What Do You Do When Your Tenants Cannot Pay Rent

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What Do You Do When Your Tenants Cannot Pay Rent

As Christians, our primary calling in life is to love God and to love our neighbors. This includes loving our tenants well. But how do we, as landlords, love our tenants when they don’t pay their rent? Is there an exception to the “love our neighbors” rule if we are trying to run a successful business?

Should You Ever Let Tenants NOT Pay Rent?

The answer to this question is completely up to you. Many successful real estate investors will say different things. In fact, a lot of them will tell you it’s never okay. However, I think the lines can be a little blurry and they may even move from time to time, especially for those of us trying to love our tenants as Christ loves us.

When Peter goes to Jesus to ask him how many times he should forgive someone who sins against him, Jesus tells him 77 times. Even though he gives an exact number, I think Jesus’ point is that we are to never stop offering forgiveness. 

Then Peter came to Jesus and asked, “Lord, how many times shall I forgive my brother or sister who sins against me? Up to seven times?”
Jesus answered, “I tell you, not seven times, but seventy-seven times.” (Matthew 18:21-22)

There are times where tenants may be going through a situation they cannot handle. God may be asking you to show mercy on them.

Related: Unique Bible Verses About Real Estate

4 Steps to Take When Your Tenants Cannot Pay Rent

Here are the 4 steps to take when your tenants cannot pay rent

1. Create Late Payment Policies
2. Show Empathy 
3. Express the Importance of Rent Being Paid
4. Implement Late Payment Policies or Make a Plan with Tenants

Also, if you have a property manager watching over your rentals, make sure to ask them what kind of late payment policies they have in their lease agreements.

1. Create Late Payment Policies

If you are reading this article before an unfortunate situation like this arises, come up with a plan now. That way when you do get the phone call that your tenants cannot pay rent you will be prepared. You can implement your plan into action right away. 

Come up with a primary plan and a plan for extreme emergencies. The primary plan should include your tenants paying the full rent amount as soon as possible. An emergency plan is a backup for when your tenants are going through an especially tragic time. Either way, the goal should be to still have rent paid at some point. 

Some options might be

• Late payment fines – Late payment fines should be a part of your lease. These fines could be a set amount or it could be a percentage of the rent. Make sure to define when these fines will be implemented and if they accrue over time. (Be sure to check what your state laws are on late fees before charging tenants) 
• Temporary Rent Reduction – If a tenant expresses that they can only afford so much rent per month due to some kind of emergency, it may make more sense to temporarily reduce the rental rate rather than evicting them (which costs a lot more).
• Deferring rent / Payment plans – Come up with a payment plan to have them pay off the overdue rent over the next few months. 
• Eviction – This isn’t exactly a payment option, however, if it comes down to tenants who don’t pay rent or finding new tenants who do pay rent, I’m sure you would take the latter. 

Read more about rent relief options for tenants who are struggling in this article.

Rent Payment Plans

Rent payment plans should be your last resort when it comes to tenants not paying rent. Remember, your goal is to love your tenants well, but you also want to be able to pay the mortgage and insurance at the end of the day. 

Try setting some ground rules for when to implement a rent payment plan. Some ground rules might be that tenants need to provide proof of job loss, or medical emergencies, or possibly the loss of the primary income earner. Be sensitive as you approach this because clearly your tenant is going through an especially difficult time. 

Example Rent Payment Plan 

Your tenant is no longer able to work at their current place of employment due to a medical emergency. Your tenant provides a doctor’s note that expresses that they are bedridden for roughly two months. Therefore, your tenant is unable to pay the $1,000/month rent for both of those months. 

You allow them to pay back the $2,000 over 6 months starting in 2 months. That means, for 6 months, your tenant will be paying $1,334. 

If things are even tighter than that, you can extend the number of months it will take to pay back the rent. Try not to extend it past the end of their lease though. If their lease is ending soon, make sure to get a plan in place if they decide to terminate and move out. 

2. Show Some Empathy

Showing empathy helps your tenants understand that you see them as humans and not just an income source. 

Try listening to your tenants before you jump to conclusions. They could be going through a true emergency. I like to think that my tenants are good people and that if they can’t pay their rent they probably have a good reason not to. 

If they are truly going through a rough financial patch, try showing some empathy and move forward from there. If you bring down the gauntlet now, they probably will be in the same predicament the next month. 

3. Express The Importance of Rent Being Paid

Showing empathy is important, but you are still running a business, and the rent is still due. 

Putting some pressure on the situation will help your tenants to recognize that paying rent is still a high priority. Remind your tenants of any late fee policies you have expressed in the lease agreement. 

Even Jesus recommends that we are to pay our bills and taxes as they are rightfully owed. There is nothing wrong with applying some gentle pressure to express the importance of rent still being paid. 

Then he said to them, “So give back to Caesar what is Caesar’s, and to God what is God’s. (Matthew 22:21)

Why You Should Put Pressure On Tenants for the Rent 

Some of you may be thinking about letting your tenants completely off the hook for their rent, and in some cases, I can see how that could be the best way to love your tenants. If you feel that God is calling you in that direction, I cannot argue against that! 

However, being a landlord can be a lot like parenting sometimes. (Disclaimer, I am not a parent, but I have observed a lot of different parenting styles). Sometimes the best way to love children and tenants is to show them a little bit of tough love. 

Each of our actions has an opportunity cost. Just like children choosing to disobey their parents’ rules results in a punishment like grounding, not paying rent may mean incurring a penalty for your tenants. 

Making the consequences known to your tenants should help put a bit of pressure on the importance of paying rent. Hopefully, they will abide by your rules outlined in your lease in order to avoid those fines. 

Related: 3 Reasons Your Property Isn’t Renting

4. Implement Late Payment Policies or Make a Plan with Tenants

If you already have late payment policies expressed in your lease agreement, stick with those. Avoid straying away from your agreed-upon policies. 

However, if you don’t have a plan in place let your tenants know their options and try working together to come to the best solution for everyone. Coming up with a plan together will increase the likelihood that your tenants follow through with that plan. 

Unfortunately, it probably means you will not be getting a rent check this month, but that is why it is important to keep cash reserves on hand.

Applying Our Faith Into Our Real Estate

Honoring God Through Our Rental Business

Owning rental properties means that you are operating a business. As Christians, we should be looking for opportunities to honor God and serve our neighbors through our business. This means operating it with excellence and treating it like God is the business owner. 

One way in which you can operate with excellence is to set up policies that help protect the business from losing money. This may mean late fees for tenants that do not pay rent on time. 

Related: Creative Ways to Use Real Estate as a Ministry

Pray For The Best Decision

When our tenants cannot pay rent, it puts us in a tough position. We have to make a decision that not only will be right for our business, but will also reflect God’s love.

I don’t think there is any hard and fast answer when it comes to tenants not paying rent. As Christian business owners, we need to be consulting God for all of our decisions. He will express exactly what you should do in every situation.

Related: How to Pray Over Your Finances

What do you do when your tenants cannot pay rent? What sort of policies do you include in your lease?

Find Out More About the Importance of Having Cash Reserves For Your Rental Properties

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