How to manage low income tenants in multi Family apartment build

[Beary Bowles]

Hello ALL

I've purchases and self manage a 12 unit apartment building for approximate 1 year and a few months.  I have assistance and marketing and screening and a on call handyman.  Yeah this isn't my best system but i'm working on it.  The units are all 1bd room, 1bath studio apartments ranging from newer $495 models to order models $425 a month.  I've been mostly attracting single person tenants or occasional couple every now and then.  The tenants that I currently have are mostly on social security (SSI), Disability , and some working class (low income). 

The problem that I'm having is collecting rent from them.  Some have have paid late, or when I call them on the day the SSI check comes in I hear an excuse to what happen to the money or the need more work hours to go with the SSI. The only person who's been consistent on paying his rent is one tenant on Disability (What gives). 

Another problem I've noticed is that low income tenants do not have smart phones or thats what I think. With that said, I can't apply any online portals for them to pay the rent since some are not phone nor technologically savvy. 

I thought about doing Section 8 for all the units since it's consistent, but my education base have been lacking in that area. Any tips on running a property through Section 8? 

I've been mostly collecting the rent from money orders, square soft from my phone, and occasionally in cash to a small few (I know tisk tisk).

Any help, ideas, and strategies would be gratefully appreciated. 

Thank you to all

[Michael Ealy]

Originally posted by @Ola Dantis:

Originally posted by @Beary Bowles:

Hello ALL

I've purchases and self manage a 12 unit apartment building for approximate 1 year and a few months.  I have assistance and marketing and screening and a on call handyman.  Yeah this isn't my best system but i'm working on it.  The units are all 1bd room, 1bath studio apartments ranging from newer $495 models to order models $425 a month.  I've been mostly attracting single person tenants or occasional couple every now and then.  The tenants that I currently have are mostly on social security (SSI), Disability , and some working class (low income). 

The problem that I'm having is collecting rent from them.  Some have have paid late, or when I call them on the day the SSI check comes in I hear an excuse to what happen to the money or the need more work hours to go with the SSI. The only person who's been consistent on paying his rent is one tenant on Disability (What gives). 

Another problem I've noticed is that low income tenants do not have smart phones or thats what I think. With that said, I can't apply any online portals for them to pay the rent since some are not phone nor technologically savvy. 

I thought about doing Section 8 for all the units since it's consistent, but my education base have been lacking in that area. Any tips on running a property through Section 8? 

I've been mostly collecting the rent from money orders, square soft from my phone, and occasionally in cash to a small few (I know tisk tisk).

Any help, ideas, and strategies would be gratefully appreciated. 

Thank you to all

 @Michael Ealy Had similar issues when he started out in the game. 

Perhaps, he will share some tidbits to help deal with these kinds of tenants. 

Thanks Ola for the mention.

Beary, D & F areas are where I started my RE career. They are tough and rough. But if you can survive through it, you have your PhD in property management and if you can manage Ds and Fs, you can manage anything.

Here are some "tricks" on how to survive and thrive owning apartment buildings in D & F areas:

 1. See if you can lease the whole building by a government agency's housing program instead of individual market rent tenants. You get guaranteed rent and 100% occupancy. That's what I did with a 48-unit building and I made over $1M profit on it. Here are the details:

https://www.biggerpockets.com/forums/311/topics/644570-how-i-made-over-1-million-on-1-deal-after-6-years-of-headaches

2. Tenant screening is key. Do a good job here and 90% of your problems go away. Rent to income should be 1:3 or even 1:4. No druggies. No recent eviction or violent felon.

3. If you can't get the entire building leased, get it qualified under section 8. It's not that hard. Call your city's section 8 office and see their specific requirements. Apartment has to be liveable with no lead paint, secure entrances, no broken windows, etc.

4. With Ds and Fs, put in security cameras and tell all the tenants the building is safer because of them - put these security cameras 20 ft above the ground or out of reach of vandals who will destroy them if they are accessible

5. Offer a $100 reward to the tenants for reporting to the police those who destroy or vandalize your property. Put a lot of lighting - so it will repel the bad elements who do crazy things at night. And if the bad elements know they'll be reported for vandalism, drug activity, prostitution or whatever - they'll stay away from your building.

6. For repairs, tell the tenants that if you fail to address the maintenance request of your tenants within 3 days, they get free rent per every day past the 3rd day. Why? Because you don't want these tenants to complain to the  code enforcement office every time their toilet clogs. By offering free daily rent if you delay fixing their problems, they are more amenable to not be angry if your handyman gets delayed.

Obviously, emergencies like a fallen ceiling or flooding should be addressed immediately. However, by offering free rent for maintenance delays, your handyman can fix the more urgent and bigger items first and you can sleep well at night knowing that your tenants won't report you everytime their air conditioning stops working (or some minor things that can be addressed later).

7. Renovate the property at a grade higher than the market. If you're in F areas, renovate them as if they're in C areas. If you're in D areas, renovate them to B quality. Better looking units attract better tenants. And if your apartments don't like sh%^ like the other apartments they're used to, you'll have a waiting list of tenants who will pay you like clockwork (yes, even in D & F areas!)

8. A lot of people in D & F areas are paid weekly. Set up a weekly rent payment instead of once a month. Unfortunately, people in these areas tend to prioritize buying booze and useless trinkets instead of the roof above their heads AND they don't know how to save money every week so they have money to pay the rent. So, help them - by actually collecting the rent weekly. By doing this, you can even collect even HIGHER rent. For example, let's say the rent is $600/month. You tell the tenant that you are giving him the option of paying weekly - and for the privilege of doing this, there is an extra $25 charge. So, his payment is $175/week.

$175/week x 4 = $700 for the month vs. $600

and it gets better. Since there are 52 weeks in a year instead of 48...your income is way higher:

$175/week x 52 weeks = $9,100/yr vs. $600/mo x 12 = $7,200/yr --> you're collecting $1900 a year more - multiplied by 10 units - and that's a substantial amount!

Of course there is more work collecting rent 52 times in a year vs. 12 times in a year but if you can automate it...then it's not really that much work.

9. This is how you automate rent collection for D & F areas:

- require that the rent payment is through credit/debit card
- you can set this up through Cozy or any Property Management software
- most of the people living in D & F areas can't open a savings account: for those people, you tell them to buy a rechargable debit card from Walmart
- everytime they get their paycheck, they put the amount in the rechargable debit card
- every week, you receive your rent automatically: without chasing them for rent

10. Be strict in enforcing the rules. The tenant is ONE day late on the rent, send a 3-day notice. Don't accept excuses. Domestic disturbance or any lease violation: send them a Notice to Quit and if they don't behave, kick them out immediately: no mercy. If your units are the best apartments in the area, your tenants will be afraid of losing out.

11. Keep a HEALTHY operating and capital reserves. Set aside 10% of the rents every month (or more). D & F buildings are higher maintenance buildings. Once you have 6-12 months of operating expenses saved up, you can set aside 5% of rents for capital reserves (instead of 10%).

Landlords become slumlords when they run out of cash to fix the building, which in turn attracts bad tenants which in turn cost the landlords even more money - and so a vicious cycle begins.

Man, I should charge you $11,000 ($1,000 per every tip) for the above advice :) You'll make many times that multiple if you implement the above 11 tricks on how to survive & thrive owning apartments in D & F areas!