What to Do, When They Don’t Do What They Are Supposed to Do?

Tenants have the troubling quality of being human.  You may have a fantastic five year real estate investment strategy lined out for yourself in which you spend only 7.5 hours a month managing your rental property and in 15 years it will all be paid for and you can sit back and sip cocktails on the deck.  That very well may happen, but you might be surprised how you spend that 7.5. hours a month.

Recently, I had some tenants move in and lo’ and behold, about a week after depositing their move in check, I got a notice from my bank indicating that the check had bounced. In seven years, this unfortunate reality has only happened to me one other time and it was a simple clerical error on the part of the tenant.  This time, however, there is nothing simple.  The tenants clearly don’t have the money anymore (and maybe never did) and they are not handling the situation well.  Not to mention, they just had a baby.  It was an oversight on my part to let them pay with a check, but I am human, too.  They had an excellent rental history and slightly below average credit.

So, how have I been handling this situation? Here is a rough outline of my process:

1.  I got the notice from my bank and had an internal temper tantrum.

2. I tried to step back and assess the big picture (if this were a movie, you would see me scratching my head with a voice over as follows . . .)

  • Was this a simple mistake on the part of the tenant, like just forgetting to transfer money? (seems unlikely)
  • Have I had any other issues with the tenant? (yes, they have already left a lot of trash around and they have a young child who is often outside unattended)
  • Do I think I made a mistake renting to them? (good chance I did)
  • What time of year is it? (it is getting to be the end of the summer, which is a better time to re-rent a unit then 3 months from now)
  • Am I willing to struggle with these tenants for the next few months? (not really)
  • How are they responding to my communication with them about this situation? (not particularly pro-actively, but she just gave birth)

After thinking about all this, it was clear to me that I needed to respond immediately and firmly.  I sent both people (husband and wife) a text (their preferred method of communication) and let them know that the check bounced and that I would be posting a 3 Day Pay or Vacate Notice on their door. Within 3 hours, I posted the notice on their door with a copy of the NSF notice from the bank and mail them a copy (as required by WA state law when you are unable to serve the notice in person).  I also attempted to contact their bank to see if there were now sufficient funds in their account.  This process took 2 days because I did not have the right documentation.  Once I did, I could tell by the teller’s response that there was nowhere near enough money to cover the check. Another red flag.

During this time, they were contacting me intermittently.  I told them this situation was extremely serious and indicated that they either are not doing a good job managing their money or they deliberately wrote me a bad check.  Either explanation was very concerning.  They, of course, assured me that they would never write a bad check and they have no idea what happened.  After I let they know what I found out at the bank, their responses shifted to “we are trying to get the money together.” Another red flag.  Because the third day of the notice fell on a weekend and I had to mail it, I needed to give them an extra day to respond (which they did not know).  They were grateful when they found out they had until the end of the day Monday.

On Sunday afternoon, I got a text from the wife and she said that the pastor of her church would be contacting me and had agreed to help them out.  I have worked with churches in the past, but this was another red flag since it indicated they did not have the funds available (despite telling me that the money should have been there.  Well, why isn’t it still there, then?) Before calling the pastor back, I clarified with myself what my goals were:

1. To get complete payment of move in funds as soon as possible

2. To serve the tenants with a 20 Day Move Out Notice soon after (I was thinking it was time to cut my loses and move on).

With these two goals in mind, I decided to listen to the pastor, keep my emotions in check and respond only to the questions he asked me.  The two things I learned in the conversation that were further red flags (yes, I have an entire color guard squad, at this point) 1.  She obviously had just met this pastor this morning at church 2.  She told him that she thought her husband must have spent more then she thought. The husband was conveniently “sick” and not at church (inconvenient for her is the fact that I know that she is the only person on the bank account).

I should be getting the check from the church in the next two days and then I have a few days to make my final decision about requiring them to move out. Clearly, I have already made my decision.  It is just a matter of being 100% firm with them in the face of all of their rationalization (and being willing to start the expensive eviction process, if necessary).

In summary, here’s my tenant survival guide for today:

1. Keep your emotions and personal affront in check

2. Look at the facts and listen for what is unsaid

3. Work the process (following the landlord tenant laws in your state)

4. Focus on your business’ best interests

5. Be patient with yourself about having to make hard choices, but be willing to take swift and decisive action (sometimes it is better just to rip the band aid off).

