I am going to tell you a little-known secret about myself. Are you ready?
Are you sure you are ready?
OK, here is the secret: In over seven years of real estate investing, I have never evicted anyone!
I know—isn’t that crazy? How can that be? I have never had anyone pay me late or not pay at all?
This is probably going to stir the pot with quite a few readers, but everyone does things differently. It all boils down to your personal preference and how you want to run your business.
Some people will serve an eviction notice at 12:03 a.m. on the 10th of the month (or whatever the rules are where you live); others are more lax and don’t even remind the tenant that rent is past due until the 14th—even though it was due on 5th. I fall somewhere in the middle.
Are Evictions Even Worth It?
The reason I have never evicted anyone is because I am willing to work with them on a payment plan if their rent is late. I do mean a real payment plan though—I need a concrete arrangement for payment with exact dates.
The reason I do this is as simple as this: I know it costs $900 in attorney and court fees, it could take 90 days (or more) to remove the tenant, and then there is also the possibility of the evicted tenant causing damage to the property upon their exit. I know this because I have discussed the options with my attorney. I’ve also heard the horror stories—as we all have—from other investors.
Now, let me be clear. First thing in the morning on the 11th (because rent is due by midnight on the 10th), I am contacting any tenant who has not paid. I do not let any time pass before doing this. I will call and text them until I reach them. My goal here is to receive the outstanding payment or make the firm arrangement for payment.
Why I’d Rather Not Evict
Nine out of 10 times, they explain that they need until their next paycheck (usually are paid weekly or bi-weekly) to submit the payment. I am OK with that. It is better than paying $900 in fees, possibly losing another three months in rent, and potentially needing to pay to fix all of the holes in the wall that they punched on their way out.
That arrangement (waiting until the next paycheck on “X” date) becomes our plan for that month. No, I do not ask for that promise in a signed, notarized legal letter, but I do make clear that this is our agreement and I expect that it be honored. I cannot remember the last time that a tenant did not make good on their outstanding payment by the end date of our agreed upon arrangement that we had for that month.
I know what you are thinking. Come on, there has to have been few people who have not kept up their side of the agreement, right?
When Generosity Doesn’t Work
Yes, there have been instances when an extension hasn’t worked. My solution for those scenarios has always been “cash for keys.” Cash for keys is when a landlord offers to buy a tenant’s keys back, with the understanding that they will be leaving the property on an agreed upon date. This has worked flawlessly the times that I have had to use it. I have given as little as $150 for keys. I would trade $150 in a cash-for-keys arrangement over a $900 eviction any day.
I invest in what I think is a C-class area. If you invest in a similar area and think your tenants have money and are living any way other than paycheck to paycheck, you are wrong. They do not have money, and they do not have anything to fall back on.
For example, I require a rental application from each prospective tenant. I can think of less than five people ever who indicated that they had a balance greater than $1,000 in any of their bank accounts. My point is, if anything out of the norm in their life happens, like a blown car transmission or an unexpected reduction in hours at work, they most likely will not be able to meet their obligation to you on time.
There is a fine line here. You do not want to be seen as someone who can be walked on or someone so easy going that the tenant can just pay whenever it’s best for them. My mantra has always been to be stern but respectful. I am not there to be your friend, your bank, or your shoulder to cry on. I am running a business and ultimately need to make decisions that are in the best interest of that business.
It’s worked well for me so far. With this strategy:
- I have only had three people in seven years of investing out of dozens—if not hundreds—of tenants completely burn me on rent.
- I have never had a single tenant ever intentionally damage any of my properties.
- I have never had a tenant ever threaten or even become angry with me.
- I have earned tenants’ respect, gratitude, and referrals.
The Bottom Line
This sort of experience is one that I think is earned. The respect and gratitude received from tenants is borne from a mutual respect that is earned. The precedent needs to be set on day one. They need to understand that you are running the show.
Whether you choose to do what I do, process an eviction right away, or execute a hybrid of the two, be sure to fully understand your options and your potential costs. Talk to your attorney, and learn how it works in your area. Depending on where you live, you may even be able to take a more effective approach than the one that is working for me.
What do you think about my strategy? What’s yours?
Share in a comment below.