Follow Us on Social Media

email icon rss icon linked.in icon google plus icon twitter icon facebook icon

1 Question Every Landlord Forgets to Ask a Potential Property Manager

by Ali Boone on April 19, 2014 · 24 comments

  
Property Manager Question

This is one question that really matters.

This is the one that the answer can make or break your rental property investment.

People don’t know to ask this question. I didn’t know to ask this question when I got started, or even years into it. Until it became an issue, I never could have known to ask.

When you are interviewing property managers, you likely ask a series of questions. Everything from how they do tenant screening to handling maintenance calls to what fees they charge for their services. There is another question you might ask- how do they handle evictions. Their answer is likely going to be the standard eviction process- filing papers, going to court, yada yada yada.

Great, anyone can look up that process online. What if instead of asking that question though, you just forget about that one? Why? There are two things wrong with it:

  1.  The process is straight-forward per the state, they just follow that, end of story and
  2. The eviction process itself is the least of your worries when it comes to a tenant who needs evicting.

You can of course ask them how they handle evictions just to confirm they have a grasp on the process, but here’s the real question I recommend you ask in your interview-

How do you handle BAD tenants?

What Constitutes a Bad Tenant?

Well, easy. One that doesn’t pay.

That’s the worst tenant you can get because at the end of the day all that matters for an investment is whether you make money or not. Kind of hard to make money when the tenant doesn’t pay.

Bad tenants can also be the ones who cause a lot of damages, which can affect your financial return. Then you have the ‘not-great’ tenants, who are the ones who pay but are a complete pain. Maybe the payment is late every time and you have to constantly chase it down, or maybe they whine a lot, or they are horrible communicators, etc. Those tenants aren’t as bad because you are getting the income, but they can be headaches.

What Kinds of Things Do Bad Tenants Do?

Bad tenants may do only one of these things or any combination of them. Some of these things are more severe than others, but they all point to a bad tenant.

  • They don’t pay.
  • They constantly pay late.
  • They constantly give excuses, forcing you to chase them down every month for the rent payment.
  • They pay but the checks or whatever method they use result with insufficient funds, causing the chase to start again.
  • They cause damages.
  • They break the rules of the lease.
  • They constantly claim something to be broken.
  • What else? I’m sure I’m missing plenty of things.

An Example of How Not to Handle Bad Tenants

The worst property management move I experienced, in terms of dealing with bad tenants in the property, was when a manager kept accepting excuses from the tenant every time they didn’t pay the full amount in rent. He was such a nice guy, the property manager, but he was too nice. These tenants had hardship, I totally get that, and he really did want to work with them and let them get on track and keep the house.

Well, guess what, those tenants never did catch up.

The property manager kept filing evictions each month when they didn’t pay in full which was good, but he kept letting them off the hook because they kept giving him believable timeframes for when and how they would be able to get caught up. Not only did this manager do this with one set of tenants in that house, but two. For basically an entire year, with only a couple months’ exception, the tenants gave runarounds and I got little income from them. Ironically, I know of several other people who have houses managed by this same property manager and they have never had so much as a late payment.

My conclusion?

This manager is excellent at managing, when the property has good tenants. When things get rough, he crumbles.

When should a property manager become combatant with tenants? I fully believe in treating everyone nicely and calmly, until that effort starts proving ineffective. At some point you have to get extremely tough with tenants. When? I really have no idea exactly where that line was. The first set of tenants this manager was trying to work with, they legitimately were trying and we had every reason to believe they would get caught up. Plus, remember, one of the most costly expenses of owning rental properties is tenant turnover.

So I totally understood the desire to work with these tenants while they got back on track because to kick them out and find new tenants would cost me a ton. Unfortunately in this case, it ended up costing me way more to try to work with them because then I ended up with multiple months of lost rent before the months of vacancy during the turnover.

But what if they had caught up? I would have been fine and out no money. So where should the property manager have cut them off? I don’t know the answer, but when you interview a property manager, they should be able to speak to situations like these.

