This is the one that the answer can make or break your rental property investment.
People don’t know to ask this question. I didn’t know to ask this question when I got started, or even years into it. Until it became an issue, I never could have known to ask.
When you are interviewing property managers, you likely ask a series of questions. Everything from how they do tenant screening to handling maintenance calls to what fees they charge for their services. There is another question you might ask- how do they handle evictions. Their answer is likely going to be the standard eviction process- filing papers, going to court, yada yada yada.
Great, anyone can look up that process online. What if instead of asking that question though, you just forget about that one? Why? There are two things wrong with it:
- The process is straight-forward per the state, they just follow that, end of story and
- The eviction process itself is the least of your worries when it comes to a tenant who needs evicting.
You can of course ask them how they handle evictions just to confirm they have a grasp on the process, but here’s the real question I recommend you ask in your interview-
How do you handle BAD tenants?
What Constitutes a Bad Tenant?
Well, easy. One that doesn’t pay.
That’s the worst tenant you can get because at the end of the day all that matters for an investment is whether you make money or not. Kind of hard to make money when the tenant doesn’t pay.
Bad tenants can also be the ones who cause a lot of damages, which can affect your financial return. Then you have the ‘not-great’ tenants, who are the ones who pay but are a complete pain. Maybe the payment is late every time and you have to constantly chase it down, or maybe they whine a lot, or they are horrible communicators, etc. Those tenants aren’t as bad because you are getting the income, but they can be headaches.
What Kinds of Things Do Bad Tenants Do?
Bad tenants may do only one of these things or any combination of them. Some of these things are more severe than others, but they all point to a bad tenant.
- They don’t pay.
- They constantly pay late.
- They constantly give excuses, forcing you to chase them down every month for the rent payment.
- They pay but the checks or whatever method they use result with insufficient funds, causing the chase to start again.
- They cause damages.
- They break the rules of the lease.
- They constantly claim something to be broken.
- What else? I’m sure I’m missing plenty of things.
An Example of How Not to Handle Bad Tenants
The worst property management move I experienced, in terms of dealing with bad tenants in the property, was when a manager kept accepting excuses from the tenant every time they didn’t pay the full amount in rent. He was such a nice guy, the property manager, but he was too nice. These tenants had hardship, I totally get that, and he really did want to work with them and let them get on track and keep the house.
Well, guess what, those tenants never did catch up.
The property manager kept filing evictions each month when they didn’t pay in full which was good, but he kept letting them off the hook because they kept giving him believable timeframes for when and how they would be able to get caught up. Not only did this manager do this with one set of tenants in that house, but two. For basically an entire year, with only a couple months’ exception, the tenants gave runarounds and I got little income from them. Ironically, I know of several other people who have houses managed by this same property manager and they have never had so much as a late payment.
This manager is excellent at managing, when the property has good tenants. When things get rough, he crumbles.
When should a property manager become combatant with tenants? I fully believe in treating everyone nicely and calmly, until that effort starts proving ineffective. At some point you have to get extremely tough with tenants. When? I really have no idea exactly where that line was. The first set of tenants this manager was trying to work with, they legitimately were trying and we had every reason to believe they would get caught up. Plus, remember, one of the most costly expenses of owning rental properties is tenant turnover.
So I totally understood the desire to work with these tenants while they got back on track because to kick them out and find new tenants would cost me a ton. Unfortunately in this case, it ended up costing me way more to try to work with them because then I ended up with multiple months of lost rent before the months of vacancy during the turnover.
But what if they had caught up? I would have been fine and out no money. So where should the property manager have cut them off? I don’t know the answer, but when you interview a property manager, they should be able to speak to situations like these.
How do they handle excuses, what happens if someone pays late every single month, what if payments are getting returned, what if they can’t get in touch with the tenants? These questions all fall under the one big question that is imperative you ask when interviewing a property manager-
How do you handle BAD tenants?