Many owners were pleasantly surprised earlier this year that most tenants continued to pay rent even during the pandemic. However, we now credit much of that to stimulus money – whether it be the $1200 federal stimulus check or the enhanced unemployment benefits.

With those subsidies having rolled off at the end of July, the cracks in people’s ability to pay are beginning to show. This is likely only to get worse as time goes on. With more layoffs occurring and savings running out, you need to make sure you have an effective rent collection strategy.

Between fear of contracting a horrible virus, growing layoffs in many industries, and extreme government intervention into property operations (additional tenant protections, eviction restrictions and the like), it would be an understatement to say that the ‘rules of the game’ have been changed on us.

Even when evictions are allowed again, the backlog will be so great, that it could take many months to move anything through the legal system. With those changes in mind, let me provide you a few tips to effective rent collection in this environment.

Tip #1:  The tenant is not the enemy. Unpaid rent is the enemy.

Your resident is your customer. Many of your tenants are probably great people. And, as we saw during the first few months of this pandemic, most are trying their best to pay rent. A few may be gaming you – and we’ll discuss how to deal with the few who are later, but for now, you must go in with the mindset that you and the tenant are on the same side. Your goal is to help them pay their rent to you.

Not all owners are comfortable with this. They’re stuck in the mindset that it is the tenant’s responsibility to pay, period. And, if they can’t, then they need to move. While that may have been true at one time, having that mindset will only cost you financially. First, if they want to stay (whether paying or not), you can’t get them out. Second, it’s not so easy to find a new, quality, rent paying tenant today. If you’re in an area that’s booming, maybe this doesn’t apply so much. But in most areas of the country, you will do much better working with your existing residents.

If prior to Covid, they were always a good, rent paying tenant but now they are struggling to pay rent due to a job loss or reduced hours, realize that they are likely in a state of distress and don’t really know what to do. They have likely never been through something like this before. Frankly, these tenants are probably embarrassed that they can’t pay the rent. So your first job is to help them find the money to pay you.

There may be aid options available locally, which will help you get your rent. Some charitable organizations can provide a month or two of rent. You want to make sure they’ve applied for unemployment or any other benefits that they might be entitled to. You want to explore what borrowing options they might have available to them. Yes, it’s more work for you. In some cases, a lot more work. Remember, your goal is to make it easy for them to pay you. And, that will likely mean extra effort on your part.

You might start by seeing how much your resident thinks they can pay. Maybe there were two workers in the household and now there is only one. Paying something is better than nothing. If they are receiving unemployment benefits every other week, perhaps you temporarily restructure their rent to be paid every other week.

You need to create a plan. Empathize with their situation and brainstorm options. If you are offering a plan with partial rent deferrals, consider factors like how long they’ve lived at the community. Remember, you are on the same side. Think the long game.

One final note: Your goal is to get your rent without hurting their chances for future success. For example, If you make them sell their car in order to pay you, but now they can’t get to work, you are not helping the situation.

Tip #2:  Communication is critical.

Many owners are re-learning how important good communication with their residents is. Those who never communicated with their residents, except for sending them rent increase notices, are finding it a lot harder to collect than those who have treated their residents as their customers. I’ve seen some owners facing rent strikes at their properties, from tenants who finally have the chance to ‘stick it’ to their landlord – and these owners don’t know what to do now that they don’t have evictions or other tools available that they used to use.

Remember, if your goal is to help your resident find a way to pay you rent, then you need to be pro-active and reach out to your residents. They won’t come to you.

You want to create some dialogue and build a connection. With connection comes cooperation. Now, if you’ve never spoken with them before, this might be a challenge at first. But remember, they know they need to pay the rent.

You need to come from a place of being on the same team. Find out what a reasonable solution might look like for them. Look for a way to protect yourself too. Maybe they can get a guarantor for some of the deferred rent.