How do they handle excuses, what happens if someone pays late every single month, what if payments are getting returned, what if they can’t get in touch with the tenants? These questions all fall under the one big question that is imperative you ask when interviewing a property manager-

How do you handle BAD tenants?

Anyone Can Handle a Good Tenant

It’s true. Even I’ve managed a great tenant before while I was living in California and she was my tenant in Atlanta. It was easy because she paid every month on the 1st, she communicated any problems, if something was broken she was able to let the repair guy in, she never made bogus claims about anything, she really didn’t have to reach out much at all actually. It was so easy!

Related: Some Questions To Ask A Property Manager

Don’t be confused when people recommend using property managers or to be careful if you are going to landlord from a distance. It’s not because you can’t handle a good tenant, anyone can handle one of those. It’s all the quirky nonsense tenants try to pull that isn’t so easy. You would be surprised at the list of nuisances tenants can cause. I guarantee you couldn’t come up with half of them if you tried, they are that off the wall.

Assuming you aren’t landlording your own property, you hire a property manager to handle all of the things that would be difficult for you to do on your own or that you just don’t want to do. No one ever said collecting checks is hard. It’s not collecting checks that is hard, any fool can do that. It’s tenant screening. It’s maintaining the property if you don’t live near it. It’s doing evictions. But most importantly? It’s dealing with tenant problems! So why would you not ask, when interviewing a property manager-

How do you handle BAD tenants?

If you own rental properties, what’s the most entertaining thing a bad tenant has tried to pull, or has pulled, on you? What was the fix or what should the fix have been in hindsight?

Photo Credit: Flооd via Compfight cc
Email *
  



{ 24 comments… read them below or add one }

Paul Tschetter April 19, 2014 at 6:59 am

Great article. I had a tenant who had 4 heart attacks in a 5 month period. It was really strange that these ‘heart attacks’ always happened on or around the 1st of the month. He also always miraculous survived and was back home within a couple days. There is so much more to the story but I’ll save that for another time.

Reply

Ali Boone April 22, 2014 at 10:10 pm

Oh I would love to hear more of that story Paul. That is hilarious! You should have started offering him nutrition guides. Tell him no more hamburgers if he’s having that many heart attacks. As you roll your eyes.

Reply

Sharon Tzib April 19, 2014 at 8:58 am

“Anyone can handle a good tenant”

Truer words were never spoken. This is absolutely where the rubber meets the road with a good PM, and I think that the majority of people who hate on PM’s either have or have had a PM that sucks at handling bad tenants, or they have good tenants now and can’t see the value.

Completely coincidentally, one of the forum threads I’m following, the OP posted today that he lost three HUD deals due to missed deadlines on turning in paperwork. They cancelled the deals without him knowing until after the fact and said, “Next,” without blinking an eye. Just imagine if landlords treated their tenants like that with late rent? There’s probably a lesson to be learned there by all of us ;)

The worst tenant I ever had was the one, who shortly after moving in, decided that she wanted to remodel the house. She wanted me to replace the closet doors, kitchen counter top (didn’t like the color), and to re-landscape the yard, among other amusing requests. I had my PM inform her that when she initially walked through the house, she saw the current condition and accepted it as such, and therefore no updates would be made. She drove me crazy for about six months with that crap until she finally got the hint that I wasn’t budging.

Reply

Ali Boone April 22, 2014 at 10:15 pm

Next! Yes, that would be amazing Sharon. No budging, I don’t care if you do hand me the full amount in rent including a late fee, if it’s not in by the xth date, you’re out. Don’t care, peace out. That might kick people harder into gear. There is definitely a level of pushing the limits by the tenants.

