This article continues the series What to look for in a Property Manager. Today we highlight the concept of tenant management, and focus in on how to handle problem tenants.
What is the Best Way to Handle a Problem Tenant?
According to BiggerPockets.com, a proactive approach to tenant screening is the best defense against tenant issues, "the first opportunity to enforce your agenda with your tenant screening and selection process." The best way to have “your pick” of prospects is to price your home at the more “Conservative” end of the price range. You may leave $50 on the table, but you will have so many prospects wanting your home, you will have a wide selection of applicants from which to choose. Sometimes, however, problem tenants get past the screening process, no matter how diligent you are. In these cases, the follow outlines some ideas for preparing yourself for them.
Strictly enforce payment deadlines - There are various laws in place to protect tenants from unfair landlord policies. The trend in recent legal cases demonstrates that the courts will be a little bit tenant-friendly in disputes with landlords. Due to this legal climate, GWM’s advice is to give the tenants a larger grace period (say 5 days after the 1st of the month) but then have a large late fee (10 – 15%). Also, stay away from exotic “tiered” fees and keep it simple (or be prepared for the judge to throw out all those extra fees above and beyond the late fee). Ultimately, enforce the policies in place, but make them crystal clear to the tenant.
Handle maintenance issues promptly and according to your lease - Don't let a maintenance cause you to be in default of your own contract. Clearly state how you will handle maintenance issues, and then honor your contract. Most states give you 48 hours to address any issue from the time it is reported, and, minus a holiday, there is no reason why you shouldn't be able to get a contractor to give you a short term fix while you, as the landlord, figure out a long term solution. Regardless, don't be bullied by tenants who make outrageous demands (“come out today or I am going to fix this on my own and deduct it from the rent”) without giving you, as the landlord, a reasonable amount of time to tackle the repair.
Get insured (and get your tenants insured) - Prepare yourself for the worst case scenario. Assume that one day you'll have a maintenance issue that you won't be able to handle. Prime Location lists insurance factors that you should consider. Also, landlords, demand that your TENANTS carry insurance. At least make sure they pay for a year policy up front before you give them the keys…most policies are no more than $125 for a year of basic coverage.
Keep detailed records - As we've stated in our Repairs and Inspections post, take lots of pictures before and after tenants move in/out. Use email to correspond, use voicemail recording technology like that of Google Voice to capture voice messages. Even interview neighbors, if necessary. Organize everything away into a file. Chances are you won't often need the records, but when you do you'll really need them.
Monitor your property - Interior inspections are critical. Write them into your contracts and so you can perform interior inspections, at a minimum, every 6 months. Use drive by inspections throughout the rest of the year to keep an eye on the exterior. An unkempt exterior will give you a good idea of what is happening inside.
Be professional - This is very important. Always conduct yourself professionally. Be matter of fact, and firm, but always keep it professional. Don't give a problem tenant any reason to flip the tables on you in a dispute.
Use a professional - We never recommend you manage the property on your own. Quite simply, every tenant will bank on the fact that you don’t know the Landlord-Tenant law and depending on what state you are in, that could cost you a lot of time, energy and money later on. Think about the fact that (3) hours of work by an attorney will probably cost you $1000. You can have a professional management company looking after your home for an entire year for that much money. In addition, tenants won't be so bold to play games with a management company that has probably seen more games than Milton Bradley. Plus – do you really want your tenant knowing your phone number, your address and your email?
There are lots of things that, as a landlord, could cause you headaches. Hopefully, you'll prepare yourself accordingly to mitigate the risks. If you have any more questions, please let us know!