How are you treating your tenants right now?

Question

Being a rental property owner comes with its challenges. Filing an eviction on a tenant that is behind on their rent is the only way to be successful as a landlord/manager, BUT....this time it’s different. This is a once in a lifetime occurrence that will make or break landlords, managers and companies.

Attorneys advise that you have to treat every tenant the same. You must have policies and procedures and stick to them no matter what. I agree with that most of the time. Still, if you expect me to treat a tenant that has paid rent on time and taken care of our property for 5 years the same way as a tenant that is habitually late and not communicating with us, I will tell you that is a bad long-term business strategy. More importantly, it’s not how you build lasting relationships with good tenants. Prior to this pandemic we have always worked with our good tenants during tough times and this extreme situation is no different.

My conversations with our property management clients have been consistent during this tough time and it comes down to a few basic questions. Were they a great tenant before this happened? Are they communicating with us? Are they trying to get on a payment plan? Are they maintaining the property? If the answer is yes to all these questions, then I firmly believe we as landlords and managers have an OBLIGATION to ride this out with them. If the answer is no to all these questions, then you file for eviction immediately. If the answers are mixed, then we have to use empathy and do our best to work with them. Especially if questions 1 and 3 are yes and the reason they are not communicating is because they are embarrassed.

As I’m writing this, I can hear some of my fellow landlords saying, “If they are living in my property they should have money saved for a rainy day.” My response to them is, we as landlords should have capital saved for a rainy day as well. But this isn’t a rainy day, this is a Hurricane and if we stop pointing fingers and work together then we will all get to see the sunshine after the storm.

Do you all agree or am I being too nice?

JD Martin · Answer

My thoughts (other than you're from my original land, I grew up in Orange):

Once upon a time, many years ago in a galaxy far, far away, I ran a utility in a state where utilities could be placed as liens on properties. I was a young guy. A girl got her utilities cut off for non-payment. She came in to the office with a little baby and asked to speak to the head honcho (me). She gave me her story and I gave her a few extra weeks to catch up on her bill. Several weeks went by and she didn't pay so off she went again. She came in that day and told me they (her+boyfriend) were on the way to pay when the car broke down and had to use the money to fix the car. Well, I grew up poor like that (Orange, remember) so I gave her another week or so. On the day she was supposed to make payment the landlord came in to the office and asked about her bill because her and the boyfriend skipped town the night before, skipping out on their rent before they got evicted and of course no payment on the utility bill, which ended up on the property as a tax lien.

Needless to say, I never got snowed again. I generally like my tenants and people in general but if you don't pay the rent you better be living on Ramen Noodles and not have a cell phone, cable tv, or any of that other crap that comes after a roof over your head. On a side note, we haven't had a single problem with any tenant all year, but we have good houses, we keep them up, and have good responsible tenants. It's a 2 way street. I wouldn't toss anyone in real dire straits (including Mark Knopler) but in reality few people actually get to that point.

Anthony Marin · Answer

@JD Martin If you're renting apartments long enough and you're willing to help tenants you think are good you will get burned once in a while, BUT I know through experience that I have received much more goodwill and turned good tenants into great tenants because we were there for them.  To be clear, I don't mean we help tenants who are habitually late or ruin our apartments.  We help tenants who pay on time and take care of our property and have come into some tough momentary luck.

Anthony Marin · Answer

@Aubrey Tatarowicz Thanks for stating that about the stats and thats consistent with what we saw in our portfolio and clients portfolio's.  We've been collecting 90%-95% monthly and its that last 5-10% that we are having this conversation about.  Those numbers prove the vast majority of tenants are doing the right thing.

@Reece Iovine @Joe Splitrock I think we are all saying the same thing just differently.  I am by no means suggesting that we should give anyone a break that hasn't paid since March and is taking advantage of the situation.  My point is that we should be empathetic to the people that are really struggling.  The tough part for us in my market is that courts are still closed so if a tenant is not answering our calls or the door then we have no choice but to wait this out.

@Joe Splitrock Thanks for the idea of asking for the proof of unemployment funds being rejected because we've heard the excuse of the benefits being rejected.

Reece Iovine · Answer

If the tenants communicate with me and have a plan to pay rent or be able to pay soon I will absolutely work with them...I have one tenant that is doing rehab work for me in order to pay his rent.

However if a tenant is not putting forth effort to find a new job, find money, or somehow compensate me, I am not going to let them live in my property for 8 months rent free...

While I have reserves, by letting a tenant stay who is not actively trying to improve their financial situation and pay me, I am losing money that I could use to help someone who is actively trying to pay rent like my tenant working for me.

Set up weekly touch bases. We need to be actively engaged at this time to find solutions.

Joe Splitrock · Answer

@Anthony Marin like with everything in real estate, it depends on a variety of factors including location. All my tenants got a federal stimulus check. Any unemployed tenants got a bonus $600 per week which was more than their job paid in some cases. My city had a community donation fund to help people pay rent during COVID. Anyone who applied got money if they could prove COVID hardship. The federal government gave every state substantial amounts of money for COVID relief. Every state is choosing to allocate as they see fit. My state has a rent and utility fund.

Aside from the emotional aspect, there is no logical reason I should give anything extra to my tenants. When I hear stories of tenants who have not paid a penny since March, the only explanation is that they are exploiting landlords.

Do you think it is acceptable for your tenants to have money and not pay you just because of COVID? Are you requesting bank statements, proof of unemployment benefits or anything else to make sure they are not just lying to you?

Aubrey Tatarowicz · Answer

I think if you look at the statistics, you'll see trends that point to the stimulus checks being used for rent and food and essential living expenses.  Anecdotally, the people I've talked to in multifamily syndication specifically had some of the most on-time payments they've seen when the stimulus checks went out.  Now, though, there hasn't been a stimulus in some time and we're seeing another wave of covid–times are tough and I think empathy is essential.

100% agree with @Anthony Marin.  Working with your tenants and keeping an open line of communication is extremely important.

Drew Sygit · Answer

We had a tenant that tried to apply for government aid and we got their bank statements. They got almost $14k in unemployment and one-time govt payments. Guess how much they paid in rent - $0!

Their bank statements showed they spent it on shopping trips and eating out.

Theresa Harris · Answer

True, but you can also remind them that if they move before you proceed with the eviction, it won't go on their record.

Theresa Harris · Answer

I think it depends on a lot of things.  First and foremost to me is are they willing to work with you for a solution.  Can they pay part of their rent, are they looking for another job or do they refuse to communicate?  If a tenant let me know in advance and was willing to work with me, I'd do it.  I did evict one tenant as soon as the ban was lifted in my area.  They owed 2 months' rent and were not willing to talk to us at all and had been late on rent.

Joe Splitrock · Answer

If someone says they couldn't get unemployment or can't get assistance, that likely means they don't have COVID related hardship. My tenant told me the rental assistance in our town wasn't responding to his application. I call them and they told me he never applied. I will help anyone who is making reasonable effort to help themselves. If you are lying to me or doing nothing to fix your problems, you have to move along. I am not questioning your intention to help others, just warning you that people are taking advantages. I wish I could just believe what people told me, but after being lied to continuously, you get skeptical.

How are you treating your tenants right now?

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