As a landlord you count on your tenants to pay rent on time. Many landlords count on rent to pay mortgages or bills. It is all part of their cash flow. But what happens when a tenant fails to pay rent? Not all failure to pay rent situations are malicious. There are several legitimate reasons why a tenant may not be able to pay rent on time. Albeit it’s not ideal but it’s important to understand why. Communication is critical when facing this issue. If a tenant has lost their job or is facing a major medical issue, it may not be in anyone’s best interest to immediately start the eviction process. It’s important to empathize but not make the problem your own So, what are a few of your options?
Family and Friends
Discuss seeking help from their closest friends and family. Often this is the easiest and quickest way for a tenant to get financial relief and support during a financial setback. Family may be more forgiving than a landlord may be willing or able. By seeking assistance from those closest to the tenant they may be able to defer repayment longer, may not need to pay interest, or might not have to pay it back at all if they receive the funds as a gift.
There are many charities that are setup to assist tenants who fall short on rent. These charities will often pay a few months of the tenants rent to help them get back on their feet, pay rent on time and avoid eviction. A quick google search will reveille several charitable possibilities.
Credit Card Cash Advance
Tenants might have the ability to cash advance a credit card to pay rent on time. The tenant may be able to get the cash they need from their credit card. This option allows the tenant to pay back the amount they need over time, or in full when their situation corrects itself.
401k Loan or Withdraw
Does the tenant have a 401k or other retirement account, it may be possible to loan themselves the money from their 401k and pay themselves back with interest they earn. Another possibility is a straight withdraw. Either of these options may come with severe penalties or tax implications so ask them to seek the guidance of their tax professional or retirement administrator.
Pay Day Loan
Pay day loans are a way for a tenant to gain quick access to cash when they come up short and pay rent on time. Obviously by the name of the loan type, the tenant must be gainfully employed. This is usually an option when the amount of rent they owe is already partially available. These companies charge a higher rate of interest, and the loans are meant to be short term. It may be the assistance the tenant needs to get over a very short-term financial setback.
If a tenant has cash flow problems and cannot pay their monthly rent all at once, setting up a payment plan may be the answer. Being willing to accept partial payments over the course of the month could guarantee that you receive your full rent payment, while making it possible for your tenant to recover from their cash flow issue. You can negotiate how you would like to collect the payments – weekly, bi-weekly, etc. Setting a strict payment plan and following up with the tenant regularly is the key to success. In some cases, you may want to consider putting in place accruing interest (like a credit card). Payment plans work best for trustworthy tenants that are facing temporary cash flow issues.
Another option to assist a tenant that is having issues paying their rent on time is to help set them up with a roommate. We are not saying that you should force a stranger on them, but by suggesting it as a possible option and then helping with revising the lease and any related paperwork, everyone may benefit. Now, this is not always an option, since some tenants may have families, or the property isn’t equipped to accommodate multiple people. But in the right circumstances this could work to help alleviate any financial strain.
Forgive and Defer
In extreme cases, such as a natural disaster or a life changing event, you could choose to forgive your tenant’s rent payment for an agreed upon period. You can negotiate to add the missed rent payments to the end of the lease term. This only works if you are confident your tenant will be able to pay any back rent owed and if you are able to financially take on the responsibility of no rental income for a given period.
If all else fails or your tenant has maliciously held back rent, eviction may be the only remedy available. Evictions are stressful and can be expensive, so you should always weigh your options before beginning the procedure.
Whatever agreement you come to with your tenant, it is imperative that you put it in writing and have both parties’ sign. Consider going the extra step and having the signatures notarized as well. It is important you do everything possible to protect yourself legally and financially. Many landlords hire property management companies like Blue Roof Property Management to deal with issues just like this.
When rent is late I suggest making it a habit to issue a timely notice of eviction for non-payment. When tenants are late on payment of rent its important to protect your rights too. You can always choose to delay filing the eviction case in court if you want too and the tenant’s situation warrants it. If you wait to serve the notice you only delay your options, should you need to follow through with an eviction.