How Do I Deal with Late Rent Payments?

You can get everything else right, but if you don’t get paid, you will not stay in business for too long. If cash is the blood of a company, cash flow is the circulation of the blood. 

Tenants who pay late or not at all can choke your business and lead to failure.

So, how do you prevent and deal with habitual late rent payments?

There are three proven ways to do it:

  1. Train your tenants at the beginning of the lease by giving them a Tenant Manual or Tenant Welcome Letter.
  2. Enforce the rules you’ve created.
  3. Charge late fees for late-payments and give discounts for early payments of rent.

How to Train Your Tenants to Pay On Time?

The primary tool we use to reduce late rent payments is our Tenant Welcome Letter. 

This letter is an introduction of the tenants to the property, our systems, and the community in general.

A brilliant landlord once said that tenants should be treated as employees. This made a lot of sense to me because the process of introducing a new employee to a company is very similar to the orientation we do with a new tenant.

You can watch the video below  if you want to check out everything that’s included in our Tenant Welcome Letter.

We usually meet with tenants when they move in. We show them how everything works, and we go over our Tenant Welcome Letter.

Part of this letter is our Rent Payment Policy. In it, we explain when the rent is due  when it is late and our policy on rent payment. We also make it clear that if the rent is not paid by a specific date, they should expect a Pay or Quit Notice.

We also make it clear that we don’t make any exceptions because that will be considered discrimination. We can’t treat one tenant differently from another just because we think they have a better reason for being late.

Since we started doing this, we don’t get any phone calls or emails with excuses. 

Our tenants know the guidelines and what’s expected from them.

Enforcing the Rules

Do you remember when you were a kid, and your mom punished you for not doing your homework one day, and the next day she didn’t even ask?

Maybe your mom was more consistent than mine.
In my case, I tried to test her and see how many days in a row I can get away without doing homework.

Some of your tenants will test the limits as well. If you told them that you deliver Pay or Quit Notices on the 7th, but you didn’t. I can almost guarantee that they will do it again and again until it becomes a habit that’s very difficult to break

My mom probably felt bad about continually reminding us about homework, so she didn’t do it every day.
Landlords and property managers have a good excuse too. Delivering Eviction Notices doesn’t feel right, but it’s crucial to growing a healthy rental business.

If you currently have a tenant who pays habitually late, mail them a Late Rent Payment Warning Letter.

If they don’t respond to that, deliver a Pay or Quit Notice immediately the next time they are late with rent.. In Florida that’s a 3 Day Notice.

 

Discounts for On Time Payment and Late Fees

The “carrot and stick” method of motivation has been used since the industrial revolution.
The carrot is the discount for early payment, and the stick is the late fees. 

I only use carrots for my dog Kimmy; see photo above, and not for my tenants.
I don’t use discounts for early payment as a reward, but many landlords swear by it. The reason I don’t like it is that I don’t want tenants to think that paying on time is optional and that they should be rewarded for it.

What I use is Late Fees and Notice Delivery Fees.

A couple of things about late fees: 

  • Include all fees in your lease.
  •  Charge reasonable late fees.
  •  Give tenant grace period even if not required by law.

The fees should be written in your lease agreement
You can’t charge tenants’ late fees even if they are reasonable if they are not mentioned in the lease.

Have a grace period
If your state has no statute on the required grace period before charging late fees, it’s a good idea to give tenants at least three days.
The reason for that is you want to be able to enforce and collect late fees. If you are unreasonable, for example charging a 10% late fee on the first day after the rent is due, this may become a burden for them, and they will resent you for it.
Be fair but consistent.

Charge reasonable but sizable late fees to motivate tenants and stay legal.
What is a sizable but reasonable fee depends on the rent amount.
What would motivate a tenant who is paying $1500? I believe $20 is not enough to encourage them to pay on time. However, 7% might be enough a deterrent to stop late payments.

Daily Vs. One-Time Late Fees
Your state laws determine the late fees you can charge. In general, you can charge three types of late fees:
-One time late fee
-Daily fees
-One time fee plus daily fees

One time fee plus daily fees encourage the tenants to pay ASAP even if they are late one day. If there are no daily fees, the tenants wouldn’t have the motivation to pay immediately.

