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How to Deal with Delinquent Tenants

by Ken Corsini on April 27, 2011 · 6 comments

  
delinquent tenant paying rent late

If you have ever owned a rental property, chances are you have had to deal with late rent payments. Unfortunately, as a landlord, this simply goes with the territory. As common as this is however, I often see investors caught off guard when they first encounter a tenant who is late with the rent.  In fact, I have seen new investors take it personally and respond in any number of ways including, anger, panic, hurt feelings, you name it!  Truth is, learning to deal with delinquent tenants is very much a part of owning rental property.

While every landlord has his or her own philosophy and approach to this type of situation, it’s been my experience that each situation is unique and should be handled with discernment. I have met investors over the years that are extremely rigid with tenants refusing to bend regardless of the situation. Conversely, I have met investors who, having been too lenient, found themselves feeling swindled by their tenant.  Usually, I try to find an approach somewhere in the middle. I’ve learned that striking a balance between being firm yet reasonable with my tenants ultimately helps maximize my returns.

When the 5th of the month rolls around and I take inventory of which rents have or have not been received, I immediately go on the hunt for information.  Most of the time I will call the delinquent tenant to inquire about the missing rent and when I can expect payment. Ultimately, I want to get them caught up and back on track as quickly as possible to minimize any losses in cash flow. However, I also need to fully assess the situation to determine how aggressive I need to be in collecting the rent and/or proceeding with an eviction.

Having dealt with many different tenants and situations over the years, I can tell you there is not a “one size fits all” approach.  While the following points are not a comprehensive list, they do represent some of my basic considerations in deciding how to deal with delinquent tenants.

Considerations when Dealing with Delinquent Tenant Payments

  • What kind of track record does this tenant have with me? If this is a new tenant with no prior history who is late on rent, chances are I’m going to be more aggressive in my actions. It is important to set a precedent early on that paying late is not going to be tolerated. However, if this is a tenant that I have worked with for a long time with a good payment history, I may be more lenient if I truly believe this one incident to be an anomaly.
  • Is this a one-time occurrence or is their current financial situation such that this is likely to be an ongoing problem? There have been many occasions when my phone call uncovers some kind of significant material change to their financial situation (i.e. lost job, uncollected child support, separation, etc.). If it appears the tenant is going to have a hard time affording the rent going forward, it may make sense to begin working with the tenant towards an amicable move-out.
  • Will they be able to get caught up quickly or will this deficit be carried into the foreseeable future? Unfortunately, much of our society lives paycheck to paycheck and any unplanned bills can throw a huge wrench into things.  With this kind of tenant, I have found that accepting the rent late this month typically means that the rent will be late next month as well.  This is one reason why I may press a tenant very hard on exactly how they are going to get caught up, when they will have money, and where the money is going to come from.
  • Is the tenant communicating with me? Communication is one of the most important factors in deciding how to work with a delinquent tenant. If I can’t get in touch with my tenant and they refuse to call me back, I don’t waste time; I immediately move forward with an eviction.  Interestingly, I have found that communication is something that can be improved in many cases. Once a tenant understands that it’s in his or her best interest to communicate with the landlord, it’s remarkable how many calls get a prompt reply.
  • Is the tenant doing what he said he would do? Perhaps one of the most important tests of whether or not to continue working with a tenant is one of follow through. If I have agreed to receive the rent late, I consider it of utmost importance that the tenant follow through with this agreement. If my tenant tells me that the entire rent (plus late payment) will be paid on the 15th of the month, but instead delivers only half of the payment, I most likely will start eviction proceedings.   A tenant who does not do what he says he’s going to do (especially when I have agreed to a flexible arrangement) will only cause headaches and grief in the long run.

So many investors lose sight of the fact that owning rental properties is a business. As a business, it is our responsibility to maximize returns by thoughtfully managing the rents that we receive from our tenants.  Sometimes that may mean evicting a tenant while other times working out an alternative payment schedule to get a tenant back on track.  Regardless of the action, managing delinquent tenants is an essential skill for any landlord; a skill that should be honed to maximize effectiveness.   In the end, treating a tenant with respect and dignity is all-important and should be carefully balanced with good business sense and responsible stewardship.

