what to do when tenant does not pay rent

This is a troubling time full of doubt in the world. All the same, some things are pretty certain. One of those things is that a lot of people are not able to work due to the virus and the social distancing nosotros're engaged in correct now. And equally a landlord, many of these unemployed workers are renting from us.

So, what do we do?

Of class, if you're not a landlord, you lot're probably wondering, "What's the big deal? Simply practice the nice matter and don't make anyone pay rent."

But nosotros know that'southward non necessarily possible, right? I hateful—unless the government changes something—we aren't simply going to be able to finish paying our mortgage payments, our taxes, the insurance, and everything it takes to go along our properties running in all other ways.

And despite what the general population thinks, nigh landlords are not rich, greedy, multinational corporations with billions sitting in the bank. Most landlords are people just similar you and me—people who, whether by accident or on purpose, ended upwards with a few rental properties and are trying to manage them while also working a job or running a business.

Most won't be able to pay the bills on their properties long-term without receiving rent from our tenants.

And so, what do we do?

Well, I tin can't answer for yous necessarily, every bit we all take unique situations. Merely I can at to the lowest degree share with you my exact strategy that my wife and I have come up with. Here's our five-betoken plan for dealing with tardily or missing rent.

How to Deal With Late or Missing Hire as a Landlord

Step ane: Have a Plan

Ok, this is kind of a summary bespeak, but information technology needs to be made. Whether in the Wild W or dealing with a tenant, shooting from the hip is mostly a pretty terrible plan. Making decisions on the fly ordinarily results in bad decisions being made, so step i is commit to having a plan written downwardly for how you will deal with this issue.

Related: The Impact of Coronavirus on Real Estate Markets

Because for most property owners, this is non a question of IF just WHEN. Maybe this tin can become a programme that you follow, just even if y'all do something entirely different from what I'm about to say… just be sure you are prepared. This fashion, you lot won't be shooting from the hip when that dreaded call comes in from the tenant who only lost their task.

Step ii: Sympathise

Now, the remainder of the steps here are more physical, merely I want to make sure we address this. Tenants are people, and they are going through a remarkably scary time, every bit well. Peradventure it'southward fifty-fifty worse than y'all're going through, because y'all're probably more financially educated than many of your tenants.

So before annihilation else, mind to your tenant. Talk with them. Understand with them. Nosotros're all in this together, so let's recollect to be human and keep people earlier profit in our discussions.

At present that said, we still demand rent. We tin't survive financially without it. So, that brings me to step three.

Step iii: Explicate That Rent Is Still Due

For as long as at that place have been tenants and landlords and bills to exist paid, there is a super interesting slice of man behavior at play: People will pay the bills that requite them the greatest upshot of not paying. In other words, most people financially struggling tin pay near of their bills—only non always all of them.

This is why belatedly fees are so vital in normal landlording. When the choice betwixt paying rent and buying a apartment-screen Television are presented to a tenant, the tardily fee and threat of eviction tips the calibration toward using that money to pay rent.

Merely we're not really dealing with flat-screen TVs today, are we? Regardless, the principle still applies. It's probable your tenant is going to have to make some serious decisions on which bills are being paid. This is why after talking with the tenant and sympathizing with them, I believe it's still of import to let them know that the rent is still due.

As I'm certain you've heard, evictions are being suspended in almost areas of the U.S. correct at present. The ability to event a late fee might also be banned before long. Your tenant very well might presume that this means the need to pay hire is being suspended, and it's your job to inform them otherwise.

Even if you can't adios right now, it doesn't mean they still don't owe the hire, and it doesn't mean you won't evict when the courts open back up. You don't need to be a jerk nigh it, but letting them know that you have a mortgage and other bills to pay is going to be important.

Step iv: Give Your Tenant Options

Once you lot've explained that the rent is withal due, now it's time to aid the tenant navigate this difficult time. We plan to do this by giving them their options, equally they may exist unaware of the dissimilar ways they could come up with the rent.

Related: BiggerPockets Podcast 374: What Existent Estate Investors Demand to Know Nearly the Coronavirus, the Economy, and the Problems at Your Door

First, we plan to continue an eye on programs that the government is designing to help tenants. This is a apace changing time, then we'll keep current on help programs. Right now, at that place is a very existent possibility that the government is going to issue cash payments to every developed American, which could help. But even if they don't, in that location may likely be local, country, or federal programs that could.

