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6 Tips to Turn Bad Tenants Into Great Tenants

by Ken Horst on April 2, 2014 · 23 comments

  
Turning bad tenants into good ones!

If you are involved in real estate investing and closely manage your sites, you’re bound to run into a bad tenant or two. Hopefully with your interviewing and screening process you chose the best people you could to live at your property. Once they’re moved in, though, sometimes it can seem like you’re dealing with entirely new people than you first met.

As long as they aren’t trashing the place or an otherwise completely lost cause, you may be able to rehabilitate your bad tenant into a good one. Some people’s reaction to bad tenants is to be really nice in the hopes the renter will feel sorry for you and come around, but that’s the wrong approach. If you do that, you’re really setting yourself up to be a doormat of a landlord. It’s better to be strict, but firm, and to be clear to tenants exactly what is expected of them and what to expect from you, preferably in writing.

Here Are 6 Tips to Help You Turn a Bad Tenant Into a Great One:

1. Communication is the key:

If you’re not communicating with your tenant often and with consistency, you have only yourself to blame. Many landlords are distant with tenants and that’s okay if they are awesome renters, but for bad tenants, you need to be present and forthcoming.  Be clear about what you’d like to see improve, how it can be improved, and the consequences of failure to follow-through.

2. Emphasize the most important lease clauses:

Review the lease agreement with new tenant and thoroughly explain that which is most vital for them to know: The cost of rent, what day it is due, damage issues, repair request processes, how eviction proceedings are set in action and for what reasons, etc. To reinforce what the tenant learned, follow up with a letter welcoming them to their new home and reminding them of their key responsibilities. For problem tenants who have lived in the building for a while, make a copy of the lease with certain clauses highlighted.

3. Enforce your lease with notices:

Now that the tenant has been made aware, it’s time to make sure they know you’re paying attention to when they aren’t living up to their end of the bargain. Send a notice when the rent is late, for parking violations, following noise complaints, etc. Get to the problem now before they become your tenant’s habit. If you are inconsistent with sending notices when your renters act up, they’ll continue to act up. Though a face to face verbal warning can sometimes be effective, when you put it in writing, they’re more likely to shape up.

Related: Landlords: 9 Key Clauses to Include in Your Leases

4. Apply penalties such as late fees:

Once you’ve used the form on a tenant who is late with rent, you have to follow-through. Charge the tenant late fees and enforce the deadline by which the fees must be paid. Create a form notice that you can fill out and keep on hand. Titles like “Late Charge Due Notice” or an “Urgent Late Notice” can grab their attention. And be sure to try to collect rent and late fees before too much time passes by.

5. Forget the grace period:

I’m not saying to not give them a little leeway, I’m actually suggesting to just reverse how you see rent due dates. Instead of having a grace period after your due date, offer an Early Payment Discount for people who pay early. Everyone wants to save money, it’s much more likely to motivate people to pay quicker. That money can adds up over the year, so keep track of it and every once in a while, let them know how much they’ve saved by being an early-paying tenant.

6. Make routine inspections a priority:

It’s easier for bad tenants to get away with destroying your property if you never step foot in their unit. When the tenant expects regular inspections by the landlord or manager, they are more likely to keep it in tip-top condition. Many landlords will inspect on regular intervals after prearranging a time with the tenant. Others will do surprise inspections. Some say that they will be do inspections, but never get around to it. Even if you don’t plan to inspect, it may be worth a try to send the tenant a note informing them of an upcoming inspection. It may be enough for them to keep the place clean without you having to enter the unit.

Related: The Awesomeness of Holding an Open House to Find Tenants

Conclusion

These tips can go a long way to helping you turn a bad tenant into a great one. It’s important to note, though, that not all tenants can be saved. A few of them just cannot help but violate their lease, leaving you holding the bag. In these cases, you must carry through with your law-abiding eviction process, clearly stating the reasons why they are being evicted and filing the papers with the proper authorities. Don’t let bad tenants try to sway you into rescinding the order for any reason, either: There are a lot of great tenants out there and you can’t get them if a bad tenant is living in the unit.

Have you ever had a bad tenant? Have you ever turned a bad tenant into a great one? Share your experiences and tips in the comment section below.

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{ 23 comments… read them below or add one }

Dave Tanner April 2, 2014 at 5:51 pm

Ken,
All good points! I got burned by the out of sight out of mind complacency. For 3 1/2 yrs I never set foot in a house, rent came every month. Then they moved… …can you say filthy hoarder? That was my wake up call to do a minimum of annual inspections (more if I suspect issues). Catch problems early! Fix & repair issues before they pile up. Ask if they know of anything that needs fixed, then fix it. As far as confronting a problem renter I will copy the lease, highlight the areas they are non compliant in and draft a letter stating the non compliance and deadline to comply. I do the face to face mtg and have them sign a copy of the non compliance letter stating they “have read and understand the letter”. They can disagree with it, they are just signing they read it. I usually tell them we have 2 options. #1. fix this issue by the deadline. #2. find another apartment. This is no time to be a push over. All you’re asking them to do is what they already agreed to do! Confronting tenants can be nerve racking, but it must be done, and done professionally. I always say if you want good renters be a good landlord (ie Answer your phone/return calls quickly, be responsive to requests/repairs, etc).

