It’s expected that giving someone a home means they pay their rent and all is good in the world. Unfortunately, as any landlord knows, that doesn’t always happen. How to protect yourself from losing income comes down to effective measures in the screening process, payment setup, communication, and ultimately the decision to either get help or let the tenant go.
Where It All Begins: Screening
The fact is, most tenants who won’t pay their rent are tenants you haven’t even rented to yet. The best way to avoid future headaches is to put as much effort into the screening process as possible. Screening is more than paperwork – it’s the first step toward preventing a problem down the line.
Credit checks show numbers, but credit checks also lie. A tenant with a 650 credit score may be less of a risk than someone with a 720 who’ve been evicted twice. A positive rental history goes a long way – a tenant who’s paid on time for two years in his apartment should be given an opportunity over a current landlord who’s looking for any way to get an evicted tenant out the door. Call previous landlords – and not just the one before last; the most recent landlord might easily let someone go with no warning.
Employment verification should be more looked into than it often is. We want tenants to have incomes that are three times the rent per month – consistently. And they should have pay stubs to show for it. The more hoops you make them go through, the less likely they’ll be a problem in your space.
Payment Options Made Easy For Tenants
Once in, make payment as easy as possible. It’s one thing to be old school about checks and cash – but if you’re not keeping up with technology, that’s on you.
It’s best to create an online payment system for tenants. Sometimes, tenants resist automatic payment schedules – which is fine – but at least with an option for autopay for those who will utilize it, it comes down to convenience. Any paper trails – and even non-pay setup – will help easily deny claims of “I forgot” when rent due rolls around.
Furthermore, whoever does not pay rent adequately should understand that late fees are relevant. A $50 late fee from the fifth of each month should be honored, at least once. Once you let it go, you’ve opened up a can of worms that suggests late fees are negotiable.
What Happens When Tenants Don’t Pay Rent
This is where it gets dicey. If a tenant is bad three months into payment, chances are they’ll only get worse down the line.
But what’s better – communication or showing them who’s boss? There’s never an easy answer. If tenants are three days late – especially upon first moving in – and they have communication open with you, providing legit reasons and expected payment dates going forward – they should be given the benefit of the doubt. But if they’re two weeks late and dodging attempts to call them – it’s immediately a red flag.
But it becomes uncomfortable – you want to kick out good tenants for no payment, but if you’re running a business (which you are), you have no choice. Every month you give them leeway is another month you won’t recover potential lost payment in court.
Some landlords try repayment plans – but let’s be realistic. If someone doesn’t have $1,200 (the average rent) this month to give, how will they supplement next month with an additional $400 plan on payback? Every month coming up with all that additional money for back payment makes no sense.
If Anything, Get Help
You can call upon a rent collection agency when you can see back rent has accumulated for too long; they know how to best get their attention legally. However, one must do their homework before bringing people on board.
Collection agencies run on contingency plans for their service – their retained percent comes from what they can collect; on average that’s 25%-50%. While this seems like a lot, it’s nothing compared to what you lose when you collect nothing at all. They have programs in place they know work by law instead of just a neighbor trying in vain.
Of course, collection agencies cannot get blood from a stone – if someone has no income and no assets, no intentions of paying, collection agencies cannot change this pattern of behavior – but for those who choose not to pay, collection agencies can be assertive enough to get their attention.
Reporting Rent To Credit Agencies
More often than not now report rent payments – both good and bad – to credit agencies – and it’s actually beneficial to both parties. Good tenants establish credit; bad tenants have reason to care.
Without thinking about a landlord taking them to court, they might care more about their credit tanking than 7 years of delayed payments compared to what they could have saved. Many people assume they’ll never be taken to court; most don’t think they’ll have their credit impacted.
To set this up takes fees but if your landlord repeatedly goes without rent check it may be worth it especially if there is a multitude of units in your rental arsenal.
Final Payment Plans Through Small Claims Court
It’s easy to go through small claims court – to let tenants know they didn’t get the good end of the deal – but what most landlords don’t realize is there are no guarantees they’ll ever see back payments again unless tenants willingly pay them then move out of state.
Eviction isn’t even a concern anymore – yet it highly should be because receiving rent back isn’t worth adding stress upon landlords who already know what’s happened upon eviction.
How To Combat This In The Future
What’s important is prevention – and this involves:
- Keeping records of every tenant and every month they’ve been there;
- Every repair request;
- For when things go wrong it’s too late at that time;
- Your lease needs to be 100% tight on this;
- Review with a landlord-tenants lawyer who knows your state law; it’s cheaper in the front instead of resuming research after the fact because your lease wasn’t ironclad.
Consider other policies that provide lost rent insurance (but not all) or cover until eviction – which shouldn’t take longer than 60 days but from appeals it can – and assess how many months you’re willing to spend with non-paying tenants versus how many months you could fill your property with someone reliable paying full rent on time.
When it comes to protecting your investment and saving income year-round…. pay it forward and screen your tenants properly – or move on when things aren’t working out between you and your renter before it’s too late.
