With rental properties, tenant screening is a must. But even with screening, if you own rental properties, you’ll eventually get this tenant call:
“Mr. Landlord. I was calling to let you know that I’m going to be late on my rent this month. What happened was [insert personal financial calamity here].”
Over the years, I’ve responded to this call in a number of ways. In talking with other real estate investors, I’ve heard even more approaches to dealing with a late paying tenant. The variety of investor-landlord responses tend to fall into one of the following categories:
The Discerning Approach
Under this approach, our landlord evaluates whether the reason is legitimate. Is the tenant in a situation that couldn’t be avoided? Our landlord asks a few questions in an attempt to gauge the tenant’s honesty. If our landlord is satisfied that the reason is good, and the tenant is honest, then he’ll cut ‘em a break.
The Enlightened Approach
Here, our landlord believes, rightly or wrongly, that tenants are laboring under the misunderstanding that he has all the money in the world. After all, he bears the rather archaic title of “landlord” that conjures images of a land baron standing atop the spires of the castle surveying the fiefdom. (In fairness, Rob actually assumes this posture in moments of reverie, although they typically end when his wife tells him to take out the trash. But I digress.)
Acting upon his belief, our landlord enlightens the tenant by dispelling this image with parables of mortgage payments and property taxes. The response goes something like this. “Mr. Tenant, I have to pay a mortgage on your home every month. If you don’t pay your rent, I can’t pay the mortgage.”
The Pithy Retort Approach
Our landlord is somewhat jaded here—again, rightly or wrongly. He believes that there is never a good reason for a tenant not to pay his rent on time. Indeed, he was once a tenant and could not have conceived of paying late. His response reflects those beliefs.
He responds to the tenant with some measure of incredulity, saying something like “Well, if you want to contact my bank, repeat what you just told me, and my bank will accept my mortgage payment late, then you can pay your rent late.” (Lender contact information is not typically exchanged in the call). Or perhaps this one: “Now, if you were to call me because your air conditioner wasn’t working, and I promised to fix it tomorrow, would it be acceptable to call back to ask for two more weeks?” Zing!
The Chapter and Verse Approach
Our landlord has a fine lease. And he refers to it in the call. “Under section 1, paragraph A, titled ‘Rent,’ the lease says rent is due on the first of the month. If rent is received after the fifth, then a late charge in the amount of $X is charged and eviction proceedings can commence.” Commence indeed.
I have self-managed rental properties for about eight years, although it wasn’t until two years ago that I started buying investment properties with Rob and picking up the pace. After eight years, I am convinced that there is only one way I can reasonably handle this tenant call, and it dictates my response. But I am also convinced that I haven’t learned all there is to learn about managing rental properties, and I suspect that my approach to this situation won’t be for everyone.
In a follow-up article, I’ll write about the way I respond to the slow-pay tenant. In the meantime, let me ask the TWA readers. How would (or do) you respond to the tenant?
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{ 23 comments… read them below or add one }
Chapter-and-verse landlord over here. I’ll listen, then say, “Sorry you’re having difficulties, but rent’s due on the first, late on the 5th, eviction procedures begin on the 15th, no exceptions. The process is automatic.” If they continue offering excuses, I just keep repeating same.
Works for us– one time finding a closed (and bolted) door and tenants come around.
We offer a split payment option in our lease (half on the first, half on the fifteenth) with a $25 extra fee. That seems to help tenants out of an occassional jam.
So what is your approach? You didn’t tell us! You laid out 4 responses, then regarding your own approach, only said, ‘After eight years, I am convinced that there is only one way I can reasonably handle this tenant call, and it dictates my response. But I am also convinced that I haven’t learned all there is to learn about managing rental properties, and I suspect that my approach to this situation won’t be for everyone.’
@Connie, Interesting. Yeah, I read you as a chapterer and verser. But see, you’ve already told me something new–the half and half option. Well, this is not my approach, but there are some similarities. Thanks for another perspective.
@Young, Indeed, I only promised that I would talk about my approach in the next article. We can’t have all the fun in one article. Stay tuned…
Clarification– we don’t do literal lock-outs. I was being all metaphorical and stuff, as in ‘the landlord appears to be a robot and isn’t responding to my despair.’
Sorry about that–
And thanks for that clarification, Connie. I was already receiving some inquiries from the authorities. Ever helpful to law enforcement, I gave them Rob’s address.
That what leases are for–you have specified, in writing, what the consequences are for non-payment. Unless this is a long-time, on-time tenant, I would simply remind them of the consequence of not paying. It’s not emotional or vindictive, it is simply a legal agreement.
I have yet to find a standard response for this dilemma. One of my tenants pays like clockwork on the 25th, rent + penalty. He just can’t get it together on the 1st after paying the previous month on the 25th. But it’s paid going on 4 years now. Another in construction pays “whenever” & refuses to pay the penalty until reminded of the lease, another paid steadily until recently, about 3 months ago, & has been terrible since with not apologies or excuses. In each case they pay up when eviction notice is posted. I must confess I was myself never a good tenant so maybe its karma…
Aaron, I certainly agree that’s what leases are for. The reminding part though–I’m not so sure. I’ll be talking about that more in part 2. Thanks for the comment.
jERRY, Wow. You are kind of all over the place with that group. Karma? Maybe, but I think there might be a better answer. Hope you’ll come back to weigh in on part 2 this week.
