What happens if you don’t get paid?

I was recently having lunch with a friend and the discussion turned to rental properties.  During this conversation, I discussed some of my biggest blunders and craziness as a landlord, which included an exploding toilet requiring a hazmat company cleanup, gang members moving into a unit, a tenant throwing dog poop at another tenant's car, and a pony being attacked by a dog (don't worry, the pony was OK).  All of these stories were interesting in retrospect, although not so much at the time of the incident.

After talking for a few minutes, my friend asked me, “What happens if your tenants don’t pay?”  He followed this up with stories of friends unable to collect rent.  One story was of an acquaintance who did not receive rent for an entire year, which resulted in arguing between the landlord and tenant, which escalated to yelling and culminated in a fist fight! Yet, despite these incidents, the landlord didn’t receive the money. My response to my friend's question was simply that I do my best to know the rules and to follow them.

I followed this up with a simple story.  My wife and I had purchased a property and the day after closing we had the opportunity to meet all of the new tenants, sign new lease agreements with them, and go over the rules.  All of these meetings went well.  However, during one of our meetings we informed a tenant (let’s call her Nancy) that rent was due on the first, and late on the second, with a late fee enforced after the 4th.  Nancy, upon hearing this, immediately informed us that she did not pay rent on the 1st, rather she had an agreement with the former owner that she paid rent on the 20th.  However, we knew from the former owner that there was no such agreement, and that Nancy had not paid the prior owner for over 6 months before our purchase (probably part of the reason that we were able to buy the property in the first place).

After hearing the tenant state her position, I simply repeated what was standard for all the residents of our community: that rent was due on the first, late on the second, and a late fee was enforced after the 4th.  The tenant informed us that she chose not to participate in that payment scheduled.  So, my wife and I amicably wished her a good day and left.

Finally came the 1st of the month, and the residents paid in a timely manner, except for one. True to her word, Nancy chose to not pay.  This is where knowing the landlord-tenant laws and abiding by them is being a good steward. So, my part was to educate myself on my state’s particular housing laws, to communicate them clearly, and to follow through on them.  I understood that it would take a “3 Day Notice” first to start any eviction in my state for failure to pay rent. So on the morning of the 5th, I went down to the unit, knocked on the door, and after hearing no answer, posted a “3 Day Notice to Pay or Quit” on the door.

All of the “sweat equity,” including researching, completing of forms, double–checking of procedures and posting the notices (in a certain order) had to take place prior to me getting to my own day job. So I went into work and later that same day I was informed that a person carrying a substantial amount of cash wished to see me. Suffice it to say that my boss and co-workers were a little surprised. I went outside and met with Nancy who apologized for not meeting her end of the rental agreement and promptly handed over the payment necessary to bring her living expenses current.

I gratefully accepted the money and gladly cancelled the eviction.  More importantly, there was a renewed sense of ownership and responsibility on the part of the tenant.  I believe this was the first time any of her prior landlords had ever abided by the law by posting a 3–Day Notice and that action spoke louder than any emotional behavior would have.  Now to say that the landlord-tenant relationship from then on went perfectly smooth would not be true, but it was much improved and the law-abiding actions were consistent with calm words.

The point is that frustrating and scary things do happen: I still need to meet my financial obligations even when renters choose to not pay theirs. The best thing I can do is to prepare in advance and become very clear on what the law is for renting in my area and then follow those rules that are already in place.  In this case, as in other experiences, the result when I adhere to the rules placed on me as a landlord provide more favorable results than if I just “wing it” as in the example at the beginning of our story. Ultimately, the funds are continuously funneled back into maintenance of the property so that the entire community benefits: “Bi-Winning” indeed!

So when I hear the question from people (and I do hear it a lot) “Yeah, owning property is good, but what do you do when they don’t pay?” I share what has worked for me: diligence, learning what system is already in place, and WORKING to follow through on those rules.  So, how do you handle if you don't get paid?