We love our tenants when they pay on time. Each rental property is just like a big ATM machine churning out cash like clockwork. When tenants pay us on time, we can pay our obligations on time and life is GOOD. But when they don’t pay on time our ATM machines stop running smoothly and we landlords get cranky. Managing your tenants is key to controlling your income property. It’s not difficult as long as you pay attention to and follow a few basic rules: Set expectations, act decisively, communicate well, and be proactive.
From the beginning of your relationship with your tenant, make sure they understand what your rules are, what you expect from them, and what happens if they do not comply. This should all be in the lease of course, but we rarely see a tenant read the lease. At move-in, they are too excited to be getting the keys to their new home to be bothered to read the lease. So walk them through it, pointing out and explaining the highlights in plain English. This is before you hand over the keys, so you have their full attention and you can halt the move-in process if the object to something. Explain what happens if they are late on rent (immediate 5-day eviction letter), what happens if they get an HOA fine for keeping the front yard messy (they pay the fine!), and what happens if they carry balance into a new month (again, 5-day letter). If it all sounds mean spirited, it’s not if it’s delivered in a factual, upbeat way. And they need to hear it, because from the very beginning you want them to know you mean business. They do not need to be your friend, and often you will get attached to some of your tenants. But you can’t let that stop or slow you down from doing what you said you would do if the rules are not followed. There is nothing like a 5-day eviction letter to get a tenant to send you every penny of what they owe. You don’t need them to like you. You need them to respect you.
Make it clear what they owe and why
A new tenant is the best behaved right after they move in. After all, they just met you and want to make a good impression. But despite their best intentions, as life goes on in their new home, things get in the way of paying you the rent on time. It just happens. Car repair bills, hospital bills, credit card bills, etc. While some tenants will be able to handle the financial setback, others will not, and before you know it, they will have fallen behind on the rent. When this happens you need to understand that your rent payment is just another bill for the tenant. All bills have a priority for them, and you want them to treat the rent like it’s their highest-priority bill so they make sure they pay it FIRST. If they don’t pay you first, they can run out of money before they get to you and, presto, they are now behind.
Even though it’s YOUR highest priority, believe it or not, paying your rent on time is usually NOT your tenant’s highest priority. How do you get the tenant to treat your rental payment as the highest priority? Put it in their face every month by sending them a statement 5 days before the 1st of the month. This way, it’s on their pile of bills to pay every month. And any amount they neglected to pay last month (HOA FINE, late fee, etc) is on the statement for this month; along with a statement about the consequences of they pay late. Many times tenants don’t mean to pay the incorrect amount; they just don’t know what the right amount is. So put it in writing every month and I can guarantee you will get more rent on time. If there is an extra amount due for the month, explain what it is and why they are responsible for it. It sounds mean but it’s just a fact of life: most tenants are not the best at managing their money. If they were, they would own a home. So help them out by letting them know exactly where they stand on their monthly payments.
Also, by sending a statement each month, you have the opportunity to remind them of the address to send it to and what your late rent policy is. We have heard all the excuses in the book, but the one we hear most often is “we lost your address so we didn’t know where to send the check”. So if they get the address on the statement every month, that excuse pretty much goes away.
The cost is just a stamp and an envelope – worth every penny once you see how well it works.
QuickBooks makes it very easy to print out a statement for each of your tenants. And you can customize the invoice template so it looks professional and emphasis the most important information (due date, the total amount due, etc.). Once set up, it’s literally the press of a button (QuickBooks is a God-send. But more on that in another article).
Put it all in the lease
The lease is one of the most important things to get right the first time. Sure it’s a lot of legalese, but it’s incredibly important. If you ever need to go before a judge in an eviction hearing, the strength of your eviction clause will determine whether that tenant gets to stay in your house another 30 days without paying rent or has to leave immediately. In other words, it will cost you dearly if your lease is not rocked solid.
