SS240: Reducing Apartment Delinquencies

SS240: Reducing Apartment Delinquencies

When tenants stop paying rent, time is money. In this episode, Charles Carillo reveals his step-by-step system to reduce delinquencies, avoid costly evictions, and protect your rental income. From smarter tenant screening to proactive eviction strategies and cash-for-keys offers, this is a must-listen for landlords and real estate investors who want to stay profitable and in control.

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Talking Points:

  • In episode SS238, we discussed reducing your vacancy rate as a great way to increase your property’s NOI. Going one step further is reducing your property’s delinquencies. 
  • 1. Tenant Screening. If you don’t get anything else from this episode, tightening your tenant screening is the best way to reduce apartment delinquencies. Over the past few years, tenant fraud has significantly increased. If you are self-managing your properties or have hired a third-party management company, the manager should initially focus on confirming the tenant’s identity, employment, and income. I highly suggest utilizing an AI document screener/verification service to assist with this process. Next, I would suggest outlining a strict list of tenant screening requirements, such as a minimum credit score, a minimum rent-to-income ratio, and a stance on criminal history. Lastly, the deposits required for new tenants to move in should be reviewed. Are you asking 1 month or 2 months, or maybe you are utilizing a deposit replacement program, allowing renters to pay a smaller, non-refundable fee instead of a large upfront security deposit? If you are experiencing a higher rate of delinquencies, you might consider increasing the upfront security deposit required for move-in. If you want more effective tenant screening tips, check out episode SS203. Now, even with solid screening, you still need to make paying rent ridiculously easy.
  • 2. Payments. Make it easy for your tenants to pay you. Offering an online portal to your tenants simplifies the rent collection process. I would ensure that you can accept payments directly from the tenant’s bank account through ACH, and most portals offer the possibility of accepting credit cards from tenants. In most instances, the tenant covers the credit card processing fee. Additionally, offer tenants the ability to mail or drop off money orders and checks. But convenience isn’t enough—you also need motivation. That’s where late fees come in.
  • 3. Late Fees. The late fee is intended to encourage tenants to pay their rent on time. Instead of paying another creditor first, who will charge them a late fee, they choose to pay you. When I self-managed, I would let the first late rent payment slip, but I always charged for it in subsequent instances. The late fee should be high enough to discourage late payments, but not outrageous, so it will not cause undue hardship on the tenant. Now let’s talk about something tricky—payment plans. They sound helpful… but are they really?
  • 4. Payment Agreements. I hesitated to add this point, but I have made successful payment agreements with tenants in the past; however, that is not common. Most payment agreements are a waste of time and money for landlords since they prolong the inevitable. If your tenants cannot pay rent this month, what makes you think they are going to pay rent for two months next month? I would first suggest they go through the online resident portal and pay rent via credit card. If they cannot do that, I would discuss cash for keys, which you can learn more about in episode SS98, but really, we are giving them money for them to vacate the unit in the next week or two. Of course, when plans fail, you need to act fast. That’s why streamlining your eviction process matters more than most landlords realize.
  • 5. Streamline Your Eviction Process. Most property owners do not understand the eviction process until they are forced through it. This puts owners at a disadvantage compared to a seasoned real estate investor who knows the laws and has an attorney lined up to the point where they just forward information to them, and the attorney immediately starts the process. 
    • 1. Understand your local eviction laws and timelines.
    • 2. Start the process sooner rather than later. When rent is unpaid, and tenants have been unresponsive to multiple calls and text messages, have your attorney start the “3 Days or Quit,” or “3 Days to Pay or Quit.” In other words, in Florida, if the tenant fails to pay the full amount within three days (excluding weekends and legal holidays), the landlord can begin eviction proceedings.
      • Since all of my rental properties are in LLCs, I have to utilize an attorney, but when I owned rental properties in my name, I still always utilized an attorney. It is similar to opening LLCs; I always have an attorney do it for me, even though you can do it yourself. Find a good, reasonable real estate attorney and let them handle it. 
    • 3. Always maintain detailed records for each tenant, especially with one being evicted, including a timeline showing when they stopped paying, when you began the eviction, and when they ultimately left the property. After an eviction, look back and see where you could have further streamlined the process.
      • Ensure that the property manager is always proactive. This means staying on top of tenants who haven’t paid, repairs that haven’t been completed, or potential issues before they become costly problems.

