I don't have a heart, just in reality

I don't have a heart, just in reality

Real Estate Agent · Atlanta, GA · Member since 2015 · 359 posts · 158 votes

Between my commercial and residential properties, over a dozen tenants have already reached out to me about upcoming rents.  If this is the first time tenants have issues paying their rents in your case, consider yourself very lucky and Kudos to you for finding excellent people.  I have not been so blessed, so I have created a process. The process is to achieve two goals.  First is to collect rents and second to keep the property in good condition. Feel free to use all, part or none of it.  But please tell me what you think.  Here goes...

1- Listen to them.  Give them the opportunity to talk.  Understand it isn't easy for them to come to you and share their situation.  Thank them for being proactive.  Show empathy.  

2- Ask them questions to get a better understanding of their situation.  Don't belittle people by saying "Why is this my fault" or "Why didn't you plan for this".  You can use this part to make sure their story is consistent.  

3- Share with them your position.  This is where I would tell them that I have investors (I never tell them that I am the "owner") that are depending on the income (rent) to pay debts and their livelihood. I want to let them know that they are not dealing with a "big corporation" with billions of dollars in the bank.  They are dealing with real people that worked, saved and took risks.

4- Find out how much they can pay.  Now you showed that you care about them, their situation and they know that you are human. This is what everything comes down to.  Personally, I have asked for half of April and May rents paid on time and the balance to be paid out over the remaining term of the lease.  One lease I had to give an extension.  I have also asked them to do extra things around the properties while they are home.  Things like deep cleanings, clean gutters, change air filters, paint (if I buy the paint).  All of these improve their standard of living while my properties are in better shape and I have people who have a better connection to the property.

Now you are asking why should landlords work w/ tenants when we all have contracts that should be lived up to?  Good question.  No, I'm not doing this b/c it's nice to be nice.  I'm doing it b/c business is business.  For the most part is that YOU HAVE NO OTHER OPTION!  Most places wont evict for next 60 days, chances to find people in better situation is not likely, getting some rents with potential of getting all later is better than getting none now and none later and if they see you like a jerk then they wont care about your property.

If landlords are living rent pmt to rent pmt, then we are in no better position than the tenants we criticize.  In fact we are in a worse situation as we have to replace roofs, change HVAC, fix appliances and make sure the properties are always in good shape.  WE ARE THE PROFESSIONALS.  Now is the time to act like it.

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
6y
recognizing the reality of the situation is key..  taking the hard line stance is going to hurt far more than it will help landlords.  but many are new and just dont know what they dont know. 
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  • Abel CurielBusiness Member
    Real Estate Agent · Queens, NY · Member since 2016 · 2k+ posts · 1k+ votes
    6y
    Originally posted by @Josh Bakhshi:

    Between my commercial and residential properties, over a dozen tenants have already reached out to me about upcoming rents.  If this is the first time tenants have issues paying their rents in your case, consider yourself very lucky and Kudos to you for finding excellent people.  I have not been so blessed, so I have created a process. The process is to achieve two goals.  First is to collect rents and second to keep the property in good condition. Feel free to use all, part or none of it.  But please tell me what you think.  Here goes...

    1- Listen to them.  Give them the opportunity to talk.  Understand it isn't easy for them to come to you and share their situation.  Thank them for being proactive.  Show empathy.  

    2- Ask them questions to get a better understanding of their situation.  Don't belittle people by saying "Why is this my fault" or "Why didn't you plan for this".  You can use this part to make sure their story is consistent.  

    3- Share with them your position.  This is where I would tell them that I have investors (I never tell them that I am the "owner") that are depending on the income (rent) to pay debts and their livelihood. I want to let them know that they are not dealing with a "big corporation" with billions of dollars in the bank.  They are dealing with real people that worked, saved and took risks.

    4- Find out how much they can pay.  Now you showed that you care about them, their situation and they know that you are human. This is what everything comes down to.  Personally, I have asked for half of April and May rents paid on time and the balance to be paid out over the remaining term of the lease.  One lease I had to give an extension.  I have also asked them to do extra things around the properties while they are home.  Things like deep cleanings, clean gutters, change air filters, paint (if I buy the paint).  All of these improve their standard of living while my properties are in better shape and I have people who have a better connection to the property.

    Now you are asking why should landlords work w/ tenants when we all have contracts that should be lived up to?  Good question.  No, I'm not doing this b/c it's nice to be nice.  I'm doing it b/c business is business.  For the most part is that YOU HAVE NO OTHER OPTION!  Most places wont evict for next 60 days, chances to find people in better situation is not likely, getting some rents with potential of getting all later is better than getting none now and none later and if they see you like a jerk then they wont care about your property.