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James April 2, 2014 at 6:40 pm

Dave,
Your plan of action is very straight forward and business-like, as it should be. Especially, if a problem comes up, it so very important to refer to the signed legal-binding agreement. I will use that very language, rather than the term lease which sounds benign to most tenants. I run my business like a business and when a tenant doesn’t like me when I do (I, like you, don’t like confrontation), I tell them that it’s perfectly fine not to like me and if they prefer they can give me notice to vacate. Tenants often misunderstand that paying rent does not entitle them to do as they please. In order to do that, they need to qualify for a loan and buy their own place!

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Ziv Magen April 2, 2014 at 6:09 pm

Great tips, the only thing that has me baffled is the late fees advice – is that legal in the US?

In Japan and Australia (and, I thought, in most countries around the world), only the courts and tribunals can decide on penalties, compensations etc – a landlord has absolutely no right to do anything of the sort. Late payments can be addressed by notices, followed by an application evict if not settled – at which point the landlord can also apply to the courts for compensation.

How does it work in the US?

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Dave Tanner April 2, 2014 at 6:41 pm

Hey Ziv – Within the US the states may vary one to another, and perhaps even from county to county. Where I live in Ohio we are allowed to charge late fees for late rent up to a max of 10% of their rent. Example – rent is $600, max late fee is $60 per month. I had a renter that was late 6 months last yr and pd late fee of $50/mo. $300 extra for me! He finally got his finances straight and pays on time. I usually make a couple hundred/yr in late fees.

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Joann Miller April 2, 2014 at 6:29 pm

I wish I were not so reluctant to do inspections–I prefer to go in when something is being repaired & eyeball the house at that time, but if I see anything outside (old refrigerator, unmowed lawn) I send them by certified mail a Violation of Lease Notice & the legal time frame that the law requires for them to address the problem–unfortunately if lthe outside is bad, you KNOW the inside might be worse!

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James April 2, 2014 at 7:13 pm

One thing that I do not like to do is mow lawns, mostly because of my allergies. But I do it anyway at my properties for a couple of reasons:

1) I know that it gets done right and when it should be done because the city will issue a $50 tall grass/weed citation for the first violation. I want to remain off the city’s frequent violators list.

2) it gets me on the property for about 40 minutes every week and half, when I can observe the street traffic, see who is parking where, see if something is out of place, like a tenant forgot to remove his grill from the deck after grilling the night before (grilling is only allowed in the backyard) or the outside water spigot is left on and water is trickling down the hose onto the ground driving up the water bill, which I pay, etc. It gives me a chance to be vigilant and when the tenant knows that I’m around regularly, he/she is less likely to do something that isn’t allowed. Plus, if something is on their mind they have an opportunity to speak to me in person about it while I’m there.

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Joann Miller April 2, 2014 at 7:24 pm

being on site is a good idea–I was on site painting /landscaping a property & I conincidentally own the two houses next to it–the month I was there painting , I saw and heard so much at those two other houses that I did not know about & also the neighbors spoke to me about some issues that they were having with the tenants– you are so right about being there–its especially valuable to speak with neighbors–I gave them my business card & said please notify us about any problems , which they did–& it enabled me to have more knowledge & control–I would advise ALL landlords to speak to the neighbors–if they know you WANT to know if someone isnt keeping up their house, or having late night endless parties, or moving in their boyfriends, etc. –they will tell you. I assure them that we will not divulge their name or anything, that it is confidential , and I have honored that, so they feel comfortable emailing me, or calling us. Make your neighbors your friends, and let them know you are not an absentee indifferent landlord–it has worked for me.

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James April 2, 2014 at 8:12 pm

Great advice, Joann!

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Sharon Vornholt April 2, 2014 at 7:27 pm

Ken –

This is a great article. I believe that if you teach your tenants what you expect from them right from the beginning you have much better luck in the long run. Like you, I think you need to take action immediately when the rent is late or some other rule is broken. They learn right away that this is a business and you mean business. Enforcing the rules quickly and fairly sets the tone for your relationship.

Sharon

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Joseph T April 2, 2014 at 7:53 pm

I’ve never considered offering a discount to people who pay early that’s a great idea to encourage them to develop the habit of paying early.

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Deanna April 3, 2014 at 3:52 pm

Check to see if it is legal in your state. Some states (legitimately) consider an early-payment discount to be a thinly disguised attempt to get around late penalty laws. If a late penalty is legal you might be better using that.
In a state that has strict late-payment penalty laws you might have be able to have some sort of fun & creative internal rewards system (free laundry tokens for early rent? carpet cleaning? 4 hrs of professional house cleaning for a year of on-time, appliance upgrade after 2 years on-time payment–set the $ aside in a “bonus” account if you do this, so you can reward the tenant promptly), and of course be sure you abide by your agreement promptly if a tenant “earns” a reward.