And finally, to tighten everything up—track your numbers. Know what delinquency is actually costing you, month after month.

  • 6. Know Your Numbers. Start improving your reporting to make it easier to review delinquencies monthly and annually. Start tracking how many days your units are down between tenants. How many days does it take to “make ready” the unit, and how much does it cost? When a delinquency occurs, how much does it typically cost you between lost rent, legal expenses, and preparing the unit for the next renter?

Transcript:

Charles:
Have you ever had a tenant who stopped paying rent repeatedly delayed making the payment they promised and you weren’t sure how to proceed? Only for the weeks it turned into months. Welcome Strategy Saturday, I’m Charles Carillo, and today we’re diving into a smarter, faster way to reduce your apartment delinquencies and protect your NOI before it’s too late. This exact scenario happened to me multiple times when I became a landlord two decades ago until I put together some guidelines that we now follow when working with tenants. So let’s get started. In episode SS 2, 3 8, we discussed reducing your vacancy rate as a great way to increase your properties NAY. Now going one step further is reducing your properties delinquencies number one is tenant screening. So if you don’t get anything else from this episode, tightening your tenant screening is the best way to reduce apartment delinquencies.

Charles:
Over the past few years, tenant fraud has increased significantly. If you are self-managing your properties or you’ve hired a third product management company, the manager should initially focus on confirming the tenant’s identity, employment, and income. And I highly suggest utilizing an AI document, screener or verification service who assists with this process. Next, I would suggest outlining a strict list of tenant screening requirements such as a minimum credit score. A minimum rent to income ratio may be three times and a stance on criminal history. Lastly, the deposits required for new tenants to move in should be reviewed. Are you asking one month or two months? Or maybe you are utilizing a deposit replacement program allowing renters to pay a small non-refundable fee instead of a large upfront security deposit. If you’re experiencing a higher rate of delinquencies, you might consider increasing that upfront security deposit required for move in.

Charles:
And if you want more effective 10 screen tips, you can check out episode SS 2 0 3. SS 2 0 3. Number two is payments. So make it easy for your tenants to pay you. You know, offering an online portal to your at tenant simplifies the rent collection process. You know, I would ensure that you can accept payments directly from the tenant’s bank account through a CH, and most portals offer the possibility of accepting credit cards from tenants. In most instances, the tenant covers the credit card processing fee. Additionally, offer tenants the ability to mail or drop off money orders and checks. Number three is late fees. Now, the late fees and tenant to encourage tenants to pay their rent on time instead of paying another creditor first who will charge them a late fee and then then they choose to pay you. When I self-manage, I would let the first late rent payment slip, but I always charge for in subsequent instances.

Charles:
And I never told ’em this, it just did this and the late fee should be high enough to discourage late payments, but not outrageous. So cause kind of undue hardship for the tenant. We want the tenants just to pay their rent and if they’re gonna pay a few days late, we want to charge them a fee for it. Number four is payment agreements. I hesitated to add this point, but I’ve made successful payment agreements with tenants in the past. However, it’s not common. Most payment agreements are a waste of time and money for landlords since they prolong the inevitable. If your tenants cannot pay rent this month, what makes you think they’re gonna pay rent for two months in a row next month? And I would first suggest you go through the online resident portal and have them, you know, offer them that they can pay rent via credit card if they cannot do that.

Charles:
I would discuss cash for keys, which you can learn more about in episode SS 98. That’s SS 98, but really we are giving them money for them to vacate the unit in a week or two. And then you can move on with cleaning up, making the apartment ready for the next tenant. Number five is streamlining your eviction process. Now most property owners do not understand the eviction process until they’re forced through it. This put owners at a disa advantage compared to a seasoned real estate investor who knows the laws and has an attorney lined up to the point where they just forward the information to them and the attorney immediately starts the process. And this is one of the benefits of working with a property manager ’cause they know this inside and out. So number one, understand really your local eviction laws and timelines. And this is if you are just an investor and not managing or this is definitely if you are an investor and you’re self-managing your properties.

Charles:
Number two is start the process sooner rather than later. When rent is unpaid and tenants have been unresponsive to multiple calls and text messages, maybe some door knocks. Have your attorney start the three days or quit process or also call like three days to pay or quit. In other words, in Florida, if the tenant fails to pay the full amount within three days, excluding weekends and legal holidays, the landlord can begin the eviction process. And really that’s three days after they’ve received the notice. Now, since all of my rental properties are in LLCs, I have to utilize an attorney. But when I own rental properties in my own name, I still always utilize an attorney. It’s similar to opening LLCs. I mean I always have an attorney do it for me, even though you can do it yourself, but you can find a good reasonable real estate attorney and let them handle it.

