The unemployment report was just released for October, and the news isn’t good. Approximately 240,000 jobs were lost in the month and the unemployment rate has hit 6.5%.
Traditionally, an unemployment rate of 5% is considered “full employment”, so the news might not be as bad as we’re being led to believe. Regardless, this is an issue that real estate investors – and particularly landlords – want to be aware of, since it could be your tenants who lose their jobs.
When your tenants lose the ability to pay you, the key is quick and decisive action. But you must know when such a change happens before you can act on it.
I was thinking about this issue this morning and came to the conclusion that it would be ideal if there was a way to know as quickly as possible when a tenant has lost his/her job. That way, you can be prepared to act quickly in the way that’s most appropriate.
Please note: What I’m about to describe to you are ideas in the embryonic stage. I’ve not tested them, and I’ve not confirmed them with legal counsel. I’m posting them here because I think it’s well worth considering, and it’s also possible that someone among the thousands of readers of this blog may have already implemented a similar idea and could tell us about it. So here goes:
Here are a few ideas to be able to know quickly if your tenants have lost their job:
- Send a notice to all of your tenants that you have some sort of “Assistance Program” in the event of the Tenant’s being laid off, but that they must notify you within 3 (or whatever #) of days of their termination. (It’s up to you what your “Assistance Program” entails – maybe you reduce rent slightly, or maybe you connect the tenant with an employment agency… that part is your choice.)
- Require your Tenants to disclose their employer to you at the time they sign their lease with you, and require them to notify you within a short period of time any time their employment situation changes.
- If your lease enables you to change its terms, consider doing so for active leases, and require the tenant to notify you of employment changes
These are the 3 ideas that I’ve come up with so far. I’m very interested to hear your ideas on how to deal with the issue of a suddenly unemployed tenant. If you would be so kind as to share your experience, we’ll all be grateful. Also, feel free to share with us exactly how you use the information that your tenant has lost their job.
Thank you for reading RealEstate.BryanEllis.com!
It may seem harsh, but I think the best thing to do when a tenant loses their jobs and they miss a payment is to immediately begin the eviction process. In the long run, making sure that the tenant leaves your property with as little debt to you as possible is best for everyone. No reason to grasp at straws.
This person Jack Willstead clearly has no compassion on anyone.
Anthony,
Have you walked in Jack’s shoes? Have you heard every excuse under the sun why the tenant/buyer can’t pay the rent/note payment?
We experienced this in the mid 90s.
Once the tenants let us know and after discussing their employment situation (1 tenant – seasonal work reduced income; other tenant – loss job), we agreed that they would move out and relinquish their security deposit. The tenants weren’t aware that they could break the lease with our permission and conditions until we may that suggestion.
It didn’t make sense to go on a monthly path of “The rent is late” on our part; and “We can’t pay the rent because we are not working” on their part. Going the eviction route would have been more costly for us.
Brian,
Very timely article. One thing I have done with some of my tenants is to put them on a Bi-Weekly rent payment schedule.
yo, anthony….wake up and smell the pizza! we’re landlords and investors, not charities. it’s strictly business.
I have offered to reduce payment on note but only if they do what they say they’ll do. If they goof up, let the eviction begin.
There is no one way of dealing with this. It depend on the tenant, of course.
You’ve got ones who makes excuses and others that are truly hard working people going through a rough time. So use your wise judgement. Don’t make a blanket decision.
With that said … Brian’s 1st suggestion is a very good one. Give them an easy way to feel like they can tell you their situation.
Also, you can do a one-time month deferment plan. Where in 30 days they pay a portion of the month they missed…and so on. Depends on your cash flow, but if they’re ‘good people’ then keeping them is smart.
They’re probably going to get a new job in 30 days or so. And it costs you money to evict them and find a new one.
Mark
My real estate business is a business, not the salvation army. I actually ran into this problem about 8 months ago when the economy shifted and people were losing their jobs, or just falling behind due to inflation and gas and food had become so much more expensive. I tried working with several of my tenants to help them through the situation, just as I have done several times over the years. What I received was several promises to pay, which resulted in tenants slipping out in the middle of the night and trashing my units, or selling my appliances and then taking off. I think only once or twice in many years, when I tried to work with a tenant in a bad situation, has it actually worked out. This last situation, where once again I tried to work with the tenants, cost me several foreclosed properties, and an empty savings account. My family depends on this business and I am having to get tougher to protect my investments and my family.