Some options for them might include:

  • Finding rent from someone else (agency, family, etc.)
  • Selling something to help pay the rent.
  • Taking a loan from their 401(k) or from their credit cards.
  • Partial deferral with payment plan
  • Adjustments/reduced rent amount
  • Offering a discount if they can pay on time or early.
  • Converting the existing unpaid rent into a promissory note with interest. They are then again current on their rent and you have something that you can get a judgment on.

You will have to do some extra work here, and you will probably need to make some adjustments you don’t like. But the big picture is that most residents are not aware that there are any options available to them aside from the contractual rent due on the first.

Remember to stay calm. Talk to your tenant – and listen. There is a temptation to make demands but resist it. Find out about their current situation and what they are thinking. Keep reminding yourself that the goal is to help them to help you get the rent.

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Tip #3:  You still have options for those who are ‘gaming the system’

Yes, we live in the real world, which means there will always be some tenants who want to take advantage of the new protections afforded them. So, what can you do when you have a tenant not acting in good faith? What can you do when you no longer have the power to evict them? You need to appeal to their self-interest.

One option is to just ask them if they’d be willing to move in exchange for waiving some or all of the unpaid rent. Your odds of collecting it are fairly low anyway. If you hire a collection agency, half the money goes to them, so maybe offer to waive some of the rent, get your unit back, and start having rent come in again. For some people, not having the debt burden overhang is all they need to decide to leave.

You might be able to convince them that keeping up their credit score is important for future rentals and other loans. Most tenants know that their late or delinquent rent won’t show up on a credit report. And, unless an eviction has been filed on them, it won’t show up on an unlawful detainer report either (and in some states, you actually have to win the eviction for it to show up. If they skip out and you drop the case, there is no record).

In recent years, several services have come online to help assist you here. Now, even a small landlord with a few units can report rent payments to the credit agencies. Perhaps if your tenant knew that their unpaid rent would show up on their credit, and affect their ability to rent or get loans in the future, they might take your offer to move out in exchange for not reporting the delinquency.

If neither of those ideas work, you might decide that ‘cash for keys’ is your best option. If you haven’t done cash for keys before, that is where you essentially pay your tenant to move out. This might just be waiving or reducing the rent they owe you and giving them their security deposit back, or it might be actually paying them a little more to leave. Although distasteful, you need to weigh the cost of getting back your unit, which you can then re-rent, to the cost of them staying and continuing to not pay you rent.

Remember, no matter what you do, do not resort to any ‘constructive eviction’ actions. These include:

  • Changing the locks
  • Removing tenant property
  • Turning off utilities
  • Harassing the tenant.

All of these actions are illegal. As much as you might want the tenant to leave and feel you are in the right, you won’t win if you do these things.

Tip #4:  Keep up with regulations and document your efforts

With all the adjustments we’ve had to make this year, one thing that hasn’t changed is the necessity of being current with the rules and regulations regarding collections and evictions.  In most years, there are few, if any, changes to these laws.  But this year, it seems something new is enacted or changed every month.  And, there are multiple layers – federal laws, state laws, and, in many cases, local laws that have all been enacted.

Some jurisdictions now don’t allow late fees.  Others do.  Some require special notices be served to residents.  Check with your landlord/tenant lawyer or local apartment association to make sure you are not accidentally waiving your rights or violating the law.  A simple missed step could invalidate your attempts to collect rent or perform an eviction.

Also, know at least the basics when it comes to rules regarding privacy and collections.  You don’t want to be calling employers or other contacts regarding in your attempts collect rent.  You might be opening yourself up to some big liability.

Most important, you need to document your agreements and your actions.  One day this will all end and you’ll be able to evict again or attempt to collect any back rent owed.  At that time, you will need to show that you have acted in good faith during the pandemic and have the proper documentation to prove your case.  

Any attempts to work out agreements with your residents, whether accepted or not, should be documented.  One day courts will be functioning and it will be very important to demonstrate your efforts.  

This has been a year of rapid change on many fronts – and rent collection is just one of them.  I hope these strategies help you.  Please also read my other articles and reports to help you improve your rental property operations.