Ha, I love the wanting a full remodeling. I was looking for a tenant for one of my properties one time and my PM called and told me about this couple that came by, everything was great about them, they qualified, but the wife would insist the carpet be changed out for them to move in. I was like, you’re kidding, right? The carpet in there may not be the prettiest but it’s certainly not ugly and it’s very comfortable so no, not happening, UNLESS she wanted to pay $50/month extra on the rent and sign a two-year lease :) Of course she said no. But more than the financial side of things, if a tenant is already being that demanding before they move in, in no way do I care to take on someone who is likely only going to continue to be that demanding.

People are crazy!

Reply

Chuck April 19, 2014 at 10:21 am

I like the tactic of withholding a 1000.00 rent payment because of a 1.00 bulb that is burnt out. Recent podcast on “professional tenants” has me reevaluating my screening process. My 8% REITs are looking better and better all the time….

Reply

Ali Boone April 22, 2014 at 10:16 pm

Well you know those light bulbs Chuck…. haha. That’s funny. Yes REITs are tempting for sure, but then I remember how much financial benefit I lose on those by not owning real property. Tenants or not.

Reply

Rachel April 19, 2014 at 10:41 am

Great question to ask, Ali!

I think mine was, “What happens when they do not pay?” Though, I think I asked that question subconsciously! :)

If they fumble around trying to answer the question or if I hear a “we’ll see what happens” type of response, it definitely raises some red flags. Those who get into the details and logistics on how they handle these kinds of situations tend to know what they are doing.

In the past, I’ve done the back and forth. Calls are OK but I’ve found posting notices more effective. Getting things in writing tends to make things more realistic warranting more of a response.

I enjoyed the article. Looking forward to hearing more stories from others on this write-up! :)

p.s. Very entertaining story from Paul’s comment, never a dull moment!

Reply

Ali Boone April 22, 2014 at 10:17 pm

Ooh I like that Rachel, using written notices. I can definitely see how that might strike a little more fear. I’m not sure how many PMs are willing to drive to all the houses that are missing payment but it probably depends on the market and how far of a drive to all of them it would be. Could be effective though!

Reply

Joann Miller April 19, 2014 at 11:10 am

One of my tenants has a story almost monthly about why the rent is late– last month hehad another “stroke” , he has had one disaster after the next that is “always out of his control and not his fault–“– his other story that we hear alot is that “the computer at work screwed up all the paychecks, “-and that no one got paid– so he will be late– — or his child is sick, or , or , or……….. ” sometimes the same person in his family has died more than once…. –

Reply

Ali Boone April 22, 2014 at 10:19 pm

Ah! Now that’s funny Joann. When the same family member dies more than once, do you call him on it? Does he always end up paying the rent? I assume he does if he’s had the chance for that many excuses. It seems like it’d be so much effort to stall for so long just to pay it late.

One of my tenants pulled the excuse last fall of she didn’t get her social security check because of the government shutdown. That led to a 3-month long pile of miserable nonsense getting money out of her. Funny too, because everyone else in America got their checks despite the shutdown… hmmm…

Reply

Len April 19, 2014 at 9:39 pm

I had a tenant that had a mysterious water leak. Complained excessively high water bill. He stated that it was 2 months running. So we get the water company to come out. They say if there is a leak or anything go on, it’s not on there end. So we get our handyman who happens to be a licensed plumber to take a look.

He finds nothing. So, the tenant says ” I can’t afford to live here with these high water bills.” He’s adamant that there is a water leak somewhere in the house or the lines. I say hmm, I think he’s looking for a way to get out of the lease. So to test this theory I tell him I’ll split the difference with him of his last 3 “high” water bills while resolve the issue causing this. The only thing I need is your last water bills for my my records ect.

I tell him we’ve checked everything out and there is no leak in the line after pressure testing ect. I still haven’t gotten those “high” water bills yet. Can I get them so we can split the bill?

So then next month, on the 5th. I get a call from said tenant saying he has to move because he can’t afford the rent because his ex-wife took him to court for more child support! Stated he couldn’t pay rent until the 23rd. I say ok I need a promissory not to that effect.

