Who else Wants Their Rent Paid on Time?

[NeilUttamsingh]

The most unsettling feeling you will have as a landlord is the first time you find out that your tenant is not going to pay you rent. I have been there before, and I would compare this feeling to an adrenaline rush. You become really fired up, and ready to take action. I had to calm myself down the first time this happened to me, as I could feel my heart beating faster the moment I discovered that they were not going to pay their rent.



I once heard an experienced real estate investor say, `If you have never had a tenant not pay you rent, you have not been investing in real estate long enough.`



These words are very true. The longer you spend as a real estate investor, and the more properties you potentially acquire results in your odds increasing that a tenant will be late with rent, or that a tenant will decide not to pay you at all. Fellow REIN member and real estate investor, Chris Davies knows all about kicking out dead beat tenants.



Tenants not paying rent is by far one of the biggest fears that newbie real estate investors have. I would have to say that this fear ranks number 1, second to the fear of property management.



As a new or aspiring real estate investor, there is one thing that you need to understand very clearly. If a tenant is not paying you rent, you have to be ready to kick some a$$.



This may seem like a harsh statement. I don`t mean to come off as an aggressive or mean person, clearly I am not. However, there is one thing that I do understand, and I understand this very well, and that is, no one is going to take advantage of me and compromise my real estate business.



As real estate investors, you have a lot on the line. You have invested your money and time in order to buy real estate. You have hundreds of thousands of dollars on the line. Your rental properties are assets that you have to take care of. If you don`t take care of them, no one else will.



So what do you do if a you are a new real estate investor and your tenant decides not to pay you?



Here are some suggestions:



1) Leverage on your property manager



Despite what some people might tell you, I believe that having a good property manager is very important. Your property manager should know the ins and outs of the rules of your local Real Estate and Tenant Board. When the you know what hits the fan and your tenants decide not to pay you, your property manger can step in and issue all of the appropriate forms and documents to the tenant pertaining to their non-payment of rent. The property manager is your ally. Leverage on them. They are experts in dealing with this type of situation.



2) Don`t be a wimp



I have heard so many stories from real estate investors who didn`t have the heart to evict their tenants because it was the winter. I have heard of a couple of occasions in which real estate investors did not evict their tenants because they `did not have another place to live`.



Plain and simple, you can`t be a wimp. If you do, you will get eaten alive. You are running a business. You are not running a charity. If tenants have not payed you, it is costing you money out of your pocket, and they are living for free in your rental property. When the time comes, in which you are legally able to evict them, do it. It doesn`t matter what the time of the year is and it doesn`t matter what excuse they have given you. If they have not paid you, you get them out of there!



Real estate investors run into big problems when they lose sight that they are running a business.



It is fine to be a nice person, but business is business. Don`t get being nice confused with being a smart business operator.



Best Regards,



Neil Uttamsingh

 

[invst4profit]

When it comes to non payment or late payment of rent I am not a nice person. In Ontario any LL that does not serve every late paying tenant with a N4 on the second of the month (or as soon as they get the NSF notice) is a unprofessional business person in my opinion and is simply training there tenants to believe late payments are OK.

I presently have one tenant that is two months behind in rent. LTB eviction hearing is Jan 10, 2011. Unfortunately in Ontario the board usually allows tenants to stay and make payments over time to catch up. Statistically the failure rate is very high resulting in missed payments and a application for automatic eviction in most cases.

Unfortunately tenants quickly learn they can get several months of free rent which is why it is imperative that LLs serve eviction notices asap as the process for evictions is very slow.

I have sat through many board hearings with tenants owing 3, 4, $5000 in back rent that the LL will never see. Always because the LL was unprofessional about the operation of there business.

 

[fdrover]

Morning folks,


Just my two cents worth. I have made every mistake in the book when it comes to collecting rent from deadbeat tenants. One time I let a tenant in and agreed to pick up the rent and the damage deposit the next day. Guess what, I didn't get it. It took me two months to move him on. Guess what I don't do anymore? I have also had several tenants who chose not to pay on time for a variety of reasons. One tenant emailed me to say that they were leaving at the end of a month and wanted the DD used as part of that month's rent. I did so. Did the tenant move out on time? No. It took an additional 30 days to get them to leave. Did I get paid for that time? No. Guess what I don't do anymore? I once inherited a tenant who had an "arrangement" with the previous property manager and hadn't paid rent in months. It took 3 months of late payments and then no payment to move her along. I find that I can almost eliminate these problems now because we vet our tenants and do checks. Also it is next to impossible to find an empty apartment in Labrador West, so tenants don't have anywhere else to go so just about everyone pays on time. We follow the proper procedure and document our verbal and written efforts to get paid or move them on as per the Landlord Tenants Act in NL. As advice to new real estate investors I would say that it's not IF it is going to happen but WHEN. Choosing to deal with tenants with respect and focussing on the immediate issue, outstanding rent, not personalities and not losing your cool is so important. Don't let a few deadbeat tenants take away the dream. Just my two cents worth.

 

[NeilUttamsingh]

Hi Fraser,


Points well taken.