    If landlords are living rent pmt to rent pmt, then we are in no better position than the tenants we criticize.  In fact we are in a worse situation as we have to replace roofs, change HVAC, fix appliances and make sure the properties are always in good shape.  WE ARE THE PROFESSIONALS.  Now is the time to act like it.

    Awesome post and great suggestions. Thanks for sharing!

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  • Rental Property Investor · Virginia Beach, VA (Virginia Beach) · Member since 2019 · 173 posts · 129 votes
    6y

    @Josh Bakhshi  Well said and something that we should all keep in mind moving forward.

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    6y
    recognizing the reality of the situation is key..  taking the hard line stance is going to hurt far more than it will help landlords.  but many are new and just dont know what they dont know. 
  • Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes
    6y

    @Josh Bakhshi

    Great plan, great strategy, and well said. 

    What I have seen missing from these talks is the actual cost of giving discounted rent, so I came up with a baseline. This will assume a lot and won't fit every case, but can serve as a benchmark. 

    In this case the tenants have to pay an extra $188/month and the total cost to the investor, from a time value of money point of view, is $450. Not a little, but that should frame the debate. The longer they have the discount and the longer you give to pay them back, the higher that number gets. And it is a lot less than an eviction!

    We all should watch out for is setting the repayment time and discount percent so that the pro rated back rent doesn't get too high. If you are too generous with the discount percentage and/or have too short of a repayment time, the tenants have to pay back a lot of more per month. Just like we have income requirements to rent our units, we should think about our tenants income when setting the discount terms. 

    The assumptions are that we will have to offer discounted rent for three months and the tenants have 12 months to pay the funds back. Since this is such a dynamic environment with the potential for high returns, over and above what people can normally get, I set the interest rate (really discount rate, but lets not get fancy) to 40%. If you are making over 40% on your deals, sure the numbers will go up, but not that much. 

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    6y

    @Bill F.  I think part of this program will have to be extending the lease period.. so many leases are just one year.

    need to dot your I"s and Cross your T's  

  • Investor · Akron, OH · Member since 2016 · 2k+ posts · 4k+ votes
    6y

    Bravo to your post. With the exception of #3 that is exactly what we do as well-- all of our tenants know that we own and manage and renovate and often repair our own properties. Tenants that are living paycheck to paycheck, without access to any support or credit are the norm in some asset classes. We expect that even well-qualified (3xrent with good work history) tenant renting a $500 per month apartment will have occasionally have problems when faced with a large, out of the ordinary expense. I don't think these occasional difficulties are a symptom of a 'bad' or 'irresponsible' tenant-- it is just the reality of life for many, many people who make a living at lower wage jobs. When these difficult situations do happen to good tenants, they immediately contact us and we work out a payment plan and then they follow through on the plan. Bad tenants fail to contact or worse still, lie or hide.  I am convinced that many landlords fail running low-income rentals either because they refuse to acknowledge this reality or because they are not good at communicating, setting, and sticking to acceptable and reasonable boundries.

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    6y
    Originally posted by @Jill F.:

    Bravo to your post. With the exception of #3 that is exactly what we do as well-- all of our tenants know that we own and manage and renovate and often repair our own properties. Tenants that are living paycheck to paycheck, without access to any support or credit are the norm in some asset classes. We expect that even well-qualified (3xrent with good work history) tenant renting a $500 per month apartment will have occasionally have problems when faced with a large, out of the ordinary expense. I don't think these occasional difficulties are a symptom of a 'bad' or 'irresponsible' tenant-- it is just the reality of life for many, many people who make a living at lower wage jobs. When these difficult situations do happen to good tenants, they immediately contact us and we work out a payment plan and then they follow through on the plan. Bad tenants fail to contact or worse still, lie or hide.  I am convinced that many landlords fail running low-income rentals either because they refuse to acknowledge this reality or because they are not good at communicating, setting, and sticking to acceptable and reasonable boundries.

    EXACTLY Jill  its very tough for an investor in a high priced market making 100 to 500k a year and wants to buy rentals in lower end areas because they look so great on paper.. well buying them that's easy.. but managing the tenant base is a skill all its own.

