My business partner and I have developed a fairly aggressive collection process which we’ve implemented in our property management company. It begins with a rental invoice that is sent out 10-12 days before their rent is due. Then we do reminder calls and emails a few days prior to the due date. Following the due date we make several phone calls, send multiple emails, mail well-timed letters and even send text messages. The process culminates with a rather abrasive “Notice of Intent to Evict” posted on the front door of a resident’s house or apartment. If our office has not received full payment by the end of business on the 15th, we evict. This may seem heavy handed if you do not have rental properties. But the process delivers results.
Believe it or not, all of these guerrilla tactics are a form of compassion.
Experience has taught me to mind the money. You’re probably thinking, “Wow, Josh. What an insightful revelation” (sarcasm intended). I know. It seems like a pretty basic lesson to learn. But I frequently see this obvious basic ignored by novice and experienced investors alike. There are times when it seems easier to be a non-profit organization instead of a responsible landlord.
Tenants are like children, and I’m not being condescending. I love my kids. If I compare them with anyone, there’s a reason.
My son just turned 3 last month. Over the last 3 years we’ve developed a bedtime routine (kudos to my wife for this). First we go upstairs and brush his teeth at about 7 o’clock. After his teeth are sparkling, we’ll head into his room and get him into his PJ’s. Last we’ll cuddle into his bed and read stories. Three stories. No more. No less. And every night, once that third story is over, he’ll look up at me with his doe eyes and say with a faint whine in his voice, “I wanna read one more story.” It happens every night. It doesn’t matter that I’ve told him no every night for at least the last year and a half. He still asks for one more.
Here’s the child-tenant connection.
I have tenants who have rented from me for more than 3 years. Every month they get an invoice from my office detailing what they owe. Every month they get a phone call a few days before the due date for their rent. In some cases, every month they get countless calls, letters, emails and text messages. And in at least one case, every month they receive a notice posted on their front door. But without fail, every month a tenant will ask to pay after the 15th. It never fails.
Why Not Give Them Another Day?
Reason #1: I’m a Heartless, Money-Grubbing Miser
While this may be true, it’s not why I’m so strict on my collection efforts. This is just what my delinquent residents think.
Reason #2: Because That’s Not What the Lease Says
Leases are funny things. When they’re written well, these pesky documents protect the landlord and the tenant. I explain this to people before they sign the lease. Before they move into a property, they’re subjected to a rather intense review and explanation of all the paperwork. From that point forward they know what to expect from me and what I expect from them. It’s crystal clear. I do not want to muddy the water.
Reason #3: Catching Up is Nearly Impossible
Most people get either 2 or 4 paychecks each month. When someone doesn’t budget 1 (or 2) of those paychecks to pay rent in any given month, it’s unlikely they’ll be able to budget 2 (or 4) of those paychecks. Once the payment has lapsed beyond the 15th, we’re already dipping into funds for next month. Now next month is late, and the next, and the next. It begins a perpetual cycle with no end in sight.
Reason #4: It Sets a Bad Precedent
If I gave in every time my son asked for another story, he’d throw a fit on the one night I stood my ground. And rightly so. The same principle applies to the tenant. If I push the date range one month, they’ll learn to expect it in the future. That’s a precedent I do not want to set.
Reason #5: I HATE Evictions
I enjoy managing properties – my own or those owned by others. But I hate evictions. Every single one of my collection efforts are designed to keep the tenant (and me) out of eviction court. It’s a losing proposition for everyone. The evicted tenant end up with a black mark on their rental record and a judgement on their credit. The property owner loses rent, legal fees and repair costs. And I waste my day waiting in a freaking court room.
As for my exciting downtown appearance last week, there was no resolution. The case was continued until June. Until them, I’ll continue to appreciate the process that keeps me out of court – at least most of the time.