Slow Paying tenants - thinking about just selling the place.

Acworth, GA · Member since 2017 · 51 posts · 22 votes

I have a 2BR/2.5BA townhouse that I have had the same tenants in for a little over two years. They've been late on the rent forever, and have slowly been slipping further and further behind. I am just not seeing any progress toward getting caught up so my options are to terminate them living there (they're on month-to-month now because I did not resign another lease) or I am considering selling the townhouse to be done with them and free up the equity. Curious to hear some thoughts input from the hive mind? I bought the townhouse in June 2019 for $158k. It is worth approximately $250k - $260k (Zillow at $262k). Rent is currently at $1725/mo. Thoughts?

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Colleen F.Pro Member

Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes

@Duane Gunkler Give a notice to quit as of x date per your state law. Confirm they will be gone. Concurrently file for eviction. Don't play with it. They won't catch up and they won't pay no matter what they promise.

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Hunter Reed
New to Real Estate · Texas Christian University · Member since 2022 · 118 posts · 56 votes
3y
Duane, why have you not terminated the tenants the first time they were 7 + days late on rent?
1 Reply
Noah BaconPro Member
Property Manager · Lansdale, PA · Member since 2021 · 826 posts · 1k+ votes
3y
With late rent being so consistent and now slipping further behind, have you considered starting the eviction process with a demand? This will protect you legally if they are not paying on time, and could reverse the cycle of late rent as It sounds like your tenants are used to a late schedule with no penalty.

I would reconsider your position on selling the property to be "done" with the tenants. Are you not cash flowing with their current rate of $1,725? Will you not be cash flowing after a turnover at a higher rate? I am not a strong believer that you can deploy the equity into a better return on your money right now.

If the tenants are on a M2M lease give them proper notice, fix the damages from their 2+ years, and set more strict guidelines while screening for your next set of tenants to mitigate a similar situation in the future.
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Duane GunklerPro Member
OP
Acworth, GA · Member since 2017 · 51 posts · 22 votes
3y
Quote from @Hunter Reed:

Duane, why have you not terminated the tenants the first time they were 7 + days late on rent?
I realize I let it go for far too long. I can’t change that now, so I’m looking for advice on how to proceed from here.
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Duane GunklerPro Member
OP
Acworth, GA · Member since 2017 · 51 posts · 22 votes
3y
@Noah Bacon - Thank you for the input! I agree, I’m not a fan of selling the property (although there are some things I could do with the equity). I do cash flow on the property, so I enjoy that aspect of having it. I have another property that cash flows well too, and I am looking to add to my portfolio, not take away from it. What might you suggest is a fair catch-up plan? They are currently 2 months behind on rent. What’s your thought on a realistic plan to get caught up if I opt not to sell?
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Noah BaconPro Member
Property Manager · Lansdale, PA · Member since 2021 · 826 posts · 1k+ votes
3y
Quote from @Duane Gunkler:

@Noah Bacon - Thank you for the input! I agree, I’m not a fan of selling the property (although there are some things I could do with the equity). I do cash flow on the property, so I enjoy that aspect of having it. I have another property that cash flows well too, and I am looking to add to my portfolio, not take away from it. What might you suggest is a fair catch-up plan? They are currently 2 months behind on rent. What’s your thought on a realistic plan to get caught up if I opt not to sell?
I'd certainly recommend finding an eviction attorney if you are seeking a fair catch up play, as they will guide you how to legally follow that process in your state (GA I'm assuming). If you are not going to seek legal counsel, you can terminate the lease (following state guidelines) and move on without trying and recoup the last 2 months.
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Colleen F.Pro Member
Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
3y
@Duane Gunkler Give a notice to quit as of x date per your state law. Confirm they will be gone. Concurrently file for eviction. Don't play with it. They won't catch up and they won't pay no matter what they promise.
7 Reply
Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
3y
Are you selling it to avoid dealing with them or selling it because you want to invest the money elsewhere? If the former, give them notice. Explain that they are falling further behind in rent and they need to find another place. Sit down and talk to them and give them until the end of Sept to be current on the rent or they need to move.
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Todd Jones
Member since 2023 · 243 posts · 199 votes
3y
Quote from @Theresa Harris:

