New Landlord. How to handle a situation when tenant cannot pay the full rent amount
Real Estate Broker · Johns Creek, GA · Member since 2009 · 870 posts · 664 votes
New Landlord. How to handle a situation when tenant cannot pay the full rent amount
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Syracuse, NY · Member since 2011 · 53 posts · 47 votes
14yIf you look at this from the point of view of morality you're not helping them at all by letting them stay in this property. You're just helping them have an irresponsible lifestyle. The best thing to do for everyone concerned is to talk to a good lawyer about getting them out and then screen your next tenants really well.
51 Replies
- Real Estate Broker · Johns Creek, GA · Member since 2009 · 870 posts · 664 votes14y
Due the high property taxes in Cook County, my carrying cost is around $2175. By collecting $1800 from my tenants my losses are around $400 a month.
- Real Estate Investor · Chicago, IL · Member since 2009 · 178 posts · 62 votes14y
James sorry about your townhome. The storm flooded one of my properties' basements. It wasn't 6 feet of water though. I would say you evict them. It depends on whether you believe you can find renters for 2200.
But A lot of times tenants like to test thei landlords. If you give them 400 bucks off this time whatabout when they are late next? Maybe you have them resign a new lease for month to month and just put it on allthe aparment finders places until you find a renter for 2200 or more. We are renting a 3bed 2.5 bath in lakeview for 3000/ mo so depending on location it's not impossible. Did u fix the water problem so that it won't happen again? Good luck. I hate Chicago water!! - Orlando, FL · Member since 2009 · 2k+ posts · 282 votes14y
Assuming that $2200/mo. is at or a little bit below the market rent for the property and not overpriced, then $400 sounds like a steep drop in rent. I think many people on this forum would go ahead and evict rather than drop the rent that much. On the other hand, it's all about numbers and how long it takes to get it re-rented. If the tenants aren't causing any other problems, it may be worth it to keep them there at $1800 if it's going to take months to get the place re-rented at $2200.
I'm in a similar situation where one roommate is moving out (unexpectedly) of my rental. I'm debating whether to offer the remaining people a $50 drop in their rent if it can get them through the rest of their lease. I think I will lose more money if it has to sit vacant for one or two months.
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes14y
Yes you have to analyze multiple factors James.
For instance in Chicago how long does it take to evict?? I am not talking about just going to court.I am talking about 3 day notice to quit,filing eviction,court date in the mail,going to court if tenants answers and getting judgement and writ,then paying writ fee and waiting for the marshal to set up throwing the stuff out.
These time lines and processes will vary by state.In some areas the marshalls are backed up serving the writs.So if it takes 2 months to get them out and the writ takes a month then it will be 3 months of lost rent.4 if you get them out mid month unless you can land someone living in a hotel or moving to the area mid month.Then you would only lose 3 1/2 months.
You also have to factor in time to turn the place and clean it and rent it out again.
The fact you accepted a reduced rent will make it hard to get an eviction in court.Accepting a partial rent usually means you are doing a workout with the tenant.
So for instance of I can get a majority of the rent I might do a workout.If the tenant wants me to stop eviction for 100 dollars I tell them to pound sand. :)
What you do will also depend on your personal cash flow situation.
Are you trying to preserve personal credit and do you have a recourse loan on this property??
You could just give them a one time credit and tell them the 2,200 starts back next month.If they don't comply then you file eviction.You have to show you are serious or they will take advantage.
With my tenants one of 2 things happen.They either pay the money after I file or I get them out.
I had a tenant tell me they only wanted to pay 600 a month when rent is 850.They said they will move.I said that is fine with me.
250 times 12 is 3,000 a year in lost market rent.So if I took a tenant at 600 times 12 is 7,200.Instead I have a tenant at 850 times 12 is 10,200.
So I can have it vacant for almost 4 months and be at the same point.
Plus the past tenant has a judgment and I will have a company garnishing their wages for me.
Another item to consider is the cost to get it re-rented.If the tenant has lived there a long time then fix up costs will be high compared to a newer tenant you have to get out unless they had animals,smoked,etc.