There are plenty of good templates for rental leases out there, and you need to make sure you have one that works for the laws of your state. Our best advice is to get one from a legal or real estate professional, but wherever you get it, READ IT! Yes, I said read it. Every word of it. If you are not prepared to do that, hire a property manager immediately: you are not cut out to manage your own property!
Why is this so important? If you don’t know your own lease inside and out, you have no way to enforce it. If you can’t enforce your own lease, your tenants will sense that quickly and take advantage of you. The last thing you want is to have your own tenant read your lease back to your in a dispute or argument and catch you by surprise that he is in the right and you are in the wrong. That’s a really bad position to be in and it’s usually a very expensive mistake because most disputes are over money.
Say what you do, do what you say
Nothing is worse than saying you will do something for the tenant and not showing up on time. This sends a message to the tenant that you don’t care about them and you are not reliable. So guess what will happen? They will take the same attitude with you. Just because you’re the landlord does not mean you have the right to inconvenience them. No matter what the situation is, always show respect and display a friendly business attitude. It will go a long way.
Whether you are just changing an air filter, fixing disposal, or working on the roof: Show up when you say you will show up. Or call them if you will be late. Show tenant respect, and you will get respect in return. More importantly, if you show them you do everything you say you will do, then a demand letter for rent will carry much more weight, should you need to send one someday.
Be proactive in any issue
When things go bad and tough decisions need to be made, denial or procrastination is a natural response. But when it comes to your rentals, you need to train yourself to quickly get beyond the denial phase and move on to take action. Whether it’s an expensive roof repair or favorite tenant who is 1 month behind in rent, get on it. Confront the problem head-on and take care of it quickly. Assume a sense of urgency with anything that needs to be dealt with and your rental life (and life in general) will go much more smoothly for you. This is especially true in eviction situations were delaying an extra month on the “hope” that the tenant will make good on their promise to pay up in full by next Friday. No matter how nice and well-meaning that tenant is, getting behind on rent is a very serious issue and usually indicates there are much deeper financial problems. Tenants in financial trouble will say anything to get you off their backs, and if you fall for it, it can cost you big time. Always send the demand letter immediately followed by the 5-day eviction letter. In the event that the tenant was true to his/her word and pays up completely, then no harm is done. You don’t have to follow through with the eviction, and they now know you mean business. However, it’s much more likely that they will not come through as promised and you find yourself facing the frustrating delays and waiting periods inherent in the eviction process. Trust me, if you want some extra stress in your life, delay the eviction process and watch a tenant stay in your home an extra 45 days without paying rent. That’s maddening.
Here’s another example of how being proactive can save time and money: Two landlords find out they both have leaky roofs on a Sunday. Landlord A decides to get a roofer that day and have it fixed even though the cost will be $300. Landlord B is wrapped up in the Super Bowl and decides it can wait until next weekend when he can get up there and take a look at it. Sunday night it pours rain the entire evening. By Monday morning, there is a 3-day wait to get a roofer. Landlord A sleeps well on Sunday night, even though he hears the rain pouring outside. Do you think Landlord B gets much sleep that night? Landlord A’s expense to fix the roof was $300. Landlord B had to put up with an angry tenant, pay for his damaged sofa, replace the soaked drywall, and pay for the roof repair to the tune of $800! If that scenario does not convince you that being proactive is the ONLY way to conduct business, then nothing will and you should look into hiring a property manager to take care of your property for you.
This can’t be stressed enough. Communication with each one of your tenants is critical. Being able to discuss clearly and concisely and without emotion, everything you need your tenant to understand will single-handedly determine your success as a landlord. If communicating clearly and unemotionally is not your strong point, make sure you get help from someone is good at it; be it a family member, a partner, or a professional property manager. Notice I did not say “another tenant”. Asking another tenant to be a go-between for you and a renter is a bad idea. It reduces your relevance and can cause more misunderstandings (especially if those two tenants happen to be friends). If you house renters who do not speak English, you will need to become proficient in their language.