Biggest Problems With Tenants...

45 Replies

I am getting ready to rent out my first investment property and am trying to figure out what incentives, policies, etc. to put into my lease. I would like to hear some of the biggest/most common problems other investers have had with new tenants, what they did to correct/guard against these problems, or any other advice that might be useful in making out my first lease. Once I get some replies, I'd like to turn this post into a poll. Thank you.

One of the best I've ever seen is the one "promulgated" by the (in my case, TX) state's Real Estate Commission. Let's face it, over the years they've run into just about every "whoops" that can happen which is why theirs is about 7 or 9 pages. Try to get hold of one!

I added a lot of theirs to mine (in fact I just typed theirs into my computer and then modified it), but I don't have it anymore since I've turned all my rentals into owner financed sales. But, some important things:

1. contingency for their failure to move in due to any reason, or no reason. Failure to move out on the part of old tenants.

2. Reasonable access for you and tradesmen

3. NO PAINTING OR DECORATING, without your prior written approval

4. ALL UTILITIES in tenant's name

5. I always had my "security" deposit a different (higher) amount than a month's rent. Otherwise on the first day of the last month of the lease, the tenant calls you, says they're moving out and says you've already got the last month's rent so everything is "even".

6. Prohibition against working on cars, trucks, boats, motorcycles etc. This includes NO OIL CHANGES.

7. Tenant agrees to two months rent as liquidated damages.

8. Make sure you have name and SSAN of everyone staying there. No overnight guests for more than 7 days.

9. 7 and 8 are important in case they move out owing you. Read some older posts on this to see how I've handled it.

10. A separate paragraph stating in all capital letters that "owner's insurance does not cover tenant or tenant's possessions". Put a place for each tenant to sign this paragraph.

11. A full checklist for move in. Note that there are DOORSTOPS on each and every door, that there are NO HOLES in sheetrock, that STOVE AND OVEN are clean, windows are clean, no cobwebs hanging from ceiling and no dog poop in the yard.

12. Spell out the tenant's responsibility for mowing, edging and trimming shrubs. Spell out that on the SECOND WARNING from either you or the HOA that YOU will take over responsibility for this and that the rent will increase by ???$ to cover you doing so.

13. Pictures and other things may only be hung using appropriate fasteners which you preapprove! It's a pain in the butt to remove 16d coated sinkers and fill the holes after they were used to hang 3 X 5 pictures and christmas tree lights on the outside!

I'll think of more later but it's lunchtime!

all cash

I would put in everything that guy just said and I would also require last months rent so it's seperate of the security deposit. I would make sure in the lease that you have spaces following all the paragraphs and have them initial so they can't tell you they did not read it and finally at the end have a term that reads something like

" I was in no rush to sign this lease and sign it knowing what I'm signing....

The two biggest problems are getting rent and preventing damage. Anything you can do to get the first one and prevent the second are good.

Screening tenants.
-Be diligent. Call all the contacts they list and verify everything. If you have a sneaking suspicion that you shouldn't rent to them, go with your gut and don't rent to them.
-Don't take pets. Some people swear they have to but you will get burned and it can cost a lot of money to replace all the carpet, the sub flooring, scratched doors, etc.

Try to get electronic rent payments. Lower delinquency rates for people who pay with recurring online payments and you get rid of the "I forgot" excuse for good. At a minimum, send them an invoice each month 10 days before rent is due with a self-addressed stamped envelope.

Visit your properties or have someone else visit them on your behalf every couple of months. Be persistent in getting tenant to fill out a move in checklist. It shows that you care about the condition. Provide them with wear and tear guidelines mid-way through their lease. Again, reminds them you care.

last piece of advice is to be a hardass. There are hundreds of posts on this subject and I was definitely very soft in the beginning. A nice, understanding landlord. Who was walked on by everyone that was allowed to walk on him. This is a business and you don't let people damage the stock on your shelves if you own a Home Depot and you don't let them walk out without paying for stuff they pick up. Same goes for landlording. Be firm and get to know your sherrif's department so you can refer to the deputies by name when getting tough with tenants. It's a business. Just like children respect parents who clearly define boundaries and demonstrate absolute adherence to them, tenants do the same with landlords. Be prepared for when they will test you, and test you they will.

