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.
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