You people who have all of the money need to get used to sharing some of it. You have your money because you took it from tenants in the first place. Be willing to give some back.
I would much rather have a vacant property and receive no rent than a occupied property and receive no rent. The process always goes like this..”I am running late on the rent but you will get it later this month.” “I missed the rent last month but I will be able to get caught up by months end.” “Things got crazy, but I will get you a payment this month and be caught up by next month for sure.” And finally, “Ring, Ring, Ring, Ring, Ring…..and now it’s find me if you can.”
Jack Willstead understands that we are an unsecured creditor and tenants take care of themselves just as we are to take care of ourselves as landlords. I hate the process of being a landlord and the bad guy that now I just lease option properties with gooooooood downpayments. Five months of working with a tenant and then the eviction process can add up to $5,000, $10,000 or more very quickly because once they’re out than it’s tine to clean it up and find another tenant.
@Anthony (& any others who think Jack’s position is draconian).
First, understand that each case is different. If you’re a landlord, you SHOULD have more of a relationship with the people renting your properties than just that of money collector and toilet repairman.
a RELATIONSHIP is critical if for no other reason than to get courtesy before a tenant disappears in the middle of the night owing you money and trashing your house.
Since the market nosedived, I have not had ONE good experience with tenants…not even ONE measly good experience.
Understand right now that people don’t give a damn about you, your bills or your livelihood. When it comes down to it, they care only about themselves and will screw you in a heartbeat.
From the very beginning, make it VERY clear in discussion and on paper that paying rent on time is paramount.
VERY IMPORTANT!
When payment does not arrive by the terms of your contract, send the 3-day notice and follow through…even on late fees. The smallest sign of perceived weakness on your part will get exploited.
You can play around with an “assistance” program all you want with the “right” tenant with whom you have a relationship…because you know they are not exploiting your desire to HELP them.
But repeat after me, people don’t give a damn about you! It’s all about what’s in it for them. If screwing you is best for them, they will do it with zero remorse.
PERIOD!
Be soft spoken but carry a big (legal) stick and use it…gently so that your properties don’t get fire bombed…and I’m talking about “nice” homes in “nice” neighborhoods with supposed “nice” people renting from you.
Anthony, with all respect I say this and I could be 100% mistaken: You are not a landlord, are you? Or you’re new to this arena.
Once upon a time, I too would have shared your thoughts regarding Jack’s position. Now, after bloodied and scarred, I believe Jack’s position is way too SOFT.
Listening to all these self-professed real estate investing gurus preach about “riches to landlording” comes with one HUGE disclaimer:
You’d better have good reserves and brass balls. If not, you will get eaten alive. I’m in Florida…in the heart of real estate carnage.
How many horror stories involving tenants do you want to hear?
Do you want to hear about the tenant who claimed the Cable TV installer did something during installation to cause the house to fill with smoke, only to leave suddenly (TV installer), causing the tenant (female) to climb a ladder into the attic to investigate?
Would you believe she (the tenant) claims to fall off the ladder to the attic, call the fire department, go to the hospital & break her wrist?
Best part, I get contacted for my “statement” requiring my social security, date of birth, etc. Guess what? Suddenly, my info gets used to keep the electricity on to the house when they stop paying their bills.
They disappear in the night owing me money (of course, because I was a nice guy trying to help people with kids), trashing the house & stealing my identity.
The only “nice” landlords are people who have NOT been a landlord or who rent only to nuns & pastors (chances are, somebody is going to share a horror story with a pastor or nun).
Forget “nice” guy; this is business. Either they pay or they get out…nicely and without tearing the house apart as they leave.
If you’re appalled at my unequivocal position, I do NOT apologize. Anything less is a nightmare for YOU!
Best to all of you,
Mike
P.S. Bryan, your Captcha “sucks” — get a new one to prevent losing comments.
