Should I Work With a Late-Paying Tenant or Evict Them? [With Case Studies!]

Should I Work With a Late-Paying Tenant or Evict Them? [With Case Studies!]

6 min read
Brandon Turner

Brandon Turner is an active real estate investor, entrepreneur, writer, and podcaster. He is a nationally recognized leader in the real estate education space and has taught millions of people how to find, finance, and manage real estate investments.

Experience
Brandon began buying rental properties and flipping houses at the age of 21. He started with a single family home, where he rented out the bedrooms, but quickly moved on to a duplex, where he lived in half and rented out the other half.

From there, Brandon began buying both single family and multifamily rental properties, as well as fix and flipping single family homes in Washington state. Later, he expanded to larger apartments and mobile home parks across the country.

Today, Brandon is the managing member at Open Door Capital, where he raises money to purchase and turn around large mobile home parks and apartment complexes. He owns nearly 300 units across four states.

In addition to real estate investing experience, Brandon is also a best-selling author, having published four full-length non-fiction books, two e-books, and two personal development daily success journals. He has sold more than 400,000 books worldwide. His top-selling title, The Book on Rental Property Investing, is consistently ranked in the top 50 of all business books in the world on Amazon.com, having also garnered nearly 700 five-star reviews on the Amazon platform.

In addition to books, Brandon also publishes regular audio and video content that reaches millions each year. His videos on YouTube have been watched cumulatively more than 10,000,000 times, and the podcast he hosts weekly, the BiggerPockets Podcast, is the top-ranked real estate podcast in the world, with more than 75,000,000 downloads over 350 unique episodes. The show also has over 10,000 five-star reviews in iTunes and is consistently in the top 10 of all business podcasts on iTunes.

A life-long adventurer, Brandon (along with Heather and daughter Rosie and son Wilder) spends his time surfing, snorkeling, hiking, and swimming in the ocean near his home in Maui, Hawaii.

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Brandon’s writing has been featured on Forbes.com, Entrepreneur.com, FoxNews.com, Money Magazine, and numerous other publications across the web and in print media.

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Many tenants will request that you “work with them” when their rent is late.

Deciding to work with them is a bit of an art form, and there is a strategy for doing so that won’t leave you in the lurch if something goes wrong. Before we get there, let’s talk about the two most common reasons why rent is usually late.

1. Priorities

There is a common pattern we see with late rent, and it’s caused by the fact that there are more than four weeks in a month. In other words, in April the tenant might get paid on the 3rd and 17th, then in May their paychecks would land on May 1st, 15th, and 29th. June would be the 12th and 26th, and July would be 10th and 24th. As you can see, for those who are paid every other week, paydays come MORE often than twice a month, and tenants sometimes have a hard time getting used to that. In the dates above, the tenant would likely use their May 1st paycheck for rent for May. Then they hopefully would use the paycheck from the 29th of May to pay their June rent.

But then that check on June 26th comes around, and the tenant realizes they still have a full week until rent is due, and they really need that money for something else, so they say, “I’ll just spend this paycheck and use the next one for rent.” But the next one doesn’t come until July 10th, so the tenant calls on the 5th of July and says, “My rent is going to be late because my paycheck doesn’t come until Friday,” as if some freak occurrence caused their paycheck to be delayed. Not placing their rent as a priority in their life is the number one reason why your tenant cannot make their rent payment on time.

BRRRR-strategy-deal

2. Illness or Job Loss

Despite what the media might have you believe, this is actually a pretty uncommon reason for not paying the rent. Usually, like we just discussed, tenants just haven’t made rent their priority; therefore, other things take precedence over a timely rent payment. However, when a tenant truly is struggling, it’s incredibly difficult for the landlord to know how to navigate. Our nature is to be kind to people and help them. After all, we are not machines; we are human beings and can sympathize with their situation.

Related: 10 Invaluable Lessons I Learned From My Very First Tenant Eviction

However, it can be tough to know what is true and what is just an excuse. Even if it is a true problem, how much is your responsibility? You are running a business, and you cannot be profitable if you cater to everyone’s problems. In fact, by being strict during difficult times, you might just help them keep their priorities straight and encourage them to work harder to get a new job or pay their other bills some other way.

Generally, the way we’ve looked at this situation is as follows: When someone is going through a tough time, the rent MUST be paid. The question is, will we pay it out of our own personal bank account, or will we hold them to their obligations? This mindset helps us separate our feelings from reality. If we would be willing to hand the struggling tenant $1,000 out of our own pocket, outside of the business, that is the only time when we would be willing to work with them on their rent. There are plenty of people in our own network of friends and acquaintances who are struggling financially, and if we had an extra $1,000 laying around, of course we would rather hand it over to them than to our tenant who may or may not be telling the truth. Unless you’re running a charity, the rent must be paid at all times.