Good luck out there in the rental jungle!

 

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Letting Off Some Steam About Security Deposits

One of my least favorite parts of being a landlord is determining how much to charge people for damages and cleaning when they move out of a property.  This process ultimately drives the decision about how much of their security deposit they will get back.  Contrary to most people’s image of the money-grubbing landlord who wants to take you for all you are worth, when I sit down to fill out the paperwork I become a blubbering mess. I take other people’s money pretty seriously and I need to make sure I have ample justification for the charges I am claiming.  The other day, I was trying to explain to my assistant how this traumatic process turns me into a babbling idiot, and then two days later I was reminded why.

Let’s call this tenant Lisa.  Lisa and I have known each other for about six years.  She was one of the tenants in my first rental property.  When I sold that duplex, Lisa continued living there and we lost touch.  About two years later, Lisa got in touch with me because she had moved out of the property and the new owner refused to return her pet deposit because he said he never received it when the property changed ownership.  I went back and looked at all of the closing documents and sure enough; there was no record of the pet deposit. Technically this oversight was not my fault, but I believe in tenant’s rights to their money so I started making some phone calls.  The Title Company said it was not their fault because they operate under the direction of the parties to the transaction.  And not surprisingly, my voicemail message to the new owner (who I had also helped out a great deal) went unanswered. Technically, it was his fault for not checking the documents at closing.  In my message, I proposed that he and I split the cost of $200 so that Lisa could get her money back and we all could move on.  When no one else stepped up to take responsibility for the mistake, I decided to give Lisa the $200 out of my own pocket (which was pretty empty at the time).  I gave her the money right before Thanksgiving and she was extremely grateful. Everyone left with a warm and fuzzy feeling.

Fast forward a few years when I get a phone call from Lisa, who is in a panic.  The house she is living in now is full of mold and it is making her granddaughter sick.  She needs to move immediately and is wondering if I have anything available.  I happen to have a one bedroom apartment and so we negotiated an arrangement and I helped her talk through the best way to deal with her current landlord.  Lisa moves in and everything is going well, for the most part.  Her son and daughter in law move in next door for a little bit, with some concessions on my part for their financial history.  They also are fairly decent tenants. After about a year, Lisa suddenly gives me notice to move out.  She is on a month to month contract, so although it is unexpected her notice is perfectly legal.

It comes time to do Lisa’s security deposit return and I have the attention span of a flea.  I finally force myself through the process and get it done.  Lisa moved out in a hurry and had a cat and dog, so things did not look great.  Out of $600, she was only getting about $100 back.  I had ample documentation and the refund was pretty generous on my part. Forty eight hours after the check went in the mail, the text messages started flying. “I know I gave you more than $600 in deposits.” “I paid $400 for the pets.” Needless to say, I had a complete copy of Lisa’s paperwork that I checked before I sent the refund.  I told her this and yet her protests continued.  I reminded her that I cut her a deal on the pet deposit as a courtesy because of the history we had.  She kept at it and I told her I would send her copies of the paperwork the next day (copies of which she was given, but of course, lost).  Sure enough, all the paperwork lined up with my calculations.  When I sent her a message telling her the documents were in the mail showing that she only paid $200 for the pets, she claimed that she gave me more money after we signed the Rental Contract.  I told her that both pets were on the original contract and if she felt like she needed to research her payments to me with her bank, then she should feel free to do so.  Mind you, this is a woman who had gotten behind on her rent payments and completely lost track of what she owed me. I also sent her a complete register of all the payments she had made me.  I know more about this woman’s finances than she does.

So this dramatic response is why I hate returning people’s security deposits.  It brings out the worst in people.  It is like being spit in the face by a stranger after you just helped him change his tire in a downpour. I am going to continue to be fair, respectful and kind to my tenants because that is how I want to be in the world. Though, I think I might start doing a shot of tequila before I return their security deposits.

Accountability Theory

Over the years, I have seen that people actually appreciate being held accountable.  It shows you respect them enough to give them a chance.  Holding someone accountable is very different from establishing rules.  I believe that setting expectations is a sign of respect, whereas making rules starts from the belief that people are going to fail.