Photo Credit: Nutdanai Apikhomboonwaroot

More on Delinquent Tenants:
How to Organize Your Rental Property Payments To Make Your Life Easier
“I Can’t Pay The Rent” – A Landlords Take on What to Do

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{ 6 comments… read them below or add one }

Joshua Dorkin April 27, 2011 at 9:49 pm

Great stuff, Ken. I believe that you need to take it situation by situation and evaluate all of the factors that you mentioned. As someone who was very badly burned by tenants in the beginning, I was definitely overly trusting and should have acted more quickly to evict. At the same time, booting a good tenant who has a history, and who is facing a temporary hardship may be a bad decision.

In the end, every landlord will build their own guidelines over time; I believe that your article offers a good alternative perspective to the crowd that pushes the zero lenience philosophy.

Reply

Connie Williams April 27, 2011 at 10:43 pm

As a real estate investor in Nashville, TN, I must say I am excited to have found this article. My partner and I treat our tenants the same way you do. Of course people are going to pay rent late, occasionally. The important thing is the way we decide to work with them, or not. We can make things easy for ourselves or add to the problem, just by the way think about it and the action we take. I love the way you summed this “problem” up. “In the end, treating a tenant with respect and dignity is all-important and should be carefully balanced with good business sense and responsible stewardship.” When we treat people the way we would want to be treated, well our business cannot help but prosper. We have seen our business grow to 65 rental units in 7 years, we know it is due to a lot of work on our part, but also because we know our tenants deserve the respect you spoke of. Thanks for writing this blog. We landlords need to be reminded of this.
Cheers,
Connie Williams

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Dal Sohal April 28, 2011 at 1:41 pm

Great article, Ken. Not only do landlords need good business skills, but you need to be savvy in communication skills and emotional intelligence. Afterall, much of landlord/tenant problems can be avoided if you know how to manage emotions. Learning how to do this can save you from grief and headache down the road!

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Robert Steele May 1, 2011 at 7:20 pm

A well written article Ken. I think you covered all the bases except what Connie commented on which was to always treat your tenants with respect, even when late on the rent, and not like free loading scumbags (even if they are). Professionalism goes a long way to smoothing the road to rent collection.

That said I used to be a hard ass like so many have commented here; saying things like “rent is due on the 1st, late on the 3rd and eviction notice on the 5th – no exceptions”. Then over the years I learned to take into account of all the variables that you covered. To whit, I have at least one exemplary tenant that has been with me for 5 years now. Had I not taken the time and care to work out a plan to get caught up would probably have been evicted 4 years ago.

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John May 4, 2011 at 4:24 am

Great article! I am just having a problem with tenant who is renting from me for over 5 years, but slowly was paying later and later, and now he is paying me in the end of the month usually. If I would be more strict in the beginning I wouldn’t have this issue now. Anyway, this article is a good motivation and guide for me. Thanks!

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Tony August 10, 2013 at 7:29 am

I only have 3 rental units and by no means do I consider myself in the Rental business. Since I bought my rental house 3 years ago, 1 of the tenants has never paid on time, however, they have always found a way to pay something by the end of the month and is never more than 1 month behind. I have not evicted this man, (he has a wife and a 3 year old child) because he has agreed to do many of the chores that I would have to do to maintain the house, without labor charges, I just pay for any materials. He cuts the grass, the bushes, cleans the common areas, shovels all the driveway in winter, washes all the windows, plants flowers, pulls weeds, paints the porches and rails every year, cleans the basement and basically anything else I think is needed. I have the best kept house on the block, making it a bit easier to find tenants on the other two units. He is proud of the way the house looks and I give him a lot of the credit. The point is, take the time to know your tenants, work out a deal, and if they are not lazy slugs, I bet you will find a host of capabilities that they can do to earn a little flexibility.

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