I am in a very fortunate position right now. All of my 13 units are rented, and all the tenants are paying on time. It’s great! And it’s not going to last.
I know that because even in good economic times, I’ve had a couple of tenants every year who found that at some point, they just couldn’t pay their rent. And these are not good economic times. In fact, I am really amazed that my one retail tenant, selling antiques and other non-essential items in a very blue collar town, is still paying on time. And I have no idea how many of my residential tenants are dealing with impending layoffs, loss of overtime, or other issues. I certainly know that most of them don’t have financial cushions they’ll be able to use if they lose some of their work income.
I can handle the “can’t pay the rent” call in many different ways, but they boil down to three options. First, I can be hard, telling the tenant the rent is the rent – pay in full on time, or be evicted. Second, I can be soft – but that may mean that the tenant never pays, and I’m out of pocket forever. Third, I can find some middle ground – which is probably what I will do. There are a million variations on that “middle ground.”
Make your plan before the call comes
I’m a big believer in rules to manage my behavior and guide my decision-making process. In this case, rules will overcome an emotional reaction that might lead to a bad decision. They’ll also keep me from making a snap call that could turn out to be wrong. Remember, as landlords, our bad decisions have long-term consequences.
The emotional reaction can be anger (“How dare Carol not pay me when I depend on her money to pay my bills!”) or sympathy (“Poor John – $4,000 in medical bills!”) Which reaction will I have? That depends on the tenant’s story, and probably also on how the rest of my day is going. In other words, I should ignore it and concentrate on making the best business decision.
Finally, why the middle ground reaction – why am I probably going to make a temporary deal? Well, I already know I’m not going to go soft and let the tenant take advantage of me forever. And I probably won’t boot the tenant right away, either, simply because that leaves me with a vacant unit – which in a snowy, bitterly cold winter, along with a bad economy, is likely to stay vacant for some time.
Here are the hard and fast rules I’ll establish up front.
- I will never give a tenant an answer right away (upon the first phone call). Even though I may know what I want to do, I will sit on the decision for a day. Why? First, coming back with an answer right away, especially if I’m offering the tenant a generous deal, may mark me as a soft touch. Second, waiting gives me a chance to really think through my decision.
- I will insist on a written agreement. This is essentially a temporary change to the lease, signed by me and the tenant, which means if the tenant violates it, he can be evicted.
- I will not let the tenant get more than one month behind in rent. This way, if the tenant defaults on the special agreement, I’m only out one month.
- I will have a face-to-face meeting with the tenant to discuss any alternative ways he can get the money. The point of this is obviously to get the money. But the secondary point is to impress on the tenant just how serious a matter this is. “You can’t pay me $600 in rent, but you just bought a $800 TV? Sell the TV or return it.” This meeting should be at the tenant’s unit.
- I won’t offer a temporary agreement until the end of our face-to-face meeting. That meeting is my last chance to consider the tenant before I offer an agreement – and if I get a strong ssense that he’s not being serious, out he goes.
If the tenant violates the agreement, I will evict him – hard and fast. I will make this very clear at our face-to-face meeting and follow up if he violates the agreement.
The written agreement will have a confidentiality clause. My tenant talk to each other, and I simply can’t afford to have John tell Carol, “The landlord gave me a break.”
Do I have to treat everybody the same?
No, thank goodness. I can treat people differently, within reason. I can, for example, come down much harder on a tenant who has behaved badly in the past, or who has a history of late payments. Searching the Internet, I was unable to find a successful lawsuit in a case where a landlord made a special deal for one tenant, but not for another. That doesn’t mean such lawsuits don’t happen, but they are rare enough to not be a major concern.
Next week I’ll dig more into this, looking into some different “can’t-pay” situations and how they should be handled.
Related posts:
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- Cold-Weather Landlords – Get Ready For Snow Removal
- Good Landlords vs. Bad Tenants? Let the Lawsuits Begin!
- Landlords: Here’s a Long, Long List of Tenant Rules
- Landlords: Keeping the Tenants Happy
Article Author: Brendan O'BrienBrendan has written 62 articles for us.
Visit Brendan's Website: http://www.pcpropertymaster.com
Joshua Dorkin
{ 16 comments… read them below or add one }
I have head a lot of excuses of why my tenants can’t pay the rent. I try not to let them get one month behind. I really dont listen to the excuses anymore. I do implement a 10% late fee and make them pay that regardless of excuse. I have a tenant who is always late but she pays by the end of the month with the late fee so I am making 10% more than I planned. Sometimes it is like being in high school listening to all the excuses.
Yeah I think generally it is not good to let tenants get more than 1 month behind rent. And I’ve never thought of the 10% late charge rule, it’s a good rule, should add it on every month they’re late.
Well, your late fees and whatnot should be outlined in your lease (and your lease should absolutely have a “automatically extends on a month-to-month basis after the ending date unless notice to vacate given” clause! But you knew that, right?).
When I was in property management, I was responsible for collecting the rent on 200 households. It was inevitable that somebody was going to be late every month. Rent was due on the 1st and late after the 3rd. We tried to minimize late rent by making sure we touched base on the 3rd with folks who hadn’t paid yet. If it’s in the mail-slot in the morning, no late fees, we get our money and the resident thinks we’re great for reminding them instead of charging them extra.
