It Can Happen: 3/4 of Tenants late

December 29, 2008

As some of you may know, I became a landlord earlier this year. I now own two duplexes (4 units), one advantage of which is that it is very unlikely that all my tenants will be delinquint at once.

Unlikely, but not impossible of course.

So far this has worked out well. Earlier this year one tenant was 30 days late paying her $1,095 rent. Not that big a deal – the other 3 tenants were paying and I had no cash flow trouble while I waited for her to get caught up (which she eventually did).

Another tenant has taken to paying late on a regular basis. This I have been able to deal with because the other 3 have been paying on time. I’ve had no problems making the mortgage payment before I get that month’s rent in full (plus late fee of course).

They might each miss a payment now and then, and I’ll inevitably deal with vacancies, but having 4 units helps me sleep at night because even if one is vacant or delinquent, in theory I will have the other three paying tenants to support me.

Theory, as it turns out, works out much better on paper.

One of my tenants missed his November payment, as usual. I waited to be paid, which usually happened about 15 to 20 days late every month. Well, the 30th rolled around, and he called me – not to schedule a payment but to apologetically inform me that he couldn’t pay and that he was moving out instead (allegedly he was laid off).

Conveniently, he had arranged for a friend to take over the lease, which began in December. But I was still out November’s rent money (though the former tenant claims he will eventually pay me, which I’ll believe when I see it).

This is the kind of thing that would have been not that big of a deal except that his neighbor, my other tenant, didn’t pay for November either. Her husband got laid off, her ex-husband died unexpectedly, the grown kids all came to stay during the funeral, blah blah blah. She begged for time to make me right (and she always has), so I gave it to her.

That was November – two tenants out of four didn’t pay. OK, no big deal, I have reserves. At least my other duplex was doing great. Both tenants pay on time, every time.

Except for in December. This month I received only one rent check from Duplex 2. The other lady has still not returned my calls or invoices or emails, and it looks like I may have to begin the eviction process as she is 30 days late tomorrow.

Meanwhile I still haven’t received rent from the tenant with the laid off husband (though we are supposed to meet today so I can collect November AND December rent from her in person).

So in summary, I have 4 units. For the months of November and December I should have collected – but have not – an additional $800 for unit 1, $1,600 for unit 2, and $1,125 for unit 4.

My checking account should be $3,525 higher today than it is. UGH. And I had to scrape together almost all of my reserves to pay my property taxes before the year is out. HOPEfully when I meet with the lady from unit 2 today she will pay me the $1,600 in full that she owes for these last 2 months. That will help.

More on Meg’s landlord adventures at The World of Wealth

24 responses to It Can Happen: 3/4 of Tenants late

  1. That is crazy but that is what is expected on this economy. I have a multi-fam unit that I live in one of the units and rent the other one, I try to keep the rent below average so I can select which people I can rent to. I have had the same tenant over 2 years now and pays usually on time every time. I think he was late once and it was only like 15 days late. But i know how it feels, real estate is not fun…

  2. Thanks for reminding me why I invest in the stock market rather than in rental real estate.

  3. Have you considered a service like ClearNow?

  4. We’re in the same boat, in this past month we had to give 3 eviction notices to our 3 roommates if they do not pay. We figured the same thing with having multiple tenants, we could reduce our chances of having them all delinquent.

    I don’t know your state’s laws, but in Illinois after 5 days of being late you can theoretically start the eviction process. We’re not going to be that strict, but we have decided that once they are behind by a month, we do start the eviction process, no matter the excuses.

  5. In my area, people that are late a single day are served notice that eviction proceedings are started and they are required to pay the rent, plus penalties, plus filing expenses. While it’s nice to give your tenants the personal touch and leeway, you need to establish, from the beginning, what your expectations are financially and what the ramifications are if those expectations are not met. Deep down, tenants always think their landlords are a lot richer than they are and really don’t need the money.

  6. Sorry to hear of your challenges – at least you have proper expectations and had prepared ahead of time. Investing in real estate can be a great strategy but it definitely isn’t a “passive” way to earn income. Good luck!

  7. Revisiting your 12/26 post…sounds like you should be boosting your cash reserves.

  8. @ Sick of Debt – I don’t know what day I could begin eviction proceedings (probably after 5 I think I read somewhere), but my personal guideline is after 30 days. It’s not fair to me or the tenant to let them get 30+ days behind and expect them to catch up. Then again I’ve had tenants go 10-20 days past due and catch up with no problem, so I’m usually lenient until 30 days IF they are forthcoming and proactive in letting me know their situation and plans.

    @ Jimmy – You’re right, and although they owe me the money fair and square per their lease agreement, I don’t mind subtly reminding them that I have a mortgage and taxes and insurance and maintenance to pay and that I can’t do it without their cooperation. It justifies my late fees to (you pay late, I pay late), not that I should have to.

    @ Stacey – You’re exactly right! In fact I was already thinking that come January I may need to suspend 401k contributions altogether for a month or so just to stack up some more reserves!

  9. Ugh! What a nightmare scenario. I hope it works out soon. Would a management company help?

  10. Can you arrange to have their rent payments automatically charged to their checking accounts or credit cards? That way, you’d get paid automatically regardless of whether they remembered or not. That’s how many of my bills get paid (not that I’d be late, but it’s easier all around).

  11. Sadly this is definitely a sign of the economy. It may be worth trying to work out a payment plan for your delinquents than giving them the boot – it may be even harder to find another tenant and if you can get something it’s better than nothing.

    My only caution would be, make sure they understand it’s not a right off and they are still in arrears. Make them sign something, some type of repayment agreement.