Notice Delivery Fee
I charge $100 for the delivery of a Pay or Quit Notice. I started doing that after we had a tenant who will only pay after we delivered a notice. Running to her house every time the rent was late, become tiresome very quickly.

Can You Sue a Tenant for Unpaid Rent and Damages?

How To Collect on Back Rent and Damages Not Covered by a Deposit

Having to go through eviction or finding out that your tenant disappeared in the middle of the night with all appliances is a nightmare every landlord dreads.

Thankfully, this is rare if you screen your tenants thoroughly, and there is something you can do to recover some or all of the money you are owed.

Here are the steps you can take to collect on back rent and/or damages.

  1. After evicting the tenant and regaining possession of the rental, you need to send them a collection letter for the total amount due. If they don’t pay you can file a lawsuit to get a judgment for the money they owe you (if the eviction didn’t include that)
  2. With the money judgment against the tenant, contact the local Sheriff (or the appropriate “levying officer”), give them your tenant’s employer information, and they will serve the garnishment order to the employer.
  3. Alternatively, you can sell your judgment. Don’t expect more than 6-10 cents on the dollar.
  4. Another option is to contact a collection agency to deal with collecting the debt. You can hire a collection agency even without getting a money judgment. Expect to pay 50% percent commission if they collect. 

Suing a Tenant for Back Rent and Damanges

You can sue tenants for unpaid rent and damages beyond what their deposit covers. 

When evicting a tenant, a landlord can seek possession judgment, money judgment, or both. Most property owners file for possession only because it’s less complicated and faster. 

But what happens after a tenant is evicted with possession judgment only and the landlord wants to sue for back rent and damages?


The next step will be to file a lawsuit in Small Claim Court and seek a money judgment

 

How To Collect on the Money Judgment

There are three ways to collect on a judgement: 

  1. You can hire a collection agency.
  2. Try to collect yourself
  3. Sell the judgement

Hire a Collection Agency

There are some agencies with an excellent reputation, like National Credit. However, typically you need to split the recovered money 50/50. That’s more than zero, and it’s a no-hassle solution for the landlord or property manager.

Tenants will not be able to buy a house or even rent a place until they pay off the judgment.

A collection agency will ask for three things:

  1. Social Security Number
  2. Date of Birth
  3. Court Judgement

 

 

DIY Collection and Wage Garnishment

Collecting on the judgment is possible with some free time and patience. The process may vary from state to state. If the tenant doesn’t pay, you can garnish their wages. In some states, this is not allowed.

What you need to do is contact the local “levying officer”, the Sheriff in most cases who is responsible for serving the garnishment order.
You need to provide them with the name and address of the current employer of your tenant.

If the tenant finds another job, this order will need to be updated.

To find out if your tenant currently works and who is their employer, you may have to look at their social profiles. Many people make this information public.

I’ve heard mixed reviews on the level of success regarding wage garnishment. There are a lot of conditions, for example:

  • The debtor needs to be employed. They can’t be self-employed or have LLC.
  • You can only garnish 25% of their disposable income.
  • Their income must be above the poverty line. It must exceed 30 times the minimum wage, whichever is lower.
  • Their salaries are being garnished already.
  • They are exempt from wage garnishment – for example, they are a head of household.
  • Income from social security, disability, retirement, child support, and alimony doesn’t count.

Sell Your Uncollected Judgment

There’s a site called Judgement Marketplace where you list your uncollected judgments, and people and companies bid on the. Usually ends up paying around 10 cents on the dollar, but might be higher for a more significant amount.

How long does the landlord have before filing a lawsuit for unpaid rent or damages?

Each state has a different law. However, most have specific time frames for notifying tenants about intentions to impose a claim on their deposit.
If the deposit wasn’t enough to cover the damages and the unpaid rent, the time frame is 2-6 years.

Can a landlord sue for unpaid rent without a written lease?

