Keeping Delinquency in Check

More and more in these hard economic times we are seeing landlords “work with” their tenants on their rental payments to avoid eviction or a skip and to keep their occupancy percentage up, and expenses down. This makes perfect sense to the “average Joe” due to the fact that there is no way to figure out how long (should the unit become vacant) it would sit vacant and collect vacancy loss. In addition to the vacancy loss, the landlord is now paying the utilities on the unit, is now going to incur the expense of having to make the unit ready for the next tenant, pay a leasing incentive to a staff member, pay for the paper to reprint a new lease, pay for marketing to drive traffic to get it leased, etc, etc, etc… As you can see, the costs could go on and on.

Although it seems like a good idea to allow tenants to get behind and work with them, in the end, it is just all around bad for business. First and foremost, tenants TALK…to each other…all the time. So guess what?! If a landlord chooses to let the tenant in Apartment 101 slide on their rent then the word will end up getting out and other tenants will begin to start expecting the same treatment. This is a landlord’s worst nightmare. Before you know it, a landlord could have 20-30% of the property on some type of payment plan…a major NO-NO!!!

Managers and Assistant Managers should be trained properly upfront and hired with the expectation that at the close of the books each month their delinquency will not exceed a certain percentage. This percentage is typically anywhere from 1-3%. They should also be paid some type of bonus or incentive for reaching this goal monthly, in conjunction with other standards being met. Delinquencies that exceed 5% per month are completely unacceptable and if the individual fulfilling the role of collections is at 5% or more per month, appropriate action should be taken up to and including staff change if expectations are not met.

In the case with “All Bills Paid” properties, staying on top of delinquency is even more crucial. If a landlord allows a tenant to get to the point where they are constantly a month behind or more, then the landlord is paying for the utilities in the unit and the tenant is living there rent and utility FREE! It is almost better to file eviction and get the property back to rent to someone who is not a “purple martian”! The likelihood that the tenant is going to get caught up if they are an entire month or more behind is slim to none. It should be noted, however, that this should be done through a filtering system based on exposure and unit availability that is coming up.

It is important to set the standard/expectations with your tenants as well as your employees. Everyone should understand there is a new sheriff in town. Late fees will be charged and collected, and if tenants choose not to pay…they DON’T STAY!!! Word will not only get out to current tenants, but will get out in the community to others and they will know before they even come look at your property that if they are not planning on paying timely that they will be booted out!

It is also common practice at many communities to only send written communication for late rent. ALL properties should have a written, verbal, and personal contact policy in place to do whatever it takes to get the rent collected! Phone calls should be made to the home, work, and cell phone numbers provided (and these should be checked on the application prior to move in or even approval to move in). Knocking on doors is also another way to get tenants’ attention and make them realize how serious the situation is.

Setting specific dates for certain correspondence monthly is also another way to stay consistent with everyone. For instance, a ‘nice’ reminder could be sent out on the 4th to all that have not paid. Another ‘nice’ reminder could be sent on the 5th, and then on the 6th a 3-day notice to vacate should be served to all who have not paid in full. At that point, all tenants that still have not paid on the 10th of the month should be filed on in eviction court. Once you set the precedence and then stick with it each month and treat everyone the same, it starts catching on and the ones that want to stay PAY!

Some landlords have now chosen to take a more proactive approach than the one listed above and therefore send out “Prerent Notifications”. These notifications are basically a ‘letter of account due charges for the upcoming month’ that is sent to each door of each unit itemizing all amounts due by the 1st of the month. Example: $600 rent, $25water, $5 trash = total due $630. These notices are sent between month end close out and the first of the month. In addition, the same notice is sent out again on the 3rd as another reminder of what is due and a final reminder that late fees will start to accrue the next day!

If you have any further questions about the importance of collections and how it affects the bottom line, please feel free to leave comments below and a mentor will gladly answer your question which will be seen by all (and hopefully help a multitude of people who may have the same question)!

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