Handling Slow Pay Tenant

Comments(32)

• 
  alexlev20th December, 2004

  Okay, first just a question out of curiosity. Why does a minister's salary fluctuate around the holidays? I'm assuming he's not being paid per sermon, right?
  
  As for the lates, I'm guessing that you've possibly done two things wrong. First, the late fee in your lease is too small, and has now been accepted by the tenants as merely a part of the rent. Second, you're too nice.
  
  Depending on whether or not there is any seasonality in your rental market, I might consider waiting out this problem until spring. However, once the rental season picks up. I would start enforcing your lease in a stricter manner.
  
  One other thing to consider. Perhaps your late fees are actually quite high. And this, together with the way the tenants take care of place makes you more willing to wait for the rent. That's not necessarily a bad thing, as long as you understand what you're doing, and that by continuing to do this you are potentially establishing a de-facto acceptance of their tardiness, thereby possibly limiting your argument if you have to go to court to evict them for this reason. I've generally found that as nice as some tenants are, there are plenty of other nice tenants out there. So I would be hesitant to accept constant late payment unless some sort of circumstances actually made it more convenient for me to do so. Good luck.

• 
  mcole20th December, 2004

  Greetings eazar,
  
  I’m no expert on landlording, and alexlev has offered good advice. But if, as you say, “…they are great tenants, never have any problems or complaints and maintain the property well, both inside and out…” I could deal with them being a few days late. If they were total flakes, deliberately taking advantage of you, that would be a different story. But these people sound like they’re making every effort to keep their rent paid and the home nice – which (to me) can be more valuable than depositing a check on time. I know it’s not necessarily the best way to approach business, but it’s not always just about the money either.
  
  my 2-cents
  

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  rvrnorth20th December, 2004

  When the lease is up for these tenants, give them a substantial increase, because they obviously can affored more for the apartment than the lease calls for. I inherited a building full of late payers, due to the tolerance of the previous owners. I always give them notices, and file when the rent is not paid. Ministers get special comsideration tho...

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  ceinvests20th December, 2004

  You did not say how long they have been your tenants. It would matter if the situation is getting worse or if it is rare and how they communicate w/me about it. Have you considered offering them a direct deposit incentive?
  If my relationship w/them was important and the big picture was the value of them as tenants, I would send a letter giving them options of direct deposit and find a way to state my concern for the timeliness of my mortgage payments so that they are reminded of the money flow from them to your bills. Sensitive way to remind of the reasons for timeliness.

• 
  ddstew20th December, 2004

  My 2 cents:
  
  1. Contact them soon as they are late, letting them know they now owe rent plus late fee, charge them double whatever the bank would charge you--late to you and the bank!
  
  2. If it continues to be a problem, ask for 6 months worth of checks dated for the first of each month--works great.
  
  ddstew

• 
  eazar21st December, 2004

  I want to thank all of you for your responses!
  
  To answer a few of the questions:
  
  Apparently their income fluxuates because of the holidays, and their church members are not making their tithe, either because they are short on money, or are not attending. This is a concern because I should be at the top of their list of monthly obligations, and if money is so tight I might run the risk of them not being able to pay rent.
  
  They completed a 1 yr lease. They had some problems early on with timely payments. But the last 5 months of their lease they were okay. So I signed them up for a 2 yr lease, with a build in 10% rent increase every year. This property is located in Sacramento, CA so it can sustain an increase like that.
  
  The rent for the house is currently at the top end of the rental market. So if I have to put it back on the market I would probably have to lower it by $100/mth.
  
  I believe the late fee is high enough to encourage on time payment. Rent is due on the 15th w/3 day grace period (This was 5days in the org. lease but they always waited until the 5th day to pay). If rent isn't paid by the 3rd grace day there is a $150 late fee, plus $20 for each day late, with a max of $250/mth.
  
  But I have been extremely fair and understanding with them. I've told them as long as they communicate with me that they will be late we can work something out, however they rarely do this. I have to contact them after the grace period.
  