Are you selling it to avoid dealing with them or selling it because you want to invest the money elsewhere? If the former, give them notice. Explain that they are falling further behind in rent and they need to find another place. Sit down and talk to them and give them until the end of Sept to be current on the rent or they need to move.
This.
Don’t sell your property because someone was irresponsible. They are others out there who are.

I get it. The equity could be used for “other” things. But you may blow a chunk of the money received from the sell quickly and you may regret it. Once it’s gone, it’s gone.
Sell only if you don’t want the townhouse. Don’t include a month-to-month tenant in this decision.
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Richard F.
Honolulu, HI · Member since 2008 · 3k+ posts · 2k+ votes
3y
Aloha,

You have allowed the Tenant to slide by without paying...don't give away even more money by trying to sell this dog while the deadbeat Tenant is in it. EVICT. SPRUCE UP. GET TOP DOLLAR UPON SALE!
3 Reply
JD MartinBusiness Member
Moderator
Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
3y
If you are not up to the task of managing your own rental properties, then you really have three options:
1. Get up to the task. Learn everything and get moving. Manage your business like it was a business because it is a business. Would you give your employer a pass on forgetting your paycheck every month or paying you 3 weeks late?
2. Hire a property manager, absorb the expense, and let them manage your business for you. You still have to manage the manager but you can avoid things you may not want to deal with like telling tenants to get the rent paid on time.
3. Sell the property and put the equity into something else. You'll likely take a tax hit when you do it and perhaps miss out on future gains but real estate is not for everyone.
If it were me I'd send the deadbeats down the street and get me some new tenants. The ones you have suck. You know that already, you're just putting off dealing with the inevitable. If you sell the place who will want to buy it with deadbeat tenants in there?
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6 Reply
Henry T.
Member since 2022 · 1k+ posts · 1k+ votes
3y
Yup, you let it slide and look where that got you. Get off yer *** and call an eviction attorney now. An experienced eviction attorney. You don't know what your'e doing, don't even try sending a notice. Let your attorney handle it. They're all over, they post their costs on websites. They'll charge as it progresses in depth. Expect a couple grand, maybe 3 grand total if it gets to a hearing, but it probably won't. You can't sell that place with a deadbeat in it, unless you want to really lose yer ***. Call some property managers and ask who they recommend. Do some searches. Get wit it. Let us know when you're done and they're out, we're all ears.
2 Reply
Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
3y
I see multiple indicators that you should be using a PM.
1) you lease should have had a late payment penalty 2) dealing with tenants is turning you off a real estate enough that you are considering selling a property that has appreciated $100k in just over 4 years. This works out to $2k/month of appreciation over your hold ($100k/50 months). 3) you have let a tenant get 2 months behind on their rent. I highly suspect that this exceeds their deposit and you are unlikely to collect all money owed. 4) I suspect you have not done any inspections of the unit.
A PM will handle the tasks that are causing you angst and like result in better revenue due to better management more than compensating for their fees.
Good luck

2 Reply
Dawn P.
Rental Property Investor · Sumter, SC · Member since 2015 · 334 posts · 531 votes
3y
I would lose the tenants and keep the house. They'll never catch up at this point, they're basically stealing from you.
There are good tenants out there, don't let a couple of bums sour you on renting your place.
0 Reply
Ray Hage
Investor · Fort Lauderdale, FL · Member since 2020 · 1k+ posts · 755 votes
3y
Whatever you plan to do with the townhouse, you'll definitely want to get rid of the tenants. Generally, I'd lean towards keeping it especially if it is cash flowing well and is in a decent area. I'd get rid of the tenants (evict if you need to) and fix it up the place to maximize the rent you can charge for it. It is a couple of dollars out of pocket now, but well worth it whether you sell or hold with new and better tenants.
0 Reply
Corby GoadeBusiness Member
Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
3y
Quote from @Duane Gunkler:

I have a 2BR/2.5BA townhouse that I have had the same tenants in for a little over two years. They've been late on the rent forever, and have slowly been slipping further and further behind. I am just not seeing any progress toward getting caught up so my options are to terminate them living there (they're on month-to-month now because I did not resign another lease) or I am considering selling the townhouse to be done with them and free up the equity. Curious to hear some thoughts input from the hive mind? I bought the townhouse in June 2019 for $158k. It is worth approximately $250k - $260k (Zillow at $262k). Rent is currently at $1725/mo. Thoughts?

Please don't take this as me being harsh, but your problem is not unique. These boards are littered with amatuer investors self managing and creating all kinds of stress for themselves when they got in to this to have "passive" income.
There's this irrational fear of professional property management- people think it's too expensive and every property manager is lazy, crooked, etc. I won't deny that there is plenty of that out there, but a good PM, and there are plenty of those too, will pay for themselves over and over again.
I'm an investor and I own a fairly large PM company and I can't tell you how many people have spent years doing exactly what you are doing, they call us and within 60 days we have increased rents to MORE than cover our fees and the owner never has to deal with an issue again. Literally took that call yesterday, again.
Even if you have to pay a PM 10% of your rents, they'll be much more likely to actually collect those rents than any owner/operator and 90% of rents in your pocket passively is a much better option than 0% of rents that you are stressing out about and letting it eat your peace of mind.
I wouldn't trade equity for a problem, personally. A 1031 is great if the property isn't performing, but it sounds like the property itself isn't the problem.
Best of luck- I'm truly sorry you are dealing with this.
2 Reply
Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
3y
Quote from @Duane Gunkler:

My recommendation is that you terminate their lease, then find a Tenant that pays on time. Educate yourself on how to manage well, then uphold your agreement. You'll find real estate investing is more enjoyable and financially rewarding if you run it properly.
Very few people look back 20 years and are happy they sold a property.
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Tylere WeaverPro Member
Rental Property Investor · upstate new york · Member since 2023 · 54 posts · 10 votes
3y
Quote from @Noah Bacon:

With late rent being so consistent and now slipping further behind, have you considered starting the eviction process with a demand? This will protect you legally if they are not paying on time, and could reverse the cycle of late rent as It sounds like your tenants are used to a late schedule with no penalty.

I would reconsider your position on selling the property to be "done" with the tenants. Are you not cash flowing with their current rate of $1,725? Will you not be cash flowing after a turnover at a higher rate? I am not a strong believer that you can deploy the equity into a better return on your money right now.

