@Todd Handriegh the best approach is:
1. Have written rules and procedures for everything. For example, rent is due on the 1st, late fee X on the 5th and notice to vacate on the 8th. Have a clear process and enforce it no matter what the circumstances. Failure to enforce your rules evenly could actually be seen as discriminatory. Letting some follow the rules and others break them is unfair at best.
2. Pretend that you work for your rental company. Your job is to enforce the policies. If your day job had a rule against something, would you just do it anyways? This is where mindset is important. You can even tell tenants, sorry but these are the rules and my partners require me to follow them. That may help so you don't feel like the bad guy. Blame the policy.
3. Stop thinking you are compassionate, because you are not. Your problem is you fear confrontation, which is different than being compassionate. There is nothing compassionate about letting a tenant break the rules and live rent free. People who have trouble managing their lives or finances need consequences, so they learn better behavior. Would you let your child draw all over the wall or sit on their iPad for eight hours a day? They may WANT to do these things, but letting them is irresponsible, NOT compassionate.
4. Separate your business from your personal charity. If you want to help struggling tenants, donate money to rent assistance funds. Donate your time to big brothers or mentoring programs. Being compassionate and helping people is wonderful, but do your good deeds on a personal level separate from your business.
5. Don't listen to the "story" because you don't know if it is true and it is immaterial anyways. Tenants (and people in general) will use emotions to manipulate you. Often it is a lie or a half truth. They may say rent was stolen or their hours at work were cut, but in reality they blew the money. You are not a lie detector and you need to stop trying to figure out who is worthy and who is not. I used to try to figure out who was telling the truth and now I don't care, which is very freeing. Just pay the rent and take care of the property.
6. You can be compassionate to a situation, yet firm in your response. You can show sympathy for their situation and even offer suggestions to help, but still enforce consequences of their actions. "I am sorry to hear your hours were cut. I heard XYZ is hiring part time workers so that may help you. Since rent was late, you will owe a late fee of $XX."
It may be hard to understand, but even eviction can be very helpful to people in the long run. For many people eviction is a "rock bottom" moment in their lives that helps them change their mindset around money management. They learn to control their spending, show up for work, have an emergency fund and pay rent on time. People with money problems are no different than people with drug problems or other addictions. It is not money that solves the problem, it is learning the right behaviors around money. Most tenants who struggle are dealing with their own mindset issues. It could be procrastination, disorganization, depression or any number of issues that get them "stuck" in a bad pattern. Your "compassion" is enabling their bad behavior and this is the key thing you need to understand. Your landlord friend isn't as much "desensitized" as he is "enlightened" to human behavior.