I absolutely agree that communication is key. Come in and tell me when I can expect a check! I also agree that within the lease and your state laws, don’t let people get more than 1 month behind or they will never catch up. For that matter, once late fees are over $100 they never catch up, so cap those somewhere. Think about it, they don’t have $x but you think there is any way they will have $2x next month or $x + #100 in 2 weeks? Get real!
Another thing I used to do when the sad story is “I lost my job.” Granted this was the 90s. I used to go into my Rolodex and give them contact info for 2 temp agencies. I figured if they couldn’t do anything with that, they didn’t want to work very much. Of course, in addition to making it more likely they could pay the rent, it gave the impression that I really cared. Come to think of it, I don’t think I ever had to evict somebody after sending them to the temp agencies.
Great Post.
I think a lot of Landlords share in these frustrations, and having a list of rules to go by is crucial.
James
Some really great points made there and I agree one can’t let them get behind, even a month is too much, but sometimes unexpected things do come up that are beyond anyones control,and this is when one has to speak up and come up with a plan as to pay that back asap.
As a tenant that is currently in a financial “pickle”:
I am a mother of two. My husband and I moved into our current house in July 2009 while I was pregant with my 2nd daughter. August 2nd 2009 I was hospitalized with preeclampsia 2 months before I had planned to leave work. This was a huge hardship on my family but we did what we could to pay our rent, including payment plans, but we were never a whole month behind. But Nov 2nd 2009 my husband lost his job, terminating our last form of income. He has found another job but He does not start until the end of the month. I currently have $710 worth of bills due at the end of this month, half of that is due at the end of this week. We have no income. I have written a letter to my landlord explaining this to him and I pray that he decides to give us a little time, but I don’t know.
Kiss my ass I can’t wait until you are homeless
Jeanine –
What is it that you are unhappy about? Should landlords allow anyone to live on their property even if they don’t pay? I’m assuming that you understand that they might lose everything if they do that, right? What is unfortunate is that most renters think that landlords are rich fat-cats, when in fact, many are just average everyday people. If these people allow their renters to live for free, they then aren’t bringing in enough money to pay their bills, and can lose their rental property to foreclosure.
Unfortunately, in our society it is just easy to blame the landlord, when they are just trying to get by as well. Is the landlord at fault when a renter defaults on their contractually obligated payments? Are they the bad guy?
Maybe you could elaborate on your issues and we can discuss it logically without the nastiness?
I usually never give the tenants a middle ground. Cannot pay rent on time, out they go. Nothing to think about. Never had problems in getting new tenants.
I have a tenant who has not paid for 2 months as she cannot afford the rent – she hs not given me anything?? She will be moving out next week and promises she will pay me back. Please can u suggest a way to create a contract that will be legally binding that will ensure she will pay
The contract you’re referring to, Cassandra, is your lease agreement. If your tenant owes you money, the lease is all you need to go to collections . . . that said, it is hard to squueze blood from a turnip, as the saying goes.
I think it’s good that you look at each tenant on an individual basis especially during these tough economic times. Most tenants want to pay their rent but sometimes just need a little time to sort there finances out particularly if they have lost there job. In saying that I guess you have to draw the line somewhere as it is you who will have to pay the loan on the house!
I am so frustrated, yesterday I went to the Sheriff’s office to have my tenant evicted, I already have an order of possession; but my tenant didn’t leave the day she agreed, she also never changed the electrical on her name and I am paying for it as well.
I have a son with Autism and I am divorced, I had to borrow money to cover the mortgage, association fees and her electrical bill. I was crying yesterday when the personnel at the Sheriff’s office told me that would be 12 weeks until they evict my tenant.
It is unbearable the pain that I have to go through every month. I took my IRA money out to purchase this property to protect my son’s future; I wanted to make sure I built some wealth because I don’t know if he would be able to work and if I don’t pay the mortgage I could lose everything.
I learned that this women has committed identity thief and owns the electrical company 1000.00, she is a scam artist, why is the Government protecting people like this?
I am sorry but at this moment I am in so much pain and I can’t have simpanty for anyone that lives in aproperty with out paying the rent, there are many shalter places they can go, I would never do that to an other human being.
I forgot,
My tenant owns me over 4000.00 already, I helped her find a job and waited 2 months when she lost her job, if takes 12 weeks to get her out, it will be 7,000.00
I don’t think I ever going to get this money back, now I am looking to rent a room in my house so I can pay back my loan and my son is not happy, because of the Autism he does not like other people in the house. Is hard for him.
We put ALL our income toward rent, no, landlords are NOT like the working man, to make money/profit off of a tenant NOT being able to afford their own home shows what is wrong with our nation’s tax structure, every working person should be able to invest in the “American dream” yet the lowest paid wage earners pay pay much more in taxes, boohoo if the landlord has a property they cannot make profit on–the working man who cannot afford a pitiful apartment because of the taxing structure is the victim, PLEASE VOTE PEOPLE!!!
Oh, and “Jeanine” November 29, 2009 at 10:09 pm
who stated:
“Kiss my ass I can’t wait until you are homeless” –hmmm, YOU sound like an evil FAT pig that sucks the blood of real working people, hope you get your fare share of karma asap!
My son-in-law just lost his job. There are five people in the family–son-in-law, my daughter and three children. They were given an eviction notice-and they owe November’s rent. HOW CAN THEY DO THIS WHEN THEY HAVE NO PLACE TO GO!? Their story is one that could be rectified through unemployment, a new job etc. This most certainly is a different type of eviction, but I am not at liberty to disuss the matter further. They have tried every avenue for money, but “no” is the word of the day.