Thanks for the suggestion – will look into it. — Bryan Ellis
Because of the current economy, and so many people not paying their rent, I have already lost 4 properties to foreclosure, and depleted a once pretty decent savings account. I still give what I can in my community, I give to several local organizations, support my childrens school and give at church. There is a big difference between giving back, and paying so other people can live for free.
Jim – hang in there my friend. Don’t let the folks who think they deserve handouts be a deterrent to you. — Bryan Ellis
I wholehearted concur with Mike, except for the capcha thing, which I have no problem with. I have so many horror stories similar to Mikes that I could write a horror novel.
that is because too much of the population wants the government to do all their thinking for them, and to provide their income by overtaxing those that work and become successful.
Well….I don’t think that there is any one answer to fix this scenario,because it is a combination of what’s happening in the economy with not only tenants,but with the business as a whole,and everybody is feeling the “crunch”of this economic cycle.I will say this..I believe it starts from day one…from the screening of the tenant,all the way through communicating with your managers,of keeping track of how they pay.If they have paid on time in the past,and they run up on hard times…yes…get a bi-weekly,use their security deposit(also let them know that if the deposit is used,have them sign a waiver that if they move later,they sign knowing it was used as assistance)If they have not paid in the past,and you didn’t correct it then,then it’s YOUR FAULT!!,because you allowed them to continue a pattern that they got used to,and if they lose their employment…..they think it’s ok..the way to curtail these problems is to be proactive….don’t let it get started,offer incentives to pay on time such as:if you do pay on time…free movie tickets,pizza coupons,2-Allow bi-weekly payments,3-Collect on the 5th instead of the 1st of the month,you can actually squeeze a few more dollars out this way by giving them a choice at the beginning of the lease,if they opt for the 5th instead of the 1st,it costs a little more to have that “privilege”.Have your leasing agents aware of money-making incentives to get tenants in the beginning so that when the lean times come,you have that little extra per month.Last but not least…the greatest incentive is…..Either pay…or Move!!!
I am not the most experienced on this issue but I am not sure how you can shortcut “if you don’t pay you don’t stay”. I do believe that screening is very important for heading off trouble. Odds are if the trouble was truly temporary and the tenants were as solid and upright as possible they would have non-business recourses to draw on to help bridge the shortage. I am not clear on how you can help one tenant out during tough times and not help another. It would seem fair (and legal) to treat everyone the same. Also, it would appear to be a wise path to have everything clearly spelled out so both sides knew what the nest step was when issues needed to be addressed.
I’m new to this arena, but it seems to make sense that you would not let your emotions get involved in making decisions when it comes to your business. In stock market investing that is a rule “invest by the numbers not with your heart”.
Having a system in place to help people in that situation I see as a good thing but being ready to take action when things go sour is also paramount in my opinion.
One question though…would having a property management team take care of issues like this?
These are things I need to learn alot more about.
Thanks
Anthony and other like Anthony,
How much money have you given away to your tenants?
I am sick and tired of this total crap I have been hearing and reading so here is the truth and only the truth, not some pie in sky crap!!!!
I quote:”You people who have all of the money need to get used to sharing some of it.” What the hell does this mean? Does this mean we should destroy our business because of some one that is too damn lazy to do the same thing we have done? Or does this mean we should stop providing well for our family because some one else wants what we have? Let me know!!
Second quote: “You have your money because you took it from tenants in the first place.” What the hell do you mean took it? Didn’t they have a decent place to stay? Weren’t there provided with a valuable service and valuable property for money exchanged? Where the hell is the “took” part of this equation?
Third quote: “Be willing to give some back.” Last time I looked the amount of charity I and others have given is not part of being a landlord. The place to have charity first is at home. Now while there may be some interpetation of this different than mine, I see that as being good to my family and friends first. Then fine organizations like your church or the Salvation Army or whom ever you please. I have empathy for those with out a home but I am not going to make my family homeless so some one can sit in a house they are not paying rent on!!!!!!
Get a clue all the Anthonys out there, things are going to be getting very dicey for awhile and if you want to be so damn free with my money then be getting rid of all of yours first. Until you show how much you have given away stop telling me and others to give ours away or to you. I know the best way to spend my money, not some idiot politician nor some stupid bleeding heart!!
