How to Prevent and What to Do When a Tenant is Late with Their Rent

So it starts, here comes the second notification from the bank noting the absence of loan repayments for your investment property. Yay. The next one is a serious one. You feel it tumbling, knotting in your tummy from pure anxiety. It's the second time this happens; your tenant hasn't paid their rent, it's now 3 weeks behind. The notice to vacate has been issued, which won't improve the outlook for the foreseeable future.

This is a nightmare situation, one which, luckily, doesn't happen to a lot of people, but too many nonetheless (unluckily). As an owner, it's easy to sit back and think that everything will run on a smooth sail into the golden horizon of careless property management. And it might well do that, only until it doesn’t and the ketchup hits the fan. With the current landscape, owners are unfortunately often responsible to ensure they take preventative measures themselves, even when they are with an agent, and it's far better to prepare and be risk-averse, even when the problems aren't as severe, say when the tenant has innocent reason for being late a couple of days late. Let's have a look at some of the pitfalls to prepare for, being proactive, and how to act in the worst case scenarios.

Prevent | Know your tenant

Let's put it straight, the number one reason for disruptions in rent payments, and in overall, is tenant selection. Make sure your agent does thorough work, don't let them off the hook too easily. Mind you that they are managing 150+ properties and your property is probably just a number, but you are paying for a service and as such, a right to require sufficient service levels, that includes finding a tenant, one that has the best intentions towards your investment, just like you have towards a good tenant. Good tenant selection is an article itself, it's ridiculous that we have to write some tips around motivating your agent, seeing as it really shouldn't have to be a thing. But here are 3 steps to ensure the right person finds a home in your investment.

  1. Make them accountable

  2. Engage actively

  3. Introduce yourself to the selected tenant

Make them accountable

The aim of these tips is for you to get a good tenant, not for you to do the work in finding them. Always make sure you are not personally running the agent's tasks, merely just 'motivating' them to do it properly. Making agents accountable doesn't have to mean you get this in writing, lack of care, time and ability, there's a reason agents don't want to extend such guarantees.

Setting up the framework in what you expect in terms of asking how many enquiries they estimate, how many applicants you'll get and how fast it all happens are good questions to ask. This way you get them to acknowledge certain standards and that there now has been a verbal consensus of expectations between the two of you.

Engage actively

Most people are busy and get into the investment property game thinking that it'll be a real passive income, in fact, that itself drives a lot of Cubbi's ambitions in developing towards a hands free experience, but this is not a standard offering amongst most agencies and solution, and as such does put a bit more pressure on you to ensure the train stays on the tracks.

By showing your agent you are actively engaged, that you care, keeping in touch and following up the progress of the tenant selection process, and asking about applicants, signals to the agent that you are close to the process and will call out any shortcomings, forcing the agent to be more diligent and ensure they adhere to prior conversations around expectations. It might mean that your property gets slightly more care than those that don't know to care as much.

Introduce yourself to the tenant

Real estate is by heart about people, even though it is someones investment. But with that in mind, this is the one thing tenants feel like it's the least. Remember yourself when you were renting, you felt like a number, like you are in a vacuum sticking it through until you can afford your own home.

Tenants have a generally defeated perception of the rental market and it doesn't take a lot for you to change that perception, make them feel like they are a valuable part in the renting experience and that they have every right to take care and make a home out of your property.

It doesn't mean that you meet up with them but simply flicking an email an welcoming them in and making them know you hope for a good an long lasting tenancy sets a totally different scene to the anticlimax of picking up your keys at the agents office, being quite cumbersome as you have to take time off from work and go out of your way and once again cementing that you are only a byproduct of a desperate situation.

Prepare | Eliminate common issues

Having a good tenant will eliminate 90% of your problems. You will most likely see an easy and consistent experience, with your rent landing in your bank account regularly and on time. But there are ways we can prevent life's little hiccups, no matter how good the tenant is there might be times where things change in their life, challenging the everyday routine.

These can be simple things like illnesses, long holidays and work. Say if a tenant becomes temporarily unemployed, although rent is normally high on the ‘responsibilities checklist’, it might quickly fall behind. This is where flexible payment options become gold, because it might simply be that they haven't thought of transferring their rent onto the Direct Debit account, registering the payment as failed and subsequently late.

If your agent still offers instant payment options where they can pay off the rent without having to wait for it to retry the Direct Debit, you'll eliminate the headache of you and your tenant, you can read more about flexible payment options and how Cubbi makes it easier here.

Act | What to do when rent is late

When your rent is late, the best counter measure is acting fast. If you are depending on rent payments to make your monthly repayments to the bank, you will want to act from the first day you realise the rent is late. Disruptions on a couple of days can happen, but by waiting for a few days, you can miss the critical time that lets you minimise the disruption. When things start to go bad they do so quickly.

Dealing with major disruptions

If a tenant, for whatever reason is already late with their rent by a week, you know something isn't just an innocent disruption, this is serious. Issuing a notice to vacate has different legislation and procedures in each state and it's important to follow them strictly. This has impacts on how quickly you can vacate the property and get someone else in. Say if a tenant is 16 days late with their rent. In Victoria, the earliest you would have been able to issue a notice to vacate (without bringing in the complexity of pro rata and other factors) is after the 14nth day of late rent, where you then have to wait for another 14 days before the tenant to move out. Meaning you are most likely looking for at least a month of no rental income. That month can make it hard for you financially, and the damages of this would be best minimised.

Dealing with minor disruptions

Rare minor issues are harder to prevent than what habitual issues are, purely because of their unporedictidve nature. But when you have disruptions of a more innocent nature, they can be hard to recognise for what they truly are. This is why your best friend is always consistency, ensuring you pick it up before it becomes a substantial issue, making sure your agent has sufficient and appropriate processes in place to communicate to the tenant when the late is, even by a day what those consequences will be.

Cubbi works hard on improving the renting experience for both owners and tenants and we love to hear thoughts from the community so feel free to comment or if you'd like, email us on getstarted@cubbi.com.au