If you have been a landlord for any length of time at all, the topic of evicting tenants is on your mind on a continual basis. If you have been doing the right things with your tenant screening, it is on your mind a lot less. If you need the rent to pay the mortgage on the rental or you will lose it, you are praying every week it doesn’t ever come to that.
No matter how well you screen tenants, no matter how great your tenants are, you will at some point be in the position where you may have to evict. Divorces happen, deaths happen, people get laid off and people have friends that cause a ruckus so large you have to do something.
Related: Considering Accepting Money after the Eviction? Beware!
One of the first mistakes a landlord makes is to not look at a tenant application like a mortgage application; an eviction is like a foreclosure, but a lot cheaper.
The Tenant Underwriting Process
The first way to avoid an eviction is to get solid tenants to begin with.
You need to make sure the tenant’s income level is high enough to pay rent. And it is verifiable. There are no liar loans in this game; you are not a mortgage broker from 2005. You are loaning your $100K property to a tenant, and you need to do proper underwriting on them before you give them the keys. They need to pay less than 30% of their income in rent. If you charge more than that, any eviction is your own fault; you have set the tenants — and yourself — up for failure.
The second step in the underwriting process is to check the credit score. If a tenant has a sub-620 credit score, you have a less than C-grade tenant. With a lower credit score, the tenant is telling you, “I do not pay my other bills; why would I pay you?”
There are numerous other behavioral indicators that credit score will help you determine, but at this point, know a low credit score is a recipe for disaster.
Have a Plan to Deal with Problem Tenants
In my leases — and most other leases I have seen — there is a clause included that says, “RESIDENT will pay MANAGEMENT the full monthly rent before midnight of the first day of each month.”
That means rent is technically late on the first of the month. But most people expect rent to be paid on the first and do not charge a late fee until the fifth. Some landlords have excessive daily late fees, and that is going to set them up for a Judge discarding the fees altogether. Have a reasonable late fee; if you have a daily fee, cap the total fee at 8% or so.
If a tenant has not either paid rent or contacted you by the first of the month to say when they will be paying rent, you need to be concerned. You need to contact them, either with a courtesy call or a cure/quit notice, and see what the problem is. If they do not return your calls or pay rent, you are headed down a slippery slope.
Once the late fee date passes, and you do not have the rent, you need to act fast. Some people like it when their tenants pay the rent late. They want the late fees. But when a tenant pays late, it is only a matter of time before they do not pay at all.
Late Rent Payments
Knowing that rent is always due by the first, a tenant who is going to pay late should at least have some money on the first — and certainly some more by the late fee date.
I would like to see at least half of the rent on the first if they cannot pay it all. You need to ask how much they can pay and get it in your hands as soon as possible. Even $100 shows good faith. I have had tenants tell me they have $300, and by the time I get it a few hours later, it is already down to $280. Any money in your hand could mean the difference between a good month and a bad month. If you are in a state that does not allow an eviction when a tenant pays partial rent, never take anything but the full amount.
It is not out of line to go into detail questioning how much money the tenant has, why it is late and requesting proof that they can actually pay. Most tenants would prefer that over an eviction notice straight away.
If a tenant is going to be late, hopefully they will have contacted you and made arrangements to pay. Or they have made an arrangement to move out by the weekend. It is always preferable to have a mutual agreement to terminate the lease and move out voluntarily than an eviction. But sometimes that is not possible. Never let the move out go longer than a week or you will be facing a sure eviction just later in the month.
When to Evict?
If the late fee date passes and you do not have any money in hand, and your tenant has not returned your calls, emails or texts, or you do not have a date that rent will be paid, you must file an eviction as soon as possible, preferably by the 6th. If the tenant said they were going to be late, and said rent will be paid on Friday, and Friday comes and goes, file an eviction on Monday. If they say they will have rent on the 10th, get as much as you can on the first and the rest on the 10th.
Most landlords who file an eviction wait way too long to file it. If you are waiting longer than ten days to get a resolution for unpaid rent, you should be evicting, not waiting longer. There is always some windfall …read more