I have been homeless a couple of times, and who knows maybe that will happen again, but I have always worked hard to recover and have recovered each time. I didn’t get very much help and have found you can do for yourself if you have the willingness to get off you dead ass and do something for yourself.
So everyone out there quit looking for a hand out and realise a hand up is nice but you don’t really need it if you want to get ahead.
And yes even this last year I have given away thousand of dollars in money, goods and service. So don’t be telling me or others what is good for us or what we should be doing. Be doing it yourself!!!
Chris B
Now that I am not as angry I will answer the question at hand.
I feel that a property management is always the best way to interact with tenants.
Shawn is exactly on the right track.
I think the idea of having a 3 day style agreement of notification works well too. I have a couple of friends that use this system to advantage.
When they have a good long term tenant they have found that sometimes they have been able to work out a deal to everyone’s satisfaction. It also give them a heads up about what is happening so they can start to take the appropriate action.
This has not always meant eviction. If they are able to move them to a cheaper home of their own, that works or even help them find an apartment or less expensive house somewhere else is a good solution. This way they have place to live, don’t get screwed on their credit report or a black mark on their rental history and the hit to the landlord is very small compared to eviction. A real win-win situation can be made by using the 3-day style notification agreement.
I don’t know how exactly how legal they are but I think because they are done outside of the rental agreement there isn’t a problem. No issue has ever been reported to me that was negative about these agreements. As with everything I am sure it may vary from state to state. I am talking about Florida, Texas, California and Oregon here and maybe Nevada. Haven’t touched base for awhile.
Thinking outside of the box is always a good thing and tends to solve a lot of problems in advance.
Chris B
Bryan, a lot of good responses on this issue. I have personally been in the position of not being able to pay my rent at one time due to an on-the-job injury. Fortunately, I had a good hearted landlord and a trac record of 3 or more years of timely payments under my belt. He could have easily evicted me, and I would have left his property in as good of condition as I could have under the circumstances. However, even though I had one foot in a cast and a broken wrist as well, I somehow persuaded him to let me clean and paint the unit next to me when it went vacant. (This was a duplex)
It took me two weeks to clean & paint the place on one foot and with one arm, but by golly I did it and it saved me the hassel and expense of moving. It also gave me time to begin collecting workers comp. payments which allowed me to again make my payments on time until I moved.(I was his tenant for a total of 11 years) As a courtesy to him for being so understanding, I had a teneant lined up to take over my lease when I left. This was a big help to him because he didn’t have to come in and clean or paint or repair anything, just continue to collect rent without missing a beat.
I also know from personal experience on the other side of the rent payments that tenants will take kindness as a sign of weakness and exploit that kindness to it’s full extent! So I can both agree and disagree with many of the above statements. It really is a case by case issue. And while being heartless and unforgiving to your tenants may be the wise economical choice, I have a hard time not showing compassion to someone whom has a good payment history and who’s character I percieve as worthy of a fair shake. But as before mentioned, have all your safeguards in your contract and be willing to discuss these with your potential tenants to insure they understand why they are there and that you fully intend to impliment them if they do not honor their promise to pay on-time and maintain your property!
Jack hit the nail on the head. Start the eviction process immediately. That way tenants see that you mean business. Here in Detroit, MI, it takes about 30-45 days to get to the point where the bailiff will come and put them out. So once you start eviction, they still have time to try to get it right.
Also, if they seem to be making a good faith effort towards trying to pay the back rent and catch up, together we will agree on a “final date” where we basically we agree that they either pay or vacate by that day, or else the bailiff will do it. This shows that you’re still trying to work with them and they’re less likely to trash your place.
On another note, Paul Youngblood makes an excellent point about giving incentives to pay on time. And Mike’s point about establishing a relationship is excellent. Another thing that helps is just being in constant contact with your tenants. I do a monthly newsletter that my tenants really enjoy and this way they are always being contacted by me, even though it’s not face to face.
It works wonders.
Quote from Caitlyn:
“52% of the country thinks like Anthony. That’s why we got Nobama. *sigh*”
How True! **double sigh**