Many landlords have been hit by many obstacles that are related to being in the rental business, but none are as big of a blow as the non-payment of rent. Getting that call around the first of the month is like you walking into your boss’ office on a Friday afternoon at 5pm only to hear, “I won’t be able to pay you this week can we work something out.” These words are devastating to the employee and in many cases are even more devastating to the landlord when his or her rent is not paid. There are some options I have used in my Landlording career to combat this horrible and unfortunately inevitable event in a landlord’s career.
Landlord Non-Payment Options & Solutions
Eviction – The first and most common option is to evict the tenant. The obvious pro to the eviction process is you get the tenant out of the unit and you cut your losses. The ultimate question this option faces is, “Did I cut my losses or did I lose my profits?” The cut my losses part of this dilemma is you get rid of a tenant who just wants to live somewhere for free or the individual who just can’t afford your rent.
When looking at this side of the dilemma eviction is the right choice and let’s stops the financial bleeding now so we can get back to a cash flowing property. However, this would be the pro of filing an eviction, but does filling your eviction lead to you just losing your profits and could have possibly saved your cash flow if you had went another route?
Let’s face it when you evict a tenant you aren’t given money you are awarded a judgment. In a perfect world if I could go to my bank or local hardware store and use the judgment awarded to me as cash I would be a happy camper, but sad reality is the eviction only negatively effects the tenant’s rental and credit histories.
Payment Plan – In my personal experience with tenants sometimes life happens. Funerals occur, paychecks don’t get paid on time, jobs lost, and car accidents happen. Sometimes we as landlords need to come up with a plan B instead of seating in our local JP courts and evicting the tenants. This brings us to the second option, sometimes sitting up payments plans can allow tenants to get their payments back on track and build an enhanced level of trust or accountability with your tenants.
Work For Rent/Barter – The third option is what I call the work for rent or the barters’ option. The work for rent or barters’ option usually works with tenants that have a proven skill that is useful to you as a real estate professional such as plumbing, flooring, roofing, clerical, etc. This option allows the tenant to pay the back rental payments in full or in the combination of partial service plus monetary payments via the exchange of services for rental payments.
The pros are you get a product or service usually at a better price or predetermined price due to the tenant’s situation to make this agreement work. Another pro of this arrangement is you build a trust with the tenant that can lead to future occurrences that heavily benefit you as a real estate owner. An example of this in action is your repair budget for the month is low or over budget, it happens, and you need a certain repair completed now. You get the call that the shower needs to be replaced due to it leaking behind the wall. The tenant has done this type of work for you before or in conversation told you they have experience in plumbing and tile work.
You contact the tenant to perform the repairs in exchange for an agreed upon portion of the rental payment to be deducted from that month’s rent and used as payment for the tenant to perform agreed upon services. The tenant repairs the leak behind the wall and replaces the tile needed to close back the wall. You and the tenant agree to a price of $200.00 and their $800 rental payment for that month now is $600. You buy the materials, tenant does the repair, and the repair is completed. Normally you as the landlord get these services completed at a great price due to it being credited as part of the tenant’s rent.
Landlord’s Risk Note – The work for rent or the barters’ option is probably the most risky of the three options given to you in this article and of course has several obvious cons. First con of this option is can the tenant actually do the work that they say they can complete. If you do choose this option it is highly recommended that you get referrals from past clients to see if their work is satisfactory and done in a timely manner.
The second con is that most of the time you will have to purchase the materials to complete the project. This con is the most obvious due to the fact that the reason you are in this situation in the first place if the tenant is behind on the rent and at the moment low on cash.
The third con often times deals with you having to act as the contractor in order to make sure the work is completed and done in a timely manner. There are times investors pick this option and often end up with the triple whammy of buying materials, not getting the work completed, and falling further in the red. KNOW THY TENANT BEFORE OFFERING THIS OPTION PLEASE!!!
Conclusion of Dealing with Non-Payment of Rent
In conclusion the point I’m making is as a successful landlord you have to know when to file an eviction or when to work it out with your tenant. Again know thy tenant. If your tenant usually has a good rental history then foregoing the eviction and working things out can be a great option, we all fall on hard times. If your tenant is the master of excuses then it’s time to see your local judge at the justice of the peace. Thanks for reading and successful investing. God Bless