Sometimes when the tenant realizes they have no other options, they will work it out, especially if you’ve made the rent a priority. Most of the time in a situation as extreme as illness or job loss, it does not, leaving the tenant with the choice of either moving willingly or being escorted out by the Sheriff post eviction. Next, we’d like to share two real-life case studies of tenants who have paid rent to us late recently.

Case Study #1

Luis was a single, hard-working guy who rented a small, 1-bedroom house from us. One month, he called to explain that his paycheck wasn’t coming for several days (the mystery of the “disappearing previous paycheck”) and needed a few more days to pay. We explained that he would still need to pay the late fee ($50) and the daily late fee ($10 per day), and we asked him for an exact date for when he would be paying the rent, which he stated would be on the 10th.

We told him, “That’s your choice to pay then, but you will receive a Pay or Vacate Notice from us, and that starts the clock ticking. On the 10th we have to file for eviction, so just make sure it’s paid by then, with the late fees.” The rent came in on the 10th, along with the late fees, and Luis was back on track.

Case Study #2

When they moved into our apartment complex, Lana and John were both employed and the parents of two children. A couple of years into their tenancy, John took off, leaving Lana a single mom, with a single income, and now four kids (we don’t know how she picked the extra two up!). Although she was a nurse and made good money, she always struggled with paying the rent on time, receiving Pay or Vacate Notices numerous times. In addition, her apartment became increasingly messy: garbage everywhere, broken blinds, Mickey Mouse sheets in the windows—everything that drives us crazy—only to be fixed “just enough” when we would call and make her.

Related: Cash for Keys: The Controversial Process That Could Save You Major Eviction Headaches

Two months ago, the rent didn’t show up (as usual), we received no phone call, and she refused to return our voicemails or text messages. We served the Pay or Vacate Notice (giving her three days to pay her rent before eviction proceedings would start), but again, we heard nothing. The 10th of the month came, and still, after repeated phone calls, text messages, and even personal visits to her apartment, we could not get in touch. Finally, on the 10th, we sent her a text message that said, “Eviction is being filed tomorrow, and it will be too late to stop. Can we talk?”

We finally received a call back within a few minutes (apparently she realized she could bury her head no longer!), where Lana stated that her paycheck was late and asked if we would work with her. When we asked about the exact date that she could pay, her response was, “I don’t know, maybe the 28th of this month.” We told her that would not work for us, and we would have to file for eviction, so she hung up on us. Eviction was filed on the 11th, and within three weeks she had moved out, leaving us with a disaster of a unit.

As you can see in the previous two examples, we are not opposed to working with someone as long as we are protecting ourselves against loss; we still served the Notice to Vacate, and we still charged the late fees in both cases. In case #1, we worked with the tenant, as he maintained communication with us and didn’t demand an excessive amount of time, paying within the required three days. We might have even waited a couple extra days before filing for eviction had it been necessary. Working with case #2, however, would have resulted in disaster.

landlord-lessons

We may have received the rent on the 28th, of course, but by then, the rent would be almost a month late. Would she have rent for the next month, due just four days later? Of course not. And the pattern would repeat indefinitely until she would flat-out stiff us, and we would be an entire month behind in rent before starting her eviction.

If you are going to “work with a tenant” and their late rent, only do so if you fully understand the situation. In other words, ask them why the rent is not paid and explain the “two-week paycheck problem” to them, as we discussed above. Make them walk backwards with you through their paychecks if needed so they understand that getting paid every other week actually means they should be ahead on their rent. Then, find out exactly what day their paycheck will come and hold them to that. Or if their paycheck is still a couple of weeks away, encourage them to borrow the money from a family member, friend, or cash-advance service. If you do decide to work with your tenant in regard to their late rent, never let them get more than two weeks behind, don’t make it a habit, and only “work with them” within the bounds of the law, protecting yourself.

Dealing with late rent is never fun, but you’ll likely find as we have: The more strict you are, the easier it becomes. Tenants pay on time most of the time, especially when they know you are serious about it. Most of the horror stories we hear from ex-landlords involved them being too soft on late rent. Adopt a policy of fair-but-firm when dealing with late rent, and the issue won’t leave you bankrupt. Yes, you might have to evict, but it will be better than losing your whole business.

[This article is an excerpt from Brandon Turner’s The Book on Managing Rental Properties.]

What has your experience been in working with tenants on late rent versus evicting them?

Let me know your thoughts and experiences below!