Once you file eviction on the tenants most likely they will not pay anything as they are saving to move and go somewhere else.
The down side of a vacant unit is vandalism and crime,more maintenance,and worrying about busted pipes etc.
Hope it helps.
- Investor · Statewide, MO · Member since 2011 · 814 posts · 425 votes14y
You're set to shed $5,000 a year in discounted rent. That's a big chunk. If in your shoes, I'd try and weather the storm through the winter and then get them out or evict when the weather is warmer and when it's easier to re-rent the unit. If they are so much as a day late paying the deeply discounted rent, I'd begin an eviction. I worry about the way these tenants are acting tho. I hope you're able to get money out of them through the winter.
Her son will also work again. Is her son getting unemployment? The upside of all of this is that there's 2 people to pursue when they don't pay. Does the mom work? How much does she make?
If in your shoes, I'd consult with an attorney to find out how you can accept $1800 a month with the possibility of pursuing them for the difference later.
As it pertains to future tenant screening, a general rule is 3Xrent for income. I'd also take a look at credit and bank statements. Sometimes bank statements may indicate gambling problems or other traits you might not like in a tenant. Best of luck. As a fellow long distance landlord, I feel your pain. - Real Estate Investor · Lake Charles, LA · Member since 2009 · 271 posts · 52 votes14y
2200 a month rent? Man how much u bought this property for?
- Real Estate Agent · Fort Worth, TX · Member since 2011 · 53 posts · 23 votes14y
James, I’ve been in your shoes when I started renting my first home when I moved out of state. I’m just assuming, but you prob didn’t run their credit or background check. If you do this beforehand you will catch 90% of problems before they happen. Also if you see they have a 530 credit score they don’t care if you evict them or hit them with a judgment. The quickest way to get out of this jam is hire an experienced property manager which normally cost 7-10% of your monthly rent and let them handle the legal garbage. Also if they are an experienced PM they will have lawyer’s fees billed to the tenants. It’s all about your personal finances and the condition of the home to set it up to put back on the market. If it’s in good condition with minimal work to get back on the market do it. You’re in a major city yes it may be getting into the slow months but there is a hundreds of thousands of people someone will bite if priced correctly.
- Real Estate Consultant · Lansing, MI · Member since 2011 · 356 posts · 306 votes14y
I agree with Townsend and would also suggest hiring a property manager. While I know that you may not want to pay someone else, you have a big investment that needs attention you cannot give it from Atlanta. And for 10%, you'll get a professional who won't allow tenants to manipulate the situation and who can make sure your property is maintained.
- Real Estate Broker · Johns Creek, GA · Member since 2009 · 870 posts · 664 votes14y
Thanks everyone for your advice. Vic. L. Yes, I did get the basement fully restored two weeks ago. I made a mistake of going with a contractor that my tenant recommended who was a helper for the DEMO. He told me he could restore the basement at 1/2 the cost I was receiving quotes for. I had to baby sit him from Atlanta by calling him every single day to see when he is coming to work. The work he did was poor and I fired him (looking back was the best decision) when he was no where near completing the basement and hired a more expensive reliable contractor to finish the job in 6 days. This was also a valuable lesson learned.
The mother seems to be the only one somewhat responsible. She was on the lease contract with me with her son. Her credit is in the 500s and I don't think she cares much about her credit, but her son has a credit of 750. When they were paying games with me by not returning my calls in September, I emailed her that i will proceed with the eviction process and this can damage your son's credit score. That is when I got a response from her.
Her W2 showed $90k and her son just got a job that paid him $45k. She is divorced with 3 adult children living with her. The children were causing a lot of problems for me early on as they were trying to claim that the contract can be void as the basement was not finished fast enough. The son sent me an me an email 3 days before the September rent was due stating that their rent should be $1500 since the basement is not finished.
The daughter said she saw a **** roach in her room and tried to say this made the home a hazardous place to live. This was the type of crap that was going on in late August and early September.