If the tenants are on a M2M lease give them proper notice, fix the damages from their 2+ years, and set more strict guidelines while screening for your next set of tenants to mitigate a similar situation in the future.
Great answer 👍
1 Reply
Michael Dumler
Real Estate Agent · Atlanta, GA · Member since 2020 · 1k+ posts · 1k+ votes
3y
@Duane Gunkler tl:dr others responses. It entirely depends on your financial position and long-term goals, however, I would highly discourage you from selling. That's advice coming from a real estate agent haha. Needless to say, you do not want to forgo your current low interest rate in hopes of finding a better-performing deal, assuming your rate is fixed. Georgia law requires a 30-day notice for month-to-month tenants. Send that notice in writing ASAP. Turn the property over, hire a reliable/resourceful property manager, and get a new tenant in there who will pay you on time. If you haven't raised the rent in over two years, chances are market value rent is now closer to $1,900-$2,000 per month if I had to speculate. Hope this helps!
1 Reply
Steve K.
Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes
3y
It seems like a good property, just bad tenants combined with bad management practices (you let them get away with paying late). Get rid of them (hiring an eviction attorney to handle it can be money well spent, but it's not that hard to do it yourself either if you have time). Then make a policy for yourself that you stick to 100% of the time moving forward: send a demand to pay or quit letter and charge a late fee EVERY TIME RENT IS LATE BY EVEN ONE DAY. Collecting rent on time is your primary function as a landlord. It doesn't have to be awkward with the tenants, just explain that it's your company policy to send the demand letter and charge the late fee every single time rent is due, no matter what, and if it happens X number of times (whatever your policy is), then the next step is eviction. You're running a business and can't deviate from company policy for anyone, ever. Tenants know they have to pay rent, and will understand. If you're not up for it or don't have time, this property seems to have enough cashflow to pay a PM and still be profitable. I'd keep it personally. I wouldn't base your decision to sell on this one set of tenants who haven't been paying on time.
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Ben Firstenberg
Investor · Cleveland · Member since 2021 · 247 posts · 240 votes
3y
When it comes to this stuff, my thought is always "Does this change my investment thesis?"
You bought this property presumably because you liked the location, price and potential returns. Has anything changed?
Much as we talk about cash flow, the real money is made over the long term appreciation. Let's say you try to evict these people and it turns into a long drawn out struggle that lasts 6 months or a year. Okay, bad year. If you sell for $500k in 20 years, do you really care?
I've had problem tenants before too. And every time I consider selling. But I don't because I believe in the investment. If at any point I don't believe anymore, it'll be on the market tomorrow.
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Michael SmytheBusiness Member
Real Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
3y
Who has trained who in this scenario?
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Darwin Beloate
Member since 2018 · 6 posts · 0 votes
3y
Frustrating situation.... Like many others in this post, I would not sell. I would get an attorney that specializes in landlord / tenant law and get the current renters out then reset with a careful vetting of future renters.
I have not used this law firm but my friend that is a landlord in Cobb County GA has...
Skelton & Blackstone Attorneys, LLC
346 Lawrence Street
Marietta, Georgia 30060
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Alecia LovelessPro Member
Member since 2019 · 3k+ posts · 2k+ votes
3y
@Duane Gunkler Evict them. And if you don’t want to do it hire a property manager to do it for you.
Don’t sell. You won’t get more properties likely for $100,000 in equity.
If I had the property I’ve sold over the years up and running in good rental conditions I’d be much wealthier than I am now. It would be 5 more properties worth $3MM.
I think if you get good tenants in you’ll find out rentals are fairly satisfying.
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Josh Bowser
Real Estate Agent · Atlanta, GA · Member since 2020 · 414 posts · 233 votes
3y
Hey @Duane Gunkler - unfortunately, seems like the best thing for you here would be to send them a notice that they need to move. I'd reach out to an attorney that can guide you through the eviction process in Cobb County.
I'm a huge believe in Cobb County from a growth perspective - sure you can sell, but you're not likely going to be able to cashflow going into another LTR (just something to consider) and you already have a great basis. If you want to change up strategies (rent by the room or MTR) than it may be worth it to step up into something bigger and better while maintaining cash flow.
It is a pain to sell a house that is tenant occupied especially if you are going through the eviction process. If you do plan to sell, you can save yourself (and your agent) a lot of time and heartache by waiting to list until it is vacant.
Happy to help however I can - feel free to reach out!
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Konstantin GinzburgPro Member
Member since 2021 · 376 posts · 242 votes
3y
@Duane Gunkler
I think the direction you go would come down to what your current goals are. There really is no wrong answer in this scenario. If you are tired of being a landlord, then this would be a good time to cash out and place your equity towards other ventures. If you still want to be involved in real estate, then you can come up with strategies to quicken the rate that your tenant pays rent. Some options are placing in automatic late fees if the tenant is late past a certain date, putting in a clause where you will only accept full balances owed rather than partial payments, provide a notice to vacate to the current tenant and try to improve the quality of the next tenant you get with background checks and income screening requirements.
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