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If Your Tenant Can’t Pay the Rent, What Then?

by Brendan O'Brien on January 29, 2009 · 10 comments

  

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.
You're out! - now I just need to find a new tenant...
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.

  1. 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.

  2. 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.

  3. 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.

  4. 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.

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{ 10 comments… read them below or add one }

Bhajans January 31, 2009 at 9:56 am

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.

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Pearl February 5, 2010 at 8:44 pm

What was the process that you used to kick the tenants out of the house?

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Kevin February 1, 2009 at 12:00 am

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.

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Lisa Cooper February 1, 2009 at 6:33 pm

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.

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Suzie | Roof Repairs November 13, 2009 at 3:50 am

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.

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Andrew April 24, 2010 at 8:40 am

I rent out apartment in Dnepropetrovsk, Ukraine on monthly basis. I resolved the problem with payments long ago. I installed one extra lock in the door of the apartment. Every time I take new tenants I sign an agreement with them that I have a right to lock the door and do not pass them to the apartment if they delay with the payment. Now I receive payments on time and have good relations with my tenants.

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Joshua Dorkin April 24, 2010 at 9:24 am

That’s one way to go, Andrew, but it wouldn’t be allowed under any laws here in the States.

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rebecca August 17, 2010 at 1:02 pm

I own my noble home and rent the space ,Ive lived here for four years now and just lately Ive fallen behind but now I am four months behind on my rent , due to I work for a school district that at one time was year round now were back to 9 months, so anyway this year due to are budget cuts I did not get a summer school job I am a single mom with 4 kids 2 under the age of 18 and I have toyed just about ever thing I can, to get help paying my rent and run into dead ends Now I’m in a situation I my be evicted and lose my home . Is there any one who can give me some advice are steer me in the right direction I don’t like not knowing how I’m going to pay my bills I go back to work in a week but I will still be behind I’m scared.

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chad roberts September 22, 2010 at 11:04 pm

the main thing to remember is, is that we tenets are human beings and not atm’s

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Joshua Dorkin September 23, 2010 at 6:46 am

Chad – Do you not think tenants have an obligation to live up to their lease contracts? What about other obligations? What I don’t think you realize is that most landlords aren’t rich (and that’s irrelevant anyway); having non-paying tenants can cause the landlord himself to not be able to pay the bills. Then what? You’ll both be out of luck.

If a tenant cannot afford the home they are renting, then they should look for one that they can, don’t you think?

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