Oral leases are enforceable despite what people think. There should be enough evidence that the tenant was paying rent. If the tenant was paying cash and the landlord did not keep a ledger, it won’t be very easy to prove that they owe back rent.
The only exception to this is longer leases, typically leases over one year need to be written and witnessed.

Can a roommate sue for unpaid rent?

Roommates have equal responsibilities and rights under the lease with their landlord.
If one stops paying rent, the landlords can evict all of them. Each cotenant is equally responsible for paying the rent.
If, however, the roommates had a document showing how much each is responsible for paying, they can seek a judgment in small claims court if one of the tenants stops paying rent.

Can I Put a Lockbox on my Rental if the Tenant Refuses to Sign the Lockbox Addendum?

Question

I’m selling my rental and the lease states that during the last 30 days I can show the property to interested folks. Also says I can have a lockbox on the door, etc. I contacted my tenant to give him a heads up about listing the house and requested that he sign the lockbox form that my realtor sent to him. He responded by asking for a discount on rent and said if he got the discount that he’d sign the lockbox form.

I politely said that I’d be unable to give him the discount on rent and that this is standard practice. I also reminded him that it’s in the lease. He’s since then become unresponsive and is not signing the form. If you were in my position, what would be your next step? 

Answer

Personally, I would give the tenant a discount if they keep the property in showable condition. 

Even if  the tenant signs the lockbox addendum, he can do other things to make it it difficult to sell. For example, keeping it dirty or messy.  We have seen tenants poison a sale in progress because they were unhappy about the showings.

If the tenant says no, and you still want to show the rental, give the tenant a Property Entry Notice and show it by appointment. Each state has different rules about the advance notice you need to give your tenants before you enter the property.

With the Property Entry Notice you are not asking to show the rental, you are letting the tenant know when you will be showing. 

What is Self-Touring or Self-Showing Technology?

What is self-showing or self-touring technology?

Self-touring technology allows a prospective renter to physically visit a vacant property without a manager or agent present. Renters can instantly book an appointment, saving countless hours finding a property to rent, and managers can streamline operations by supplementing traditional leasing office hours to easily conduct weekend and after-hour tours.

Which companies facilitate self-showing?

Rently and Showmojo are the two most popular companies.

Codebox is an alternative for small investors with only a couple of properties.  Codebox is much more affordable but it doesn’t have all the automation as the other two apps.

What is the cost?

Rently’s app is $30 per month plus $30 per lockbox. Showmojo has different plans but the most popular is around $79 per month, they just introduced their own lock boxes. Not sure what the price will be for that.

Codebox is the most affordable. the lockboxes are around $55 plus very minimal monthly charge, less than a dollar.

So how does Rently work? 

Rently syndicates rental listing to 50 plus sites including Zillow and Realtor.com. Prospective tenants are asked to schedule a self-showing tour online and to prove their identity using a credit card and an ID. 

After they schedule the showing and when they are at the property, they are given a one-time code to open the lockbox.

Potential tenants are asked questions about the condition of the property after they put back the key in the lockbox and emailed a link to an application.

All of this happens without an agent driving to the property. 

Doesn’t this appear intrusive to tenants?

Most tenants have no issue with self-touring because the major investors like Progress, American Homes 4Rent are also using Rently, so once a tenant verifies their identity, they can tour all homes on the market that are shown by Rently.

This is a major benefit that we didn’t realize we were going to get until we started using Rently. We got so much traffic from the major investors’ sites that using this technology was worth it even for just for the extra leads.

All of our rental properties were rented much faster with Rently than with us showing the homes.

Rently is our favorite self showing technology for couple of reasons. Everything is highly automated. Literally, all you have to do is put a lockbox on the door and wait for applications. 

20 Ways to Increase the Profits from Your Rental

Is your rental property paying you less than the cost of the mortgage?


Despite what many people think, making money from your rental property is not easy, especially if you have a mortgage. If you are ready to give up and sell your property, try some of our suggestions before you throw in the towel.