I really enjoyed your quote.


"Don't let a few deadbeat tenants take away the dream"


Like you said, it is not IF it is going to happen, but rather WHEN.


Being prepared for WHEN it happens by surrounding ourselves with a strong real estate team makes all the difference in the worlds.


When I look at and observe the course of events that led to some rea l estate investors to fail, often times it was a result of them not having the support network or team in place.


REIN serves as a great support network for all of us.


All the best,


Neil.

 

[fdrover]

Neil,


Happy New Year to you and your family. I often wonder where we would be without the strong team that we put in place almost accidentally. I had read several real estate investment books before but since joining REIN I am amazed at the wealth of resources that are available to anyone today. I think in some cases we moved into real estate because we had personal connections with folks with positive attitudes and a great skill set. Our property manager in Labrador City is so full of life and exudes positiveness. Her husband does our maintenance, quite a team. He can, as we say in NL, put an ass in a cat.


Because my wife and I are both in the education field, Stephanie teaches Junior High and Senior High courses and I am the VP of the local high school we know most of the folks looking to get out on their own and rent. We have either taught them over the years of taught their parents. That brings a certain degree of comfort knowing your potential clients. Not that we haven't been burned, just that we use each lesson to tighten our controls and reflect on why these things happen. We also don't sweat the small stuff. Last year we had a self employed client with his spouse and 1 yr old child. They couldn't pay for Dec or Jan but he was waiting for a cheque for a job that he had completed. Despite some trepidation my wife and I allowed them to stay without beginning the eviction paperwork. The cheque came through, we were paid for two months. But then they left town in the middle of the night without notice. You win some, you lose some. I know for some real estate investors the idea of being flexible on rent payments may seem counterproductive but we generally get to know our clients fairly well. We work closely with other organizations in our community as well to help folks who might not otherwise have a place to stay.


Like you have stated, being connected with a support group, like REIN members, or like minded real estate investors in your community brings a certain degree of comfort to the whole idea of being a business owner. We don't have all of the answers all of the time but we can post a question and receive a mutitude of opinions from folks who have been there and done that. Now that's a cheap education.


Fraser Drover


droverproperties.ca

 

[NeilUttamsingh]

Hi Fraser,


First off, I have to say...


"put an ass in a cat"...


That is my new favourite saying. Absolutely love it! /tiny_mce/plugins/emotions/img/smiley-cool.gif


I found your response quite interesting,


Your experience renting to people that you taught over the years is very cool.


It is a much different experience that I have had dealing in large suburbs of Toronto, and I am sure quite different than the experience of a number of the Ontario REIN members as well.


Unlike yourself, I have never known anyone personally that I have rented one of my properties to.


On the whole it sounds like your experience has been a positive one. Perhaps this is a result of being in a community where people have more integrity on the whole, and keep their word. Do you think that this s a valid statement to make?


I find that with dealing in major urban centres I have become jaded to a certain degree. Where business is business, and there is not much lea-way when people don't honor their obligations.


Thanks again for your perspective Fraser. It was great to read about your experiences.


All the best,


Neil.

 

[fdrover]

Neil,


I think that living in a small town definitely has its advantageous but what has cushioned us to a certain degree is the increased labour shortages and increases in wages because of the new iron ore mine that opened and that there has been increased employment at the other mines due to expansions and also due to increased retirements. Normally when someone retired here they sold their house, probably to the person hired to replace them, and then they left. Nowadays, these folks who are retiring have their children and grandchildren living here so most are deciding to stay.


Thus there is a shortage of housing which has increased property values and rents in particular. For example rents in our 15 unit were about $350 per month, now they range from $700-1000. Houses rent in the 2k range plus. We are referred to locally as Little Fort McMurray. The same house that we could have purchased for 100k five years ago is now in the 240k range.


With this shortage of rental availability comes increased rents, better tenants socioeconomically due to increased wages. Tenants who don't pay on time or don't pay at all are few and far between because they can't rent from someone else because the other person in probably charging higher rents. Also property owners talk so certain names = no availability.


I have met just about all of our tenants in our properties on the island of NL as well. I flew to St. John's and then drove to Carbonear several weeks ago to do a personal viewing of a six unit. We will close on this one in mid January and I also bought the two apt across the street from the same owner, to be closed in late January. There has never been a vacancy in the 6 unit since it was built in 1993. Older retired tenants who stay until they are unable to care for themselves and then they go into a HOME. The other tenants decided who comes in next. Wonderful tenants who pay on time, take great care of the property and stay until they can't stay any longer. They are gold and will be treated as such.


So I live in a real estate nirvana. Or a very small real estate bubble. Our plans are to continue to acquire multifamily properties in the Carbonear, Bay Roberts area of NL for the next five years or so and while waiting for opportunities we will be paying down lines of credit.


I understand that being an investor in real estate in larger centers is different in many ways. Not knowing or ever meetiing your clients would put a different spin on how you deal with them for sure. We all probably put similar policies and procedures in place but I am able to be more flexible in inplementing them. The purists don't like that I guess.


As an aside, did you or any real estate investor you know give their tenants a Xmas gift this year?


