Last week, I wrote about a call we get all too often from tenants – telling us they can’t pay the rent, and asking for some sort of break.
As always in landlording, it makes sense to have some guiding rules in place to handle these calls. You never want to try to think of a deal on the spot, because you’ll be far more likely to make a bad decision that could cost you thousands.
The toughest choice is not always the best
At the same time, the immediate answer that comes to many landlords’ minds is often wrong. That, of course, is “no deal” – if you can’t pay every penny that is due, when it’s due, including this month, you’re out. In this economy, many of us are struggling to keep our properties filled. If we boot every tenant who runs into temporary financial trouble, we’ll probably lose money. It might take three months or longer to fill the vacancy.
I strongly suggest you read last week’s post for some general rules that will guide your decision-making. For each specific situation, evaluate the individual tenant’s ability to repay the deal quickly.
Ask yourself these four questions before deciding what to do.
- What are my chances of getting a good new tenant in there within a month?
Winter has always been a terrible time to find new tenants in New Hampshire, where I live, because nobody wants to move when it’s cold and miserable. Your area may be different, but you should know how the rental market looks. If you have a hot market, with prospects knocking down your door in search of rentals, you might boot even a pretty good tenant for one bad month.
Remember that commercial spaces often take longer to fill than residential units. You may even find yourself negotiating a permanently lower rent for a commercial unit, something I would never do for a residential tenant.
- Do I trust this tenant in general?
I’ve written before about how you shouldn’t completely trust anyone, including me. But trust is something you’ll apply more to some people, less than others. Generally if the tenant has been in the unit for a long time, and has always been a good payer, you can trust him more. If not, trust him less.
In particular, I would never cut a special deal with a tenant who had been in my unit for fewer than six months. There is an excellent chance that such a tenant really never could afford the apartment.
- Does this tenant understand the seriousness of the situation?
Answer this after you’ve had your in-person meeting with the non-paying tenant. This meeting is a good time to press the tenant for other ways he might be able to make the rent. Options include selling some personal property, getting a short-term loan from somebody other than you, taking in a roommate (check here and here for some thoughts on allowing roommates), or getting government assistance.
Struggling tenants rarely object to seeking government assistance, since that doesn’t really cost them anything. Here and in most other northern states, there is often government heating assistance available. Section 8 is not as likely an option for a tenant who is already in your apartment.
On the other hand, tenants may object to selling personal property, getting a loan, or taking in a roommate. But not being able to afford housing is a serious situation! The tenant is as obliged to pay for your product as for any other, and if he’s not willing to make hard choices, he’s not really serious about wanting to stay in the unit.
Finally, remember that all these actions take time. Therefore if your tenant agrees to use one of these other money-raising techniques, it’s only reasonable to give him a few weeks to make it happen. “Find a roommate and pay me in full tomorrow” is just not practical.
- Is the tenant’s financial trouble truly temporary?
Your tenant may have had some unusual expenses such as car repairs or medical bills that have left him a little short. If those expenses weren’t in the thousands of dollars, he can probably pay them off quickly and return him to good standing.
In my experience, however, tenants often fool themselves. They think their financial trouble will be temporary, when that’s not the case. Obviously a layoff or severe cut in pay is a more permanent problem. Other tenants are just barely paying when times are good, and the slightest change puts them under.
Please remember that if you have a tenant who can’t afford the unit, you’re not doing him any favors by keeping him in there. If you don’t take action right away, the tenant will just keep owing more – and more.
Article Author:
Brendan O'BrienBrendan has written 60 articles for us.
Visit Brendan's Website: http://www.pcpropertymaster.com
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{ 6 comments… read them below or add one }
In this economy we are facing today, we are seeing more and more tenants having trouble paying rent. Like you said, if you just boot them, it could take months before you fill your vacancies and that will cost you or your Investor more money. But then again, you don’t want your tenant thinking that they can call you up every month and give you a story of why they can’t pay rent.
Establishing guidelines in the beginning is a great way to set the boundaries! You can bend them a bit but don’t let them break!
Tony Sena’s last blog post: 6828 Hurricane River, Las Vegas, NV 89131
This is becoming more and more of a problem these days. One technique I use to help eliminate this problem is the use of a rent to own program. These programs help give the tenant an sense of home ownership which makes them far more likely to pay you first – over the car or other outstanding bills. When a tenant is emotionally attached to the property and has ’skin’ in the game this changes the dynamic quite a bit.
Travis Dyer’s last blog post: The Cash Can Actually Flow
It was a major problem for me from past 4 months.I was really annoyed and finally decided to push them out of my house.Maybe I was a little rude but then It was a nice decision to make because as a result , I received full rent from the tenants after 2 days.
I rent out 3 condos and frankly it’s a pain in the ass to rent.The problems never seem to end with renters.I’m going to sell my condos and invest the money in low risk investments.No more plunging toilets for this guy.
Rent Recovery is always the right idea at the right time
I think ffective rent recovery is more likely to be achieved if the tenant stays in their home, though.
The sooner you get them out the better it is for both parties, like most of the above have said, you not doing them or yourselves a favor by keeping them there, thanks for the great information and the advice that so many of us do need when this problem arises.