Posted over 6 years ago

Don't be a Pushover - Enforce your Lease

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One of the best pieces of advice you will ever receive as a landlord is to stick to your policies and refuse to make exceptions. This is certainly a sound piece of advice. Unfortunately, almost all landlords have to learn the hard way the importance of enforcing agreed upon rules and policies for your tenants. As a newcomer to the landlording game, its easy to get hesitant when the time comes to act on one of your rules or policies. You may try to avoid confrontation and convince yourself that it won’t be the end of the world to “let this one slide”. This is a major mistake which almost always leads down a slippery slope of more broken rules and results in an unbearable landlord-tenant relationship.

People want to be liked

This is a simple truth and a common characteristic of human beings. A new [or seasoned] landlord may feel pressure to make exceptions for tenants breaking rules or not making payments. They want to be perceived as the “nice guy”. This is a natural desire. The landlord may feel that is she imposes a late fee, the tenant will get angry and dislike her.

Therefore, the natural tendency is to make an excuse as to why an infraction can go unenforced. While this may feel good at first, it doesn’t take long for you to go from being a “nice guy” to a “pushover”. Your failure to enforce your lease is a sign of weakness. A tenant will see this as an opportunity to continue breaking the rules set out in the lease.

For example, if you fail to impose a late fee when your tenant is late with rent, what incentive does the tenant have to pay next month’s rent on time? You didn’t do anything the first time…why would you do anything the next time? What makes things even more complicated is when you fail to impose a late fee for the first offense, but then decide its time to toughen up for a future offense. This creates a double standard and is confusing to the tenant. You need to be firm and consistent with the enforcement of your lease from the onset of your relationship with each tenant.

Tenants expect you to enforce the rules

Think about your personal rental experience. If you were late with your monthly rent, would you expect your landlord to void the late fees? If they didn’t void the late fees, would you blame them for being a “bad person”? Almost certainly not! You realize that imposing a late fee, your landlord is simply doing what is best for her business. You don’t think of her as a bad person. In fact, the majority of tenants actually feel bad for the landlord for forcing her to impose late fees!

The fact is that you and your tenant signed a contract. It is your obligation to follow that contract and impose the applicable penalties.

Don’t Get Caught with a Double Standard

A major issue with “letting it slide” is that your inconsistent enforcement of rules makes things very confusing for your tenants. If you let one tenant slide on late rent, other tenants will expect the same treatment. If you wait to impose the late fee on one tenant but hit another tenant immediately the second tenant will feel that you are out to get him.

Late Fees Work

Late fees are popular among landlords for a reason. They work. You will be shocked at how well a $20 late fee or the potential for a $5/day late fee will motivate your tenants to round up the rent on time. The fact is that most tenants will pay their rent. Sometimes they forget…other times they are waiting to get paid. Regardless of the reason, the consistent and strict enforcement of late fees is a proven motivator for tenants to pay their rent. Whats more, sometimes tenants plan on being late and expect to pay the additional late fee! This is the best case scenario: You get your rent a few days late, but you get an extra $20-$50 because your tenant broke the rules. It almost fees like magic!

The Best of Both Worlds

Its possible to impose late fees and other rules of your lease and still be the “Nice Guy”.

Here are a few tips:

  • Set up your “Late Payment” notices so that they are [or seem] automated. If you are using an invoicing application like Quickbooks, use the email feature to send a professional invoice indicating the due date and the penalties if that due date is missed. You can start by sending the invoice ~10 days before it is due. After the 1st day that the invoice remains unpaid, send a friendly reminder urging the tenant to pay before an “automatic” late fee is added to the invoice. After your grace period ends, “drop the hammer” and add your late fee to the invoice. If you craft it right, the late fee will seem like an automatic feature set in motion by Quickbooks. The tenant doesn’t see you as the bad guy. Instead, they blame Quickbooks and your magical invoicing system!

SampleReminder

  • Stress the importance of maintaining consistent standards for all your tenants. Tenants would not expect to be given special treatment. If a tenant is begging and pleading with you to let something slide, stress the importance of being fair to all tenants.
  • Tell the truth. Sometimes tenants have a misguided perception that their landlord is a wealthy real estate tycoon who burns cash to keep warm at night. We all know that investing in real estate requires a ton of hard work and is by no means easy. Inform your tenants of the business you are trying to build. Let them know how hard you have worked to acquire and run your properties. Stress that you sympathize with their situation, but that you are in no position to ignore the rules and let your business suffer.

Maintaining solid landlord-tenant relationships is one of the most difficult aspects of real estate investing. The successful landlords are able to eliminate emotion from decision making so that they can diligently follow their business processes. It may be difficult to enforce rules on your tenants. Nonetheless, learning to adhere to your systems is an essential skill on the road to a successful real estate investing career.



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