When is the last time you dealt with a small delinquency?
“But it’s only $300. Can I add it to next month’s rent?”
Small Delinquency balances are a source of headache for all landlords. They seem insignificant and not worth a fight. Over time, though, these small balances and headaches just set you up for failure.
Set a limit. $100/$200/$300 and if it gets above that. Your “small” balance is no longer small. It is significant. Because you made it significant. Or 10%/20% of your monthly rent amount so that it stays consistent across rental units.
I had a property manager ask me how I would handle this situation: a tenant who conistantly pays late, seemingly is always carrying a balance, but has lived there for several years and now has a $400 balance, what to do with him.
Answer: Set him/her straight and get a new habit set. This is a habit. You have allowed this to go on for years and now, he/she thinks it is okay.
Here is what is going to happen. This tenant is going to continue underpaying your rent. From there this tenant is going to lose his/her job and be unable to pay rent. At that point, instead of being out just 1 month’s rent + eviction fees and vacancy, you are out whatever balance you carried on top of all the other amounts.
From there, you are going to have to answer to ownership as to why you didn’t start the eviction process sooner and why he/she is now out a tenant plus all of that money. If you own the property and manage it, you’re just hamstringing yourself and asking for financial hardship.
Policies are set for a reason. They are theory based without emotion. Because when the day comes that you have to enforce policy, emotion will be there. Answering with “I’m sorry, I can’t help you, it is company policy” is a simple solution to this problem.
Here is how to avoid this:
1. Qualify all renters through your application process.
- Credit score, background check, rental reference and INCOME VERIFICATION.
- 2.5 – 3X Rent should be your standard. Nothing less than 2.5X the rent (which would mean rent is 40% of their gross earnings)
- 33% to 40% of gross earnings is a lot, yes, but if the renter is conscious with their money, they can afford your rent.
2. Have a “grace” balance. This is the balance talked about above that is the allowable amount of the balance to carry without processing an eviction.
- This has to have a policy behind it as well. This balance can only be held for XX days per calendar year. After that point, the eviction process will begin.
3. Implement a 1 time only payment plan policy.
- A payment plan allows tenants the flexibility to have that emergency once a year that no matter who you are, happens.
- The payment plan needs to have strict guidelines and deadlines which will be up to you to enforce.
- I would not make it more than 1X/Calendar year and make sure that you are documenting this on their tenant profile. Don’t fall for the “but this is my first time this year”.
4. Set precedent.
- If you allow it 2 times and your policy is 1 time, your word and your policy are as good as dog sh*t. Be fair but strong. You qualified them based on their ability to pay, not their ability to convince you of their inability to pay.
When the property is yours and you manage it. Emotions get in the way, you bend your own rules. You make your own rules. You created these policies for your own sanity and financial well being. Follow them.
If you manage other people’s property, the owners expect the policies you pitched them to be followed and if not followed, you may be the one paying that carryover balance.
Don’t let small balances become big headaches.