Let’s talk about how to deal with a tenant who abandons your property.
Before we get into the nitty-gritty of what you should do if your tenant abandons your property, you need to reduce your risk of that ever happening. You do that by having a really good tenant qualification process.
Practice Prevention: Screen Tenants Well
Something we do at our property management company when we evaluate tenants that you should do is check their income. Their income has to be three times the monthly rent. Call the employer to make sure that the paystub figures are accurate.
Another thing you need to do is an eviction history check. If anyone has any kind of eviction on their record, in my opinion, that should be an automatic fail. This is because the likelihood of them doing that again is pretty high.
Last but not least, you need to do a background check. Anyone with criminal activity from a felony standpoint or along those lines, in my opinion, you should not rent to. They just tend to come with a lot of problems.
If they have minor criminal activity that’s years and years old, we try and work out a deal. I suggest that you do, too.
I always like to joke around and say that money speaks every language. So if someone is willing to put down three to six months of rent in advance or a large deposit, that should minimize your risk because you’ll have that buffer of capital.
Again, give yourself the best chance before you put a tenant in that property if you want that tenant to stay and pay.
What to Do If a Tenant Disappears
Now once you have gone through that and placed a tenant in your property, it’s all fairytales and butterflies, right? Then after two months, they tend to disappear.
Guys, it’s real estate and it’s a rollercoaster of a ride. I’m here to tell you now, if you think it’s not going to happen to you, it probably will. So you always have to base everything on the worst case scenario.
Something that I like to tell investors is underestimate your income and overestimate your expenses when you’re investing in buy and hold properties. Something will always go wrong, and you need to expect that to happen.
We’ve placed a lot of great tenants in properties—at least we thought they were great. But then they pack up and leave. They just disappear; they abandon the property, and they move out of state.
We can’t talk to them even though we call them, we text them, and we email them. They’re just M.I.A. These things happen.
We’ve also had a lot of tenants that stop paying after two or three months for no apparent reason. They just stop communicating, and we have to evict.
So what do you do? Do you hold a grudge and file for eviction? Go to court? Succumb to that negative energy?
When to Let That Tenant Go and Move On
Look, in my opinion, there is enough crap that happens in real estate as it is. You’re dealing with people, and when you’re dealing with people, you’re dealing with problems—from employees to contractors to realtors to everyone.
So I think that whenever something negative happens you should learn from the experience, let go of it, and move on as quickly as you can. You have to focus on positive energy.
My point is sometimes it can be tough to be motivated in an industry where a lot of negativity can happen. So you have to feed yourself with as much positivity as you can.
Holding a grudge against a tenant that vacated after three months, and trying to collect the rest of the rent, filing an eviction, and going through the court process is going to be extra costs and extra time. Time is money, guys. It’s just not worth what you can potentially get from it.
The likelihood of ever collecting anything is very low, so I just think that you should let it go, honestly. Get that property turned as fast as you can, re-list it for rent, and try to get another tenant in there. Learn from the mistake, let it go, and move on.
When to Go After a Missing Tenant
Now, if they cause significant damage to the property and a lot of capital has to be spent to turn that property around, then yes, file for the eviction. Go for second cause and hope you can get a judgment and collect something on that money. But still, move on.
It’s something I have done and will keep doing. I have lost $2 million over the last five years in my real estate endeavors, from tenants to employees to contractors to sour businesses. It’s just the cost of doing business.
As long as you make more money than you lose, you’ll always be ahead, right? I remember I got some great advice from a business person back home in Australia.
He said, “You can’t go wrong making a profit.”
If it’s $1 or $100,000, it doesn’t matter—as long as you’re making a profit.
Memphis Buy And Hold is specializing in locating, purchasing, renovating and managing single-family and multi-unit properties and possesses from 2007 up to the present of experience in real estate investing and property management in the Memphis and Nashville markets.
- Memphis Property Management
- Memphis Turnkey Investment Properties
- DCC Rentals LLC
CTTO Article Source: https://www.biggerpockets.com/
