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How to Respond to Late-Paying or No-Paying Tenants

Every real estate investor has received The Call from a tenant who is late paying rent. The Call takes different forms, but the end result is always the same. Here are some examples:

“Hi, this is Frank, your tenant. Sorry I missed the rent payment last week. We had a medical emergency and I missed some work. I’ll mail a check by the 20th.”

“This is Susan, your tenant. I was let go from work so am having trouble paying the rent. But I should be able to catch up next month.”

And of course there is the very common No Call. Rent was due by the 5th, it’s now the 10th or 15th of the month, and you’ve not heard from your tenants at all.

The big question here is–what do you do? The answer to this question turns out to be really, really simple. And the answer is the same regardless of the situation. But before we get to the answer, let’s look at a similar situation.

Let’s assume you, the real estate investor, can’t pay your mortgage because your tenant hasn’t paid rent. As a responsible borrower, you call up your mortgage company and explain the situation. What will the response be? Will the response change based on how heart-breaking your story or your tenant’s story is? Nope. The mortgage company has a process to follow when a mortgage isn’t paid, and they will follow that process regardless of what story you give them.

So now back to your late-paying or no-paying tenants. Your response should almost always be the same–an eviction notice.

When Mike and I first discussed this, I thought an immediate eviction notice seemed a bit harsh. Mike convinced me otherwise. And it’s not that we don’t care about the tenant’s situation. (Well, Mike probably doesn’t care.) But the simple fact is that we can’t financially maintain the properties without tenants paying the rent on time. We don’t debate with the tenants. We don’t try to work out a payment plan. We don’t pretend to be understanding. We don’t try to help them figure out a way to come up with the money.

We’re not mean to the tenants. We don’t threaten them. We don’t yell. In fact, if they leave a voice mail message, we rarely return the call. We simply serve them with an eviction notice if they fail to pay the rent. It’s as simple as that.

The eviction notice usually motivates the tenants to pay the rent. In some cases, after an initial problem, the tenant begins to pay on time. Fortunately, we have never had to actually evict anybody from the properties we own together.

As part of this process, Mike will contact a tenant who has failed to pay the rent before serving an eviction notice. The point of the contact is NOT to find out why they haven’t paid. We don’t care why they haven’t paid. The point is simply to motivate them to pay the rent on time. Our rental agreements provide for a late payment penalty, which we generally enforce. And sometimes, a single phone call or letter is all it takes to put the tenant on the right track. But after that, we move right to an eviction notice.

All of this leads to a very important aspect of the landlord-tenant relationship–distance. Tenants are not our friends, and we are not their friends. The relationship should be mutually respectful and professional, but perhaps unless you knew your tenants before they were your tenants, the relationship is not one of friendship. Being too close to your tenants can really muddy the waters when it comes to money.

You should have a set process when a tenant pays late or doesn’t pay at all. The process should be followed, and involve initiation of an eviction in short order if the tenant doesn’t pay.

{ 10 comments… add one }

  • Smarty March 23, 2009, 12:06 am

    I have a rental property in Philadelphia and I haven’t gotten rent from my tenants for 8 months. They gave all kinds of excuses and play games in court. I posted
    my whole story here.

  • Boston renter March 24, 2009, 6:15 pm

    Be very careful what jurisdiction you chose to do this in. Here in Boston the rental laws are so far in favor of the tenant that I could jerk my landlord around for *literally* years without paying rent. I don’t do that because my landlord and I have a good relationship. If he insisted that it was strictly business and served me with an eviction notice, I would be strongly tempted to call code enforcement on him citing the same policy of strictly business. Since there are code violations in just about every home in Boston I would legally not have to pay rent for months until the landlord had made some very costly repairs. Repeat ad nauseum. So while this may work for you, it certainly will not work everywhere.

  • mr dprince March 27, 2009, 10:02 am

    Good article. We all hate evictions. Here in Texas the process can be time consuming. Deciding if the tenant’s problem is a temporary or long lasting problem is the key. A month can go by before final ousting of the tenant and another month till the place is ready for renting and it usually takes us a month before it is rented.

  • Live Money Smart March 28, 2009, 12:13 am

    Good article. I’m just getting into real estate and looking at becoming a landlord and managing my own properties and I appreciate this article. Thanks.

  • Rob April 2, 2009, 6:09 am
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  • Kevin Paffrath February 3, 2011, 2:52 am

    I completely agree with ‘Boston renter.’ In states like MA or California (where I live), I find it is better to work with tenants by either getting them out of the property as soon as possible or finding some other solution. To clarify, but “getting them out of the property as soon as possible,” I definitely don’t mean eviction. The reason I agree with ‘Boston renter’ is because any tenant of mine has a much better hand (of cards) than I do as a result of possessing the property.

    Being ruthless might only motivate a tenant to become a professional tenant (as in the movie Pacific Heights) and destroy the property while living rent free for months as they file multiple different forms of bankruptcy and perpetually delay the eviction process.

    In fact, I would rather pay a rent to move out then evict them. That is, “Here’s $1000 to help you move. I hope you get back on your feet (somewhere else). Good luck!” And then quickly re-rent my property to another qualified tenant.

  • Office Space Washington DC March 31, 2011, 5:28 am

    Wow, Great article very useful in real estate business. I like it your article.

  • Sarah May 23, 2011, 4:39 pm

    Thanks for your article. I like your approach. I’m wondering what you say to motivate your tenant to pay? And on precisely which day of lateness do you make your call?
    For me, in Texas, it goes like this:
    Day 4: late note get emailed and snail mailed out.
    Day 6: Notice to Vacate goes up inside the front door of the property
    Day 10: I file for eviction.

    Would you spell this procedure out in your rental policies or would you just let them find out on their own how it works?

  • asfd September 4, 2011, 6:42 pm

    Why can’t you just request they set up a direct deposit for rent?

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