I flew out to chicago to see the progress of the basement and speak with my tenants. It appeared that they wanted to move out and look for a cheaper rental. I don't think the tenants are bad people, but they can't afford the rent. The mother told me that she can pay me $1800/month without her son't help.
I wrote an addendum contract that I will agree to a $1800 rent if they agreed that I can list my property to bring in a new qualified tenant.
When her son recently lost his job, the mother called me that she is now at my mercy, and please don't throw her family out in the street and she will cooperate to pay me $1800 a month on time while i look for a new tenant. I asked her where she would go, and she told me she has family in the area.
I am a christian and I do have a big heart. The weather will be cold in Chicago and most likely it will be difficult to get a new tenant in here until next spring. Though $1800 rent is $400 less than was contractly agreed to receive, I would consider myself worse off with the home vacant with a $2200 loss on a monthly basis or going through the eviction process paying a lawyer and my travel expenses to show up to court. Another thing i need to consider is that they are paying for my utility.
About a month ago, the grandmother had flooded the toliet to caused dry wall damage downstairs, but my heart softened up a little when they brought in a contractor to fix the damage which the grandmother paid. At first, I thought they did this intentionally so that i cannot show the unit, but now know that this was an honest accident.
- Real Estate Broker · Johns Creek, GA · Member since 2009 · 870 posts · 664 votes14y
Does anyone know of a reliable property management company in the Chicago suburbs that they can recommend?
- Orlando, FL · Member since 2009 · 2k+ posts · 282 votes14y
Originally posted by James Park:
She is divorced with 3 adult children living with her.This group sounds like nothing but trouble.
- Real Estate Investor · Lake Charles, LA · Member since 2009 · 271 posts · 52 votes14y
For property manager ask adrian gutierrez on here
- Real Estate Broker · Johns Creek, GA · Member since 2009 · 870 posts · 664 votes14y
Here is the track record so far with my tenants: They were on contract for 2 years for $2200/month.
Received $2000 rent for August on the 3rd
Received $2000 rent for Sept but came in on Sept 8th - I was ready to sent the 5 day notice.
Received $1800 rent for October on the 1st day - This showed me that the mother was willing to cooperate. She told me that with her single income of $50,000 she can only afford $1800 and I told her that i receive her rent on the 1st of the month I will take the $1800, but it will go up to $2000 after the 1st. She seemed to encourage me to actively seek a new tenant as its seems that the rent commitment is weighing on her. I was a little concerned as she told me that would be going to Asia from Nov 2 - Dec 3. She assured me that I will not need to worry about rent as it will come on time. I guess I will have to wait and see. She requested that I can give her 2 weeks notice if i find a new tenant and wait until she is back from Asia for the new tenants to move in. I had no problems with this request.Thank you for reading about my situation. I hope at the very least that new landlords can learn from my mistakes. After this experience I want to own all my rental properties close by to where i live and screen tenants very carefully just like I would when hiring an key employee for my small business. The right tenants can be diamonds to your rental business, but the wrong ones can literally make your life miserable.
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes14y
James I wasn't born with a silver spoon in my mouth.I had very tough times where things were lean growing up.
It builds character and makes you remember where you came from.
Having said that you can't let emotions make business decisions for you.This woman has allowed her kids to invade her life and mooch off of her.She has ultimately made that decision.I can see where that high payment without assistance is strapping her.
I can't tell you the number of kids who are draining their parents dry and using them.It makes me sick to think of these types taking advantage.I am not talking about a temporary blip where someone is down on there luck but a continous pattern of doing the minimal only and getting the rest from the parents.I have tons of tenants with my apartments and I hear it all.When you have apartments they all talk.If you are soft with one they will take advantage.If you are hard with all they will leave because they can't manipulate and the other ones will pay on time knowing they will be gone if they don't.
Do you have a fixed interest rate on the property now or do you have a variable?? If variable I would contact your mortgage company to get a reduced interest rate and a fixed loan.There are programs to reduce the rate even if you are not behind yet on the mortgage.
You need to reduce the debt service so it doesn't kill your income.
How much would you need to come up with to sell this property?? 5,000,10,000, etc.??