Make sure utilities are transferred from landlord to tenants immediately or have the cutoff date set early on. If the local utilities messes up you'll get a bill a year later for $300-$400 for water and the tenant is gone.

Furnish sliders for the feet of their furniture and make sure they're in the threshold when they move in their furniture. No excuses.

Provide quarterly pest spray and meet the exterminator so that you can walk through the apartment and change the filters....because no tenant is going to do it for you....even if you furnish 12 months of filters.

Get the rent ASAP. ON the evening of the fifth of the month, call them and warn about the late fee. I give some tenants deposit slips and they deposit the rent in a timely manner. Learned that from a section 8 landlord. Not a problem.

Take digitals of the apartment prior to rental and after they leave prior to your cleaning up after them. Make sure the accounting of the deposit takes place ASAP with invoices of funds spent. Next year I'm thinking of making professional maid service a requirement because no tenant will clean an apartment. There should be upfront agreement on this.

Try to get longer than one year's lease. It's too difficult to trade out tenants over one year and many break their lease and leave in dirty anyhow. They do lie, you know.

Charge more for short term (less than a year) leases.

Tell em where they can park and designate the landlord as the definitive
authority of what goes on the front porch.

We take dogs and require an interview of the dog. Has worked for a long time in alot of circumstances. Students and pets NO. Evict if found.

If you own a property that is older than 1975 you really HAVE to include a Lead Based Paint Disclosure. Lawyers have advertisements in some states just to attract people. You can get one for free doing a google search or pay at one of the forms sites.

If you are unlucky at getting bank electronic funds transfer, which most of us just are since many local banks will not do this for a smaller investor, make your late payment very CLEAR. Some landlords will put things like 5% a day until it is paid, etc.... The reality is that the landlord that makes an unreasonable late payment fee usually never gets all of it. In the meantime the landlord ends up having the problem of negotiating a late fee rather than just collecting it. Make it 10% of the actual rent. This actually is usually acceptable by a judge if you end up in court. You can also easily calculate it and let the tenant know that NO MATTER WHAT you always collect the late fee. Just like a mortgage company collects from you if you are late. Stick with your policy and at a minimum you can sometimes train the tenant to be on time or pay the late fee even if one day late. One final note....I tell all my tenants that I file for possession XX days from them being late. I also let them know I give them the 3 day notice before that date. I then stick to it and my word. I hope this helps.

very good info, Michael. There are some circumstances with tenants that may deserve mention. I have a great, clean, professional who's rented an apartment for 2 years who isn't ever going anywhere. He always pays the rent but try as he may, it is always when he gets paid on the 15th. I let him know by the 16th not to forget and lay out the consequences but he always pays his late fee and 99.9% of the time there is no problem. You have to offer to have some tenants pay twice a month, for example, as it is helpful to them and there is no problem as long as you know they're good for it. I don't want 100% hard and fast rules regardless because tenants are trying very hard to make rent as we are trying hard to pay mortgages.

Great Point. Agree completely. Flexibility depending on tenant demand in your market is critical. A good point to mention is that if you have lots of tenants(maybe more than 10) you may have to standardize a bit to avoid overburdened management duties. If you have 12 tenants and each pay slightly different you will have to be a better manager with extra time. When I had just a couple units it was real easy to bend, but eventually I was forced to act like a property management company with set rules. My management duties were cut by 1/2 when I did this. That is something I prefer. In a renters market(which some are) you must bend a lot.

One thing that always worked for me was to define my rules to a tenant before they move in. Be clear and concise and stick with them. If you are very flexible on payment terms with the "right" tenant then this may not be a subject to over emphasize.

In the beginning setting the rules straight usually goes a long way.

