We love our tenants when they pay on time. Every rental property is like a big ATM that churns out cash like clockwork. When tenants pay us on time, we can pay our bills on time and life is GOOD. But when they don’t pay on time, our ATMs stop working smoothly and we owners get cranky. Managing your tenants is key to controlling your income property. It’s not hard as long as you pay attention and follow a few ground rules: Set expectations, act decisively, communicate well, and be proactive.
set expectations
From the beginning of your relationship with your tenant, make sure they understand what your rules are, what you expect of them, and what happens if they don’t follow them. All of this should be in the lease, of course, but rarely do we see a tenant read the lease. At move-in time, they’re too excited to receive the keys to their new home to bother reading the lease. So walk them through it, pointing out and explaining the highlights in plain language. This is before you hand over the keys, so you have your full attention and can stop the moving process if the object is anything. Explain what happens if they are late in paying their rent (immediate 5 day eviction letter), what happens if they get a ticket from the Homeowners Association for messing up their front yard (they pay the ticket!), and what happens if they transfer the balance to a new month (again, 5 day letter). If it all sounds petty, it is not if it is presented in an objective and optimistic way. And they need to hear it, because from the beginning you want them to know that you mean business. They don’t have to be your friends and you will often become attached to some of your tenants. But you can’t let that stop him or her from doing what he said he would do if the rules aren’t followed. There is nothing like a 5 day eviction notice to get a tenant to send you every cent of what they owe. You don’t need them to like you. You need to be respected.
Make it clear what they owe and why
A new tenant is the best behaved right after you move out. After all, they just met you and want to make a good impression. But despite her best intentions, as life goes on in her new home, things get in the way of paying her rent on time. Just past. Auto repair bills, hospital bills, credit card bills, etc. While some tenants will be able to handle the financial setback, others won’t, and before you know it, they’ll be behind on their rent. When this happens, you need to understand that your rent payment is just another bill to the tenant. All bills are priority to them, and you want them to treat the rent as their highest priority bill so they can make sure they pay it FIRST. If they don’t pay you first, they may run out of money before it gets to you and voila, now they’re behind.
Although it is YOUR top priority, believe it or not, paying your rent on time is generally NOT your tenant’s top priority. How do you get the tenant to treat their rent payment as the top 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 your pile of bills to pay each month. And any amount they didn’t pay last month (HOA PENALTY, late fee, etc.) is on this month’s statement; along with a statement about the consequences of paying late. Many times tenants do not intend to pay the wrong amount; they just don’t know what the right amount is. So put it in writing every month and I can guarantee you’ll get more rent on time. If there is an additional amount due in the month, explain what it is and why they are responsible for it. It sounds cruel, but it’s a fact of life: most renters aren’t the best at managing their money. If they were, they would own a home. So help them out by letting them know exactly where you stand on your monthly payments.
Also, by sending a statement each month, you have an opportunity to remind them of the address to send it to and what your late rent policy is. We’ve heard every excuse 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 a statement for each of your tenants. And you can customize the invoice template to look professional and highlight the most important information (due date, total amount due, etc.). Once set up, it’s literally a push of a button (QuickBooks is a godsend. 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 at an eviction hearing, the strength of your eviction clause will determine whether the tenant stays in your home for another 30 days without paying rent or has to leave immediately. In other words, it will cost you dearly if your lease isn’t rock solid.
There are many good rental agreement templates out there, and you should make sure you have one that works for your state’s laws. Our best advice is to get one from a real estate or legal professional, but wherever you get it, READ IT! Yes, I said read it. Every word of her. If you’re not prepared to do that, hire a property manager right away – you’re 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 quickly notice and take advantage of you. The last thing you want is for your own tenant to read you the lease in a dispute or argument and be caught off guard that he’s right and you’re wrong. That’s a really bad position to be in and it’s usually a very costly mistake because most disputes are about money.
Say what you do, do what you say
There is nothing 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 that you are not trustworthy. So guess what will happen? They will take the same attitude with you. Just because you own it doesn’t mean you have the right to inconvenience them. No matter what the situation, always show respect and display a friendly business attitude. It will go a long way.
Whether you’re just changing an air filter, fixing a disposal, or working on the roof: Show up when you say you’ll show up. Or call them if you’re going to be late. Show respect and you will get respect in return. More importantly, if you show them that you do everything you say you will, then a rent demand letter will carry much more weight, should you ever need to send one.
Be proactive on any issues
When things go wrong and difficult 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 move quickly out of denial and into action. Whether it’s an expensive roof repair or a favorite tenant who is 1 month behind on their rent, do it. Face the problem head on and resolve it quickly. Assume a sense of urgency with anything that needs to be resolved, and your rental life (and life in general) will be that much easier for you. This is especially true in eviction situations where an additional month is delayed in the “hope” that the tenant will make good on their promise to pay in full by the next Friday. No matter how nice and well-intentioned the tenant is, falling behind in rent is a very serious problem and usually indicates much deeper financial problems. Renters in financial trouble will say anything to get you off their back, and if you fall for it, it can cost you dearly. Always send the demand letter immediately followed by the 5 day eviction letter. In the event that the tenant has been faithful to his word and has paid in full, then there will be no damage. You don’t have to go through with the eviction, and now they know you mean business. However, it is much more likely that they will not be fulfilled as promised and you will face the frustrating delays and waiting periods inherent in the eviction process. Trust me, if you want a little more stress in your life, delay the eviction process and watch a tenant stay in your house 45 more days without paying rent. That is to do.
Here’s another example of how being proactive can save time and money: Two homeowners discover that they both have a leaky roof on a Sunday. Landlord A decides to get a roofer that day and fix it even if it costs $300. Owner B is involved in the Super Bowl and decides that he can wait until next weekend when he can go up there and take a look at it. Sunday night it pours with rain all night. By Monday morning there is a 3 day wait to get a roofer. Owner A sleeps well on Sunday night, even though he hears the rain outside. Do you think Owner B sleeps a lot 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 couch, replace the soggy drywall, and pay for a ceiling repair to the tune of $800! If that scenario doesn’t convince you that being proactive is the ONLY way to do business, then nothing will and you should consider hiring a property manager to look after your property for you.
COMMUNICATE
This cannot be stressed enough. Communication with each of your tenants is essential. Being able to clearly, concisely and emotionlessly discuss everything you need your tenant to understand will single-handedly determine your success as a landlord. If communicating clearly and without emotion isn’t your strong suit, make sure you get help from someone who’s good at it; whether you are a family member, partner or professional property manager. Notice I didn’t say “another tenant.” Asking another tenant to be a go-between for you and a tenant is a bad idea. It reduces its relevance and can cause more misunderstandings (especially if those two tenants are friends). If you are hosting tenants who do not speak English, you will need to be proficient in their language.