Most landlords think the easiest way to get more money is to increase the rent. This will be the most obvious way but not always the correct course of action. If you increase your rent above what market will bear, you will have vacancies, higher turnover, and bad tenants.


Here are 20 ways to maximize your profit without increasing the rent:


1. Rent your property by the room. Some landlords create separate leases for each roommate and treat each room as a separate rental.


2. Check out Airbnb – short term rentals may be just the thing for you.


3. Offer furnished home for short term rentals. You should be asking for at least 2.5 times your standard rental rates to offset vacancies, utilities, cleaning, etc.


4. Operate rooming house if legal – assisted living, halfway house, etc


5. Increase late fees and any other fees that come from tenants not following your rules.


6. Charge pet fees – you can charge a very reasonable monthly pet fee, most tenants with pets will be happy to pay it.


7. Offer additional services to the tenant: landscaping, house cleaning, pool cleaning. Contract them out and collect fees from those services. Some tenants will gladly pay more for convenience.


8. Strategic upgrades and home staging can add a lot of value without a big price tag. Our favorite upgrades are a nice kitchen faucet, new hardware on cabinets, and smart locks. If the appliances are old and broken, replace them. This will save you money on unnecessary repairs and allow you to get higher rent.


9. Repairs – many expensive repairs can be eliminated by regular maintenance and property checks. Every six months deliver new filters to the tenant, clean the drain, the dryer vent, etc. have a page with instructions and videos on how to fix minor issues: like resetting the disposal.


10. Minimize vacancies and turnover time. Use professionals who can turn over the unit in a day. Start showing a month before the old tenant moves out. Offer free cleaning while showing the unit. It’s worth it. Price it well!


11. Chose the right tenant: I can’t emphasize this enough. Tenants who can barely afford the rent can make your life miserable and be very demanding and expensive.


12. Transfer some of the cost to tenants: for example, pest control. Give them a pest clean house and one week to report any problems. After that, it will be their responsibility to keep it pest-free. You should fix any infestations but you have to charge them for it.


13. Conduct regular inspections. It’s best to combine the inspection with preventative maintenance. Your tenants will be happy because you are taking care of the property and not consider the visit as an intrusion.

14. Ask the tenants to give you a professionally clean house and carpet when they leave. You can refer them to professionals you use. Conduct the final inspection after that has been done. Include a charge in the lease if the cleaning has not been done.

15. Accommodate tenants if they want to leave early but charge fees – two months’ rent is reasonable.

16. Offer to rent a washer, dryer, furniture or security system.

17. Offer to rent storage if you can place a storage unit on the property

18. Charge a fee to customize the home – possibly paint a room or a wall. Don’t ever let the tenants do it. Send your handyman.

19. If you are using a property manager can you just use him to lease the property and you do the rest?

20. Finally, examine your taxes and insurance. Is your property assessed property? Are you overpaying for insurance?


I hope this list gave you some ideas. If you are already using any of these methods to increase your rental income please share your experience with us.

Is it recommended to install a washer and dryer in a rental house?

It depends on the property and the location. If you have type A property and competing rentals offer washer and dryer, you need to provide them as well.

Type B property yes with a slightly higher rent.

Type C, no, unless they rent it from us, typically at $50 extra per month.

That being said, you should definitely offer washer and dryer hookups. It makes a difference in how fast you rent your property.

If you let your tenants bring a washer, dryer or any appliance for that matter, insist on a professional installation. This is a lesson we learned from experience.

 

My Tenant Is In Medically Induced Coma. What Should I Do?

If you have an emergency contact for your tenant, it’s best to call that person. If you inherited the tenant, look in the lease, you may find it there.

If you can’t find it in the lease, call her work or ask the hospital. 

The emergency contact may have the legal authority to end the lease and come and get her things. Or, conversely, to pay the rent. Being listed as an emergency contact doesn’t give anyone the right to enter the rental or to make decisions for the tenant.

A medically induced coma rarely lasts more than a few weeks, so in addition to finding out who is the emergency contact for the tenant, waiting it out maybe the best course of action.

I would definitely recommend consulting an attorney if this lasts more than one month.