Now that your in Atlanta I would get rid of the remote property and invest here.
- Real Estate Investor · Somerdale, NJ · Member since 2008 · 42 posts · 30 votes14y
James-
Now I'm lost. In your last post you said:
"She told me that with her single income of $50,000 she can only afford $1800."But in an earlier post you said: "Her W2 showed $90k and her son just got a job that paid him $45k."
Which of those numbers is correct?
The fact that she's divorced wouldn't concern me, but the fact that she has 3 adult children and a grandmother living there, with only herself and one son on the lease would. Every person over the age of 18 should be on that lease, I'm thinking.
And if tenants have a concern about the condition of the house, they can't just stop paying rent to you. They must pay it into an escrow account until the situation is resolved, otherwise I would have to believe that they're in breach of contract. The advice everyone else has given you is great, I'm not a buy and hold investor, so I'm not even going to pretend to give you advice on that subject, just wanted to share my initial thoughts on the situation:)
- Investor · Statewide, MO · Member since 2011 · 814 posts · 425 votes14y
With an income at 90k, she CAN afford to pay you 2,200, she just refuses to. With 3 adult children and grandma, there's plenty of cash in the house to get you paid.
Here's another potential dilemma: you find a tenant (may be tough with them going into a hostile environment) and then they refuse to move on time. Now, your new tenant has a moving truck loaded and your tenant won't leave. With people like your tenants, this is a possibility. Then, you'll have an eviction to fight out before getting possession. Lean on the fact they're worried about the son's credit. They will magically be able to pay you if you put their feet to the fire on this. - Real Estate Broker · Johns Creek, GA · Member since 2009 · 870 posts · 664 votes14y
Jamie,
She had told me that her work had cut down on her hours. So the income information i receieved was not representative of the real situation.
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Originally posted by Jamie Gaymon:
James-
Now I'm lost. In your last post you said:
"She told me that with her single income of $50,000 she can only afford $1800."But in an earlier post you said: "Her W2 showed $90k and her son just got a job that paid him $45k."
Which of those numbers is correct?
The fact that she's divorced wouldn't concern me, but the fact that she has 3 adult children and a grandmother living there, with only herself and one son on the lease would. Every person over the age of 18 should be on that lease, I'm thinking.
And if tenants have a concern about the condition of the house, they can't just stop paying rent to you. They must pay it into an escrow account until the situation is resolved, otherwise I would have to believe that they're in breach of contract. The advice everyone else has given you is great, I'm not a buy and hold investor, so I'm not even going to pretend to give you advice on that subject, just wanted to share my initial thoughts on the situation:)
- Real Estate Investor · Chicago, IL · Member since 2011 · 54 posts · 14 votes14y
James - I agree with the posters here. Jamie is correct in that withheld rent needs to go into an escrow account. I work for a company that handles distressed properties throughout the midwest, and we hear these stories regularly.
All residents over the age of 18 need to be signers on the lease. Also, how many bedrooms is the unit? With that number of people in the townhome, are they violating county occupancy restrictions? The fact is that you have a signed contract with them for $2200 per month. It doesn't matter if a cockroach was seen, or if the basement wasn't finished.
I am based in Chicagoland, and can provide you with a couple eviction attorneys. My contact info is in my signature block.
- Real Estate Broker · Johns Creek, GA · Member since 2009 · 870 posts · 664 votes14y
Joel,
what you are saying is correct. The adult children are spoiled and not responsible. The oldest son who has a credit score in the 700s was supposed to pay half the rent. Early on, the mother would complain to me that the her oldest son would not pay her anything to help with the rent. I know the mother is working very hard and working late nights to make ends meet and the oldest son drives a nice new sports car, and doesn't seem to be busting his butt to look for a new job.
Joel, one thing i did before moving to Atlanta was I refinanced and cashed out of the equity of the home at 4.25% 30 year fixed up to 80%. What is killing the cash flow is that Cook County is raising property taxes while properties values dropping. The county is doing this as they are broke.
