If you have tenants, you will - TRUST ME - have a time when a tenant will come to you and say "I can't pay my rent. Can I make payments?"
You may tell yourself now, as you drink your coffee and envision this hypothetical dead-beat tenant, that no-way-on-God's-green-earth will you accept a payment plan. There are payment terms written into your rental agreement and that's that! And if that's your stance - which is a perfectly acceptable one - then good, 'cause you have a "plan."
On the other hand, if you tell yourself "I'll cross that bridge when I get to it," you are setting yourself up for an uncertain mess. It's easy to say "no" to a payment plan when someone says "I went on vacation and was having such a good time, I decided to spend my rent money for me and my buddies to go hang-gliding." Not so easy when someone says "I had to use rent to pay medical bills for my child's cancer treatment so she can keep getting the help she needs." Just like having a criteria for residency and performing Tenant Screening helps you stick to your guns in denying an unqualified applicant, having a payment plan policy prevents you from making heart-felt bad decisions when your dear tenant comes to you with a very sad story. Trust me on this one. I've been there.
Payment plan options, like criteria for residency, should be applied across the board to all your tenants so you are protected from any fair-housing issues. Establish the scenarios you will allow a tenant to make payment plans, how often in a tenancy/year you allow a plan to be put into action, how much debt you will carry and for how long, what the repayment terms are and what the consequences are for failure to keep the terms. Have it all in writing.
And once you have established your plan, stick to it. Be prepared to whip out the agreement when you get asked. Having your terms defined ahead of time prevents you from operating from a soft-spot that could jeopardize your own financial position. Being a landlord/property manager isn't a charity operation, it's suppose to be an investment plan. Being honest about that with your tenant and yourself prevents a lot of head and heart ache. You can be compassionate about a tenant's situation while still sticking to your terms.
Once you have your payment agreement signed, be sure to provide your tenant a copy of the agreement. If you utilize property management software, check to see what tools they offer you for managing your agreement. At Rentec Direct, we offer tenant statements & invoices, file libraries for document storage, tenant portals with ledgers and file sharing and automated email reminders to help communicate the delinquency status. Having a plan in place and the using the right tools to manage your plan will help ensure it is successful.
But what about that really, really sad story where "the plan" doesn't work out? Trust me on this one. It doesn't get better by you allowing debt to accumulate in your tenant's name. It only makes it worse for them, digging a bigger hole they will struggle to get out of, and one you will most likely never recoup your lost income. If you know you are a softy, like me, gather your community outreach contacts ahead of time. Find out where those who have legit reasons can get public assistance for cash infusions, food, utility vouchers and emergency shelters.
Janell is a member of Rentec Direct, web-based property management software designed to streamline the day-to-day operations of landlords and property managers.