The motto of a landlord is if it can break most likely it will break. During my experiences as a landlord I know one thing will always occur which is that the good, the bad, and the ugly will happen. The way we as real estate investors react to these situations determine how the end result will turn out. A good situation can have a bad or ugly result just depending on how you react to the situation,
Let’s begin with a good situation. A tenant comes to you and says, “ I would like to pay a couple of months in advance since I have the money available.” So of course you are not going to say no to a lump sum of money. Let’s diagnose how this great situation could be a good, bad, or ugly result for your business long term. Let’s begin with the obvious which is this becoming a great situation with a great result.
The tenant pays you two months in advance and you pay the mortgage for the two months paid in advance or set aside the money for the mortgage owed on the rental. As a landlord you realize you won’t have rent coming in from this individual for a couple of month and accommodate finances according to this change. As a landlord you also do your part by making sure maintenance and their concerns are addressed.
Also you talk with your accountant and book keeper on how to properly address this situation as it related to your taxes. The tenant is given receipts in relation to the months that were paid in advance and you record the payments as being paid in your own rental records. This situation is a win-win right Great!
Now let’s take the same tenant paying in advance situation and break down how this great situation could turn bad and even downright ugly. The tenant pays you the rent in advance and you write out a receipt for the net total and not according to the particular month that the tenant has paid for in advance, so now we have a problem! Your books show no relation to the months the tenant has paid.
The landlord has no documentation that relates to the months the tenant has paid and the tenant has no record showing the months of rent they have paid to the landlord. You could have used that extra piece of paper and assured the tenant of your professionalism, but you choose not to be on you’re “A” game. This then leads to the tenant to have trust issues with you when you call for the rent the next month. The tenant after the second month of prepaid rent has decided to say, “I’m out of here.” After the tenant leaves you are now faced dealing with a broken lease and searching for another tenant. Should of wrote that receipt and kept the proper documentation!
Now let’s take a look at an ugly situation and see how it can have a great ending result for your business. A tenant you are renting to has a back up that seems to occur on a regular basis. The back up has gotten to a point where this must be addressed because no one wants to go outside and smell the aroma of sewage as they sip on their coffee on their morning commute to work. The ugly of this situation is you discover that the sewage line is busted and of course you kind of have your cash working in other ways at the moment and your not so liquid at the moment. So what do you do?
The tenant does not want to have a river of sewage in the front yard and this is a problem you have to address if the tenant stays or if they go. This situation actually happened to me lol. In my situation what happened is the gentleman I was renting to was a licensed plumber and knew how to do the work. We came up with a plan where the tenant would pay part of the rent for a certain time period and we had no out of pocket money we had to spend. The only negative was for a certain time period the rent was reduced due to the work the tenant would do to replace the sewage line.
However, this built a really strong relationship with us, as landlord, and between them as tenant. Also we did not have to get a loan or delay some of the repairs we had already scheduled for other properties. This was an ugly situation which actually had a great result.
In closing a situation is all what you make it. Some situations take cash, some take cooperation, and some take a little bit of both. A great landlord listen, plans, and execute a situation that may seem gloomy into one that ends with a rainbow at the end. Stay positive and thanks for reading.
As always thanks for reading and successful investing