  They have poor credit and have filled backrupcy several years ago. They were previous home owners. Like I've said, they always have made good on their rent and late fees, but they average 5-10 days late with their payment.
  
  Part of me gets frustrated because I feel like I have to hand hold them and treat them like my children. The other part of me wants to be patient and understand their situation. My business sense is telling me I should not run a business this way, however, the human side is telling me I should continue to work with them and just accept that this is how it will be as long as I rent to them.
  
  I'm not sure if there is a right answer to this. But I do thank all of you for your feedback and I think I will start to incorporate it into my dealings with them.
  
  Thanks,
  Erik

• 
  billfontaine21st December, 2004

  as long as i get 12 rents a year and they take care of the place.. who cares about a few days late??

• 
  getgoing22nd December, 2004

  Eazar,
  
  Based on the info I would continue to do what you are doing and expect a few days late.. I would rather have tenants that keep up well and pay a few days late then tenants that distroy and dont pay at all. Based on the info and late charges you imply they want to pay on time but cant, and can afford the late charges when the get paid. Maybe you should restructure the pay date?? You are doing the right thing as long as they pay within a few days. If you figure out whats holding up the few days you could make this a Win-Win.
  
  Scott

• 
  eazar22nd December, 2004

  Scott,
  
  I've already changed their due date to the 15th of the month. They told me that if we did that they would have it paid on time because of how their checks come in. They did pay on time for 3 months after they change but then went right back to their normal payment behaviour.
  
  From the feedback it sounds like I'm doing the right thing, which is what I was trying to figure out. I guess I just need to accept the fact that they will always pay 5-10 days late and just keep charging the late fee.
  
  Thanks,
  Erik

• 
  ray_higdon26th December, 2004

  if you are charging a $150 late fee, I would pray that they pay late every month.
  [addsig]

• 
  reiray26th December, 2004

  LOL...LOL......
  I WOULD AGREE WITH RAY_HIGDON..

• 
  LadyGrey26th December, 2004

  Quote:
  On 2004-12-26 14:41, ray_higdon wrote:
  if you are charging a $150 late fee, I would pray that they pay late every month.
  
  
  
  Whoohoo! Me too! I'd go get a new pair of shoes...or save it for a vacation...or Golly Gee, I could go out to eat more often!

• 
  clevincc30th March, 2006

  For that type of late fee, I would be willing to make a few phone calls to remind them. They are taking good care of the place and they are paying. That is not always easy to find. I would discuss direct deposit/money transfer to your account from theirs at a set time every month or get some post dated checks. My prior tenant would always pay "early", but the check would be dated for the due date. Unless they become later in their payment and/or start destroying the place...I would live with the extra money for late fees.

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  loandudefromsac30th March, 2006

  didnt read everything so not sure if anyone said this...
  sounds like your just making extra money. I knew a guy who always paid late, because his paychecks would come in at a bad time. He would always pay but did live paycheck to paycheck, but most tenats do anyway. I wouldnt worry about it, just raise your late fee

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  BBagnall30th March, 2006

  I agree with Ray too. I would rather have them pay late and collect a late fee than have them tear up the place and have to dish out a large amount of money for repairs.

• 
  rmdane200030th March, 2006

  FYI - this post is two years old.

• 
  mtnwizard4th March, 2006

  In my opinion, it is not good to just break even and NEVER carry a property with a negative cash flow. If you have an income property, you must be creative to generate a positive cash flow. For instance, how many offer their tenants any benefits other than the use and occupancy of a property? Very few. A tenant with little incentive other than to "make my landlord rich" is not a very good tenant.
  
  Try thinking outside the box. What other benefits do you have that you can offer your tenant that he would be willing to accept in exchange for higher rents? How about the mortgage interest writeoff, the property taxes writeoff, mortgage reduction or even a share of future appreciation? I do this and always receive much higher rents and therefore a positive cash flow.
  
