I now have four tenants - two in each duplex. Only ONE is current on his rent.
NEW DUPLEX
Tenant A - His rent is due on the 1st, and he paid on the 6th after I called him twice. He seemed anxious to have the rent paid and even drove the payment in and dropped it at my PO Box despite me telling him it was OK to just mail it. He lives there with a wife and baby, so I hope he'll be a reliable rent payer.
Tenant B - Her rent is also due on the first, and after finally getting in touch with her Monday last week she promised to mail it that day. It hasn't come yet, so obviously she didn't mail it. I finally got in touch with her again today after several increasingly threatening phone calls and emails (plus I called from another number and she happened to pick up), and she says the earliest she can pay is the 15th when she gets paid. I made her promise to do so, but she sounded reluctant, which makes me think her paycheck might already have been spent prematurely.
She's young and it doesn't seem like the idea of not paying what she owes has really occurred to her (my greatest fear); I think she's been avoiding me because she feels guilty she can't pay the rent - apparently she's been having 'family issues' which is why she is moving out 9 months early on August 22.
I tried to play the "I'm on your side" nice card and reassured her that it's much better to stay in communication with me and let me know if she's going to pay late so that I don't assume the worst. I feel like it may take some threats to her credit report to get the rent check out of her, though. Plus I plan to be waiting for her at the property when she gets home Friday...
OLD DUPLEX
Tenant A - Tenant A's rent was due July 15th, and they called me to let me know they couldn't make it due to all kinds of financial issues they had with one account that got severely overdrawn. We worked out a plan and they promised to pay their July payment on August 15th and their August payment on August 30th. Something tells me that might not quite work out (if they can't afford one rent payment in July, how will they afford 2 in August?), but that's what they agreed to, plus late fees on both checks.
They're very forthcoming and communicative, at least, something I took for granted until dealing with Tenant B in the new duplex. They usually pay on time, and I'm confident they will eventually pay.
Tenant B - His rent is due the first, but he pays late on a regular basis. He has always paid, though, and he always calls me to let me know what's going on and when he can get it to me. He said he'd pay his rent the 12th (tomorrow), so I expect a call from him in the morning. He'll probably even drive it in to me, if I know him.
CASH FLOW CONSIDERATIONS
Cash flow on the new duplex is fine for several reasons: 1) one rent payment will almost cover my mortgage payment since I don't escrow; 2) my first mortgage payment isn't due until September 1 even though I've already received 2 rent checks and should get one more before then; and 3) today I received both tenants' security deposits ($2K total) from the previous owner. So that account has almost $5K in it even though my monthly mortgage is only $1,155. So cash flow wise I should be fine for awhile - until property taxes are due, to be specific.
Cash flow on the old duplex is more precarious. The account has $147 in it, so I need at least one rent payment in order to be able to pay the mortgage September 1 (taxes and ins are included in that payment). I should receive 3 rent checks before then, though, (and I'm pretty sure I'll get 2 of them) so everything should be fine.
In the meantime if any repairs are needed, they'll be placed on my 0% American Express card which has a couple thousand dollars of wiggle room.
Good. Times.
August 11, 2008
Three Fourths of Tenants Late on Rent
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17 comments:
Don't you keep the renter's deposits in a seperate account? Or at least not count them? I recall when I rented I expected my deposit back, but then again our places were impeccable and we paid on time.
I heard from reading message boards you should always keep deposits seperate for when you have to return them.
You really need to get educated about being a landlord. I own a triplex and rely heavily on Mr. Landlord (Google it), which has a message board and links to landlord rules in each state, etc. Landlording is business, and you can't go on "promise you'll pay when you get paid on the 15th." Not if you want to be successful, anyway!
I am a small time landlord here in Houston, Texas. I understand your pain. Thankfully, it is quite simple to send notices of default and file claims in small claims court ($95, which the tenant will have to repay).
Ignore the comments about keeping deposits in separate accounts - it is not required by law (unlike attorneys, who cannot co-mingle their client's funds with their own).
I take it you would agree that owning rental properties is nowhere close to passive income?