I knew he was trying to break the lease for something. To his credit, he did pay on the 23rd. But had the nerve to ask if he was getting his security deposit back. I stated per lease, you have to give 60 days notice in order to get deposit back. You only gave 25 days notice.

On another note, the way I deal with bad tenants by setting a tone early and often.

Reply

Ali Boone April 22, 2014 at 10:22 pm

Darn those high water bills Len! Ha. I think it’s hilarious (although incredibly irritating at the same time) to catch someone in a lie, or force them to produce evidence of their claim and they can’t. It makes me want to slap them, seriously. But funny how the truth comes out later… And good for you for keeping the deposit! And I agree, the tone early is key.

Reply

Sara Cunningham April 20, 2014 at 12:38 pm

We have a tenant that must have the worst luck in the world. He didn’t get paid because they messed up his paycheck and shorted him, his wife broke her leg, the kids computers blew up, he got demoted, his wife was sick again, his ex and his wife’s ex haven’t paid child support, he could of sworn he paid already get must of got mixed up, come on really! I’m currently serving him a notice to evict. He’s been in the house for nearly 3 years but I’m tired of being empathetic now. He’s promised to catch up in full but that won’t be till after he gets his tax refund sorted because his ex claimed the kids when she wasn’t supposed to hahaha. Yes it’s become my monthly entertainment , I’ll have to store some of these excuses for future use!

Reply

Ali Boone April 22, 2014 at 10:23 pm

Ha, funny Sara. Yep, talk about a black cloud! Poor guy. Ha, not. This is really the tricky situation that I tend to get caught in…they swear they are going to pay, and you know it will be cheaper to take the late payment than to evict and take the vacancy, but then they keep giving you runaround, maybe they pay maybe they don’t…. ergghh. Where do you draw the line? No idea.

Reply

Deanna April 21, 2014 at 12:31 am

Ironically, my first (and only “bad” tenant) paid her rent faithfully and on time every single month. The problem was her granddaughters. You name it, they did it.. Drugs, pit bulls, cats, domestic violence calls, boyfriends dealing drugs out the bedroom window, etc.
150 text messages arguing, begging and bargaining about why she shouldn’t have to leave (“why didn’t anyone TELL me drug-dealing was going on”, “(granddaughter) says there were no guns. Is that what the police report says?”, “how can you evict (sic) a crippled woman and a minor child” , etc). Thankfully she was month-to-month, so no eviction – just a notice of end of lease.
Took two months, & by the end her legal aide liked me much better than her own client. I gave everything legal aide asked for as far as extensions, etc., but was adamant that tenant had to leave. I even returned full deposit despite damage (did bill for window broken supposedly during move). was just glad to be rid of them.
Sooo lucky property wasn’t in a rent-protected area.

Reply

Ali Boone April 22, 2014 at 10:26 pm

I love high-class citizens Deanna, don’t you? :) I do admit though I do tend to have a soft spot for the grandparent-level person who is basically getting abused by their grandkids or who knows who. But regardless still, they know if there is drugs in the house and all that, no way around it. It’s sad really.

Reply

Alex Craig April 21, 2014 at 9:31 am

As much as everyone would like to think there is a text book way to manage property, the reality is there is not. We have core procedures what to do with late paying tenants, tenants who sneak in pets, etc. Sure there are core ways to handle good tenants and bad tenants, but there are always caveats and a good property manager will handle the situation with the tenants personality in mind and consider the alternative. When I say consider the alternative, I mean, is eviction with a vacant home the best alternative. For example, we have a tenant who for 1 year paid us on the 15th and paid the late fee. When the lease expired, we changed his lease to run from the 1st to the 15th. Tenant was very appreciate of this–well guess what, he now pays on the 1st. We have come to accept he is going to be a late payer–this tenant has been in one of our homes for 3 years. The alternative is to evict, let the house go vacant, rehab and risk vandalism and theft that comes with a vacant home. Is that really the best alternative? After all, we always get our money. Now like any late paying tenant, there is chances they will eventually go late and not get caught up, thus forcing eviction. But after 3 years and with minimal maintenance on the homes (tenant takes great care of the home), then even with eviction, the investor will still have made a fantastic return and well over their Pro Forma. So that is my example of not having a cookie cutter way to handle bad tenants.

