So you are running a business!

General Landlording & Rental Properties
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So you are running a business!

Ihe O.
Investor · Laurel, MD · Member since 2016 · 395 posts · 191 votes

I keep reading people here saying  "Your rental properties are a business" as a precursor to  some inflexible dogma about sticking to the letter of agreements and pursuance of remedies for breaches. 

Let me point out something about business.

Serious businesses disregard their T&C's all the time.

Banks and credit card companies waive fees every day (it's known as the proverbial gesture of goodwill). United Airlines settled with the passenger they deemed entitled to kick off the plane. I just sued a multinational corporation and even though their service agreement states their liability is limited to the amount I paid they have just settled for a 4 figure amount.

So what follows from this?

Serious businesses waive their rules for customers that they want to keep.

A word in that last sentence brings me to another point. I keep reading about training your tenant. They are not your students or your kids. Don't refer to them as if they are.

If you are running a business then your tenants are your customers. Treat them like one. 

Last but not least.

Run your business. Don't let your business run you.

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Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
9y

You have to act like a business before you waive policies and procedures like a business.

Can you walk into a coffee shop and get a free cup of coffee? No. Their policy is that you give them money and then they give you the coffee. They may choose to deviate from that policy and give you a free cup of coffee if they make a mistake and want to retain you as a customer or if they want to reward your loyalty. They establish the rule first, then they choose when and how to deviate from it.

We typically tell someone to run their rentals like a business because they are not. They let customers walk all over them, negotiate basic terms, violate agreements, etc. That's not how you run a business.

We do have to train some tenants. Everyone that buys a car, cable TV, or a cell phone understands they have to pay their bills by the due date or there will be consequences. they don't see a private Landlord the same way and will try to manipulate your emotions in order to gain some benefit. You have the choice of establishing policies and then training them to see you as a business, or you can just wing it and see what happens.

I see this all the time as a Property Manager. Tenants see me as a business because I act like one. I don't have to train them very often. But when they meet the Landlord face-to-face, they try negotiating for concessions more often than not. My property management agreement specifically forbids a Landlord from communicating directly with the Tenant because I know the tenants will attempt to negotiate something. Our advice for private Landlords to train their tenants is valid advice. 

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  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    9y

    You have to act like a business before you waive policies and procedures like a business.

    Can you walk into a coffee shop and get a free cup of coffee? No. Their policy is that you give them money and then they give you the coffee. They may choose to deviate from that policy and give you a free cup of coffee if they make a mistake and want to retain you as a customer or if they want to reward your loyalty. They establish the rule first, then they choose when and how to deviate from it.

    We typically tell someone to run their rentals like a business because they are not. They let customers walk all over them, negotiate basic terms, violate agreements, etc. That's not how you run a business.

    We do have to train some tenants. Everyone that buys a car, cable TV, or a cell phone understands they have to pay their bills by the due date or there will be consequences. they don't see a private Landlord the same way and will try to manipulate your emotions in order to gain some benefit. You have the choice of establishing policies and then training them to see you as a business, or you can just wing it and see what happens.

    I see this all the time as a Property Manager. Tenants see me as a business because I act like one. I don't have to train them very often. But when they meet the Landlord face-to-face, they try negotiating for concessions more often than not. My property management agreement specifically forbids a Landlord from communicating directly with the Tenant because I know the tenants will attempt to negotiate something. Our advice for private Landlords to train their tenants is valid advice. 

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  • Ihe O.
    OP
    Investor · Laurel, MD · Member since 2016 · 395 posts · 191 votes
    9y

    Nathan, 

    I don't understand how you read what I posted and concluded that a coffee shop that gives away free cups of coffee (i.e a business that gives away its product) was remotely relevant. 

    So I'm just going to leave it right there.

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  • Levi T.Pro Member
    Rental Property Investor · Tucson AZ / Nice FR / Washington DC · Member since 2016 · 1k+ posts · 1k+ votes
    9y

    @Ihe O. @Nathan Gesnermantra to saying enforce your lease, the buck stops here, hold the tenants feet to the fire.

    1Reply
  • Andrew Johnson
    Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
    9y
    Ihe O. I get your logic but I'm guessing Nathan Gesner is saying that the tenant/customer has to establish that they are someone that they want to keep. The coffee analogy isn't a bad one. You can't ask for a free *replacement* cup of coffee if you never paid for the first one. The tenant that wants forgiveness for a late rent fee in their 2nd month isn't the same as one that wants it forgiven in their 23rd month. If they have established themselves as a good tenant I think most owners would be accommodating. Or they would offer a payment plan instead of immediately filing for an eviction. But don't diminish being accommodating in a multiunit. If I let 1 of 27 units pay late rent with zero consequence I can't be surprised if the next month 27 units pay late and expect the same accommodation. Starting off in month 1-2 going against your stated T&C also sets expectations. It says that your tenant is training you! All of a sudden it's normal/okay to be late with the rent, smoke in the unit, whatever provision they are violating. Why is it okay? You, the owner, have said so with your actions. So someone is getting trained, as the owner you get to decide if it's the owner/PM or the tenant.
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  • Ihe O.
    OP
    Investor · Laurel, MD · Member since 2016 · 395 posts · 191 votes
    9y

    @Andrew Johnson 

    I  don't accept the relevance of the coffee analogy,  especially when I provided perfectly good ones (banks and credit card companies) in the original post that were not commented on.

    You've raised another point. 

    Serious businesses do not treat all customers the same. There is a whole analytics industry dedicated to enabling them to differentiate how you will be treated  when you call to complain or threaten to leave. 

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  • Andrew Johnson
    Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
    9y

    @Ihe O. Just saying you don't accept it doesn't invalidate it.  Sorry.  As a property owner you (hopefully) have a security deposit.  As soon as you're farther behind that the security deposit you (as the owner) have no easy recourse.  Banks, by definition, have recourse as they are holding your money.  They can look at your bank account and assess a penalty when they want for overdrawing accouts, not maintaining a minimum balance, etc.  What you are effectively saying with a credit card analogy is that your credit is maxed out, you have no credit history, you aren't paying monthly minimums, penalties are assigned and you should just raise the credit limit to keep the customer.  Maybe credit card companies do that for "good will" but I doubt it.

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  • Russ B.
    Investor · Cleveland, OH · Member since 2017 · 319 posts · 330 votes
    9y

    I think the credit card analogy is more complicated though. 

    There are big differences between a credit card balance and a rental, especially in terms of a bad customer's ability to continue causing damage. A landlord doesn't have the ability to quickly shut off further credit if things start to go bad, so we have to put policies in place that help identify the bad tenants quickly and get aggressive early.

    The person who is late on their rent for a totally understandable reason looks and sounds identical to the one that won't be paying at all.

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  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    9y

    The reality is that no one is borne to be a tenant. Like a puppy every tenant benefits from being properly trained. Every post on this forum involving a problem tenant derives from the fact that the tenant in question is not properly trained and therefor does not know what is the right behaviour. Landlords that do not train their tenants or train them poorly does them a disservice.

    Landlords either train their tenant or the tenants train the landlord. Ihe O. appears to be either a well trained landlord or is in fact only a tenant himself. 

    Businesses, such as banks and credit card companies, waive fees and services for only one reason....to generate greater income from a existing customer not to recognise or reward a good customer. Landlords do not generate any additional income by waiving disciplinary fees. 

    When it comes to a legal lease no landlord should ever put anything in a lease they do not intend to inforce otherwise it is null and void. It is fine to not charge late fees but if you have late fees in your lease you are responsible to inforce them otherwise a tenant has the right to challenge any section of their lease.

    Our business, like any, can be operated like Bucks Corner Sundries or Walmart.  Either way their customers are all trained to have the money to pay for the product before they take it out of the store.

    Run your business. Don't let your tenant run it for you.

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  • Shaun Patterson
    Property Manager · West Palm Beach, FL · Member since 2012 · 296 posts · 143 votes
    9y

    @Ihe O.  I used to work for the same big banks that you talk about.  The analogy is partially incorrect.  Yes based on the situation you may get bank/credit card fees waved but their are systems in place to monitor when that happens and stop customers trying to take advantage of that. They have cost models set up to show how much they can bend to get your business. We have had multiple occasions that we turned away business because the concessions that the customer requested our business policies couldn't approve. It may look like they are shying away from their business practices but they aren't. You just haven't seen their whole business model. The first rule in banking is to make the client feel like they got the Best service and best deal in the world while following the banks systems And procedures. You may think that banks are bending over backwards to serve you but the little they gave up is nothing compaired to the different streams of income that they just created off the new business. 

    1Reply
  • Ihe O.
    OP
    Investor · Laurel, MD · Member since 2016 · 395 posts · 191 votes
    9y

    @Andrew Johnson What I am effectively saying is exactly what I said. Serious businesses waive things that are in their T & C's all the time. Those agreements are not the bible for how a serious business is run, they are there to provide protections where necessary and enforce rights in instances where the business feels it would be advantageous to do so.

    Since you like analogy the landlord tenant relationship is much like an employment contract. An employee may be in breach but a serious business may exercise their prerogative to overlook that if they feel the employee is a high performer or even just for overall morale.

    @Russ B. A serious business doesn't necessarily operate from a  standpoint of distrusting all their customers. Now thats if you consider them to be customers - as opposed to  @Thomas S. who thinks they are puppies.

    @Shaun Patterson What you have said is completely consistent with what I wrote which is that the content of T & C's don't drive the business model for a serious business entity. Just like a bank I too have my motives for waiving fees that my contract may entitle me to levy, it doesn't make me a sucker.

    @Thomas S. This month the tenant in the first unit I ever bought is late ... yet again. I haven't sent her a notice and I don't plan to. You see I bought this unit in late 2013, I had a tenant for a year before her and she is in entering the 3rd year of her tenancy. When she makes this months payment the cash flow received from that property will have covered the purchase price and all expenses (including the closing costs) for that unit.  That's 100% pay back in less than 4 years.  

    So yes. I am a well trained landlord. Now you can go off and play fetch while I run my business.

    @Russ B.

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  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    9y

    @Ihe O.

    I call BS. You are not a landlord you are a troll tenant. The acronym "Ihe" tells it all.

    3Reply
  • Ihe O.
    OP
    Investor · Laurel, MD · Member since 2016 · 395 posts · 191 votes
    9y

    @Thomas S. I am going to let that one slide so that I don't allow you to disrupt the discussion.

    0Reply
  • Shaun Patterson
    Property Manager · West Palm Beach, FL · Member since 2012 · 296 posts · 143 votes
    9y

    @Ihe O.  the T&C is one aspect of a business it's not the only one. When I say to people to run your landlording as a business I mean that you put systems in place to handle different situations. A big business is litteraly hundreds of systems put in place to make it run smoothly and profitability. Without those systems they would go bankrupt or have a really hard time running it smoothly. One example would be I am looking at purchasing a portfolio of different buildings. On the offering memorandum it didn't have the lease start and stop dates. It also didn't show if the leases had been month to month. When I requested that information I was told that the owner was a self manager and he had to go through all of the lease. That one comment told me that he didn't have any systems in place to keep track of something simple like this. Why Is that important? Because if that's not done then I already know that all the other numbers I was given are most likely incorrect. The person selling is obviously having a hard time managing all of the units because they have no idea what's going on In the "business".  I have seen a lot of people not take it seriously and then become one of the guys complaining how they lost their shirt on a deal

    1Reply
  • Andrew Johnson
    Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
    9y
    Ihe O. Of course serious businesses district their customers! Why do you think you sign a contract? Why does a bank make you sign a mortgage? Why does a credit company put a limit on their credit cards? Why does the auto dealer check my personal credit before leasing a car through my business? None of these people "take my word for it". Can you end your car lease early with zero consequence? Can you stop paying your cable bill for 4 months with zero consequence? Can you stop paying your heating bill for 4 months because you tell them you're good for the money? I'll humor the argument that there are cases where providing a little flexibility to a great tenant gives your a longer term benefit over a short-term cost. But to say that "serious" businesses don't abide or enforce their terms and conditions is just patently false. How about this Ihe, you stop paying your mortgage(s) for 4 months and then show us that late fees have been waved, there's no impact to your credit, etc. Since I'm assuming your lender is a "serious business" and they don't abide by the terms and conditions of the loan documents, there should be no repercussions, right?
    0Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    9y

    @Ihe O. I never claimed to be a prolific writer but I'm pretty sure you got the gist of it. You made a sweeping generalization that posters are guilty of "inflexible dogma" but didn't provide any evidence or context. Then you share your "inflexible dogma" about Landlords.

    The coffee analogy works to demonstrate the difference between an actual business and an amateur Landlord. Banks and credit card companies waive fees on occasion but only because they operate like a business. Most Landlords do not operate like a business and they waive their policies and procedures out of fear or naivete.

    I should have listened to @Thomas S. and left you alone. If you're ever in town, I'll buy the coffee.

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  • Ihe O.
    OP
    Investor · Laurel, MD · Member since 2016 · 395 posts · 191 votes
    9y

    @Andrew Johnson

    Every objection and example you raise has to do with someone not paying anything for a service they have obtained. I never said serious businesses operate like that so I have nothing to say in reply.

    @Nathan Gesner

    I have never known a coffee shop that has T & C's or contracts with it's customers so I don't know where you pulled that one out from. Sorry.

    0Reply
  • Andrew Johnson
    Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
    9y

    @Ihe O.

    "Wave a late fee when the rent isn't paid on time for 4 months" is a direct analogue to "Wave a late fee when your mortgage isn't paid on time for 4 months."

    It literally can't be MORE direct than that.  Pay your mortgage late for 4 months in a row and see where it gets you.  

    Or you can put your head in the sand and refuse to respond by there no cogent logical response to me made :)

    0Reply
  • Andrew Johnson
    Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
    9y
    Nathan Gesner I like you making the good faith effort. The original premise is at least the seed for a good dialogue. I would have hoped for logical and well thought out counterpoints to at least make me think. Instead it's "I don't like you example so I have no response". We are being trolled ;)
    1Reply
  • Ihe O.
    OP
    Investor · Laurel, MD · Member since 2016 · 395 posts · 191 votes
    9y

    @Andrew Johnson 

    Your original post talked about not paying rent for 4 months now you are talking about not paying rent on time for 4 months.  Late payments to a financial institution will go on a credit report, late payments to a landlord won't, different leverage at play. 

    If the goal is to train the tenant to pay on time and he is late 4 months in a row then clearly the training is failing.   I don't want to  followi you down these rabbit holes because  I don't think these are are good examples with which to make a counterpoint.

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  • Anthony GaydenPro Member
    Rental Property Investor · Omaha, NE · Member since 2014 · 2k+ posts · 3k+ votes
    9y
    Ihe O. At this point it is obvious you are not a landlord and probably have never been one.
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  • Andrew Johnson
    Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
    9y

    @Ihe O. So why doesn't the "serious business" financial institution wave their terms and conditions about on time payment?  They do report you and your credit does suffer.  There will be late fees and penalties.  Finally, a point of agreement!  Therefore if property managers and owners *should* operate like a serious business -- like the mortgage servicer or note holder -- we have to use our leverage...which is late fees. They are both forms of economic consequence for violating the terms and conditions in a payment schedule.  

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  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    9y

    @ihe o ... ever hear of Starbucks?

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  • Ihe O.
    OP
    Investor · Laurel, MD · Member since 2016 · 395 posts · 191 votes
    9y

    @Andrew Johnson 

    I've not agreed with you at all. Banks and credit card companies have multiple ways in of managing these situations. Typically they'll do so by moving you to a product better suited to your circumstances so that it will be easier for you to avoid fees.  AAMOF thats what my bank did with me -  moved me to a different type of account where it was easier for me to qualify for fee free banking. 

    I have evicted a tenant, so evidently therefore there is a point when the enforcement of T&C's come into play, I thought that was so obvious as to not need stating. 

    It doesn't follow however that  waiving late fees (for example) means that a tenant will assume it is permissible to start smoking in their unit (something that you claimed). 

    That's like saying that once an employee notices he is not being punished for  showing up to  work late, he will then presume it is ok to get drunk at work. It doesn't follow.

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  • Ihe O.
    OP
    Investor · Laurel, MD · Member since 2016 · 395 posts · 191 votes
    9y

    @Nathan Gesner What about Starbucks. 

    Do you sign an agreement with them. 

    Do they impose late fees.   What for.

    How do they train their patrons. 

    What would the Starbucks equivalent of an eviction  be. 

    Since you think this is a relevant analogy be my guest. The floor is yours.

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  • Andrew Johnson
    Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
    9y

    @Ihe O. Just when I thought we had common ground...

    And if an employee does come into work late and it's consequence free, don't be surprised when they do it again.  Don't be surprised when coworkers start coming in late also expect their actions to be consequence free.  And, yes, absolutely there is a ripple effect.  Lunches stretch out, breaks become more frequent, etc.  I've managed people in those environments before and seen the consequences of my inaction to hold people accountable.  Nobody has come in drunk (in my case) but the productivity and economic losses of ripple effects are very real.

    If I, as a landlord, waive a late fee I should be surprised when he/she does it again or if others in my apartment complex do it.  I've set the expectation at that point.  And I had better hope that person I waived the late fee for isn't a white male and then try to enforce late fees on protected classes (female, veteran, minority, etc.).  I have a hard time understanding why a landlord wouldn't endeavor to treat all of their tenants equally.

    And I doubt you'd qualify for fee free banking if you were late with your payments.  I'm guessing - in your case - it's a way to give a perk to a good customer.  Not waive a fee for someone that doesn't make a payment.  Or maybe you did rack up a bunch of late fees and your bank put you into a fee free account.  Who knows, but I'm guessing it was because you're responsible and abide by the T&Cs of your bank.

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