Michael Schendel
Monarch Group LLC
[REMOVED]

I agree. We've had a renters market for 5 years in South Carolina. Landlords really valued their tenants because there weren't anymore of them. The past 5 months the lifting of the veil of that hardship has allowed landlords to increase rents significantly for the first time in years. That's why washington is blaming rent increases on the increased higher cost of living. That doesn't spell inflation...It's the other side of a business cycle. Where were they when you couldn't find a renter and everybody with $1 in their pocket qualified for a home...which many can't afford to keep?

Great thread. All Cash, I'd like to hear your other thoughts on this one.

Toney

I think it all starts with your investment property. If you own a building that is in a great location, is well-maintained and is the type of building that people want to live in (e.g., close to a thriving metropolitan area, close to coffee shops, bistros, bookstores), that will take care of 95% of the so-called bad tenant problems. The only "bad" tenants that I've had are ones that I've inherited from previous owners and they are usually the ones living in units that have not been remodelled or updated. I usually move them out and then remodel the unit.

Apollo Madison
Real Estate Investor

Here's something to consider. If you tenants have cash flow problems, there are several things you can do:

1) Spend a lot of time working with them, catering to their specific situation and cutting a lot of slack (very likely to be abused by tenants in general--there are exceptions)

2) Be a complete hard-nose and send eviction notices the second they're late

3) Find a way to help manage the cash flow problem, aka make debt collection someone else's responsibility.

I've tried #1 for years and in the main, it invites abuse and I've spent inordinate amounts of time dealing with rent collection, the old "give them an inch and they'll take a mile". Drove me bananas. I've been trying #2 in earnest for about a two years but it's difficult because tenants bristle to defend themselves and wiggle out, lean on the local tenant advocacy groups, etc. My latest (and current favorite) solution is #3.

I accept rent payments via credit card, and set up monthly recurring payments. Tenants gain frequent flier miles or reward points and I get rent paid on time. Plus, when VISA delivers the rent to me I don't have to worry about it bouncing. If a tenant has a bad month and doesn't get paid for a few extra days, VISA provides them the 30-day grace period to "catch up" and pay. VISA is responsible for debt collection -- not me. I get paid the same day every month. The payments never bounce. I don't need to go to the bank to cash anything; I never lose the check; the mail never loses the check; and the dog never eats the homework.

There are a few places that will help landlords accept rents by credit card--many will only collect using electronic checks (e-checks) but tenants in my limited experience don't really see an upside to doing that. They're not comfortable giving landlords electronic authority to debit their account. Yes it costs money, but it costs less to collect rent for 5 years straight with credit card than it would to miss/lose even a single month's rent from a tenant over the same period. To me that insurance is well worth it.

-J
[yes, surely I am biased, but I have tenants paying with VISA and AMEX and it's absolutely fantastic--not a single missed payment and nobody late even a single day since they signed up.]

takleberry,

Did you simply do this with Paypal, or is there someone specific you can recommend?

Thanks

[size=18]Cheap, easy, good. In any solution you can only have 2 of the 3.[/size]

Paypal is easy and good quality. However, the rate is not the best. Expect to pay 2.99%. Still well worth it in my opinion if you only have a couple rentals but is the most expensive out of the box solution. You can be up and running in about 5 minutes. This is a Easy, Good, but not Cheap.

Another option: I set it up through my company and we negotiated directly with a number of banks. I'm not going to lie: this is difficult b/c banks aren't used to credit card processing huge dollar amounts (10 properties @ $1,500 = $15,000 in and $15,000 out to owners each month) being distributed across numerous property owners' accounts. You need to be underwritten, have past financial statements, etc. It's a bear. But, the discount rate is much better. You should be able to get down to 2.2%+ for an internet transaction. This falls into the Cheap, Good (best), but not Easy category.

You can get lower rates if you accept credit cards only at point of sale (a leasing office or your house) where you can do positive ID verification, but real estate transactions are rated "high risk" by the credit card processing industry b/c rents are defaulted at a much higher rate than other purchases. Normally 2.85% minimum. American Express has the best, non-negotiated rates for the multi-family housing business @ just over 2%. Your other option to get lower rates is to lie about what you're doing (collecting rents) to the banks--not the recommended path.

