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When Tenants Don’t Pay (Part 2—The Reality, The Reason, and the Response)

Tenants pay their rent late for only two reasons. The first, and I would suggest the primary, reason is this: because landlords have invited them to do so.

Go ahead and take a minute to think about this. Rob, you can take two. Right now, I suspect that everyone is trying to recall when they had the engraved invitations printed up that said “Please join us for a celebration of non-payment on the 6th (or 10th or whenever) of next month. No gifts (or rent) please.”

In Part 1 of this series, I wrote about some typical approaches to the late paying tenant. The common thread of all of them is that there is discussion. Our hypothetical landlord discusses in order to evaluate the reason for the tenant’s late payment; or to explain why his circumstances require timely payment; or to offer clever analogy for justification; or to remind the tenant of the lease terms. And each approach begs the question: What is the purpose of the discussion?

So, let’s consider the purpose. I’m going to go out on a limb here and assume that, all things being equal, landlords would like to collect rent when due. Do any of my hypothetical responses accomplish this purpose? Certainly, the landlord who attempts to evaluate the “good” reason from the “bad” tells tenants that timely rent depends on the circumstances. But, I would argue, so does each of the other responses. The landlord who discusses his mortgage payment with the tenant explains the “need” to pay rent; the landlord with the pithy retort appeals to fairness; and even the landlord who quotes the lease terms offers legal justification.

Although, with each of these responses, the final word may be that rent is expected on time, the landlord has offered reasons, justifications, and argument. In short, he has just engaged in a negotiation. And he has invited the tenant to do the same. That’s the thing about negotiation; the outcome depends, in part, on methods of persuasion. The right argument or explanation offers the possibility of a different outcome. When landlords engage in the negotiation, they implicitly invite tenants to “try again.”

In my last article on this topic, I said that, at least for me, there is only one reasonable response to a tenant who calls to say that that the rent will be late. That response is, as nearly as possible, no response at all. Letters, e-mail, or voicemail messages about late rent go unanswered. Because the negotiation over rent ended with the lease, there is simply nothing more to say. They, like tenants who simply don’t pay, receive a standardized letter about late fees with a deadline to avoid “further action.”

Because I self-manage my rental properties, tenants can, of course, call and reach me and launch into a “why the rent will be late” discussion. It is in this case where the “as nearly as possible” part comes in. One commenter from my last article asked for specific examples, “including dialog.” So, I offer this actual example of a call that happened last year:

Tenant: I was calling to see if it would be OK to pay half the rent on the first and the other half on the twentieth. . . .

Me: No

(Uncomfortable silence)

Tenant: Umm. OK

And it is, at least a little, uncomfortable. Over the years, I have probably used pieces and parts of each of the hypothetical landlord responses. But the truth of the matter is that all tenant reasons for paying their rent late are good reasons, at least by the time they contact me. They are in a bind because of unexpected expenses. And they didn’t intend to be there. But over those same years, I have come to realize that I have no power to fix the circumstances or undo the events (or choices) that got them there. And by engaging in an evaluation of their reasons or a discussion of the rightness or wrongness of those reasons, I place myself in front of circumstances that I cannot control and invite them to bring the next set to my door.

Consider this last point. Let’s change the circumstances a bit. Your tenant pays the rent on the 1st, the check clears, and all is right with the world. But a couple days later, the same tenant calls and asks “Can I borrow $1000? I’ll pay it back in two weeks.” When you respond with a simple “no”, do you offer a reason?

I mentioned at the start of this article that there are two reasons tenants pay their rent late. I’ll write about the second reason in my next post.

{ 9 comments… add one }

  • Meg February 20, 2008, 1:18 pm

    I appreciate your insight. I just closed on my first rental property a couple of weeks ago, and I’m sure I’ll be dealing with this issue sooner or later. I’d like to develop habits and standards immediately, and I like your policy of “no discussions.” I certainly would be tempted to listen, weigh the excuses, and attempt to justify my policy by citing the lease. The fact is that I don’t have to do that, and it’s a waste of my time. I’m a landlord (landlady?), not a counselor or lender.

  • Mike-TWA February 20, 2008, 7:56 pm

    Meg, Congratulations on the first rental, and thanks for the kind words. I hope you’ll come back to let us know how you make out with this first one.

  • Patrick February 20, 2008, 8:15 pm

    Tough love. But in the world of being a landlord, it is a necessity. I don’t own any rental properties, but I imagine this would have to be the best route to take. Otherwise, you will just open the door for more excuses and make it easier for them to repeat it.

  • Chris February 20, 2008, 8:15 pm

    This is why I’ve relinquished most of my portfolio of rental properties. I’ve found it is much easier on me (as well as wonderfully legal) to owner finance the property to a qualified buyer using a land trust system.

  • Mike-TWA February 20, 2008, 8:28 pm

    Patrick, Indeed, if I were to hire a property manager, the manager would have no discretion in the response. They simply could not accept a late payment, and they would have no need to discuss the issue with the tenant. That’s really the key. In this role, the investor has to act exactly like what he is–a property manager. Thanks for the comment!

    Chris, Yep, that surely is another way to go. Selling and holding the paper. I still find that there’s usually a trade-off. Less management, in general, means less returns. Thanks for weighing in!

  • Chris February 20, 2008, 8:33 pm

    Mike, I don’t mean to argue but I’m not really holding paper but rather assigning beneficial interest in a trust. Also, since these were rental properties that were bought for typically less than 70% ARV it makes no difference on my cash flow. Of course, it leads us back to the most important thing in investing in anything; you make your money when you buy.

  • Mike-TWA February 20, 2008, 11:11 pm

    Chris, No argument taken. And you’re right, of course, on the difference. I’ve read about assigning an interest through a trust, but have not done it myself. Thanks for the clarification.

  • sarah May 23, 2011, 5:54 pm

    What do you do about late fees? I make it a contingency of suspending the eviction that all late fees and court filing fees for eviction be paid in full. I’ve never had anyone do that, though. They end up skipping out on the last month of rent, missing the court date, and I have to file a judgement suit against them to collect.

    What if you have a renter who says I can pay the rent but not the late fee- sorry. What then- do you accept the partial payment?

  • Loncoln Real Estate June 25, 2011, 10:16 am

    When Tenants don’t pay the money is a big problem for the Real Estate Owners.

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