I would love to sell my townhome in Chicago right now, but I would lose too much in this market. Perhaps the market will be better in 2014-2015 and I break even with the price i paid in 2004. When the home was staged and maintained in mint condition, I was very confident I could get $2200. However since I have tenants living there while showing my property, I listed my property for $2000/month.
I would love to concentrate all my real estate investing in the northern Atlanta metro area from this point forward.
The reason I didn't get a property management company was that my first rental was in nice gated community here in Northern Atlanta that i purchased in 2006 to live in. Unfortunately because of my job situation, I could not relocate to Atlanta at that time.
Luckily, I had a really good tenant for 5 years who never was a day late on his $3000/rent. I guess I had a misconception that being a landlord out-of-state was very easy and property management companies were a waste of money and time. This is the reason why i just took the first person who was interested in renting from me so that property will be rented right before I moved my family to Atlanta.
This experience was very painful learning experience for me, but I count my blessings that I am able to learn this mistake early on as a novice real estate investor with only few properties.
Originally posted by Joel Owens:
James I wasn't born with a silver spoon in my mouth.I had very tough times where things were lean growing up.It builds character and makes you remember where you came from.
Having said that you can't let emotions make business decisions for you.This woman has allowed her kids to invade her life and mooch off of her.She has ultimately made that decision.I can see where that high payment without assistance is strapping her.
I can't tell you the number of kids who are draining their parents dry and using them.It makes me sick to think of these types taking advantage.I am not talking about a temporary blip where someone is down on there luck but a continous pattern of doing the minimal only and getting the rest from the parents.I have tons of tenants with my apartments and I hear it all.When you have apartments they all talk.If you are soft with one they will take advantage.If you are hard with all they will leave because they can't manipulate and the other ones will pay on time knowing they will be gone if they don't.
Do you have a fixed interest rate on the property now or do you have a variable?? If variable I would contact your mortgage company to get a reduced interest rate and a fixed loan.There are programs to reduce the rate even if you are not behind yet on the mortgage.
You need to reduce the debt service so it doesn't kill your income.
How much would you need to come up with to sell this property?? 5,000,10,000, etc.??
Now that your in Atlanta I would get rid of the remote property and invest here.
- Real Estate Agent · Weatherford, TX · Member since 2011 · 726 posts · 284 votes14y
Here's my two cents, as a renter in this position.
My job (yes, I still have one, new to investing :)) has 2 really busy 3 month cycles every year, sept-nov and mar-may. The rest of the year is, well, tough sometimes. We get by, but I digress.
The POINT of this reply is this: My landlord bought the house I live in at a county tax sale. I know what he paid, but I don't know how he paid. (As in I don't know if he got a HML, bank signature loan, his own liquid cash, etc.) So, that is an unknown. My rent basically covers his taxes and insurance plus a little, so still don't know if he has paid it off.
This summer, I made an agreement (over txt, almost as bad as handshake) with him to pay 1/2 rent each month until I could repay the back rent in full, all at once. I paid 1/2 rent for June, July, and August. For September, I paid back ALL of the back rent, and the full September rent.
I say, as a tenant who values honesty, and KNOWING what I can afford, you just have to know your tenants. Ask them for any documentation you might need to prove that they'll be able to pay back at agreed time. If you're the LEAST bit antsy about their ability to repay, trust your gut, don't do the deal.
Oh, and unlike my Landlord, get it in writing.
- Real Estate Broker · Johns Creek, GA · Member since 2009 · 870 posts · 664 votes14y
Thank you for all your reponses. Something happened today.. Call it God's miracle. or I may be dreaming while i am writing this.
My listing agent called me today and he sent me an application. The prospective tenants were too good to be true. A young married couple with a 1 year baby. Both have 780 credit score and the husband's monthly gross is $10k and the wife's monthly gross is $6k. The crazy part of this is that the wife went to the same college and me and they attend the same church i attended while i was living in Chicago.
This is really weird right? They have a condo in chicago in the market the for $150k and they want to move out as they need a bigger space. I have no idea why a couple who makes this kind of income and credit score would want to rent from me? I wish they could be my tenants for more than a year.
