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?

Image By: ndrwfgg