Of course, there will be plenty of rules at your properties, both your own and those required by the landlord/tenant laws in your state. What I am talking about are situations involving a specific tenant, usually around rent payments or disruptive behavior. When an issue arises, the first step is to communicate directly with the tenant. It is important that you are in a calm and controlled place emotionally before you start this interaction. So give yourself time to blow off steam and release any frustrations you may have about the situation.

There is a saying, I think written by T. Harv Eker in Secrets of a Millionaire Mind and it is this: “You can be right or you can be rich, but not both.”  I remind myself of this when I am in a heated situation with a tenant.  I always try to stay focused on my desired result (i.e. rent payment, prompt move out, the end of disruptive behavior) and adjust my behavior in such a way to maximize the chances of achieving that outcome.

Once you are having a conversation with the tenant, it is important to clearly establish what you want them to do and when you want them to do it.  Most tenant issues follow this pattern.  You want them to pay their rent by a certain date or move out by a certain time or turn down their music after a certain hour. If there is any confusion about your expectations, put them in writing and give a copy to the tenant.  If it is a chronic issue, that written statement should be an official notice (i.e. a 3 Day Pay or Vacate or 10 Day Comply or Vacate).  For a tenant who is behind on their rent, you might just write up a simple letter that they sign, with the understanding that if they do not comply, they will be served with an official notice.

Once your expectation is clear with the tenant, it is your job to follow up if they are not being accountable to their agreement.  It is so easy to let this critical piece slip through the cracks, especially if you are frustrated with the tenant.  Don’t let that happen! Write a note in your calendar to remind yourself to follow up. I am often writing myself notes like “Joe, pay $300” or “Check with neighbors at lofts about noise” on specific days in my planner.  It is important for the tenant to know that you take your agreement seriously.  If you don’t follow up with them, they will know that they can continue to get away with whatever they were doing.  A simple phone call or text message is often all it takes to keep them on track.

It Doesn’t Matter if They Like You

Ideally your tenants will like and respect you, but when in doubt, go for respect.

One of the things I tell potential tenants is that I am really clear about my role as a landlord.  I am not there to be their mother or their friend.  My job is to be their landlord, which means I make sure everything is working in their home and I help resolve any issues that come up.  Any tenant who has had a landlord with poor boundaries really appreciates hearing this from me. One of my biggest landlord peeves is when people tell me that they had a landlord that would just show up in their living room.  Not only is that illegal, it is also a complete invasion of people’s privacy.

As a landlord, you are sort of like a police officer.  No one really wants to run into you, but when there is a problem, you are the first person they think to call.  It can take a little while to get used to this role, but it is best for everyone if you maintain it once you have it.  I am not saying don’t be friendly with your tenants and even get to know them personally, but draw the line at becoming friends with them.  I have a lot of cool tenants, some of whom have even invited me over for a glass of wine or to hang out at their bonfire.  I know I can’t because when they pay their rent late, it will be that much harder to give them a 3 Day Pay or Vacate Notice.

By being available for my tenants by phone and professional in my behavior, I can help establish a calm sense of community at my properties.   I do not participate in gossip or share my own personal or political beliefs.  I try to be neutral and focus on the interests of the tenant or potential tenant.  Unless someone says something that is outright offensive or blatantly discriminating, I just let people speak their mind.

There will be occasions when people don’t like what you have to tell them (i.e. “Yes, you do need to pay your rent.” “No, you can give.me a week’s notice and move out and expect your security deposit back.”), But if you strive to communicate in a calm and professional manner, chances are good that they will hear you and in the end you will get the results you want.  Sometimes the best thing to do is to say nothing at all and let the agitated tenant talk themselves down.

If you have done your job when people move in, the tenant should have a clear understanding of your policies and landlord tenant law. And if you have good systems and forms, you should have written instructions for many common situations. Even though they know the rules, people often try to push the boundary to see what they can get away with.  Hold firm and stay on message and they will bring themselves around.  You are running a business, not a social club.  Your bank doesn’t care if your tenants love you; they want you to pay your mortgage on time.

Simple Financial Planning Can Go a Long Way

I learned this tip by accident, but now I swear by it.

Don’t have your mortgage/commercial loan payment due at the beginning of the month.  I find the best dates are between the 15th and the 25th.  This arrangement allows me to focus on collecting rents and communicating with any tenants who are late during the first two weeks of the month.  Then once the funds have all been collected, I can focus on paying my major bills.

