By Robert L. Cain
Wouldn’t it be great if you had a consistent, objective formula that you could pull out and decide when to boot a tenant? Just think, plug in some data, add, subtract, multiply and divide, maybe even have Excel do it, and presto, get a number that tells whether to send the eviction notice or “give them one more chance.” It would be similar to that Body Mass Index that health gurus are so fond of touting. It’s too bad, but there isn’t any such formula. Deciding whether to evict depends on several factors that take into account both the property and the tenants themselves. Even so, what we will look at here is how to make a more confident and objective decision about when to evict even if we can’t come up with an infallible formula.
If the tenant hasn’t paid rent for three months, has trashed the place, throws nightly wild parties that bring the police, sells drugs out of the property, picks fights with neighbors, leaves filth and garbage strewn throughout, there’s no need for a formula. That is an obvious candidate for eviction. Well, duh. Rarely do we get such qualifications, though. Often landlords torture themselves because they know how “hard” it is for the tenants at the moment and don’t want to be the “bad guy” who gives credence to the notion of the evil, uncaring landlord of myth and legend.
But let’s start with one axiom. Every unit must pay for itself. That means that even in a multi-unit building, letting one unit slide because the others are paying so it’s still in the black is not the best business plan for several reasons, the most obvious of which is that bad tenancy is an insidious virus that spreads to other tenants. Let one tenant slide and others could become less conscientious about paying the rent on time and being good neighbors. And then the landlord thinks about “fairness.” After all, if one tenant is allowed to slide on rent and good behavior, is it “fair” to expect diligence from the rest? What’s in his head is like listening to a teenager whine, “It’s not fair.”
First, then, how does the property affect the decision? I thought of two factors. One is the difficulty in getting the property rented. If it takes months to find a new tenant, we might be willing to let some late rent slide. But we wouldn’t be willing to let three months’ “late” rent slide. After all, since we’re not getting any rent, anyway, we may as well have the place vacant and market for a better tenant.
The second factor is the type of tenant the property attracts. That five-bedroom house with the swimming pool, spa, guest house and landscaping that puts Kew Gardens to the test on a two-acre lot attracts a tenant from whom we expect to receive full rent on the first of the month, every month, no matter what. Yes, it might be somewhat more difficult to find tenants for the property, but the type of tenant who we would allow to rent such a property is not one whom we would expect to have difficulty paying the rent. Besides, then there’s the mortgage payment on the property.
But how about that studio apartment in the less-than-desirable part of town that attracts tenants who are barely hanging on, who depend on welfare and food stamps to survive, and who can find work only intermittently might not be expected to supply the rent as consistently as someone who is not usually in a financial bind? That property is most likely easy to rent, albeit with that same demographic of tenant. In those cases, it might pay to “work with” the tenant some to get the rent, even if it’s late.
How about the tenants? I thought of two factors to consider here. First, how long has that tenant lived in the property? If it was just last month that he or she moved in and the complaints have begun already, if it’s the 10th and the rent for this month hasn’t arrived yet, out he goes. However, if this tenant has been living there for five years, has had a steady job, and has a history of paying on time and being a good neighbor, it’s time for a phone call or knock on the door. If it were me, I most likely would call and ask if there’s a problem. Then, I’d ask for a commitment. Let the tenant come up with it. Here’s why.
Getting the other party to commit to something first is a negotiating technique to use in many different situations, even in negotiating a purchase price or asking a business for a way to correct its poor service or product. Often, in negotiations such as this, the other party will come up with a far more rigorous solution than we would. We could end up kicking ourselves for leaving money on the table because we were ready to agree to far less than the other party in the negotiation offered—and we spoke first. Let him or her talk first. Even if the tenant’s solution isn’t good enough, we can ask for what we had in mind to begin with.
The second factor is the “consistent-until-now.” It goes along with the length of tenancy, but can be separated out for tenants whom you might consider have a shorter residency. It also goes along with the property itself considering how consistent we expect other tenants in the same property to be with the rent. The point is, if you consider them a previously reliable tenant, it is most likely important to get an explanation.
Things we never tolerate are tenants who damage the property and are bad neighbors. We also don’t tolerate drug dealing or other illegal activities. Those get evicted no matter what the property or whom the tenant is. We don’t need a formula there, just a notice to quit.
The final factor is to ask if the property is losing money or can expect to lose money with the tenant in question. That could include drug dealing, meth labs, and other such criminal behavior. Those can result in our losing money because a property is damaged, destroyed, or padlocked by local authorities for the illegal activities. If the answer is, yes, count on a drained bank account. Out they go.
We have a responsibility first to our investments, second to our customers (tenants), and third to the communities where our properties are. The responsibilities to our investments and our tenants parallel and complement each other. Be consistent with one and get both. So that might be the formula. It’s simple. Are we keeping our responsibilities to our investments and tenants?