I’m such a softie that I’d probably be best friends with the tenants by then…
I think from reading all I have read about this topic that the proper way to deal with this is to threaten (nicely) eviction. The reality is that most tenants (like a young child) will test you constantly so you need to set parameters to avoid getting taken advantage of. If they really are in a temporary bind (and you can verify it) then maybe some slack can be cut. If they are on a long decline then they need to go (it’s business right?)
By the way – when you outline your approach – I want examples! (including dialog)
Four Pillars, It sounds like you might be taking a little of the discerning approach, a little chapter and verse, and maybe a smattering of unique Four Pillars approach for good measure. Well, I certainly appreciate the comment. I’ll be suggesting a bit of a different approach in the next article….And examples you shall have.
Four Pillars is totally correct saying that tenants WILL test you. You must be firm. I charge a 10 percent late fee after the 5th. Other investors I know charge $5 per day.
You will/must train your tenants to pay on time. If they don’t, get rid of them and get a new tenant who will. Yes, Four Pillars, it is business, and tenants have to be reminded that having a roof over their head is a higher priority than cable TV or a car payment, and to pay the rent first.
My Grandfather got in to rentals after WWII, and taught me that “there is absolutely nothing a tenant can say to get out of paying rent.” Keep that in mind every time a tenant begins their sad story.
Screen your tenants, be firm, and enforce the contract. Otherwise, (if you’re a “softie”) you’re subsidizing someone else’s housing. If you want to do that, don’t be a real estate investor. Give to your local homeless shelter charity instead.
nice article.
particularly the part about taking out the trash!
I found landlording to be tough, so I outsourced it. much better since my rentals are 1000 miles away!
Louisville Investor, Some good points. I particularly agree with the point about “subsidizing someone else’s housing”. Indeed, some similar thoughts will appear in Part 2.
Payday, Thanks. Sounds like outsourcing is the only option for you. If we pick up any property in the 1000+ miles range, I’ll assign rent collection to Rob.
Landlords are the scum of the earth, making their living off of someone else just trying to exist.
Hmmm. “Making their living off someone else”
Anyone else care to field that one?
you can be an understanding landlord to an extent, but you also need to treat your investment properties as a business. Can’t give tenants too much of a cushion or the old saying will apply, “give them an inch, and they’ll take a mile”.
We mix the discern approach & the chapter and verse approach.
We let them know that they are late. We find out if there is a legitimate reason. We sympathize with their situation and then let them know that late fees are charged per the lease. Should it happen again late fees will be charged. Should it be recurring then eviction maybe neccesary.
Unfortunately, you can never tell if people are being truly honest with you. So we err on the conservative side in enforcing the lease.
Just call me scum of the earth;)
I’m part discerning approach part chapter and verse. I understand AND it’s $50 for being late.
All my units are written on month to month leases. If I’m descerning that they’re giving me the got-no-money blues month after month, I write a 30 notice and evict.
Luckily, since the ‘mortgage meltdown’ the quality of my tenants has gone up dramatically.
Join the club, Ernesto-Scum. Interesting that you use month-to-month leases. I’d like to know your reasons, if you care to share. Thanks for weighing in!
My reasoning for month-to-month:
If tenants
a) don’t pay
b) bug me
c) don’t pay enough
I can evict with thirty day notice. Also, if they’re late on rent and I go through a ’standard’ eviction, I have to document no-payment and drag the tenants into court so they can tell the judge thier sob-story and drag the eviction process out to around 75 days (in my county). If I just give a 30 day notice, the longest they can drag out is 45 days. Since 45 < 75, I save 30 days of heartache evicting tenants.
Anywho, a deadbeat is a deadbeat, if they’re going to skip, a one year lease isn’t going to hold them.
The only downside of month to month is if you’re trying to show income from a property to a bank, they won’t accept your leases as income. Since most of my properties have three years of history (at least) it’s not a big deal.
I’ve been a renter in places owned by landlords who are discerning and enlightened and am not impressed. I always paid my rent on time, shovelled the sidewalk, cut the grass and generally kept the place neat (better than when I moved in), and it ticked me off that the landlord would let the other lowlifes in the building get away with being late on rent, and generally behaving like, well: lowlifes. Do all your tenants a favour and treat them the same. Pay up or get out.
As a side note I’ve had jerk landlords who ripped me off, didn’t fix a stove for weeks, didn’t fix the furnace (in winter) for over a week, never checked the property and didn’t seem to care about it (except the rent) and generally, in my opinion, didn’t deserve me as a tenant.
I have a tenant who always pays late and pays the usually sends late fees. They have been good tenants for 2 yrs, but in the last 3 months have gotten so late that they are one whole month behind. I have no good contact # for them and they don’t communicate with me. How shall I handle this?
Jason, I can tell you how we would handle this. We would start eviction proceedings immediately. If you have a tenant who has paid on time for 2 years, we would treat the situation differently than with a new tenant who started paying late at the start of the lease. But a month behind is totally unacceptable.