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February 11th, 2013 by Marco Santarelli
Non-payment of rent is a serious problem. It is one of those predicaments that places the landlord in a difficult situation. Moral and ethical values are often challenged by the need to collect the rent. If your only two choices are to evict a family that has fallen on hard times, or to go weeks or months without getting paid, the right choice isn’t always obvious. Most landlords have a conscience and genuinely care about the safety and well-being of their tenants. So the challenge is finding a solution that works out well for your tenant, as well as for your bottom line.
Being caring and compassionate is great, but at the end of the day, you depend on that rental income to pay for some, if not all of your bills and expenses. We are going to discuss some options that aren’t always apparent. This includes how to have an open and effective discussion with your tenants, an effective technique that can work out well for both parties, as well as the best course of action for securing the rent. This will give you the knowledge and mindset you need in order to be profitable and successful.
If you have a tenant that is past due on the rent, then sitting down with them and having an open and heartfelt discussion could prove to be very beneficial. Most tenants who are dealing with financial issues will be more than happy to have a conversation. In the majority of cases, they feel guilty and burdened by not being able to pay the rent on time. It’s an uncomfortable situation for both parties. So it’s important for both the landlord and the tenant to get their thoughts and feelings out in the open. Keeping it all bottled up will only create more stress and anxiety. Provide your tenant with the opportunity to explain their situation. Allow them to tell you in their own words why they are unable to pay the rent.
Perhaps due to the state of the economy, their company decided to downsize which meant terminating their position. Or maybe they had to deal with health issues that drained their checking and savings accounts. It’s also possible that their car broke down and needed repairs. In order to get it fixed so they could continue commuting to work, they had to give their rent money to the mechanic. These are all situations that can prevent your tenants from paying their rent. But as the landlord, you also have to make your position known. Let them know that you also have bills and expenses each month. And since the bank won’t give you more time on the mortgage payment, you are unable to give them more time to pay their rent.
Before threatening them with eviction, and we only recommend that as a last possible resort, see if their cash flow problem is short-term or long-term. If they recently lost their job, or had to deal with other bills and expenses, it might only be a temporary problem. If that’s the case, and their payment history has been solid up to that point, it would be foolish to get rid of a good tenant who fell into a bad situation. On the other hand, if the problem will take more than a few weeks to resolve, then your best course of action is to get them out of the rental unit. You can’t have a tenant living rent-free for an extended period of time. In order to do that with the least amount of drama possible, we suggest making the tenant an offer that they can’t refuse.
One attractive offer would be to give the tenant a 5 to 7 day window for packing, cleaning, and moving out of the unit. And as a reward for their cooperation, you agree not to pursue any back rent. You also agree not to file a lawsuit or eviction papers. Going the legal route for removing a tenant can be timely and expensive. It will also cost you significantly more than the back rent they owe you in most cases. So it’s one of those situations where you are better off simply cutting your losses. For the tenant, they will also avoid having an eviction on their credit report. This is huge because an eviction will destroy their FICO score for several years. Once that happens, it can be incredibly difficult to do anything in life that requires a credit check for approval.
Most tenants experiencing financial difficulties will jump at an offer like that. Even if it’s not what they want to do, it will keep them out of court and protect their credit. If they are still on the fence, however, you can sweeten the deal by using the “Cash for Keys” technique. This is when you offer the tenant a specific amount of money, typically a few hundred dollars, in exchange for the keys to their unit . It might not seem like a lot, but it might really help them out with gas and moving expenses. This could be the difference between the tenant accepting or rejecting your offer. But at the end of the day, when it comes to dealing with a tenant who is behind on the rent, communication is critical!
Discuss the problem in order to find the best solution.
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