This is a chapter taken from the upcoming comprehensive guide titled, Market Cycles: How Investors Can Survive (+ Thrive) in a Turbulent Economy. If you would like to sign up for early bird access to this comprehensive guide, please sign up here.
When economic times are tough the most successful investors double down on communication and look for ways to improve tenant management. After all, tenants are your customers. Reducing friction, enhancing communication, and sophisticated tenant screening practices are all part of a savvy investor’s toolkit during recessionary times.
Patrick Carlisle, Chief Market Analyst at Compass notes that “The landlord-tenant relationship can easily become adversarial, especially in places with strong rent control rules and fierce tenant-rights movements (or even groups that don’t believe in private property at all). In this situation, landlords and tenants often demonize each other and stop seeing each other as human beings.”
We are going to help you avoid this situation. Here are some of the best strategies to weather a down real estate market by building out a robust tenant management system.
10 tactics to up-level your tenant management
Tenants are people too. It’s important to keep that in mind when you own investment real estate. But you’ve also got to remember that business is business. Rent is due, but there are also extenuating circumstances that require flexibility on the part of landlords.
Here are 10 tactics to improve your tenant management while still keeping vacancies low and income flowing.
1. Don’t scrimp on the tenant screening
Protect your property by treating all tenants fairly and equally with a written and signed rental application, credit checks, and reference checks. Develop a robust tenant screening application either with physical paper copies or a digital tool such as Google Forms or Typeform.
2. Use a professionally written lease agreement
The more robust your lease agreement is, the more seriously tenants will take it. Make sure the contract is legal in your state, with all of the terms and conditions written in simple language, and covers key items such as subletting, pets, rent payment terms, and security deposit return.
3. Manage professionally with “tough love”
Always be cordial, courteous, and professional when dealing with tenants. Maintain normal business hours and a system for getting in touch for after-hours emergencies. Be on guard for tenants who try to ‘work the system’ and strictly enforce requirements in the lease.
That said, tenants may provide proof of financial hardship that warrant such considerations as rent deferment, or a rental payment agreement that accounts for a month or two of reduced rent amounts.
4. Make it easy for the tenant to pay their rent
Rent payment options can include online rent payments, smartphone apps, and direct debit from the tenant’s bank account. Offering multiple choices for paying the rent helps avoid the age-old excuse of “the check is in the mail.”
Making this process as frictionless as possible with automated withdrawals (ACH), online payment options, and automated reminders all serve to improve the tenant-landlord relationship.
5. Keep the good tenants you’ve worked so hard to find
There’s a saying in the rental real estate business that, “Tenants are like gold.” It costs more to replace a good tenant that you might spend on rent incentives. Items like a lease renewal bonus or annual cleaning service go a long way to keeping occupancy levels high.
Even small things like remembering birthdays, or quickly addressing issues that need maintenance or fixing all go a long way to improving your current relationship with good tenants.
6. Renters insurance is a must-have tenant requirement
Require the tenant to obtain insurance that protects them if their property is lost, stolen or damaged. In addition to protecting you from liability, it also eliminates the tenant excuse of not paying the rent because they need new furniture.
7. Follow the Golden Rule
Treat your tenants as you want to be treated, and the odds are they’ll do the same with you. This includes respecting their privacy and giving the legal notice required before entering their place.
8. Maintain rents at market
Have a system in place to regularly monitor fair market rents. Give the tenant a heads-up and explain why a rent increase is planned, making sure not to violate the landlord-tenant laws in your city and state.
Rent increases are allowed at a certain amount each year, typically at an amount tied to inflation. Ensure you keep these increases going, and inform tenants well in advance of such increases.
9. Cut your losses with a bad tenant
The odds are that if you give a bad tenant one “break” one time, 99.99% of the time they’ll make excuses again, and again, and again. Every now and then, despite your best efforts, you’ll end up with a bad tenant. Enforce your lease, admit your mistake, and look for a good tenant ASAP.
10. Evict swiftly and legally
The fact is that the longer you wait to evict the more damage a bad tenant will do. Then, you’ll have to chase after them for damages. Most cities have attorneys who specialize in residential evictions for a low affordable fee. They know the law and will help protect you from frivolous lawsuits.