  12. Tests prove it, 75% of renters are deadbeats. 😉

    In the apartment that I used to rent I was late once in the couple of years I lived there. They had a strict policy that if the rent was 10 days late, you would come home to a notice under your door that the eviction process was started unless rent was received within another 10 days. The people running it were pretty open to options when we visited short on cash, but they were obviously protecting themselves. I think come the new year you should institute a similar policy.

  13. My tenant is 2 months late. Every week it is another story. I am taking my house back on Saturday and I will be glad just to get it back. I hope there is no damage. If they don’t pay by the end of the week I will have to file with small claims court but I still have hope that they will come through. Maybe I am too optimistic. It was a bad ending for this lease but over-all I made money on the deal. I was lucky to have enough cash to cover the mortgage without the rent. It would have been too stressful if I didn’t have that cash reserve.

  14. You have to hope that the tenant two months late doesn’t then vacate the premises without notice and move interstate (little chance of chasing up back-rent and any damage claims then). My current rental property has had a series of good tenants, but I previously owed a house in a poorer neighbourhood where tenants regularly trashed the property and then disappeared after they had fallen behind in rent payments. The back-rent owed was more than the rental bond, so I ended up out of pocket for repair costs each time, plus lost rent while I making repairs and repainting the house before it could be leased again! Good luck with investing in real estate while the US economy slides in recession and unemployment peaks.

  15. Wow. Definitely not for the light hearted. I’d definitely want to own something very close to me so I could harass/encourage them to pay.

  16. So, maybe I’m a hard nose. But, we have 8 rental units and we don’t mess around with late payers. If they are late, they get charged a stiff penalty. We stay on top of it every month tightly so they don’t go unnoticed. If they don’t pay within two weeks, we call and remind them of the lease agreement.
    If they miss a month, they’re out. we begin the process of eviction. We have only had to do this one time. And that was before we got smart.
    Now, we really don’t have the problem. We have the rent at a fair rate and the units are kept nice. They are brand new when we build them and we keep them well maintained. So, we usually have plenty of people that want to live there. We’re really strict. But, I couldn’t handle it if we had to deal with people who didn’t pay.
    We also require a month or a month and a half for deposit, so if they do skip, we aren’t out a huge amount unless they rip us off or damage severly, which has again, only happened once.
    The units are in our town, which is very small. And we have my dad living in one of them, who tells all when people are skippin out.
    It works well for us. But, I have heard stories like this. Unfortunately, we live in a world of dishonest people.

  17. by the way, I disagree with bankerbryan (sorry bryan). I think this is not a sign of our economic times. It’s a sign of dishonest people. Housing and food should be priority payments for people in financial trouble. Not cars and toys.

  18. @ Tina – my tenants are definitely not dishonest people. I don’t know if it’s the economy or not, but 2 of my tenants have been laid off and the other delinquent one I haven’t heard from yet. Of course they all have jobs like “bartender” and “furniture mover” which is part of it. Those jobs come and go quickly in many economies. But I do agree with you on charging a stiff late fee and requiring a month of rent as a deposit – I do the same thing.

    PS – last night I collected $1000 from one of the tenants (the woman whose husband was laid off but is now apparently working as a furniture mover in some capacity). That brings her current through mid December, so I’m happy with that for now. I’m confident they’ll be up to date by mid-January. They are really trying, and she says they really like living there.

    I’m posting a notice to vacate to the one who won’t call me back as soon as I get back from Vegas on Friday. Looks like I’ll get to learn all about small claims court in 2009! Stay tuned.

  19. I am a multi-unit landlord in Michigan. By sad experience, I’ve learned to send a 7-day notice after the tenant is late (end-of-day on the 3rd). The notice is “pay rent or quit”, and it is the informal beginning of the eviction process. That way I have my bases covered if they don’t pay when promised. I am not heartless, I am working with some slow-payers right now, but if 1) they don’t contact me to let me know what’s up and/or 2) pay SOMETHING, then it’s off to court we go. I am not sure why anyone would let someone slide for 30 days before filing, but state laws obviously differ, so “your mileage may vary” !

  20. I don’t understand don’t you make sure to get a security deposit? I had to give two months worth of rent before being able to sign on.

  21. Wow, I hope you got a large security deposit.

  22. I’m sorry you are going through this. I have a small building next to my house with an apartment in it. My tenant seldom pays exactly on time but she’s never been a month late. I don’t worry about it, I know she’ll turn up with the money at some point. She’s a blessing. She takes of my house when I’m gone, feeding my dog, watering my plants and bringing in the mail. My water heater sprung a leak once when I was on a two-week vacation and she dealt with it. I have no idea why she always pays late and I don’t care. I’d much rather have her, paying when she can, than have someone pay exactly on time and not be such a big help to me.

  23. I feel your pain. We only have one rental property. Our tenant, who is otherwise fantastic (single woman, no pets, takes immaculate care of the house) is a real estate agent. As you can imagine, things are rough for her financially. I’ve decided that I’m willing to let her pay late (so far the latest she’s been is nearly 45 days) because it is worth it to me to have someone I trust in my house. In addition, she keeps in constant contact with my property manager, and my property manager keeps in touch with her broker.

    My choice wouldn’t work for everyone, but it works for us. Fortunately, we have the reserves to deal with it. If this situation had occurred when we first became landlords, we would have been big trouble because we didn’t keep sufficient cash reserves on hand. We now keep no less than three month’s expenses on hand, just in case.

  24. Hmmm… It sounds good on paper… you know that’s what they said about RMBS as well!! 🙂 Sometimes risk isn’t about the numbers… Good luck and hope it all works out