Late rent paying tenant....would you keep them?

Question

Looking for some input,

I just purchased my first duplex a couple of months ago, inherited tenants. One pays rent early every month (they really are rockstars), the other pays late every month.

The guy who pays late is overall a nice guy and has included the late fee. At the same time, he is hard to communicate with and causes headaches because of it, besides the late rent it is really difficult to coordinate repairs with him. I have him on a month-to-month lease, so I could notify him that I won't be renewing. However, I am hesitant because its December, if we were in April I'd do it in a heartbeat. Should I keep him on until then? I rather have a late paying tenant than no tenant.

Another question, since its month to month can I end his lease mid month? For example, he owes me December rent (was due on 1st, grace period until the 5th). Our lease says, both sides need to give 30 days notice in case of ending the lease. In that case, say he finally pays his rent on Dec 10th, can I then inform him that his lease his being cancelled effective Jan 10th? I assume yes, but just confirming. I am hesitant to inform him before he pays rent.

If you've faced a similar situation pls let me know what you've done, thanks.

Bruce Woodruff · Answer

If his only sin is the late paying and he's ok with the late fee, then I would keep him until next spring....

Christopher Reeder · Answer

@John Matarazzo

I had a tenant in my earlier investing journey that was similar to your current tenant that pays late. At first I enjoyed the additional income but over the years grew to see how it was inefficient for my portfolio management. Their habits continued to worsen over time to the point they were paying on the 30th of the month with the late fee.

When their lease came up for renewal, I offered them a renewal option and changed their late term clause to be $10/day. Since signing their new lease 3 years ago, I’ve collected $10 in late fees from them.

The late charge term changed the tenants opinion of the late charge and made them prioritize rent over their other monthly payments. They continue to renew each year at the new rates and have been a very successful turn-around tenant for me.

I’m in Florida which is landlord friendly so your success could be different based on your market and local laws.

Nathan Gesner · Answer

Being a "nice guy" and being a "good tenant" are two completely different things.

He's consistently late on rent and he's difficult to coordinate maintenance. Have you inspected the condition of his apartment? I suspect there are other problems or that you'll face some more difficulty when you give him notice.

I would give him notice as soon as it's favorable to you. If your market is slow right now and you are afraid of a long vacancy, keep him around for a few more months until the market picks up.

When can you give him notice? That depends on your state laws. Most states only require 30 days notice, so you can give them notice on any day of the week and they have to move out 30 days later. There are a couple states that require you to end the lease at the end of the month.

If you can give notice at any time, my recommendation is that you wait until he pays rent because there's a very good chance he won't balance his account on the way out the door. If he pays rent on March 10th and you give him notice, you'll only face losing the ten days of rent in April. If he's paying by check, wait until it clears!

Charles Clark · Answer

@John Matarazzo

First, congratulations on your first purchase, and I know there will be more to come.

I love MTM for this very reason, so I can move on from a relationship that is not healthy. All money is not good money, and I am sure you got into this for passive income. It is not passive if you have to chase down rent every month. I say give him, his 30 day notice, and then use the winter months to fix up the property or if your property is in good shape then re-lease it. Not being able to find tenants during the winter months is a myth. If you have a good product at a good price, you will rent it out.

For your other question, the notice begins on the day you give it. You can give the notice whenever. For example, you give a 30 day notice on the 10th, then the tenant has 30 days to move out. If they don’t, at this moment you can start the eviction process.

I hope that helps you on your journey. Feel free to contact me if you want to talk more RE.

Beleza,

Charles Anthony

Luke Anderson · Answer

Something I’ve done in the past with leases and it’s been beneficial is get the rent number I have in mind add $100 to that number and charge that rent, BUT in the lease give the stipulation that if they pay prior to the first they get a $100 discount off their rent, anything between the first and the tenth of the month is the whole rent and afterwards a late fee gets added. It has been an encouragement to some tenants to pay early and others have paid between the first and the tenth every month like clockwork with the full amount. It never bothered me either way.

Luke Anderson · Answer

@John Matarazzo Is he a needy tenant for repairs? If he pays his rent like clockwork, late and includes the late fee, I would put him in my rockstar tenant list. It may be a haste for accounting but you’re getting the money.

Now looking into the future: how much work would you need to put into the unit to turn it over? New paint? New flooring? Etc.

Like you said, right now is not the best time to not renew a tenant, as you’ll be eating more vacancy on top of the turnover cost.

If he is that hard to deal with, I would wait until February/March to give him notice so he can move out and you can get your needed repairs ready for the next tenant, that may or may not be difficult to work with when it comes to repairs or access to the property and may or may not pay rent at all.

Bud Gaffney · Answer

Keep him. It can be brutal out here.

John Matarazzo · Answer

@Charles Clark, thanks for the feedback. I am actually in MKE, so I'll send you a message.

Jason Smith · Answer

@John Matarazzo

Rentometer.com is a great resource for the rental market as well as Zillow. While they will help you identify the market pricing and availability it won’t necessarily buy you a great replacement tenant.

I understand that you inherited this tenant but if you don’t have one I highly recommend getting a tenant verification process in place.  Including credit history , criminal history and past evictions. This will help you prevent future problems. If someone doesn’t meet your minimum standards pass them over.   It’s better in my mind to wait for a quality tenant than rush filling the vacancy and having to deal with the same issues.

Just my 2 cents

Bud Gaffney · Answer

@John Matarazzo evict them. It’s business not personal.

Late rent paying tenant....would you keep them?

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