  There are ways to accomplish this but I am restricted from telling you because the moderators consider it advertising. I would simply tell you to remember these two words: land trusts. Do your own research. Best of luck to you and never give up.

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  anoutsidedog6th March, 2006

  thanks for the advice guys

• 
  mikejaquish6th March, 2006

  My rentals amortize and cash flow at 90%LTV.
  
  Another cool thing is, it is an older complex in a fantastic location and I think the land very likely will appreciate far beyond the value of the improvements within a few years. Might be worht more to knock down for redevelopment in million dollar homes than to keep.
  [addsig]

• 
  bbriscoe6th March, 2006

  Apartments should almost always cash flow. I think the posting was originally talking about breaking even in SFH - which appreciate faster than apartments and last longer.

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  NewKidInTown311th March, 2006

  There are three features of rental property investing.Cash Flow
  Appreciation
  Tax Benefits
  
  When the income is enough to your costs of ownship, rental operation, financing, AND still leave you some left over at the end of the month, that is cash flow. With financing you leverage your purchase, and hold until your tenants buy the property for you.
  
  While holding you benefit from appreciation and tax benefits of rental property ownership.
  
  If you are looking for a quick path to wealth, rental property is not it. Instead, slow and steady.

• 
  ray_higdon16th March, 2006

  Meddac is absolutely right. Think about with vacancies as well. If you only have 2 houses and one goes vacant, that is 50% of your cashflow, if you have 20 and one goes vacant, well, that is not as bad
  [addsig]

• 
  ray_higdon17th March, 2006

  We shoot for $150 each door but $100 is OK too
  [addsig]

• 
  boylank17th March, 2006

  Thanks Ray,
  
  Since you have about the number of units that I was thinking I would like to have in the long haul, I am very curious, are you able to make a living off of these or do you work full time or do other real estate investing too?
  
  Also, do you manage these all yourself, or do you use a PM, or do you have employees?
  
  Kevin

• 
  smithj217th March, 2006

  I like the idea of a $200 monthly cash flow, however, the homes around here can not get that kind of cash flow unless one puts up about 20% down payment. So my dilemma is always comparing +ve cash flow to up front cash payments of $25k - $35k.
  
  In my market, I am happy if I can break even on 100% financing.
  
  Maddac, with the $200 +ve cash flow you speak about, is that with 100% financing? 90%?
  
  Thanks,
  JS.

• 
  ray_higdon18th March, 2006

  boylank,
  
  I am now a full time investor, my cashflow is nice but not enough to cover my bills each month, I work mainly as a wholesaler but also do mortgages for people every now and then, I much prefer real estate though. We manage our own properties, me and a partner. I have several partners when it comes to wholesaling as I team up with new investors and help them get deals done if they bring me leads
  [addsig]

• 
  edbaloney19th March, 2006

  I think you should also include vacancy rates, and mainenance expenses into your model as well, to arrive at a more accurate cashflow scenario. I know I am in my model.

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  joel19th March, 2006

  What ever you do, apartments or houses, use the Proformanator tool in the My TCI >My Tools area. It will show you whether to purchase the house or not touch it[ Edited by joel on Date 03/21/2006 ]

• 
  boylank19th March, 2006

  Quote:
  On 2006-03-19 19:59, edbaloney wrote:
  I think you should also include vacancy rates, and mainenance expenses into your model as well, to arrive at a more accurate cashflow scenario. I know I am in my model.
  
  
  By maintenance expenses, what do you mean? How do you figure those on a single or double? I thought you used that more for multifamilies over 4 units.

• 
  boylank20th March, 2006

  Newkid, thanks very much for the very complete answer.

• 
  anoutsidedog21st March, 2006

  thanks new kid, its good to have people here just offering this advice.
  
  
  Robert

• 
  anoutsidedog27th March, 2006

  thanks chris, and everyone else for that matter. you guys help me out immensely every day it seems like.
  
  thanks,
  robert