My other concern is what if my current tenants who are paying me $1800/month do not move out as they had promised. I have a hand written addendum contract that I made at the coffee table and made them sign. Is this enough if i had to go to the eviction route? The new prospective tenants are looking into a move in date of Jan-Feb. They were condo owners before so this will be the first time they will be renters.
- Real Estate Investor · Somerdale, NJ · Member since 2008 · 42 posts · 30 votes14y
Ohhhh....yeah, my Spidey senses are definitely tingling on this one buddy. I hope that it works out well, but my advice would be to continue ACTIVELY marketing for new tenants, OR sell the house to an investor in that area, and cut your losses. I respect your faith, and like to believe in the good in others as well, but I learned a long time ago that if you listen to what people say, and then watch what they do, if the two don't line up, trust what they do as the right answer.
In any event, I wish you nothing but the best :)
- Real Estate Broker · Johns Creek, GA · Member since 2009 · 870 posts · 664 votes14y
Thanks Jamie,
The good thing that came out of this whole experience is it brought me closer to my relationship with the Lord which was not the case when i lived in Chicago as everything was comfortable and working out so well for me.Sometimes you just need to get rocked and humbled. When you're faced with difficult trials, I try to figure out what i need to learn from this experience and not repeat the same mistake again in the future. I remember nights when i couldn't go to sleep as my tenants were playing some dirty games with me and intentionally not picking up my calls. On top of that i had to listen to all kinds of excuses and lies from an unethical contractor that i had to babysit from Atlanta for 2 months. My weekends were miserable and felt bad for my wife and kids that my spirit was down.
Through all this, I just had to step back and realize what my priorities in life are.
1) Relationship with the Lord
2) My health
3) My wife, and two boys.
4) Business and moneyBack in Chicago... my business and making money was my 1st priority.
- Real Estate Broker · Johns Creek, GA · Member since 2009 · 870 posts · 664 votes14y
My tenant situation is getting worse. The mother (tenant1) called me yesterday with another sob story that the grandmother had sent all of your money to Asia for hospital bills. She asked if she can deposit $1000 to my account on Nov 1st and the grandmother will deposit the $800 on Nov 21st. I almost bought the sob story until i called the grandmother. She told me that she will give here daughter the first month payment on the 1st. The grandmother is not even on the lease. Her son who is tenant 2 has the 700 credit score and the mother tells me now that they don't care if i go through the eviction process or not.
I reduced the rent from $2175 to $1800 in sympathy that her son (tenant2) had lost her job. Now it seems like they are truly trying to take advantage of my generousity. It also appears that they are hindering any new prospective tenants to coming in voluntarily telling then the flood I had in July.
Tenant1 (the mother) is flying to Asia on Nov 2 - Dec 3. I asked her when the earliest date she can vacate my property and she told me Dec 3. If I don't get paid by the Nov 5th, I plan to serve the 5 day notice. I asked if she could move out in Nov and I will return her prorated security deposit and did not like this option as she will be Asia. She insisted that i take the $800 from the security deposit until her mother deposits this amount to my account the 21st of November which i refused to do since that is not what the her $2250 security deposit is for.
I would appreciate any advice from the experienced landlord. I got really pissed when the mother (tenant1) called me at 8pm on Friday while having dinner with my wife. Now it seems clear that everytime she calls me it another sob after another and I am buying it anymore. Emotionally this is becoming too much for me. What are my options here?
As a human being.. I would hate to see the police men throw their belonging out on the street. Is eviction the only option I have a this momoment. I rather pay two mortgages then face the stress these tenants have been giving me in the past 4 months. I could atleast fly to Chicago and clean out the unit so that it is presentable to the prospective tenants. I've had many people viewing the property but only one application so far.
- Los Angeles, CA · Member since 2009 · 717 posts · 50 votes14y
James, it seems as though you are a good person. Unfortunately, in the business we're in we sometimes have to have a thick skin and be tough when it comes to situations like these. Bottom line, you have to evict them because it's either you losing or them. I don't see a win - win situation and these people are taking advantage of you and your money. Good luck.
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