: $30-60 per application.
Lease Termination Fees
Are you a good fit?
Even though leases are legally binding, tenants are never guaranteed to stay for the entirety of the agreement. Charging lease termination fees is a good option for landlords because it helps minimize loss when a tenant leaves early. Tenants also tend to prefer making the simple payment rather than searching for someone to take over their lease. It really is a win-win.
How to implement fees:
- Determine a price. All lease termination fees are different, but many landlords charge tenants the price of their monthly rent.
- Update your lease agreements. Writing the fee into the lease contract ensures that tenants will be aware of the fee and are required to pay it.
- Charge the fee. When a tenant informs you that they will be leaving early, remind them of the fee. You can accept cash, checks, or online payments.
What you can earn:
Expected Cost: $0
How much to charge: $500-1,500
Extra Occupant Fees
Are you a good fit?
Many tenants neglect to tell their landlords when an additional occupant moves into your unit after they’ve signed their lease. If the occupant is an adult, the tenant has likely broken their lease agreement. Instead of evicting your tenant, you can charge an extra occupant fee.
Because the tenant is simply bringing in an additional occupant — they’re not taking up any additional space — you need to ensure that your fee is reasonable. Although it is within your rights to charge for extra occupants, implementing this fee might strain your tenant-landlord relationship.
How to implement fees:
- Be aware of state laws. The Fair Housing Act has strict guidelines about respecting familial status. Be sure your fee is not in violation of any laws or regulations.
- Pick a price. $50 per additional occupant is advised.
- Screen the additional occupant. You don’t want an unvetted person inhabiting your unit. Complete your typical background check before moving forward with the process.
- Update the tenant’s lease.
- Charge the fee. You can add the fee to the tenant’s monthly rent, making payments easier.
What you can earn:
Expected Cost: $0
How much to charge: $50 per additional occupant.
Landscaping Fees
Are you a good fit?
Not all tenants have the time or desire to keep up on landscaping duties. Offering landscaping services to tenants keeps your property looking nice, relieves tenants of the headache, and provides another opportunity for additional revenue.
You can even require that all tenants pay landscaping fees if you want consistency among your properties. If you choose to make landscaping fees a requirement, be sure to make it clear to tenants, otherwise it could be seen as a hidden fee.
How to implement fees:
- Assess local laws. There is legislation regarding landscaping that varies from state to state. Make sure you’re up to date before proceeding.
- Source a landscaping company. It is important to shop around and find a quality landscaper that you trust to make your property look its best.
- Contract out the work. Once you’ve found a company you trust, contract out the work. Make clear the services you desire, the schedule for services, and all other logistical issues.
- Determine a price. We recommend charging $10 per tenant per month on top of your cost for the services.
- Update tenants’ leases. Leases should reflect the terms of agreement, including price and schedule.
- Collect payments.
What you can earn:
Expected Cost: $50-100 per hour.
How much to charge: $10 on top of the hourly cost. If the landscaper charges you $30, you should charge the tenant $40.
Holding Fees
Are you a good fit?
When trying to lock down a new tenant, nothing is more frustrating than being moments away from signing the lease, just for the prospective tenant to back out. At this point, you’ve already spent the money to screen the tenant and have likely turned down other interested customers. A great way to ensure that this doesn’t happen is to charge holding fees.
When a tenant drops off an application, a holding fee allows them to “hold” the unit while you complete a background check. If they fail the screening, you return the payment. If not, you can choose to use the fee as a future rent payment or as a security deposit.
Also, if the prospective tenant passes the background check, but backs out of the signing process for another reason, you get to keep the holding fees. This might deter some people from moving forward with the signing process, but it ensures that your time and money are safe.
How to implement fees:
- Know your state’s laws. Some states have restrictions on holding fees of which you should be aware.
- Nail down a price. Holding fees are typically $100-400. It all depends on the value of your property and how interested the prospective tenant is.
- Document the payment. Be sure to create a form that documents the payment and the agreed upon terms.
- Collect the payment. You can accept cash, check, or online payments.
- Complete the background check.
- Return or keep the payment. If the tenant fails the background check, return the payment. Otherwise, put the payment towards the tenant’s rent or keep it as a security deposit.
What you can earn:
Expected Cost: $0
How much to charge: $100-400
Conclusion
Rental properties provide a great deal of value beyond the rental revenue stream they create. Understanding how to tap into additional revenue streams can help you take a successful investment to a home run, or a floundering rental property to a steady income generator. Hopefully these tips and suggestions above can help you do that!
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