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Dave Mays April 2, 2014 at 8:16 pm

The worst tenants I have are those I inherited when a recently bought a duplex. The former owner’s lease is pretty weak as well. I’m seeking to revise my lease with all the wisdom and knowledge that is here on BP. Would anyone like to shard their lease they use? I have been only doing this for 4 years and have revised my lease multiple times every time I get some good tips from BP members.

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Dawn Anastasi April 3, 2014 at 10:13 am

Leases and rules within can be state specific so you don’t just want a generic lease from any state. See if your area has a REIA where you can network with other landlords and see if they can share their lease. (Or network with other landlords here on BP.)

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Sharon Tzib April 3, 2014 at 8:27 am

I have my property manager perform an annual inspection, at which time the HVAC guy comes as well to do the annual inspection/service on the furnace and A/C. The PM also checks the smoke detectors and takes pictures of the house for my records. I like doing these in the summer, so that I can also ask the tenant to sign a new one year lease, since I don’t like winter vacancies.

I’m not a fan of #5 though, especially if I was at market rent. I don’t have one creditor that I have a monthly obligation to pay that gives me an early payment discount, so why should I offer that to my tenant? They need to act like a responsible adult and pay the rent on time, just like the rest of the world. I’m certainly not going to reward them for doing what’s expected.

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James April 3, 2014 at 9:26 am

Sharon, I completely agree with you in regard to paying rent on time. Why should a tenant get a discount for doing what they already agreed to in the written rental agreement?

On the flip side, I tell my tenants that the mortgage company wants my payment on the first on the month, which is when I need to see their rents deposited into my account. Every day after the first is a $10 late fee (which I think is very minimal).

I’ve gotten every excuse in the book for not paying on time. The best was: “The banks are closed on the weekend.” Okay, are we living in the 60s? These are kids in their late-twenties who are still trying to become adults. Making them pay a late fee, helps them in their development to adulthood. I collect only about $100 dollars in late fees a year, so most of my tenants understand their responsibility.

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Mark W April 4, 2014 at 7:25 am

Sharon and James,
I think when he says to give them a discount, he means increase the rent to the market price plus the late fee, and then by giving a “discount”, it is lowered to your actual rent price. There are pros and cons with this strategy. Pro – marketed as a “discount” for paying on time. Con – advertising a higher price, which will be higher compared to market prices and people might skip over your ad.

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Sharon Tzib April 4, 2014 at 8:51 am

Mark, honestly, I could care less how one would enact this policy. I would never “reward” my tenant in any way, shape, or form for doing something that millions of people do every day (pay their bills on time). It just sends the wrong message, imho. Thanks though :)

Eric April 3, 2014 at 7:07 pm

Why not just get great tenants to start? It’s easier, and more profitable. Avoid low credit score tenants, and avoid low income. I get 100% of my rents collected by the 5th, and 24 of 25 are already in the by the 2nd.

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Geoff Van Dusen April 4, 2014 at 12:18 am

This is why I love BP, to learn by others, great ideas. I will chime in on the early rent discount, it is true that many States look at the least amount you are accepting as rent as being the rent, and you have already built in the late payment when it is “paid on time”. Make sure you check with your State on how it is interpreted if taken to court.

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Joann miller April 4, 2014 at 10:21 am

I would not reward a tenant for doing what they are contractually obligated to do– which is pay on time– we strenuously enforce late fees and have a specific clause in our lease for late fees– our tenants rarely are late — the bank does not give us a reward because we pay our mortgages on time, and if we don’t pay on time we are charged a big late fee– your lease is a contract with specific requirements, including paying your rent on time– you should not make tenants feel like they are doing you a favor by paying on time

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James April 4, 2014 at 10:39 am

“You should not make tenants feel like they are doing you a favor by paying on time.”

Absolutely correct!

Too often, tenants think that by living in your property they are doing you a “favor”. Big mistake and if in any way a landlord believes this, they are in for big problems…sort of like the tail wagging the dog!

I have far fewer problems when I don’t give my tenants discounts for doing what they are contractually bound to do or below market rent. If they don’t like the way I run my business (which I cover in a 30 – 40 minute interview before I rent to them) they are free to give me their notice to move! I never have a problem finding another tenant and each time I get better at screening them. Too many have a sense of entitlement that I never knew growing up, so I have absolutely no tolerance for it!

On the flip side, when something does not work, for example a water heater, it is my turn to step up and follow what I contractually agreed to do, and I do!

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Suzette Lefort April 6, 2014 at 8:30 am

One process i do every month is to send a friendly reminder to all my tenants by way of a text or email. These days most young adults (which is what my tenants are mostly composed of) have a cell phone or have access to email. It has worked great for me. Also i have encouraged my tenants to pay by e-transfer through there bank. Out of 12 tenants only 1 pays cash. This process has really reduced my time on the road collecting.

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Abel Vazquez April 8, 2014 at 6:21 am

Great article and great information!

Abel

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