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Feb 22, 2022 PropStream

How to Work With a Renter Who is Consistently Behind on Rent

Between exceptional benefits like passive income, appreciation, and tax breaks, investing in buy-and-hold properties is a smart strategy for building wealth. But what happens when you have a tenant who struggles to pay rent on time? How can you collect past-due rent and encourage prompt future payments without resorting to threats or legal action?

If you find yourself with a renter who is consistently behind on rent, check out these five tips for working with your tenant to find a long-term solution.

1. Establish Consistent Collection Practices

First, review the lease to make sure you understand the terms, including any grace periods. Any late notices or late fees should be processed in accordance with the terms of the lease.

To establish expectations of timely payments, your collection efforts should follow the same pattern each month. Start with a friendly reminder, followed by a formal late notice, then a personal phone call. As a last resort, you can issue a legal Notice to Pay or Quit, which forces your renter to pay in full or face eviction. Be sure to review your local landlord/tenant laws before taking this step, though.

2. Have an Honest Conversation

If your renter is late multiple times, you should sit down with the tenant to learn more about their circumstances. What life events might be causing the late payments? 

Perhaps your tenant is simply forgetful and needs a reminder to pay their rent. You can suggest that they set a calendar reminder on their phone. Or, you could even send them a reminder each month. It’s not your responsibility to remind them to pay rent, but it might make your life easier by reducing collection efforts. 

If, on the other hand, your renter is financially unable to make rent payments, you may need to consider stronger measures like restructuring the lease or terminating it early. 

3. Encourage Auto-Pay 

Whether your renters are forgetful or not great with money management, automated payments can help. Encourage your renters to sign up for auto-pay with their bank. Every month, the money will automatically transfer without any need for manual action. 

4. Incentivize Prompt Payments with Creative Measures

There are times when eviction warnings aren’t appropriate or even legal. During the height of the COVID-19 pandemic, when there was a widespread eviction moratorium, investors had to find creative ways to convince renters who were able to pay rent to do so on time. 

Most renters want to pay rent on time to avoid late fees and a record of late payments. However, some are more motivated by personal measures like a gift card to a coffee shop. It sounds like a small gesture (and it is!), but it's a token of appreciation that shows your renters that you think about them as people rather than just rental income.

5. Consider Cash for Keys

What if your renters aren’t financially able to pay rent in full each month? After you've exhausted your options, you could consider offering to pay them to leave. 

Cash for keys is an alternative to eviction that can work better for all parties. Your renters could avoid having an eviction on their record and walk away with cash to cover their move to a more affordable place. And you wouldn’t have to bear the time and expense of the eviction process.

Important Reminders

However you decide to work with your renters on late payments, here are some things to remember:

  • Document everything. Save copies of written communications in your collections efforts. And if you and the renters agree to change the terms of the lease, draft a lease addendum or amendment to document the change.
  • If you own multiple units, give all renters the same options under similar circumstances. This helps you avoid any potential accusation of discrimination.
  • Never try to force your renters out. If you must file an eviction, follow your local legal procedures.

Dealing with a renter who is consistently behind on rent can be challenging. But with these steps, you can find a way to reduce late payments and move forward. You might even be able to find a mutually beneficial solution that works for everyone involved!

Published by PropStream February 22, 2022