As a rental property owner, there is no better feeling than having your tenants sign a lease. This will allow you to hopefully achieve a positive return on investment (ROI).
Unfortunately, things don’t always go as planned. For example, a tenant not paying rent can drastically change your bottom line.
If you find yourself in this situation, there are a few key steps you must take.
Know your rights and responsibilities
When you are faced with a tenant not paying rent, it is crucial to understand your legal rights and obligations.
Start by checking your local landlord and tenant laws, as these will guide your actions and help ensure you are acting legally. Generally, you will need to send a formal notice to your tenant detailing the amount of rent due and setting clear payment terms.
If the tenant fails to comply with the deadline, you generally have the right to initiate eviction proceedings. However, remember that you have a duty to act fairly. Before evicting, it is wise to consider negotiating a payment plan or exploring other solutions that can help tenants catch up on rent.
communicate effectively
How you communicate with your tenants can impact what happens later. Here are some steps you can take.
Step 1: Make a plan
Always start with a written plan. This will help you avoid making impulsive decisions and ensure you handle rental issues consistently and effectively. Thoroughly understand your local landlord-tenant laws, as these will dictate the procedures you must follow.
Step 2: Empathy
Before taking any specific action, engage with your tenants. Listen to their situation and show understanding. Maintaining good relationships can lead to more collaborative solutions.
Step 3: Explain that rent still needs to be paid
Make it clear to your tenants that rent is still legally due despite the circumstances. Communicate any potential consequences of nonpayment, such as late fees or eviction. Do this respectfully, without any gray areas.
Give your tenants options
In a perfect world, open communication would result in your tenants paying their dues and never missing future payments. However, this is unlikely. After all, your tenant missed a payment for one reason or another.
After clarifying that rent is due, assist your tenants in exploring various payment options.
For an immediate solution, tenants are advised to borrow money from relatives or pay rent using a credit card. To make credit card payments easier, consider absorbing the associated transaction fees and setting up a rental collection system through services like Venmo, PayPal, Buildium, AppFolio, or Cozy. This approach helps tenants flexibly manage their financial obligations.
Another idea to consider is the Emergency Rent Deferment Program (ERDP). Only bring the matter to light when your tenant has failed to pay rent and has exhausted all other options. Tip: This step should not be advertised publicly from the outset as it may interfere with tenants prioritizing other bills.
After considering these options, you can also offer a Partial Payment Agreement. This agreement allows your tenants to immediately pay a portion of the rent due and plan to pay off the remaining balance over a specified period of time. This approach is especially useful if your tenant is experiencing temporary financial difficulties but expects to regain their financial standing soon.
With this approach, lay out clear terms, including the initial amount to be paid, a schedule for remaining payments, and any consequences that may arise if the agreement is not adhered to. The plan should be documented in writing and signed by both parties to ensure mutual understanding and commitment. This strategy helps maintain a steady, albeit reduced, cash flow and preserve the landlord-tenant relationship during difficult times.
Legal Actions and Notes
When dealing with unpaid rent and considering eviction or other legal action, a structured legal process must be followed. This allows you to comply with the law while protecting your property interests. This is a general guideline to follow.
Review lease agreement
Before taking any action, review the terms of your rental agreement. It should include specific provisions regarding non-payment of rent and its consequences. This will help you determine the legal basis for any action you may take.
Send formal notice
Typically, the first step in the legal process is to send a formal notice to the tenant. The notice should detail the amount of the past due rent and the date by which it must be paid, usually specified in the lease or required by local law.
Waiting for reply period
After sending the notice, give the tenant a legal response period, which varies by jurisdiction.
File an eviction petition
If the tenant fails to pay past due rent within the required period, you can file an eviction lawsuit. This step involves filing the necessary documents with the local court and then waiting for the court to schedule a hearing.
attend court hearing
At the eviction hearing, both the landlord and the tenant have the opportunity to present their cases. Bring all relevant documents, including the lease agreement, the overdue rent notice sent to the tenant, and any communications between the landlord and tenant.
Court decisions and eviction proceedings
If the court rules in favor of the landlord, it will issue an eviction order. Local law enforcement often conducts evictions to ensure tenants vacate the property.
Consider alternative dispute resolution
Before you get to this stage, consider whether mediation or arbitration is possible. These methods involve a neutral third party and can often resolve disputes without the need for court proceedings.
Consult legal counsel
Throughout the process, especially if the situation is complex or the tenant is contesting the eviction, consulting with a qualified attorney can provide guidance specific to the situation and local laws.
Prevention is key
Preventing rent arrears starts by taking proactive steps before a tenant moves in.
- Thorough Tenant Screening: Conduct a thorough screening process, including a credit check, employment verification and references from previous landlords. This helps ensure that potential tenants have a history of financial responsibility and reliability.
- Clear lease terms: Draft a lease agreement that contains clear terms regarding payment terms, late fees, and consequences of non-payment. Make sure tenants discuss and understand these terms before signing the lease.
- Communicate regularly: Keep lines of communication open with tenants. This can help you proactively identify and resolve potential payment issues.
- Education tenants: At the start of a tenancy, provide tenants with information about how and when to pay rent and who to contact if they experience financial difficulties.
Implementing these preventive measures can reduce the risk of rental-related issues.
final thoughts
Effectively managing a rental property requires a combination of determination and flexibility. You should always fully understand the legalities of property management, have a plan in place, and be prepared to communicate effectively with your tenants. By proactively establishing and maintaining clear expectations, you can minimize the frequency and impact of unpaid rent, preserving your investment and building positive relationships with your tenants.
Save time and money with this refreshing guide to managing your own property.
exist self-managed landlordAmelia McGee and Grace Gudenkauf share tips for efficient property management, tenant screening and onboarding, and scaling your business, all to help you escape the 9-to-5 drudgery and create lasting wealth through real estate.
Notes on BiggerPockets: These are the opinions written by the author and do not necessarily represent the views of BiggerPockets.