Ahh that sounds stressful. I'd go nuts trying to chase people down for money every month. Maybe thats the best reason i shouldn't be a landlord...
I wonder if it would be worth it to give them a discount in exchange for setting up automatic bill pay? They give you bank account numbers, you electronically transfer the money on the 1st of each month, they save $40.
@ LAL - No I don't keep the deposits in a separate account. Of course I plan to give them back eventually (though if they break their lease I get to keep it, so the earliest I'd have to do that is next Spring), but it's a nice psychological comfort to have them in my account!
@ Anon - thanks for the tip!
@ Traciatim - It is certainly not passive income (unless you pay a property manager)! I knew it wouldn't be, though. :)
@ Jon - it may be worth looking into...although in at least one case (maybe 2) the tenants can't even GET checking accounts due to "bad credit." They pay with money orders. And I have a feeling with these types of money problems the ACH transaction would just not go through even if it was on auto-debit; there is simply no money in their accounts.
I think you have a future as an Obama economic guru.
Meg,
I've been following your adventures in RealEstateLand with interest and admiration. But your last comment threw me--why on earth would you rent to someone with a credit history so bad they don't even have a checking account (unless it was to your mother's second cousin and you felt some family responsibility)? I'm a landlord, too, but totally by accident. I've been lucky in that not only have my tenants always paid--when they got ready to leave, they found me new renters!
@ Grace - I wouldn't! That tenant already lived there when I bought the place. He is actually not a bad tenant in that he doesn't complain much, he does his own minor maintenance on the place, and he proactively contacts me if he is going to be late on the rent. While he's late with the rent often, he always pays and includes the late fee, and he's never been THIS late (more than 10 days).
I've had rental properties for 8 years and your situation is not unusual. I think we all go through a few bad tenants as we learn the finer points of how to manage tenants.
The nice thing is that with each new tenant you apply the management techniques that you learned from the last one. And as time goes on you get better and better until you have your rental business running like a Swiss watch (well, almost).
Like riding a bicycle, the only way to learn is by doing it.
I recommend my ezinearitcles.com article entitled "Six Guarenteed Ways for Landlords to Lose Money" for your late-night reading pleasure. See link below.
http://ezinearticles.com/?Six-Guaranteed-Ways-For-Landlords-To-Lose-Money-And-Have-Terminator-Type-Tenants&id=1076846
I don't know Texas at all, but my guess is that your two properties are in pretty different neighborhoods.
I think that you did the right thing in the long run. I really believe in RE and you're obviously savvy. But you need to accept that it will definitely get hairy now and then.
Also, and I do understand if you don't want to answer, I was curious about the repayment plans to your grandparents. If you can afford it, I would suggest repaying them even a bit per month once you can. If it's all just in the logbook for later, then just ignore my comment.
Good luck! I think you're wise, but very brave!
@ debthaven - Thanks for the encouragement! And I've wondered about that as well; there's no repayment plan in place for that loan. It's a demand note meaning they can demand full repayment at any time (and there are clauses in the promissory note that they will be repaid if any of a list of things happens, such as death of either party).
I plan to fully repay the loan within 5 years, but I haven't decided whether to do so monthly, quarterly, or annually. It would probably be easiest for everyone's bookkeeping if I repay annually. If/when they give me an annual financial gift, I'll repay them by giving the funds right back; if they don't, then I'll sell off chunks of the index fund from where I would have taken the down payment in the first place.
Thank you for sharing your experience. This is one reason (beside the lack of fund now that the prices are so high) that I have been reluctant to get into real estate investing. I wouldn't be tough enough to keep it strictly business with my tenants.
Can you give us an update Meg? Did any of the tenants catch up on their rent?
Just curious.
@ Tom - What timing! I just posted anew on the goings on of my delinquent tenants. See "Rent Payments Trickling In" posted August 19th.
I'm a landlord myself. My tenant lives in an apartment built into my home - so, it means if she is late I can sit on the front porch and look her in the eye until she pays up. :) I appreciate your pain and thanks for sharing with us!
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