February Landlord Blues: Late Payments and Broken Promises

 

5..4..3..2..1..HAPPY NEW YEAR! New Years day prompts a lot of nostalgic, optimistic, and loving thoughts for most of people in America. However, if you are a landlord, the holiday season brings on an additional vibe to the aforementioned. The awareness and fear of possible late payments and evictions! Here we are at the beginning of February and for many of us the late payments and broken promises from tenants began 2 months ago. For some of us it started in January, and for some of us the games have just begun. Regardless of when the nightmare begins, I'm going to give you a few tips to make it through the struggle. 

Many people experience unexpected expenses, job/income loss, emotional trauma, sickness, etc. during the Holiday season. I personally suffer from seasonal depression every year. Yes, it's real. Also many people allow the social stresses of the holidays to impair their financial decisions. We all want to buy our children and loved ones the things that they desire and what we want them to have. Host a big family dinner?! Book that family trip to Disney?! Christmas only comes once a year, right?! And so rather than focus on necessities, saving and adhering to a budget many people OVER SPEND. According to Moneygeek.com 2022 Holiday Debt Survey -  "Generally, consumer spending tends to peak in November and December during the holiday shopping season. As such, credit card debt typically rises steadily at the end of the year, then gradually decreases through March as consumers pay off holiday debt. Overall, total household debt increased 2.2% or $15.58 trillion from Q3 to Q4 2021, according to the Federal Reserve Bank of New York." 

So there you have it. Your tenants aren't the only people with poor spending habits during the holidays. The financial plague is and has been affecting the entire country. Lets also not forget that some of them have great spending habits but they have experienced income loss or unexpected expenses that caused them to fall behind. So now lets look at a few options that may help the situation. Inevitably you cannot prevent someone from making poor decisions, nor can you prevent or predict acts of God. However, you can potentially lessen the blow for yourself and them alike.

1. Change The Due Date 

Job loss or change in income can result in a change in pay schedule. Consult your tenant to see if moving their due date to a later date will help. I have a tenant who never receives her pension before the 14th of each month. So we made her due date the 15th of each month but she only has a 3 day grace period rather than 5 days like the other tenants whos due date is on the 1st.

2. Waive Late Fees

Typically if someone is struggling to pay something, adding an additional fee to the balance rarely makes the task easier. So waiving the late fee(s) will definitely offer some relief to your tenant and show good faith on your behalf. 

3. Accept partial Payments

I've come to learn that lots of us do not accept partial payments from tenants. However, we may want to reconsider taking partial payments. If it inevitably clears the balance, which is our primary goal, we should accept. Certain professions such as waitressing, bartending, and sales representatives provide weekly and daily income. Therefore some tenants are able to make small to moderate payments throughout the month. Do note that they may not feel comfortable entering into a payment arrangement due to the fluctuating pay.

4. Enter Payment Agreement

Many tenants do not want to risk eviction so they will enter into a payment plan. The agreeance also shows that they desire to pay. So I recommend structuring the payment plan so that it doesn't extend past 75 days. I also recommend adding a default clause in the agreement to protect yourself if the tenant defaults. Many tenants will also be anticipating a tax return of some sort. So entering into a payment agreement with a "balloon style" ending payment may be the perfect fit.

Tenants are the key to a successful rental portfolio. We must nurture and encourage a healthy relationship with them. For some of us that is personally and for others that is through professional management. However it's done, it must be done. We also owe a healthy, producing portfolio to ourselves. We've worked too hard to secure these investments to not try different techniques to ensure the return. Until we invest again, good day.

Malaka Green

Michigan Real Estate Broker

Investment Real Estate & Portfolio Management

Premier Status Realty