Also, we are going to offer other suggestions, too. For example, could they borrow the coin from a relative? Or could the hire exist paid via credit card?

In fact, to help where we can, we plan to offering to pay the fee associated with using a credit card. Now would exist a skillful time to get prepare with a rent drove organisation that has the ability to get paid via credit card. Companies like Venmo or PayPal can handle this, as can property management software companies like Buildium, AppFolio, or Cozy.

Step 5: Emergency Rent Deferral Plan

Now, this is where I promise my tenants don't lookout man this video—because I don't want the tenant really knowing this is an option. If I brought this up at the beginning for tenants, nigh everyone would bound at it. Remember, humans will naturally pay the almost pressing bill, so I need them to know that hire is incredibly high on their priority list.

And so, step five is our "worst-case" measure that will only exist mentioned to tenants when they don't pay their rent—non when they call and say they won't exist able to. Nosotros volition withal let the tenant know that hire is due on the 1st, give them the options I just mentioned, and even still issue a late-discover to the tenant if they miss rent.

But what if they really accept wearied their options and but can't pay the rent?

This is where nosotros will introduce the tenant to our Emergency Rent Deferral Program, or ERDP. And considering we followed stride i above, we accept a specific programme in place to deal with this inevitable state of affairs. Having this documented plan in identify shows the tenant that this is non us winging information technology—but we have a system in place to handle it.

(More than on that in a second.)

Commencement, at that place is a actually of import question we volition ask each tenant: "How much CAN you lot pay toward your hire?"

Chances are, even if they can't pay all their hire, they can probably pay some of their rent. Maybe their rent is $1,000 per month, and they can only pay $300. We'll take that $300 and motion onto the ERDP.

So, what is the ERDP?

Simply put, the ERDP allows the tenant to opt into a payment programme for their hire over the following 10 months. The ERDP is an addendum to their lease that gives them the ability to accept their rent and pay it in equal portions over the next x months (start the 2d month after enacting). It basically gives them an extra month before the increased payment begins.

For example, let's say nosotros've gone through all this, but the tenant just cannot brand the April 1st rent. They owe $one,000 in rent and because nosotros asked what they can put toward it, they are able to pay $300. The remaining $700 becomes $70 per month and gets added to their rent beginning June 1st.

So, starting June 1st (not May 1st, and I'll explicate why in a second), they will pay $1,070 per month in rent until side by side March.

Why non offset the payment next month? Simply because I have a strong suspicion that this is not going to end that quickly and a 1-month deferral may not be enough fourth dimension to get back on their feet. This is why we're going to wait an extra month earlier adding the extra amount.

Furthermore, information technology is our company policy that during this time, a tenant will exist allowed to employ this ERDP twice. Of course, we won't tell them this immediately, because nosotros desire to work through steps one through four offset on the next calendar month, every bit well. Rent has to remain a priority.

If later two months they are however unable to pay, the tenant may just demand to exist removed. This is completely uncharted territory we discover ourselves in today, so I'one thousand not going to prevarication to you and tell you I know exactly what we'll do then. But the government tin't forever stop evictions and stop making people pay rent while continuing to force mortgage payments and foreclosures—or well-nigh every single landlord in the state will eventually go bankrupt.

Something volition give somewhere.

If this social distancing, job loss, and potential economic meltdown continues, we'll make new rules equally it happens. My guess is that the government volition offer more and more programs to endeavour to help, because call up—you and I are not in this alone. Anybody is trying to figure this out.

And we will. Humans have an incredible ability to figure stuff out when the night is darkest. We will get through this. We volition survive. We will emerge stronger.

I hope this sheds some light on what I'll be doing in my personal rental portfolio to handle potential rent issues in the near future. Maybe yous'll be doing something different—and that's great. I encourage you to share your thoughts beneath and let united states of america know what your plan is. And perhaps together, nosotros tin help the world move frontwards financially.

If yous're a landlord and are looking for more advice on managing rental properties, my wife and I wrote a book called The Book on Managing Rental Properties, and it's full of tactics, tools, and strategies for navigating the messy world of landlording. Perchance now is a good time to go some reading in and brush upward on your skills.

Don't forget that the economy cannot finish your work ethic. It cannot stop your drive. It cannot cease your quest for self-education, self-improvement, and personal growth.

If you're a landlord, what is your programme for late or missing rent?

Bring together the give-and-take in the comment section below.

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Source: https://www.biggerpockets.com/blog/tenants-unable-pay-rent-landlord-advice

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