Real Estate blog

Dealing with deadbeat tenants

I’ve often stated that one of the most important factors in your success as a real estate investor is your ability to select, screen, and retain quality tenants. This is something that I think I’m pretty good at, which has helped me as an investor.

I was going to write an article about this not to long ago when, bam, I ran into a problem: tenants who stopped paying.

The tenants were a flaky young couple that I knew I might be taking a chance back when they signed the lease in May. But I decided to rent to them and mitigated my risk by signing a short lease (six months, with renewal contingent on timely payment), charged them first and last month’s rent upfront, plus one month’s rent as deposit. I won’t go through the boring details, but they ended up breaking the lease and abandoning the property while they owed me money. If you find yourself in a situation like this one here are some points to keep in mind.

Property codes, generally speaking, exist to protect the tenant. However, most tenants who end up in situations like this have not followed the law. On the other hand, you have – assuming you’re a responsible landlord. The party who is on the right side of the law (you) negotiates from a position of considerable strength.
Ensure that you use a current, legally compliant lease contract that includes specific references to the property codes. For example, all of my leases state that tenants are prohibited from withholding payment for any portion of any month’s rent on grounds that the security deposit is security for unpaid rent, and that bad faith violations may subject the tenant to liability up to three times the rent wrongfully withheld plus Landlord’s reasonable attorney fees.
We all have our own style, but in tenant/landlord disputes you want to be more like Agent Friday (“just the facts, ma’am”) than, say, John Madden. Communicate clearly, calmly, and factually. Quote relevant state property codes, chapter and verse. Read the relevant clauses from the lease that the tenant signed. Use the facts, the contract, and the law as a blunt instrument.