Late Rent? Try Tenant "Rehab"
When your tenant becomes behind on the rent, you enter his world of financial dysfunction. I’m not talking about the transient sector of the tenant population - the folks who are just passing through (students, relocating business people, young couples getting their first apartment together, etc.) – I’m talking about perpetual tenants, those who are destined to always rent.
These are the regular customers of the rental world, and this type f tenant may occupy a good percentage of your rentals. By their very nature, these tenants can’t manage their money. Think about it, if they were responsible with money, they’d have become homebuyers a long time ago.
You can kick them out, or maybe they can be salvaged. Remember, turnover is expensive too. You might try putting the tenant into “rehab.” Once a tenant gets behind in the rent, you can become his "rehab doctor," by helping him through this period of bad “habit.” He’s “using” (his creditors), and actually working harder at dodging his bills than just getting a job and paying them. You need to do him a favor and help him kick the “stuff.”
This step-by-step rehab process is pretty simple, and it works: Turnover is Expensive - Try Tenant "Rehab"
Comments (2)
You’re fundamentally right, but I have also had great success operating on a case-by-case basis. Hard structured policies definitely have their place in property management, and it is certainly less complicated to consistently enforce pay or quit, because it works in many scenarios. The fact is, you are playing psychologist regardless of what you choose to do because a notice in the mail has a psychological effect. Tenants are people – some will walk if you play hardball. At that point, it comes down to turnover vs. rehab. I’m not sure I always want the financial of risk turnover, especially in this saturated rental market where vacancies are extended and those applying are asking for discounts before they even view the property. I sometimes use this method to salvage borderline cases – real deadbeats will not respond to this kind of interaction, and those who always pay are not at issue. I can always empty the property, but before it comes to that, I figure this is worth a try. This is definitely an advanced level of people management, but it can be extremely effective and profitable. In my experience, the unsavory compromise of forbearance is often much more profitable than turning over the unit whenever a tenant displays a lack of discipline. The intention of this post was to introduce landlords to a broader way of thinking about property management, and inspire investors to operate their business at a higher level of efficiency. If handled properly you won’t train your tenants that they can get away with bad behavior. You must clearly communicate that these are exceptions to your standing policies that you are willing to make in this isolated situation. Repeat offenders will always get the boot.
Robb Terranova, over 15 years ago
Aren't you then signaling to your tenants that you'll allow them to violate your agreed upon terms? I have yet to talk to a successful landlord who is willing to bend the rules or play psychologist with their late/non-paying tenants. People know that they are paying late or not at all. Your notices in the mail should serve as reminders of that.
Joshua Dorkin, over 15 years ago