Fraser Drover


droverproperties.ca

 

[NeilUttamsingh]

Hi Fraser,


I too experience a bit of a 'real estate nirvana' as you so eloquently put it.


My first rental property, I purchased in my hometown of Oakville, Ontario.


The tenant profile is extremely stable, and are middle to high income earners.


Further, I bought in the mid 2000s. As such, experienced a substantial property value increase.


I bought in 2005 for $250,000. Today, 5 years later these homes are selling for $360,000 and that is with no upgrades.


Oakville is quite an interesting real estate market indeed. There is no real industry, however, people continue to move there. It is a destination for middle to high income earners.





To answer your question, I gave all of my tenants Christmas gifts this year. The coolest experience I had doing this is when I got a Christmas gift back from one of my tenants. The attached Christmas card they gave me was the best part, because in it they wrote that I was a fantastic landlord, and they were very happy to have me as their landlord.


Their thoughtful card was by far the best present I got this Christmas.


All the best,


Neil.

 

[invst4profit]

Frasier you are fortunate to be in such a enviable position.


However the positives of such a situation are also the negatives. In your position you must very closely monitor the shifts in your micro economy in order to react to rapid changes. A major economic down shift in your economy would require liquidation of your properties ahead of the drop. In a environment such as yours a major drop would be devastating and very long term.


The fact that you know your tenants is a positive now which will quickly shift to a negative should your economy shift. When a tenant does lose their job they will have no place to go and will expect you to simply carry them through tough times as a friendly gesture. Even in good times when a tenant does lose their job they will expect their "friend" the LL to carry them as they will have no other options.


You will ultimately be forced to make very tough decisions you are not accustomed to making. Evictions are a reality of this business


Your nirvana could become your business hell. You will become either a renters social welfare system or the most despised LL in the community.


With any luck you will see no down side but as you point out you are in a small bubble.


In your position I would be distancing myself from my tenants to prevent any perceived friendship, on their part, from interfering with you having to make the right business decisions.


In Ontario, as noted, we do not have the luxury of operating outside of self imposed strict business plans without serious financial risk.


Hopefully your situation will never change. Good luck





PS: I send my tenants cards. I believe gifts often, not always, creates a uncomfortable situation for tenants. Even cards have that effect on some as they feel they are obliged to reciprocate. I don't send cards to the 10% of my difficult/undesirable tenants as that would only rub salt in the wound.

 

[fdrover]

Invst4profit,


Yes, your points are well taken. A year after we bought the 11 unit which we were renting to contracting companies, fully furnished, on a month to month basis, there was a strike at one of the local mining companies. We went from full to 7 empty overnight. Now if that doesn't try your patience nothing will. It did indeed seem a insurmontable challenge at the time. We prevailed by shifting our rental profile from contractors to local residents. We also have kept our rates lower than most of our local competitors believing that lower rates would equal less turnover. This has proven to be true as well.


Even though I know just about all of our tenants personally I haven't had too many requests for rental payment extensions to date. I also say frequently that I have no emotional attachment to our holdings and for the right price I would sell tomorrow.


Having grown up in Lab. West I have personally seen the "arse drop right out of 'er" so we used the positive cash flows to pay off some properties, renovated the two apt buildings and have purchased properties on the island of NL as well. Iron ore is a valuable commodity internationally so as long as China and India are buying this area will be ok. However, its better not to have all our eggs in one basket, although a few of my property owning buddies here disagree.


I do understand and respect the perspective of others. Everyone has a story, so to speak, with a different history of personal experiences that permit them to see what they see. My glasses tend to be rose coloured most of the time.


By the way, I dropped off a card, a box of chocolates, and a small booklet of Brian Tracy quotes to our local tenants.


All the best,


Fraser Drover


droverproperties.ca

 

[Hamiltonriver]

Unfortunately in my case, my property manager decided to hold the cheque as requested by my tenant and did not even bother to let me know until I found out from my bank that the rent had not been deposited. My property manager was the one who found the tenant in the first place and when I questioned him, he did not respond. I know nothing about my tenant apart from his name and was never consulted in the first place when the tenant's application was approved by my property manager. As I was a newbie and knew nothing about the property manager's role, I thought it was the norm. It was my first investment home and my first tenant and 3 months into the lease this had already happened! Now I have to figure out how to move forward in the coming months!

 

[fdrover]

Hamilton River,

This sort of experience has the potential to turn folks off from "the true path to wealth and happiness". Sounds a little biblical don't you think? Potential challenges with tenants and property managers are many and varied. Planning ahead by having a honest discussion about your needs as an investor, ie. having rent deposited on time or at least getting a heads up, is just one topic. Having a contingency fund in your account that covers a couple of months rent and some for emergency maintenance goes a long way to having a good night's sleep.

Not getting a timely response from your property manager about your concerns does worry me a little. I would insist on correspondance and an explanation of why this happened and get assurances that this won't happen again. I would be privately looking for another potential property manager and possibly another tenant.

Keep the faith and use this experience to broaden your education.



All the best,

Fraser Drover

droverproperties.ca

709-282-8149