If you are planning to acquire a new rental property, plan to close on the property after the 15th, so that your payment is due after the 15th.  Your closing date normally determines when your first payment will be due.  If that doesn’t work for your transaction, negotiate with your lender to adjust the payment date.  Even if it costs you a few hundred dollars in interest at closing, it is well worth it in the end. Collecting late rent is one of the headaches of being a landlord, so off-setting your loan payments from your tenant’s rent payments will help reduce the stress of late payments from tenants.

Communication Theory for Landlords

As landlords, one of our greatest tools is communication.  Our words, our expressions, our tone, our gestures, and even our posture convey a great deal of information to the residents of our properties.  We often inadvertently create misunderstandings, many of which go unrecognized.

Let’s use the following example of a simple misunderstanding as a starting point to explore some of the fundamentals of communication:

I was working at a property and we had been spending the last few days trimming excess brush from trees and bushes throughout the site.  On this particular day, we were using a truck to pick up the piles of brush and haul them to the dump.  I was working with a staff person who had not been closely involved in this project.  I pulled the truck up near the garage and asked her to go get the brush that was located nearby and put it in the truck.  I may have waved vaguely over in the direction I was referring to, I don’t remember exactly.  I went to do something else and then came back to see if she was done. When I got back to the truck she was holding a large push broom and the pile of brush was still where I had left it.  Confused, I asked her why she had not gotten the brush and she looked at me with an equally confused expression and said she had.  It was only then that I realized the broom she was holding did in fact look like a large brush and she had gotten it from the garage which was in the direction I had waved towards.  We both had a good laugh about our misunderstanding before we continued on our way.

Luckily the above miscommunication was harmless and it was fairly simple to explain.  Let’s take a moment, however, to explore why it took place.

There are three elements of communication that took place in this situation-the ambiguity of language, different assumptions, and different communication styles.  In this case, the word “brush” had two meanings.  It could have been referring to a pile of branches on the ground or a broom with a brush-like appearance.  The word itself is ambiguous.  Many words that we use everyday fall into this category—“soon”, “a few”, “clean”, and “quickly”—all mean different things to different people.  If you tell a tenant he can fix his car in the parking lot provided it only takes a few days, he may think this means three or four, when you were really meaning two.

Again, referring to the above example, I assumed that my co-worker would know what I meant when I said “the brush over there” because I had spent the last few days cutting and picking up branches.  Because this was a new task for her, she did not share my assumptions about the meaning of brush.  We frequently make assumptions in our communication with tenants.  We assume that they can hear us, that they understand what we mean, and if they don’t that they will ask questions.  We think to ourselves: “If what I am saying makes sense to me, it must make sense to them as well.”  What we fail to realize, however, is that our communication comes out of our own particular constructs that exist only in our heads.  In this example, there was a misunderstanding between co-workers who shared the same work environment, were the same gender, and were similar ages.  Think of all the increased potentials for misunderstandings between landlords and tenants of different genders, ages, occupations, and educational backgrounds.

Another important element in communication is communication style.  In the above example, the communication style I used was quite vague.  I did not specifically point to the pile or clarify with her that she knew what I meant.  I used a rather indirect approach, when it might have been more appropriate to be specific in my communication.  Many of us use a wide range of communication styles depending on the situation, our mood, our personalities, and the other people involved.  When it comes to understanding, the style in which information is presented can be as important as the content of the message.  Anyone who has tried to read an insurance policy knows that even the simplest idea can be made complicated just by altering the style of presentation.

The ambiguity of language, assumptions, and communication styles are a few of the key elements of communication that will be important for you to understand as a landlord.  Because we all too often assume that other people understand what we mean when we communicate with them, we frequently attribute conflicts to other causes rather than to failed communication.  Instead of thinking “He or she may not have understood what I said,” we think “He is being difficult,” or “She must be mad at me,” or “He is always trying to get out of paying rent on time.”

Taking the time to carefully choose your words and presentation will go a long way in easing your communication with your tenants.  Also, don’t hesitate to ask them to paraphrase back to you what they heard.  That way you can check immediately to see if they understood your point.  Remember, it is in your best interest to learn to communicate in a way that your tenants can understand.

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