    I have always said owners can be their absolute own worse enemy.. they have no clue how hard it is to live on 1500 or 2000  a month.

    so when little things happen and they bow their back up thinking the tenant should pay for it etc.. it becomes stepping over dollars to pick up pennies.. and then when they have no success and tenant gets up set trash's their unit.. and after they have rehabbed it 3 times in 4 years they just walk away.. :(  house goes to pot and then some investor or wholesaler picks it up and the cycle repeats.. 

    these properties in my mind for the good of the community should ONLY be owned by locals who know the score know how to run them. 

    OK off soap box  LOL

  • Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes
    6y

    @Josh Bakhshi. I have a couple questions. Is #3 true? Do you have investors? And why don't you share that you are the owner? And, if your tenants do work on your properties, are you lowering rent due? 

  • Rental Property Investor · Bloomington, MN · Member since 2019 · 404 posts · 542 votes
    6y

    @Josh Bakhshi Very well said. I may disagree on the painting piece though, depending on the unit. If it is one of my better units, I would not let the tenants paint themselves.

  • Real Estate Agent · Atlanta, GA · Member since 2015 · 359 posts · 158 votes
    6y
    Originally posted by @Anthony Wick:

    @Josh Bakhshi. I have a couple questions. Is #3 true? Do you have investors? And why don't you share that you are the owner? And, if your tenants do work on your properties, are you lowering rent due? 

    Anthony, in some of my properties I do have investors and some I own 100%.  I don't like telling them that I am the owner b/c if I have to give them bad news, I can blame the "investor".  Also when I am going to give them good news, I say I had to fight for them with the investor.  That builds a relationship and loyalty.  For properties that I have property managers for, I don't have a problem them using the same excuse and make me, the "investor", look like the bad guy.

    I just threw out the idea of doing work.  I know they don't have the money.  But I would pay my PM $35-50 to change the filters so I have them do it.  I wouldn't lower the rent or give them credits, but it gives them more of a connection to the property and it actually makes them feel better about themselves.  I honestly don't think people like asking for help, so this helps build up their self-respect.

  • Real Estate Agent · Atlanta, GA · Member since 2015 · 359 posts · 158 votes
    6y
    Originally posted by @Corey Hawkinson:

    @Josh Bakhshi Very well said. I may disagree on the painting piece though, depending on the unit. If it is one of my better units, I would not let the tenants paint themselves.

     Thanks Corey.  I understand where you are coming from.  But I think we both agree on principle :)

  • Will GastonPro Member
    Rental Property Investor · Columbia, SC · Member since 2010 · 1k+ posts · 2k+ votes
    6y
    Originally posted by @Jay Hinrichs:
    recognizing the reality of the situation is key..  taking the hard line stance is going to hurt far more than it will help landlords.  but many are new and just dont know what they dont know. 

    Great point as usual, Jay. It feels like many new Landlords are rushing to take a hard stance on the rent payment issue. 

    This situation is unprecedented. It seems like the ones who will succeed best in this crisis will be those who are or have been operators. Investors who understand what it's like to actually manage property. 

    Real life is not a spreadsheet. 

  • Member since 2020 · 7 posts · 0 votes
    6y

    @Will Gaston hi will, I have a question. I have a tenant who left early March without providing an appropriate/proper notice. Her lease ends April 30 and she said she won’t pay for it. Do you think it’s okay for me to hire a collection agency for the one month? 

  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    6y
    Originally posted by @Ana Maschke:

    @Will Gaston hi will, I have a question. I have a tenant who left early March without providing an appropriate/proper notice. Her lease ends April 30 and she said she won’t pay for it. Do you think it’s okay for me to hire a collection agency for the one month? 

    really?   with all that's going on.. total waste of your time. 

  • Rental Property Investor · NY · Member since 2020 · 118 posts · 54 votes
    6y

    @Josh Bakhshi.....What would you do with a tenant who has been consistently late (over two weeks) each month since November 2019 (signed a one year lease October 2019), still owes late fees for January, February and now March, paid partial rent for March on March 25 after I asked him when he planned on paying the rent then when I asked him about the remaining balance for March he told me he’ll get it to me when he gets it because his job shut down? To make matters worse, he never reaches out to me about rent or him being late, I always have to reach out to him to ask him when he’s paying and his response is always, “it slipped my mind”. To make matters even more worse, I called his job (anonymously) and inquired as to whether they were shut down or not and they informed me that they had not shut down and everyone is still working. So basically, he lied about his job shutting down. How would you handle a scenario like this?

