Slippery slope of collecting your rent payments for any investment or rental property owner.

It happened to me again and I thought it would never happen to me again. What I'm talking about is what I call the slippery slope of collecting rent payments. I thought I had everything as far as collecting rent figured out and would not have any problems.

Let me start by explaining what I mean by the slippery slope of rent collecting. A couple of months ago I let my tenants get behind a little on their rent and it turned into a big amount.

Month number one.

The tenant comes to me and says that he is going to be a little short on cash for the rent this month and he will make up the difference in the next two weeks when he gets his new paycheck. I say ok thinking that that sounds perfectly reasonable to me. Two weeks later I got all my money for the rent. The problem is that It is the 18^th of the month and he is without any money because he gave nearly his whole check.

Month number two.

Tenant is short again because his last check was given to me for last months rent and the rent is due again. He gives me what he has and it is still short. In the mean time his utilities are starting to get overdue. Now he needs utilities so he has to pay some of these utilities with his next check. So at the end of month number two I am down a couple of hundred dollars from my rent of 600. By the end of the month I get 400 with a promise that they will pay the rest of the money on the next paycheck.

Month Number Three.

Its the first of the month. Now I am owed 800 dollars and I will be getting my 200 from last month on the 5^th of the month. Here is the dilemma that every landlord faces. So far the tenant has paid his rent in full every month except for this one. The question what do you do at this point. Do you give them a eviction notice because the rent is not paid by the first. Or do you wait it out for a few more days to see if you get your money that the tenant has always paid up to this point. I am offered 500 at the end of the month which leaves me with a balance of 300 left that the tenant owes me.

Month Number Four.

Its the first of the month again and now I am owed 900. The tenant says that he is going to give me 500 on the next Friday when he gets paid. Keep in mind that it is on the 10 th of the month. Here is where the big dilemma starts to come in. Do I wait until the 10th Or do I put a eviction notice on the door and possibly risk not getting anything from the tenant. I found that most of my tenants will not give you money unless they are absolutely positive they have all the money or that they can get it right away. Because after all they will need every penny that they can get just to get into a new rental property after I evict them. Also if I evict them I will probably not get any rent money for at least a month or maybe more until I can finalize the eviction and get a new tenant to move into the property.

So you can see that it can really start to snowball from this point forward. They were in fact a pretty good tenant but they ran into some hard times and got so far behind that they cannot pay the rent much less catch up with the past due rents. I can't tell you how many landlords who own rental property run into this problem. I hear this story many times and every story seems to start out and end about the same way. Keep in mind that I have never had a tenant catch up when this situation started happening.

Here is what I did in this particular situation.

I took the 500 that he offered me on the 10^th of the month because I knew that I probably lost this month anyway. But I decided that I was going to throw them out on the first of the following month. When the first of the month came around I put a eviction notice on the door and decided it was time to get some new tenants after the process. I was offered 400 on the first Friday of the month but I decided that they were just getting to far behind to ever catch up and I had to cut my losses. Three days after putting up the notice on the door I went down to the courthouse and filed the eviction and set up a date for a court hearing. It was scheduled for the 22nd of the month. Here is the lucky thing for me, the tenant just moved out of the property on the 15^th or close to that. They did not tell me when they moved they just left. I say that I am lucky because I just went in and was able to get the property ready to rent and even had it rented by the first of the next month. I canceled the court date but I probably should have just went through it to keep everything legal but I was sure that they were gone.

I lost 900 in rent on this deal because I had to use all the security deposit on some new carpet, paint, and some other repairs that were needed. But as you can see I could have lost a lot more if I kept this cycle going. It is not uncommon to see someone being owed 2000 dollars or more when they keep hanging on and waiting for the tenant to catch up. As the utilities start to get higher and higher the tenant has to pay more in a particular month just to keep the electric and gas on without interruption. For example say it is around tax refund time and the tenant promises the rent when his tax refund check comes in so you let them stay a little bit longer.

Heres what I should have done.

Not getting your rent can really put you in a cash bind fast. Especially when you have multiple houses to deal with. It seems that the more properties you get the less time you have to spend on collecting rent from a individual property. I actually found you spend more time trying to collect the rent when you don't keep right on top of the situation. The checking up on the tenant and calls and driving there to pick up rent etc...

I have talked to other real estate investors that have many houses and they handle the situation very different than I do. I tend to give the tenant to many chances and tend to get my self in trouble like the situation above. I used to be even worse than the situation I just told you about when I just started. The one investor I talked to said that he just tells his people right up front what is going to happen if they don't pay there rent. He told me that after the third of the month if he does not have his rent a eviction notice goes on the door and he files the eviction 3 days later if he still doesn't have the rent. At this time the tenant owes the landlord a 75 filing fee that the court charged him. He then gets a court date set for around the 20^th of the month and proceeds if he doesn't get all of his money and he does not take any payments of any kind unless they are in full. This may seem a little harsh but I believe that it is the best way for the landlord to do things. After all the bank and property tax office does not let you miss any payments. The funny thing is that he does not have many problems with collecting his rents and he has been in the business for 30 years and his father was in this business a long time before him.