But real quick, managing good tenants, while easy, still is important to do it the right way. Personally with my properties, if they have made on time payments throughout the duration of their lease and taken good care of the home, if they re sign another lease with me, I let them pick out a improvement to the home (within reason). Such examples have been repainting a couple of rooms, new dishwasher install, ceiling fan installs…..simple stuff, under $250. The goal is to treat the good tenants with excellent service and at times, go above and beyond to show appreciation.

Bottom line…whether it is a good of bad tenants, just like any other business, relationships are very important.

Reply

Ali Boone April 22, 2014 at 10:29 pm

I totally agree Alex, about keeping the relationships. I knew an investor one time who always bought his good tenants turkeys for Christmas. Lol. I was like, random? But I saw the value. I love your idea about the improvement offer!! Very cool. I’ll remember that one.

And I definitely agree about letting that late-payer stay in. I would have too.

Reply

RoyN April 22, 2014 at 9:56 am

Ali,

We also ask the sister question: “How do you keep good tenants?”

Reply

Mike Dundon April 22, 2014 at 5:22 pm

Great article Ali

In my experience the best way to deal with late paying/ excuse making tenants is having a firm due date for collecting rent. Therefore no grace period (which incidentally always becomes the new due date). So if rent is due on the first, and they pay on the second they are one day late. We charge a per day late fee. Whether their excuse for paying late is legitimate or illegitimate it doesn’t matter. If they’re late for any reason they have to pay the late fee. Never waiver on this even if you personally like the tenants. Enforcing just this one rule will save so much anguish and money. It’s really the only thing that my partner and I did right from the beginning and it’s probably why we are still in business and now have 40+ single family rentals.

Also, if the rent is late even one day we send out the 7 day notice (that’s what it’s called in Michigan). We send a letter with the notice saying that obviously we want to work with them but sending the notice is just “company policy”. This sets the tone for how we handle rent collection.

We also have a bounced Check fee and we always enforce that too.

The point is that it’s not about being a nice guy or a jerk. It’s like any other business that has rules that are strictly enforced. Policies and procedures that are followed every time.

With these policies and procedures in place 95% of our tenants pay on time. The other 5% pay the fees.

Reply

Ali Boone April 22, 2014 at 10:32 pm

I think that’s great Mike and couldn’t be more true. No grace periods, it just makes it easier and forces people to comply. Skips the excuse ability, all that. I think you are totally right.

Reply

Ali Boone April 22, 2014 at 10:30 pm

That’s a good one Roy! I think part of the answer should be Alex’s method of offering an improvement :) I like that one.

Reply

Brian Elder May 5, 2014 at 9:45 am

Hi Ali,

Thank you for the post, there are some great tips there. I work with a number of clients who own investment properties and this is certainly a question that gets forgotten. People don’t want to believe they’re going to end up with a bad tenant!

Reply

Ali Boone May 5, 2014 at 2:24 pm

Very true Brian!

Reply

Leave a Comment

Comment Policy:

• Use your real name and only your name in the field designated for your name.
• No keywords allowed as anchor text in the name or comment fields.
• No signature links allowed under your comments
• You may use links in the body of your comment, but it must be relevant to the discussion at hand, and not merely be some promotional link.
• We will have NO reservations about deleting your content if we feel you are posting merely to get a link without adding value to our discussion.
If you add value, but still post keywords, we'll use your comment, but remove your link and keywords.
• For more information about acceptable practice, see our site rules.

Want your photo to appear next to your comments? Set up your Gravatar today.

Previous post:

Next post: