My entire 4-plex just went delinquent at the SAME TIME

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My entire 4-plex just went delinquent at the SAME TIME

Kyle Krason
Flipper/Rehabber · Nashville, TN · Member since 2015 · 11 posts · 8 votes

Hi everyone.

So, I've had my 4-plex for about 8 months now and had no issues with collecting rent  for the first 6 months.. Then.. One tenant started to pay a little bit late because of some issues she was going through financially.. But then suddenly, in July... ALL 4 TENANTS went delinquent.. paying more than 3 weeks late the last two months.

Has this ever happened to anyone else? What should I do? This is my first ever investment and I'm looking for some advice.

Thank you

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Alexander FelicePro Member
Guy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
9y

5 days late, process to eviction begins.

for reinstatement to happen, tenant must pay all late rents, and any fees associated with eviction process.

you should be just about ready to have 4 new tenants if they are all 3 weeks late.

With that said, if you didn't follow the rules on the lease and let them slide, why would you expect them to?

Expect what you Accept.

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  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    9y

    Did they all start talking? Did you let one tenant slide paying late and now all think they can? Are they family or friends in each unit?

    It sounds like you are getting too soft maybe with rent payments. Some landlords start eviction papers right away. You have to condition the tenants to pay the rent. If you give an inch thinking they will repay you for it they will just take a mile. Many tenants have financial issues so whoever hears their sob story and helps them they tend to take advantage over and over again. Are you collecting late payment penalties and interest?

    No legal advice given

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  • Anthony GaydenPro Member
    Rental Property Investor · Omaha, NE · Member since 2014 · 2k+ posts · 3k+ votes
    9y
    Kyle Krason The most I have had is 2 out of 4 units vacant in one of my properties. Quick question for you. How long have you owned this property?
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  • Alexander FelicePro Member
    Guy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
    9y

    5 days late, process to eviction begins.

    for reinstatement to happen, tenant must pay all late rents, and any fees associated with eviction process.

    you should be just about ready to have 4 new tenants if they are all 3 weeks late.

    With that said, if you didn't follow the rules on the lease and let them slide, why would you expect them to?

    Expect what you Accept.

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  • Jason Boulay
    Real Estate Agent · Cranston, RI · Member since 2016 · 51 posts · 49 votes
    9y

    I'm not familiar with the Nevada landlord/tenant laws.

    I agree with @Joel Owens, it's all about setting the expectation and being firm.  If one bill collector is calling the tenant every pay day, they will likely see the money that should be allocated to rent.

    With September rent coming due in a week or so, it may be wise to take a proactive approach.  Reach out to each tenant and say that you wanted to touch base as you noticed they were late on their rent this past month.  Explain that you were able to give a "pass" this past month, but rent needs to be on time in September and every month going forward.  Whatever you say/threaten, it is imperative that you follow through with it.

    If it sounds like paying rent on time is going to be an issue for the foreseeable future, you may want to shift the conversation about having them vacate and getting someone in there who is willing and able to pay rent on time.  If they are struggling to pay rent on time now, imagine how difficult it will be around the holidays.

    2Reply
  • Kyle Krason
    OP
    Flipper/Rehabber · Nashville, TN · Member since 2015 · 11 posts · 8 votes
    9y

    @Joel Owens

    I live in Las Vegas, NV and the property is in Indianapolis. I don't have any contact with the tenants as property management handles that.

    I don't know if the tenants talk or not and no, I haven't been collecting late penalties. I inherited the tenants and am not sure what the late penalty language is.

    I contacted property management and am having a call in the morning.. But I'm a little bit worried because I don't know that I can get all the tenants back to paying on time... since they are paying at THE END of the month.

    I don't believe any of them are family or friends.

    It's going to cost me a TON to evict them all at once, obviously. I'm not sure what to do here.

    0Reply
  • Kyle Krason
    OP
    Flipper/Rehabber · Nashville, TN · Member since 2015 · 11 posts · 8 votes
    9y

    @Anthony Gayden

    I've owned the property for 9 months now.

    This all sounds like I need to have a conversation with property management and set my expectations.. Little of which I had since this is my first ever investment.

    @Jason Boulay

    That's an amazing point about the holidays.. Man.. This is likely going to ruin MY holiday.

    I appreciate the tips

    @Alexander Felice

    I wouldn't.

    1Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    9y

    Did you buy this from a turn key company? Is the management the same company as the turn key company or outsourced?

    Did you read all the leases Kyle? It should say what the penalties are if any. Anything can be in a lease but doesn't mean that all of that specific language, some of it, or none of it will be found enforce able by a court of law with a judge.    

    What part of Indy? Maybe someone on here that is there will go take a look as a consultant for a small fee to be your unbiased (eyes and ears) on the ground there. Would save initial fees of you having to fly out yourself and pay for plane flight and hotel which could be thousands in expenses.

    No legal advice given.   

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  • Tony Gunter
    Investor · Canton, GA · Member since 2014 · 727 posts · 500 votes
    9y
    Time to find your inner Drill Sergeant! I would start interviewing potential new PM as well.
    6Reply
  • Debra Grumbach
    Frisco, TX · Member since 2017 · 201 posts · 95 votes
    9y
    Originally posted by @Kyle Krason:

    @Joel Owens

    I live in Las Vegas, NV and the property is in Indianapolis. I don't have any contact with the tenants as property management handles that.

    I don't know if the tenants talk or not and no, I haven't been collecting late penalties. I inherited the tenants and am not sure what the late penalty language is.

    I contacted property management and am having a call in the morning.. But I'm a little bit worried because I don't know that I can get all the tenants back to paying on time... since they are paying at THE END of the month.

    I don't believe any of them are family or friends.

    It's going to cost me a TON to evict them all at once, obviously. I'm not sure what to do here.

    Why isn't your property manager telling you to impose late fees or start evicting? That's what they are there for!

    2Reply
  • Alexander FelicePro Member
    Guy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
    9y

    Have you done an eviction here before? I thought the same thing until I did a few. takes ~4 weeks and $300 and fairly painless.

    You need to lean on your property manager harder!

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  • Michael Boyer
    Investor · Juneau, AK · Member since 2015 · 980 posts · 741 votes
    9y

    Never had more than one or two late in my four-plex at any one time. Even then rare...Having 100% extremely late sounds fishy.

    Bad news: you may have to serve some notices and carry the mortgage (all or part) in the transition.... and you may need new or more effective management.....

    Good news: you can refresh these tenants (i.e., not renew as lease ends or evict for non-payment); screen the new ones and emphasize timely payment; also you get a good lesson: give one tenant an inch and they'll all take a mile!

    Not a statistician-- but unless you are having an economic downturn (or all work at the same place and it went under)--collusion sounds likely as the odds are against all tenants suddenly having a financial exigency at the exact same time.

    Word may have spread that nothing serious happened with late rent (no late fee? no notice to quit?) and rent did not become a priority for the tenant's dollars.... 

    Good reminder that you make and set policy not just in the lease and rules but also in the behavior and actions of the manager/landlord (no repercussions=no compliance)...

    Best of luck!

    1Reply
  • Jeff Hall
    Attorney · Las Vegas, NV · Member since 2016 · 44 posts · 14 votes
    9y

    Have to bite the bullet and start the eviction process on all of them.  Then, jump on your property manager for allowing this situation to happen.  No way my tenants get three weeks out without an eviction process starting.  Since you are out of state, your property manager has to be on top of this.    

    0Reply
  • Ralph R.
    Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes
    9y
    Kyle Krason I just fired a pm this past June She had 2 flaws. One was late rent with no eviction and the other was not raising rents enough to keep up with the market. After you loose enough money it gets pretty easy to do. No / late rent = an eviction notice and a walk through without exception. Your tenants should be almost out or even out by now, if you choose to help the tenant fine. They can pay up in full before the eviction is final. The eviction doesn't stop until you have full payment. I had this pm for 10 years. She just got stuck in a rut and I finally had to let her go when she rented a place for a year at $35 dollars a month below the agreed/ advertised price. The year lease ends in February. I told her to make the lease longer or shorter I didn't want a vacancy in Feb. turns out after I fired her and got a new pm 3 units were 75 dollars a month under rented. 1 unit is $90 dollars a mont under rented and 1 unit was $350 a month under rented. The smaller ones were $585 a month and should be 650. The single family was $900. It rented in 3 days at 1250. The problem now is trying to make those big rent increases. A 65 dollar a month increase on 585 a month rent is huge. So far I've lost only 1 tenant. What I'm saying here is don't be afraid to change Pm's. And when you do lay down the law on these tenants make sure if they leave your new leases don't come due in the same month. And remember you don't want vacancys between Sept and March or April. Tenants don't usually move around much during the school year and the holidays if they have kids. RR.
    3Reply
  • Kyle Krason
    OP
    Flipper/Rehabber · Nashville, TN · Member since 2015 · 11 posts · 8 votes
    9y

    @Joel Owens

    I did not buy it from a turn key company. I just found what I thought was a great opportunity on MLS and it's worked out great to this point. And I did read all the leases but not in great detail.. To be honest.. If this investment doesn't hurt me in the long run I think I'll be lucky. I definitely jumped in prematurely.. But I justified it by saying "gotta get started."

    Great idea about seeing if someone is available to check on the property in person for me.. Anybody need some eyes out in Vegas!?

    @Tony Gunter

    @Debra Grumbach

    I DO need to start shopping for better property management. I ended up using a "chain" property management company instead of an individual because I thought I'd be better protected... Anybody got a PM company recommendation out in Indy?

    @Alexander Felice

    No.. No eviction. Brand new to this thing. Only owned the property (my first) for 9 months now. I'll definitely do some leaning in the morning.

    @Michael Boyer

    I love this breakdown! Sounds absolutely right. Lessons learned... and time to learn to set expectations and standards.. My hope is that I get out of this over the next year or so without anybody taking anything personal and destroying the place.. Honestly can't afford all four tenants trashing the place at the same time.

    1Reply
  • Kyle Krason
    OP
    Flipper/Rehabber · Nashville, TN · Member since 2015 · 11 posts · 8 votes
    9y

    @Jeff Hall

    Agreed! Lesson learned.

    @Ralph R.

    Great insight on this.. I'm in contract with my PM for a year but that leases ends in the beginning of December. Do you recommend going with a big company or with a smaller outfit to take care of the place?

    I'm currently using a chain but I'm starting to think that my property is being placed on the back-burner.. Especially considering I'm so far away.

    Thanks everyone!

    0Reply
  • Ralph R.
    Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes
    9y

    @Kyle Krason  I'm older than you.  Life and the school of hard knocks has taught me some expensive lessons.  I vet people by my gut feeling. Where I live we buy cars we have never seen and have them shipped in.  No choice about this.  I buy houses Ive never seen I even bought a mule one time I never saw. Best animal I ever had.   I use realtors I've never met and bankers and lawyers I've never seen.  Have I been burned? yes! You recover and find another way or another person.   Its not about a national company or a small company.  I remember everything a person says to me. If I talk to them enough times I can usually pick out the ones that are tryin to fool me.   It's about How honest is the person, how dedicated are they, how much do they care about the tenants and the landlord.   The only way you can learn it is by doing it. And it will probably cost you some big dollars in the process. I get the PM first if I can. Then I go from there buying after I find a pm.  I have broken a contract before. In my case it just had a monetary penalty for breaking it.  It was worth it to be rid of those guys.  You gotta weigh which is cheaper the penalty or the damage they will do you in a year.   Smaller company's are probably a little better but big ones can be good too.  RR

    5Reply
  • Ian WalshBusiness Member
    Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    9y

    Do they know each other and is there a bad egg in the cart?  The lease is always our guide.

    0Reply
  • James Wise
    Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
    9y
    Originally posted by @Kyle Krason:

    Hi everyone.

    So, I've had my 4-plex for about 8 months now and had no issues with collecting rent  for the first 6 months.. Then.. One tenant started to pay a little bit late because of some issues she was going through financially.. But then suddenly, in July... ALL 4 TENANTS went delinquent.. paying more than 3 weeks late the last two months.

    Has this ever happened to anyone else? What should I do? This is my first ever investment and I'm looking for some advice.

    Thank you

     Set a date of the month that no matter what you will no longer accept rent & you will begin the eviction process. Then enforce that 100% of the time. Do not Let them slide. If you give an inch, they take a mile.  

    3Reply
  • Debra Grumbach
    Frisco, TX · Member since 2017 · 201 posts · 95 votes
    9y

    @Kyle Krason  - good luck with finding a better company. Smaller isn't always better. It may just be a matter of "setting expectations" with the next company.

    1Reply
  • Deanna McCormick
    Minneapolis, MN · Member since 2013 · 2k+ posts · 1k+ votes
    9y

    Worth a trip out to see for yourself what's up..Schedule a walk thru of all apartments and get out there and see what's up. 

    You at least should have complete copy of leases for all your units..

    If you inherited these tenants the previous owners leases would have been in effect until lease term ended,, so have you been able to track lease end ?? so you can renew with proper notice on your own lease,, your property manager sounds like he/she needs to be managed..

    Normal is pay or quit on 3 day if rent is not in on 1st.. late notice the 2nd,, pay or quit out on the 3rd.. file for eviction on 7 to 10,, depending on your state regulations..not depending on your PM this is your show this is how you expect and want and are paying them to do. Any late rents not in by the 5th,, you want to know on the 6th. 

    FOR YOURSELF.. I would download a copy of the Landlord tenant laws for the State your rentals  so you can be sure of what guidelines you as owner are responsible for.. the PM is under your control and basically, and everything they do, you are responsible for..

    4 units all at once .. VERY unlikely,, sounds like a mutiny,,they are testing the your waters and your the SHARK,, so get them back in line.. Did they escrow rent with the courts?? 

    1Reply
  • Jeff G.Pro Member
    Investor · Wethersfield, CT · Member since 2013 · 371 posts · 191 votes
    9y

    @Kyle Krason you might want to look around for a flat rate eviction lawyer. In my area, I can get one for 400-500 bucks per eviction. Evicting them won't be cheap, but that might save some money.

    Also, please remember to get a judgment against them for the outstanding balance. See if your lawyer can help you with the collections follow-up. Judgments are renewable and you can do things like levy their bank accounts to get the money back (plus interest and legal fees too, I think) if you do it right.

    0Reply
  • Erwin F.
    Rental Property Investor · Seminole, FL · Member since 2014 · 85 posts · 68 votes
    9y

    Ouch! I've had 2 of 3 units vacant at one time. Luckily that's a part of my cash reserves account where I put CapEx, Vacancy, and repairs that I expect to go out monthly. Additionally, the 1 place is paid off so I didn't have any real urgency.

    I'd start the eviction process for all 4 if you have the cash set aside.

    Good luck!

    0Reply
  • Michael J. Beasley
    Escrow Officer · Indianapolis, IN · Member since 2017 · 86 posts · 44 votes
    9y

    Hey Kyle,

    If things don't go well with your PM and you start shopping a new one, let me know. There are several local PM's that are really good here in INDY that I can pass along to you. Feel free to reach out on here or by email.

    Hope it all works out.

    Michael

    2Reply
  • Matt K.
    Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
    9y

    I'd ask the PM how they handle late rents... and then if they make up a BS story I'd ask why they aren't doing this on your property.

    0Reply
  • Douglas Krofcheck
    Hudson, NH · Member since 2017 · 70 posts · 47 votes
    9y
    It's worth mentioning, are you sure the PM didn't steal or lose all the rent checks and is covering themselves by blaming the tenants?
    2Reply
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