One of the biggest mistakes new landlords make–and sometimes some of us who should know better–is to accept any excuses for nonpayment of rent. Handle all nonpayment cases the same, whether it’s a good or bad excuse. Do not accept any excuses – offer solutions!
If you start “judging” whether or not a resident’s excuse is worthy of giving them an extended period of time to come up with the money, you will encourage them to come up with worse excuses the next time. In addition, you dig yourself into a deeper and deeper financial hole if they don’t come up with the money after the extended time period, and you have delayed in starting the eviction procedures.
Don’t Accept Excuses – Offer Solutions!
Let your residents know right from the beginning what your procedures are when payment is not received and that there are no exceptions. I even have a list that can be shown to the resident at move-in that gives examples of excuses that residents have tried to use in the past to no avail. This adds a little bit of humor to a very serious discussion, but it also clearly lets the new resident know that there is no need to offer excuses for nonpayment of rent. Then of course you must strictly enforce those procedures.
“But Jeffrey, what do you do, especially in these times? Don’t you want to work with residents in ‘some’ way who are having a hard time? If I took a totally no-excuse approach, I would not have any tenants!”
I hear you and I’m fully prepared to work with residents by offering them several contact names and phones numbers of agencies and churches who may be able to offer them assistance. When doing so, I still start the eviction process and should the resident come up with ALL the money (including court costs, attorney fees, etc.) by the time of the court date, to that extent we will work with them.
I’ll also admit this: If a resident who has paid on time for over a year and otherwise been an excellent resident, and they give me an excuse, I still won’t judge their excuse, or delay the legal proceedings. But I will listen to their proposed plan for getting caught up and offer suggested solutions. AND if they have never lied to me up to that point, I will waive or suspend the late fees and court costs, and get them to sign a promissory note, and work with them.
Know Your Exit Strategy
The following landlording tip is from a regular MrLandlord contributor. Thanks, S I D (MO), for sharing.
When I first got into real estate, I read several different books. A common theme was always, “know your exit strategy”. That applies for houses and for residents. So how does that apply (with rental residents)?
Regardless of whether applicant’s a seasonal worker or an oil tycoon, never rent to someone with “under the table income”. But why not?
Because if they ever do damages or stop paying (or both), you will have to crawl under the table to try to get paid. If you’ve ever been in a restaurant and seen what it looks like under the table, you’ll know why this is a terrible idea.
Your exit strategy with a resident must always include, “How do I get paid if the SHTF (stuff hits the fan)?”
In other words, if things don’t work out perfectly, how do you collect on what is owed? To that end, I have a policy that I only rent to people with income that can be garnished. I do not accept those whose income comes only from pensions, retirement accounts, social security income only, self-employment, etc.
Our legislators made such people “judgment proof.” Meaning that even if you get a money judgment from them, you cannot collect. That law was designed to “protect the vulnerable.” But as is typical with poorly thought-out legislation, it makes them a poor choice for anyone to extend credit or a lease to, because if they can’t or won’t pay today, you cannot ever collect what is owed.
Sidebar: If legislators truly cared about protecting the vulnerable, they would allow some amount of garnishment on these funds, even if it’s just a modest amount like $50/month. The fact that they don’t, demonstrates the short-sightedness of the judgment-proof approach to sources of income. Many landlords will not rent to them, and you now can see why that is the case.
Why would a wise landlord rent to someone who can disappear tomorrow and there is no money other than a meager security deposit? I wouldn’t, and I don’t. Consider making this a rule for your business as well.
Editor’s Note: It should be noted that several states have enacted laws that prohibit a landlord from discriminating against an applicant based on their source(s) of income. Know what your state law allows or prohibits when establishing your applicant criteria.
Eviction Moratorium Ruled
A U.S. District Court Judge of the District of Columbia struck down a nationwide eviction moratorium, calling it unlawful. Ruling applies nation-wide; however, the DOJ has appealed. The suit was filed in defense of mom-and-pop landlords around the country struggling to pay bills without rental income for more than a year.
In the judge’s 20-page ruling, the judge clearly stated, “It is the role of the political branches, and not the courts, to assess the merits of policy measures designed to combat the spread of disease, even during a global pandemic. The question for the Court is a narrow one: Does the Public Health Service Act grant the CDC the legal authority to impose a nationwide eviction moratorium? It does not.”
6-Month Premium Leasing
Have you had a prospective resident ask if you would offer a six-month lease? Even if you’ve always said no in the past, don’t be so quick to do so. A landlord shared how he was recently asked that question (recapped below), which is being asked more often:
“I have a tenant who is looking for a 6-month lease. They’re desperate to find housing as his partner just recently picked up a job in this area. Normally, the rent is $1,400 a month. They’re willing to pay a premium for a 6-month lease. How much would you propose charging them? Tenant is making six digits and claims to have a 700 plus credit score.”
I particularly liked the following response given by a fellow landlord: “Give it (the 6-month leasing arrangement) a fancy sounding name and make the prospect feel like you have a program that lots of people use. Call it ‘Executive Leasing’ and make him feel important. And charge (more)–$2,100 month sounds good to me.”
This is 150% of the normal rent rate. Other landlords suggested between 20% and 50% more than the normal one-year rate.
Editor’s note. For landlords in the state of Florida, it is suggested that your minimum lease be at least 7 months to avoid an additional tax charged by the state for leases which are shorter than seven months.
Don’t Deny, Ask Them to Prove It!
The following tip was shared by another regular contributor to the popular MrLandlord.com Q&A Forum. Thanks Ellie, IL!
Listen up new landlords. People who fill out applications will put down ANYTHING needed to get into your rental property. — Verify!
- Pay Stubs
- Award letters from Social Security
- Award letters from Welfare
- Bank statements showing deposits
Never accept their word for how much they make. I had an unmarried couple apply. Together their stated income would qualify. So, I called her up and told them I would need verification of income. She started telling me that her award letter didn’t reflect her actual amount on her check – that her check was more – Yeah right. She said that her check was direct deposited so she couldn’t show me the check. And that he didn’t have pay stubs because his pay was put directly on a Walmart card. Do I smell a fib here?
There was dead silence when I told her to bring me her bank statements showing the deposits for her checks and that he must get some proof of the amount he was paid. I told her that when she got the proof of income, she could contact my property manager and I would proceed with processing her application.
Do not deny people. Throw it back on them to provide the proof that they meet your criteria. I told them that when they got verification of income, and my property manager brought it to me that I would proceed with processing their application. If they do come back with verification of income, I will proceed with credit checks, background checks, etc. That is, if the rental property is still available.
Bartering Can Be a Win-Win Alternative
I saw a recent article from MrLandlord which discussed whether to have residents be responsible for yard maintenance. I’ve had several experiences with this dilemma. However, my current remedy for this situation was to barter the service needed.
I found a nearby neighbor who was in serious need of a parking space for his storage trailer, which he had no space for. So, I asked if he would be willing to do the yard up keep on my rental property. In return, he could use a separate and unused space that was on the property to park his trailer. Viola! A deal was struck. And the rest is yard history for now. We’ve had this agreement for the last past several years and it’s worked through numerous tenants without difficulties or issues. Bartering is a great way to get some of your small and possibly large challenges taken care of without another cash outlay.
The tips in this column are shared by regular contributors to the popular MrLandlord.com Q&A forum, by real estate authors and by Jeffrey Taylor, [email protected]. To receive a free sample of Mr. Landlord newsletter, call 1-800-950-2250 or visit their informative Q&A Forum at LandlordingAdvice.com, where you can ask landlording questions and seek advice of other landlords 24 hours a day.