Other than my company's solution, I am aware only of e-check solutions like CheckNow and PayRents.com. Both charge a premium for their service but are simple to set up and are geared specifically towards rent collection.

Want more?

Very helpful takleberry. Thank you!

Take a good long look at your property and remenber what ever can go wrong will go wrong . Whatever a tenant can abuse they will abuse . Example I rented out a 4r bedroom house with a pool . They let kids 20 kids a day swim in the pool some with their cloths on with no adult suppervision . First this was a liability and second they ruined the filter . we should have had somthing in the lease about this . We rented this house to 5 people on the lease . First the lady that paid the rent never actully lived there and there was up to 19 people living in the house and never the same 19 people not to mention 2 convicted felons . All tenants were under age and none of them leagal in the country . We should have had somthing in the lease about that . And when we told them we were selling they stopped payment on the rent check and yes we had a deposit equal to one months rent . $7500 worth of damage ouch! so be carefull and please learm from my mistakes .

People are having a hard time with their rents right now, don't you think? We notice tenants paying later than usual -- having to have reminder calls, etc. And yes, they do tear up even the newly remodeled house or apartment. They've never, ever changed a filter in their life and never cut a blade of grass. I can't remember the last time a stove was cleaned. They tell you they prefer to mud their wall holes and match the paint rather than the landlord doing it for $30 with a painter. Truly amazing. That nail hole fee needs to be in ever lease. Automatic amount paid up front, non refundable. Apartment complexes have always had that policy around here.

I've begun to think that if you have a nice house or apartment and there is any doubt about the tenants they should put up the first/last month's rent and the cleaning deposit. A very nice apartment house here in town that rents furnished apartments requires that the maid's fee be paid, even if you're there for one month. The owner is a big real estate broker in town and turns red when he hears the words "cat" and "dog" . Owns lots of rental property.

I paid for the lawn and pool service because if I didn't they would both go bad . As it was they parked on the lawn and ruined it and they blew out the pool filter due to overuse . But if I did not provide those sevices it would have been worse . That is why I sold that house and I just have two condos far less headaches there .

I once rented a furnished house with a manicured lawn to a doctor and his family for around $2500. When he got ready to load up his few bags of stuff he backed his SUV up to the front door across my beautiful lawn and left tire marks across it. Not to mention there were sprinkler heads in the front that he could have ruined. Tackiness does not have an socioeconomic boundaries.

Do you get a copy of the actual social security card?
Or do you run credit on their social security number?
Thanks for the help

WE get a general application filled out and use a service to do a background check (evictions, landlord references etc.). That way if they flunk they can get the bad news from the landlord service, not you. It's worth $25.00.

contingency for their failure to move in due to any reason, or no reason. Failure to move out on the part of old tenants.

Thank you,

One of the best I've ever seen is the one "promulgated" by the (in my case, TX) state's Real Estate Commission.

dal1
I once rented a furnished house with a manicured lawn to a doctor and his family for around $2500. When he got ready to load up his few bags of stuff he backed his SUV up to the front door across my beautiful lawn and left tire marks across it. Not to mention there were sprinkler heads in the front that he could have ruined. Tackiness does not have an socioeconomic boundaries.

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Right. So now you get a judgement against the doctor for that DAMAGE, and hand it off to a collection agency. I doubt he will want that on his credit rating, and if he ever wants to buy a house,it will have to be cleared first.

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MGD...
If all that stuff is going on in your house, it is a lease violation. You serve them with notice (immediately), and then pursue it in court. For all damages, you get a judgement, and put it into collections.

Based on what you said, you need to get out of property investment if you intend to have a wimpy lease, and let people roll over you, because they will ruin you financially.

Just to correct something Michael said way in the beginning. The law for lead based paint is anything built before 1978, not 1975, but you're right; we need to provide them a disclosure statement and the lead based paint pamphlet.

Both of these forms can be downloaded at the HUD site. Google HUD lead based paint.

States can also have their own requirements. Massachusetts (shocker) has a 13-page info packet you have to deliver. Good luck finding it online, too! Ha. Love this state...

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