Charles:
And good real estate attorneys, they are spending their time between doing closings and really doing evictions. So they’re like in their office or they are at court and this is all they do all day. So they’re not gonna charge. It’s gonna be much different than if you had like a litigation attorney or some attorney that’s not really versed in doing this or does this often. You’ll know exactly because you call the office, they’re in court today, they’re in court today, they’re in court today, and this is what they’re doing. And this is the type of attorney that you want to have as your real estate attorney where they can handle contract questions with you from anything from if you’re selling a property or you’re working with vendors. Something like this also handle all of your fictions. And the more business you’re doing with that attorney, the more leeway you’re gonna get when you have questions.

Charles:
They’re not gonna be like turning on that clock right away. Number three is always maintain detailed records for each tenant, especially with the ones being evicted, including a timeline showing when they stopped paying, when you began the eviction, and when they ultimately left the property after an eviction. Look back and see where you could have further streamlined the process. And this is something your attorney’s gonna do for you, but you can do it yourself and just kind of get updates from your attorney or from their secretary letting you know what’s going on in the process and where they are. If they start working out deals or something, that’s where they’re gonna contact you and be like, Hey, do you wanna agree to this? We have a deal on the table. And then this is what I suggest and ensure the property manager is always proactive.

Charles:
This means staying on top of tenants who haven’t paid repairs that haven’t been completed or potential issues before they become costly problems. So for this, this means that you know, if tenant seven paid, you speak to property manager sometimes like, oh yeah, we call that tenant. Well if they haven’t paid after like four or five days, there’s a lot more than just calling or one call it’s gonna do. I need people over there knocking doors, I need texts, I need multiple calls. I mean, I need this to know that. Get a firm, listen, this person’s just avoiding a hundred percent, okay at that point, let’s start the process. You know what I mean? And this also goes where you have, you know, they should be doing these property managers, especially if you’re the property manager, you know, going your property and doing inspections on the property.

Charles:
This doesn’t have to be like a full inspection like you’re buying a property like they’re walking the property or they’re inside units and they’re seeing issues. They a lot of times will tell you what’s gonna happen, what problems are gonna happen before they really happen, if that makes sense. So you can see stuff in your, okay, this has got like a short lifespan here and this is what they should be bringing to you and be like, Hey, you should really looking forward to fixing this in one A or this hot water heater should be done in like the next six months. This is stuff that what they’re doing and this is where you can get ahead of issues. And when you have everything lined up, this is where you’re avoiding issues with your tenants as well. Because if you have to take their hot water heater off for like 90 minutes, it’s much different and then you’re taking it off for like two days, right?

Charles:
Number six here is knowing your number. Start improving your reporting to make it easier to review delinquencies monthly and annually. Now this is a little bit more in depth because most landlords don’t have this capability, but if you start tracking how many days your units are down between tenants and how many days does it take to make ready the unit and how much does it cost? And when a delinquency occurs, how much does it typically cost you between lost rent, legal expenses and preparing the unit for the next renter? This will make it much easier to figure out how strict you are with your 10 screening, number one, and then also really how much you’re going be spending when or what you would offer for cash for keys. If you know it typically costs you $3,000, which is pretty, pretty low actually. Maybe it’s $5,000 between lost rent during an eviction between the attorney, all this type of stuff, you’re gonna be much easier to go to a tenant that’s not paying, offer ’em 1500 bucks and have ’em leave, and then really be done with it and then you can move on.

Charles:
So these are important things that you have to take into consideration when you’re renting properties and how you can help reduce apartment delinquencies at your property. So I hope you enjoyed. Please remember to rate, review, subscribe, submit comments and potential show topics@globalinvestorspodcast.com. If you’re interested in actively investing in real estate, please check out our courses and mentoring programs@syndicationsuperstars.com. That is syndication superstars.com. Look forward to two more episodes next week. See you then.

 

Links Mentioned In The Episode:

  • SS98: What is Cash for Keys?
  • SS203: Insider Tips for Effective Tenant Screening
  • SS238: Rental Sitting Empty? Here’s the Brutal Truth (and the Fix)

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