Tenant communication 101
Having an open channel of communication helps build a strong foundation for landlord-tenant success:
- Tenants are more likely to renew their lease when you’re responsive to their needs
- Finding a new tenant is much more expensive than keeping the good one you already have
- Safety, security, and fair rent are key priorities tenants have
According to Patrick Carlisle, “The best strategy for landlords is straightforward communication always expressing concern for their tenants’ safety, well being and comfort; maintaining apartments and common areas in good to excellent condition; making small improvements regularly and proactively. These improvements need not always be expensive – fresh paint, better cleaning, freshening up landscaping, and so on. Small gifts during one or two holidays a year with a nice note. All these things help forge and maintain good relationships.”
Carlisle continues, “Of course, there are some tenants who will always see landlords as the enemy. All one can do is screen tenant applicants as well as possible, and if the tenant is being disruptive, to use the legal means, as available, to get them out. Sometimes, much easier said than done.”
How to deal with non-payments
Job loss, emergency medical bills, car repairs, and relationship problems are all common excuses tenants have for paying the rent late. However, be sure not to allow their personal problems to create your business problems:
- Review the lease for rent payment deadlines and late fees
- Contact the tenant asking them to pay the rent
- Submit a written notice to pay or quit
- Start the eviction process
Real estate investors know that cash is king, but oddly enough, not when it comes to giving rent incentives. Time after time, research has shown that non-cash items make much tenant incentives then cash discounts:
- Amazon gift card
- Car wash coupons
- Professional cleaning
- Event tickets
- Food delivery service discounts
Many investors offered a discount on rent should the tenant choose to pay early. This is an option for landlords, especially during recessionary times as it ensures your rent is coming in, and gives tenants a small break if they pay you first.
Rent payment plans
During recessionary times it can make better business sense to put a good tenant on a rent payment plan rather than facing an extended period of vacancy. Follow these key tips to create a rent payment plan that benefits both you and your tenant:
- Ask for proof of hardship (where allowed by law)
- Encourage tenant to pay as much as they can upfront
- Agree to a partial payment plan in writing with an amendment to the existing lease
- Get your lender involved by asking the bank for relief if you need it
- Check into government assistance programs
- Proactively market your property for a new tenant if it looks like the tenant will still end up leaving
It’s a fact of life when renting real estate that at one time or another you’ll have to evict a tenant. Tenants who turn your property into party central or refuse to pay rent will need to be dealt with swiftly, as the eviction process can take some time to complete.
When doing an eviction:
- Report any criminal activities to the local authorities
- Apologize to the neighbors for the tenant’s bad behavior
- Hire an attorney who specializes in affordable flat-fee residential evictions
- Document tenant violations of the lease in case you have to go to court (the odds are you won’t, but always be prepared)
- Obtain a judgment for any money owed by the tenant for unpaid rent and property damage
- Hire a licensed collections agency to enforce your judgment and collect on the bad debt
Tenant turnover can take a surprisingly big bite out of your cash flow and quickly decrease the value of your property. The biggest costs of tenant turnover include:
- Admin and marketing costs
- Showing expenses
- Leasing fees
- Application processing and reference checking
- Cleaning costs during the unit turn
- Routine repairs and maintenance
- Negative cash flow during the leasing period
- Damage caused by a disgruntled or evicted tenant
Knowing in advance how much tenant turnover really costs helps you to budget better as you strive to find and keep great tenants. It’s also important for landlords to proactively advertise properties as soon as possible to have a steady flow of applicants.
Tenant management systems
As you scale up your rental property portfolio, dealing with tenants can become increasingly time-consuming and complex. Using a tenant management system can make your life as a landlord easier and your income-producing properties more profitable.
The best tenant management systems for rental real estate make it easy to:
- Keep track of the details for each tenant
- Stay on top of rent collection and payment plans
- Accurately manage rental property income and expenses
- Analyze rental unit and portfolio performance
- Store your receipts and data all in one place
- Prepare for tax season