Our company operates out of the Metro Detroit area, which contains the second-least-expensive housing market in the United States as of this writing. That means we’ve got a solid perspective on low-cost rental markets that you won’t find much advice about online. This month, we’re going to talk a bit about how operating in a high risk/high reward environment affects the property management process. Today, our topic is how the Detroit rental market affects the evictions process.
Noticing the Problem
The first question when it comes to evictions is “when do you send an eviction notice?” Ask this question on one of those landlord forums, and you’ll get advice ranging from “always send an eviction notice immediately upon becoming aware of any reason you might have to do so” to “only send an eviction notice if everything else has failed.” It probably won’t surprise you to learn that our company falls firmly into the first camp. The reason is simple: The tenants are ill-prepared.
The Poverty Trap
Have you ever noticed that, should you want to punish someone for something they did (or didn’t do) without sending them to jail, just about the only other alternative you have is charging them a fine? Well, if that thing they didn’t do happens to be “pay X dollars,” fining them kind of seems a bit counterintuitive, doesn’t it? And yet, we as a country do it all the time and by default—which means that, for a certain category of poverty-stricken folk, one missed payment on almost any bill can quickly become an avalanche of fees and penalties that renders them completely unable to catch up.
Most of our tenants do make enough money to set a little aside each month, so they could avoid the trap in many cases—not all, and we know that—but most. But spending everything you have and then some is another thing that we as a country do all the time and by default, so tenants who actually are that responsible are hard to come by.
Kinds of Nonpayment
One of the most overt realities of past-due rents in a recovering economy like Detroit is that 90 percent of all cases of missed rent payments fall into one of two groups:
- People who just forgot to pay for whatever reason and quickly come up with the money when they see the eviction notice, and
- People who are currently getting or have gotten completely buried in the aforementioned poverty trap and have little to no chance of getting out.
In other words, you have either people who can and would pay, but simply forgot, and people who suddenly and unexpectedly cannot pay and won’t be able to for some time. The number of cases that fall into a third category—like people who can pay but don’t want to or people who can’t pay right now but will handily catch up next month—is very small.
When they receive an eviction notice, the first group will pay right away because it will remind them that they need to do so. The second group will divide itself up into two subgroups:
- The people who are willing to put in the effort to recover and call to create a payment plan for themselves and
- The people who think that cutting off communication and trying to hide from their situation is a better plan.
The first group, again, will be inspired to call in by the arrival of the eviction notice. The second group will avoid us when the eviction notice arrives—and if you don’t follow up immediately and to the fullest extent of the law, you will end up housing them for months on your dime.
Related: Should I Work With a Late-Paying Tenant or Evict Them? [With Case Studies!]
Interestingly, that’s also exactly what will happen if you don’t send out your eviction notices quickly, only you’ll end up paying for even more months, and you’ll end up with the first two groups taking longer to realize that they need to catch up. So, there’s absolutely no benefit to waiting to send your eviction notices out—the only thing that can happen if you wait is that it will cost you more money in the long run.
In Detroit, evicting someone is almost always more complex than it is elsewhere—not just because the court system can be a bit pro-tenant, but because there are a vast number of squatters who are accustomed to living with almost nothing. That makes it easier to move them out because there isn’t a massive pile of stuff to throw away, but it also makes it easier for them to move right back in.
This means that every time you evict a tenant or squatter in Detroit, you have to also spend money to secure the property. Evicting a tenant who was living there legally isn’t particularly different from anywhere else, but squatters in Detroit are inescapable, ubiquitous, and a constant source of the risk that makes our market so (potentially) profitable.
OK, we’ve talked for a few posts now about the tenants—but what changes about owners in unusually cash-strapped markets like Detroit’s?
Come back next post to find out!
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.