  • Member since 2020 · 7 posts · 0 votes
    6y

    @Jay Hinrichs I could’ve at least found someone to rent starting from March if she’d given me a proper notice, she gave me a 10 day notice and left 2 days earlier.. it’s very hard to find someone to occupy the house right now 

  • Real Estate Agent · Atlanta, GA · Member since 2015 · 359 posts · 158 votes
    6y

    @Joyce Williams

    Joyce, my comments were meant to deal with tenants that have been responsible from the start.  This does not apply to your case.  Your situation sucks and if I were to bet, he wont pay now or later.  When someone lies it shows they lack character and you should try to get rid of him ASAP.  Unfortunately it wont happen for a few more months.

    Please spend this time to make a plan on how to deal w/ tenants and your real estate.  Once the person is late, you should take it seriously.  But when they say "it slipped my mind" you should have started looking for ways to get rid of him.

    Remember, this is a business.  If you don't want to deal with bad tenants, do better homework before leasing to them or hire professionals.

    Good luck

  • Member since 2020 · 7 posts · 0 votes
    6y

    @Joyce Williams I’m not sure if evictions are suspended where you are but if they are, I would wait until this is all over and I’d send him a written eviction notice and have a collection agency deal with him.. 

  • Rental Property Investor · NY · Member since 2020 · 118 posts · 54 votes
    6y

    I plan on sending him a 14 day pay or quit notice if I don’t get the remaining balance for March and Aprils’s rent by April 10. Hopefully by the end of April COVID 19 will be under control and things will be back to normal at that point I will start the eviction process. 

  • Rental Property Investor · NY · Member since 2020 · 118 posts · 54 votes
    6y

    @ Josh, I did a tenant background check and he and his wife had no evictions. They both work and have been at their jobs for years and they make three times more than the rent. What else or how else could I have done a better check on them? But you are absolutely correct, I think my grace period it too generous, I give them until the tenth and then I start charging late fees. I should have taken their late rent seriously after the second month they were late... they are definitely taking my kindness for weakness.

  • Rental Property Investor · NY · Member since 2020 · 118 posts · 54 votes
    6y

    @Ana Maschke.....I plan on sending him a 14 day pay or quit notice if I don’t get the remaining balance for March and Aprils’s rent by April 10. Hopefully by the end of April COVID 19 will be under control and things will be back to normal at that point I will start the eviction process.

  • Real Estate Agent · Atlanta, GA · Member since 2015 · 359 posts · 158 votes
    6y

    @Joyce Williams this is a great learning experience. Sometimes you get screwed by tenants, contractors, managers... Happens to beat of us. This too shall pass. It is hard to treat this like a business and be kind. That is the main reason I don't tell people I am the owner.

    You will learn, grow and be fine.

  • Rental Property Investor · NY · Member since 2020 · 118 posts · 54 votes
    6y

    @Josh..... I won’t even get into the shady contractors I’ve had to sue... this is a risky business in more ways than one. 

  • Rental Property Investor · Allentown PA, United States · Member since 2016 · 567 posts · 442 votes
    6y

    @Abel Curiel awesome insight man!

  • San Jose, CA · Member since 2015 · 4k+ posts · 3k+ votes
    6y
    Originally posted by @Joyce Williams:

    @ Josh, I did a tenant background check and he and his wife had no evictions. They both work and have been at their jobs for years and they make three times more than the rent. What else or how else could I have done a better check on them? But you are absolutely correct, I think my grace period it too generous, I give them until the tenth and then I start charging late fees. I should have taken their late rent seriously after the second month they were late... they are definitely taking my kindness for weakness.

     In your situation, just on the one issue of chasing the tenant for rent every month, this is how I'd handle that: I'd go talk to them in person and I'd be friendly but say something like, "You know, Joe, I'm just tired of chasing you down for the rent.  I really didn't want to have to do it, but I'm going to have to put the responsibility back on you to pay the rent on time without me reminding you.  So, as much as I'd really hate to do it, starting next month, if the rent isn't received by me on time, I'm going to have to start giving you pay or quit notices.  I really hope you don't make me do that."

    All adults know where they can push the limits.  For instance, they know if they don't make their car payment, the car will get repo'd.  If they don't pay the cable bill, it will be turned off.  If they know they will get kicked out if they don't pay the rent, and they want a place to live, they will pay the rent.  Your job is to not let them prioritize cigarettes or lottery tickets or pedicures or whatever over paying you.

    Next time, you won't let anyone slide.  It's kind of an art.  You'll learn it.  You can be friendly but still let them know you won't break your rules, no matter the sob story of the month.

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