Investing in rental properties is a great way to make money in real estate and generate positive cash flow. Your real estate career is your key to financial freedom and a stable source of income for your future. However, with all the great benefits that come with real estate investing, there are some risks as well. The number one problem that many investors hate to face is having a tenant not paying rent! This is a very sensitive complication because it has to be dealt with carefully or else the situation can go from bad to worse with a blink of an eye.
Having a tenant not paying rent can drastically affect real estate investors since they rely on their rental income coming from the tenant to pay for other expenses. Many use their rental income to pay for their mortgage, property taxes or other debts they may have. So having to deal with a tenant not paying rent is every investor’s nightmare!
No matter how bad you want to, you can’t just throw out everything the tenant owns out in the street and change the locks on your doors. The law and rental agreement protect both the tenant and the landlord, so anything done outside the law can come and bite you back. Acting impulsively can be more damaging than the actual tenant not paying rent. For this reason, you need to learn how to deal with a tenant not paying rent to ensure that you don’t get yourself into a chaotic mess. Read to find out exactly what needs to be done.
Related: What to Do With a Tenant Not Paying Rent
1. Check the Lease
Between every landlord and tenant, there is a lease agreement that must be met by both sides. The first thing you want to do is check your lease agreement and see what you both signed up for. The lease agreement that the tenant signed makes him/her liable to comply with what is in the agreement or else you as the landlord have the right to take matters into legal actions. You must show the tenant not paying rent the point of dispute in the agreement. This might force the tenant to obey in order to avoid any legal consequences.
2. Understand the Law
Understanding your city’s local law is crucial when dealing with a tenant not paying rent. Each city has its own laws concerning the rights of rental property landlords and tenants which include the right procedure on how to approach the tenant without committing an offense. You need to be careful when going through the procedure to ensure that you always have the upper hand and that the tenant not paying rent has no claim legally over the way the eviction process was conducted.
The law aims to protect both the landlord and the tenant but understanding what laws apply to your area can make all the difference. Some local laws give tenants a “grace period” which gives them time to pay the unpaid rent. So anything you do before this period is over can really hurt you.
Read Also: Landlord Tenant Law: Basics Every Real Estate Investor Should Know
3. Get in Contact with Your Tenant
There are many different reasons why a tenant delays rent or misses a payment. As a real estate investor, you need to have good social skills to be able to communicate with your tenant. Getting in contact with the tenant not paying rent will show your intention of solving the problem. Discuss with your tenant why the rent was not paid on time in a polite and civilized manner. Forcing your tenant to pay rent with an angry temper will only leave you with a bad reputation for future tenants.
Everyone goes through a rough financial path once in a while and this is especially true when renting income properties. You need to take into consideration every person’s situation and the reason behind their inability to pay. Being patient to a certain limit as a landlord could be an advantage and not a liability.
4. Submit a Notice to Quit
After everything that we discussed so far, if your tenant is still not paying rent, then you need to submit a notice to quit. This is considered the final attempt by real estate owners to show the tenant not paying rent the seriousness of the situation. You can either deliver the notice by mail or personally. A notice to quit gives the tenant a fixed number of days to pay the rental amount in full or they will face the eviction process. This is the step before the actual eviction process and tends to scare most tenants. Most tenants start to comply and find a way to get the money so they don’t face forced eviction by the landlord.
A notice to quit is an important step because the eviction process is not allowed to go to court without this notice being sent out to the tenant first. You can consider it as a type of warning for the tenant not paying rent.
5. Eviction Process Begins
Many real estate investors try to avoid the eviction process because the process can be costly when it comes to hiring a good real estate lawyer to win you the case. No matter how tough this process may be, it is the last resort for property owners to get what they’re owed. As the landlord, you can check and inspect your property for any damages and include them in the payments that the tenant needs to pay.
Related: 8 Steps to a Pain-free Eviction Process for Landlords
The eviction process can take a long time and this will only destroy you financially. You will be missing out on the cash flow and rental income from your rental property. An alternative to the long eviction process is to pay your tenant to leave. As bad as this alternative may sound, making a deal with your tenant not paying rent can save you a great amount of money. Offer your tenant a small amount of money in exchange for leaving your property. A tenant who is suffering financially may accept without hesitation.
A Final Thought
Dealing with a tenant not paying rent is not an easy process. As the landlord, you need to know exactly what to do in these types of situations. By gaining the right amount of knowledge and familiarizing yourself with the different scenarios, you can solve the problem without dragging out the process.
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