If you’re an active real estate investor, there is very little chance that every renter or buyer you work with will be 100% headache-free. Prudent real estate investors perform multiple checks on anyone and everyone over 18 years old looking to move forward on their vacant investment property for rent or for sale.
The fact that you or your property manager will be dealing with both great and mischievous tenants, tenant buyers, and buyers is a great and wonderful thing. This is because the fact you are dealing with renters and buyers means that you are actually investing in real estate and have potential investments/homes for your customers.
Whether you are investing in mobile homes or mansions, people are people. Your renters and buyers almost always do what’s in their best interest. A renter’s credit history, rental history, criminal history, and work history may likely predict this renter’s future. While this article is not about how to prescreen and work with potential renters, tenants, or buyers, we will be discussing your options if and when anyone ever defaults in making payments.
Download Your FREE Tenant Screening Guide!
Hey there! Screening tenants can be a tricky business, and this critical step can be the difference between profits and disaster. To help you with your real estate investing journey, feel free to download BiggerPockets’ complimentary Tenant Screening Guide and get the information you need to find great tenants.
How to Know When to Evict, Press Charges, Or Swallow Your Pride
If a tenant defaults and does not make their monthly payment to you, then you are in the driver’s seat, and it is your responsibility to contact the tenant and alert them of the coming eviction or a possible repayment plan, or to ask when they plan to vacate the property.
- Good tenant: If a renter has been paying on time, kept the home clean, and lets you know in advance if late, then by all means, you and your renter will want to establish a clear and logical repayment plan for the amount due plus late fee.
- Bad tenant: If a renter has been giving you headaches, paying late, and occasionally breaking other parts of the lease, than it may be wise to simply use this last late payment or no payment as the catalyst to finally remove the occupants.
Pro Tip: Experience teaches that many repayment plans are slippery slopes. Many times if a renter or tenant-buyer needs to create a repayment plan, it is only a matter of time before this resident defaults completely and must move out. In contrast, realize that bad things happen to good people; if your renters start showing effort and keep their repayment plan current, this is a good sign they are serious about keeping the home. While we almost never want an eviction for any of our residents, it is important to act quickly and take immediate action if/when a resident misses his/her payments or simply defaults.
The pre-eviction process is the point where you post a 3-day to 10-day notice on the residence’s door instructing them to pay or vacate the property. I wanted to make a separate note of this step because over the years, many tenants have made it clear that they do not want to be evicted from the property or have an eviction filed on their record. This demand letter is oftentimes the wake-up call needed for a renter to pay or pack up. In many states this 3-day to 10-day demand letter is necessary to start the filing of a legal eviction.
Pro Tip: Make sure to always know how your lease agreements, sale agreements and addendums read with regard to late payments, defaults, and evictions.
In many counties, and depending on how the property is owned, the owner of record can simply walk into the local courthouse with paperwork they filled out and pay a fee to begin a legal eviction removing the occupants from the home.
Over the years I have only had to perform a very small number of evictions. Many renters or tenant-buyers will not want an eviction on their record. Most renters in default will leave your home clean and in a timely manner with kind words, a few days’ worth of time left, and even a little cash to see them on their way.
Pro Tip: Many investors will have a higher than needed sympathy for their residents. Oftentimes we can delay an eviction weeks or months longer than we should because we simply want to continue giving our renters the benefit of the doubt that they will pay, treat us right, and stay in the home. Remember that you are running a business, and if an occupant cannot pay, then they cannot stay.
Did your renters or tenant-buyers leave your home damaged or destroyed? Do they still owe you hundreds or thousands of dollars? Were your renters or tenant-buyers vindictive or personally angry with you or your company?
Over the years I’ve come to find that by treating people fairly and listening to their concerns, you will rarely take a property back in worse condition than when you sold it or rented it. If you do receive a property back in worse condition than when you rented it or sold it, then the choice is yours to press charges for damages or simply move along.
Pro Tip: Always aim to get current employment information and bank account information from your occupants. If a judge settles in your favor, you can oftentimes garnish wages if you know where an ex-occupant works.
Swallow Your Pride
In almost every situation, whether good or bad, there is something to be learned, some silver lining to take from every lesson. Whenever we sign legal papers to sell or rent our investment properties, we may incorrectly assume that everything will go according to plan. This is not always the case. As investors, we create value, we make profit, and we learn from our mistakes (and the mistakes of others).
If you decide to press charges on an ex-renter due to damages or an amount owed to you, then make sure the time, money, and mental energy is worth the fight. Besides the monetary compensation, your understanding of why this happened, what fault you are at, and how you can prevent this moving forward is oftentimes the biggest value gained.
In conclusion, with proper due diligence and thoroughly screening all of your buyers, renters, and tenant-buyers you can eliminate the vast majority of your future headaches. I would much rather keep my property vacant for an extra month than have a high-risk occupant in the home causing me frustrations and possibly damage to my investment home. Make sure you are properly prescreening every adult who lives in any of your investment homes. A person who has had outstanding rental history in the past, good credit history, and no evictions will likely be a low-risk and smart choice for you to rent or sell to.
Investors: Have you ever had to make the hard decision of whether to work with your tenants or evict?
Let us know with a comment!