Building a profitable buy and hold rental property business can be tough. A lot of folks fail to treat real estate investing as a business and end up getting into trouble. Having systems and following those systems is so important if you are to be successful and keep your sanity. It’s pretty easy fly by the seat of your pants when you only have a few properties. Later on when you have added more rentals, it gets much harder.
In the beginning when I bought my first few rentals, I set myself up to have tenant problems. To be blunt about it, I was just too nice. You hear so many “sad stories”, and you want so badly to believe them. It takes a little while but you eventually learn that some of these folks are master storytellers, and they really know how to work the system.
Your Tenants Haven’t Paid Their Rent (Again)
One of the biggest problems landlords face is what to do about tenants that don’t pay their rent. Tenants will tell you they will have the rent tomorrow, next week, or you just fill in the blank. And, some of them will actually do what they say. A larger percentage probably won’t. We all know that you can evict them, and that is what may eventually have to happen.
If you are a landlord that gives tenants a grace period of a few days and they still haven’t paid at the end of the grace period, you should immediately send them a 7 day letter. Always begin the process right away and assume that you will be heading for an eviction. In most states the courts are more interested in protecting the tenant than the landlord, so be sure you know the law and what you are required to do to get them out of the property in the event that they become delinquent.
Every day a tenant stays in the house without paying is costing you money. Not only is it costing you money in lost revenue, there is a high probability that they will damage the property. Evictions and set outs are nasty events, and I don’t like them. Most tenants that can’t or won’t pay the rent aren’t going to pay the costs associated with an eviction even when these provisions are in your lease.
I figured out early on that it was almost always cheaper to pay them to move than to fix a damaged property and pay legal and court costs.
Find Out What the Problem Is
The first step is to find out what the problem is, and it’s important to remember that you need to move quickly. In most cases, I believe that if you can work out an arrangement with a tenant that has been a good tenant in the past, this is better than finding a new and possibly worse tenant.
But if the tenant has lost his job and there is no way he can get caught up or pay future rent, then he needs to move. After the tenant has stopped paying rent, he may just decide to stay until he is forced to move and this is what you don’t want.
Using Cash for Keys
Once you have determined that your tenants need to move, find out what it would take for them just to leave. A technique that many landlords will use is dubbed “cash for keys,” where you essentially offer to pay the problem tenant to leave in hopes that they will do so “nicely.”
Sometimes they will say, “I just need to be released from the lease”. Other times they won’t have the money to rent a truck to move, and you can offer to pay for the truck rental. If they are being really difficult, you might offer to pay them an amount to equal to one month’s rent and release them from the lease. You have to ask them what would make it possible for them just to move on. Trust me, it’s always cheaper to do cash for keys than go through the eviction process and repair the house.
The next step is to draw up paperwork that states the terms you agreed upon and add a couple of things to protect yourself. You need to specify that the property will be left broom clean with no garbage on the interior or exterior, and state that there will not be any damage to the property. Also I always instructed the tenants to have the utilities taken out of their name, and I checked to see that this was done. I might add that I never had a tenant agree to the cash for keys process and not follow through. My procedure was to meet them at the property so we could inspect it together. I would get the keys and give them the check if everything was OK. For me, this was a lot less stressful than an eviction.