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How To Handle Bad paying Tenants
ad payers are a problem remember to make payments. Two
for all landlords and we’ve ideas may help you here. One is
all found different ways to to send out rent invoices. Your
deal with the problem. The best tenants get a bill each month for
solution is one that gets the everything else they have to pay
tenant back on track and avoids a – why not their rent? Another is
costly eviction. to offer an automatic payment
plan. There are companies that
I use the term “bad payer” to you can use to set up automatic
cover late payers, partial payments by direct withdrawal or
payers, check bouncers, and by credit card. Again, these
non-payers. There are a number of methods presume good intentions
ways to deal with bad payers. on the part of the tenant.
First, you want to do everything
in your power to ensure that all What do you do with a chronic
tenants pay on time, every time. late payer? First recognize that
For example, set up a schedule of there are gray areas here. I
discounts for on-time payments or believe your actions should
late fees for late payments. Many depend on whether the lateness is
landlords favor the discount consistent – for example, the
approach because it is an easier tenant always pays between the
sell to a prospective tenant, but third and sixth day of the month
you may find it is not as – or gets worse over time. A
effective in reducing late tenant whose lateness gets worse
payments. Why? Because there’s no every month, despite your late
stigma attached to not getting a fees and complaints about late
discount. payments, probably has little
regard for your authority. When
Often people have good intentions he is late enough to warrant an
about paying on time but don’t eviction notice, send it, and
follow through. Chances are tenant until February, that’s
you’ve already seen other signs $1,800 out the window. Better to
that this person is put up with the late payments
irresponsible- he doesn’t return (and enjoy the late fees).
your calls and may have
misbehaved in other ways in the A partial payment is the same as
unit. a late payment. If a tenant pays
$400 on time and sends the other
On the other hand, a consistent $200 on the sixth day of the
late payer is probably worth month, he’s late – and must pay
keeping, even if you can never the late fee. A bounced check is
get him to pay on time. Consider worse than a late or partial
that the late payments are payment. Now you have to pay a
actually improving your bottom fee to the bank and the good
line. For example, suppose I have check will still be late. Charge
a tenant who always pays about both the late fee and the bank
the sixth day of the month, and fee to the tenant. More than one
is charged a $5 per day late fee bounced check and you should
on a $600 monthly rent. This require that the tenant start
tenant is giving me a 5% rent paying with a bank check or money
increase in exchange for a few order. Many landlords insist on
days lateness – I’ll take that. bank checks or money orders for
Another consideration is how long all tenants, regardless of their
it will take you to re-rent the payment history, but this has
unit. My properties are in New disadvantages. One is that they
Hampshire and it’s very difficult are inconvenient for tenants.
to find a good tenant during the Another is that if a bank check
winter. If I evict my $600 per gets lost in the mail, it is
month tenant for late payments in harder for the tenant to void it
November, and don’t find a new than for a personal check.
agreement or paying the next
You may want to cut extra slack month’s bill late will result in
to tenants who let you know ahead eviction. And if you do make a
of time that their payments will separate agreement, run it by
be late. This is usually because your attorney to make sure it is
the tenant is short on cash. If legal and enforceable.
the lateness is not excessive
–three or four days at most – I The tenant in this situation may
will waive the late fee. But if I also be able to find money from
start getting calls like this another source to pay the current
every month or every other month, month’s rent. In my city, the
I will charge the late fee. public assistance office will
write a one-time check for a
When a tenant tells you he can’t tenant who has a cash crunch but
pay full rent on time because of is working at a job and can
financial trouble, get more generally afford the unit.
details about his problem. The However, they won’t make
big question is whether his cash assistance payments every month.
crunch is caused by a one-time Check this with your own local
expense or loss of income, or a office.
permanent or long-term change
such as a layoff. If the cause is A tenant who can’t pay because of
a one-time expense, chances are job loss or a permanent new
he’ll get back on his feet and be expense can no longer afford the
able to pay in full on time next unit. He has to either increase
month. He still owes you the his income or reduce his expenses
money for the current month and right away, or move out. Maybe
you can make a separate agreement the tenant could get a roommate
for this payment. Make sure he who can split the rent. Maybe he
knows that violating the separate can get a second job. If not, try
to convince him to leave his assets as possible. But if he
voluntarily, without a formal won’t leave voluntarily, you must
eviction. It’s better for him, evict, as soon as possible.
because he won’t owe court costs,
and will leave with as much of
About the Author:
Brendan O’Brien is the founder and president of Property Master Software, a contributing writer to REIP The Rewards® Magazine and an active landlord and real estate investor - pcpropertymaster.com
Read more articles by: Brendan O'Brien
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