If there’s one surefire way to transform an otherwise profitable rental property into a financial disaster, it’s late rent payments. It’s no wonder that when many landlords think of a problem tenant, the quickest answer towards resolution is eviction. However, eviction should neither be your initial answer nor ultimate goal in every situation – it’s expensive, it’s time-consuming and the longer you wait to receive your money back, the less likely you are at all.

Aside from legal fees associated with eviction, the average landlord pays between $3,500 and $10,000 for eviction when considering lost rent during the proceeding and turnover fees. Furthermore, once a landlord obtains possession of their property back, often they learn that they still have no legal recourse for unpaid rent. Thus, more property owners seek alternatives that may actually get them paid without setting foot in a courtroom.

Understanding the Issue Before Collection

Before jumping to collection efforts, it’s important to understand what’s happening first. The vast majority of tenants are not hoping to avoid paying rent but rather find themselves in a tough spot. Many lose their jobs, have unexpected medical expenses or need to reallocate funds for new bills. Others don’t have the best money management skills or choose not to prioritize rent payments and pay other bills first.

While this may determine your approach – an otherwise good tenant of two years deserves a different approach than a problematic tenant from month three – most landlords would certainly know the difference; such knowledge is easy to forget when needing money from someone else to pay your own mortgage.

Payment Plans and Negotiation

At this point, one of the easiest solutions is to speak with the tenant directly and negotiate a payment plan. Surprisingly effective, and as long as both parties are civil and reasonable, tenants can temporarily stay in good standing by assuming responsibility for late payments later. Tenants can agree to pay an additional $200-300 per month until they catch up or split the arrears into more manageable fees over several months.

However, regardless of verbal agreement established between both parties, it must be documented. A payment plan made and retracted down the road does no good for anyone. For example, include numbers, dates of payment for arrears until tenancy level set it back on track again and what happens when there’s a missed payment under this new plan. If renters are extra agreeable, sometimes they consent to a signed judgment of consent meaning preplanned eviction that only gets filed if they break this renter payment plan.

This solution keeps units filled and brings in some cash flow while avoiding legal costs. On the flip side, it’s important to remember that you’re extending credit to someone who’s shown that they cannot pay on time.

Using Credit Bureau Reporting

Not enough landlords realize that reporting rent payments does wonders for collections – when tenants know their credit scores are tied to their rental payments over everything else (and other payments) they’re much more likely to pay rent on time.

Credit reporting agencies do not automatically consider rental history unless they’re told. However, specialized services now allow landlords (and former landlords) to credit report on tenant accounts. This adds an extra layer of accountability while it’s going on and not just when a collection is in play.

Even more important is when someone’s credit report shows a missed rent payment – it’s hard to ignore a small change on a credit report that could be easily settled – and this incentivizes tenants more than anything else as it’s not negative impact for punishment’s sake – but negative impact for a financial obligation the tenant signed up for.

Professional Collection Services

If speaking directly with tenants doesn’t get you anywhere, a collection agency for unpaid rent is your answer. These are professionals who specialize in debt acquisition and have what most landlords don’t have the time for – systems, staffing and legal know-how to develop their own.

Typically, if and when all other options fail, this occurs. You provide them with documentation of what’s owed (lease agreement showing expected owed versus paid rent now overdue plus emails/texts where necessary), and then they take over communication with former tenants. Letters go out to confirm debts owed; phone calls get made; settlements and negotiations occur; financial reporting takes places through lending agencies.

And the good news is that most collection agencies work on contingencies – meaning 25-50% of what’s collected is taken by them after they help you get it back.

In one sense this gets expensive – you’re only getting a portion of what’s owed – but in another sense, it’s also productive as you’re not spending all your time trying to chase payments – and now you have professionals who understand collection laws best who can help with that process in addition.

Additionally, there exists a psychological component where the average tenant might ignore their former landlord but the power of an agency realizing that someone’s serious about collection efforts helps.

Small Claims Court

If the amount owed is under small claims (which varies state by state but usually ranges from $5,000-$10,000), small claims court becomes an alternative to doing nothing or complete eviction efforts.

The filing fee is considerably lower than eviction costs, it’s not as complicated court-wise (the burden of proof exists but it’s simpler than regular court) and most landlords do not need lawyers.

However, while filing small claims gets you what you want as a judgment from the process does not guarantee payment. You still need to collect on the judgment meaning successful garnishments, liens and such from limited-resourced tenants do nothing besides waste everyone’s time. Therefore, getting a judgment might appear nice on paper but ultimately might mean nothing if approved for someone who has nothing nor consistent pay to their name.

At least it’s something down the road – albeit framed on a wall somewhere – as it cannot hurt someone’s record if it stays there forever plus it can earn interest and be reopened if things improve down the line – it’s called playing the long game.

Blending Solutions Over Time

Finally, most experienced landlords will not rely on just one option successively – blending them can serve better purposes. Start with negotiation then add credit reporting as incentive and consequence then utilize collections or lawyer efforts thereafter per need.

But it’s essential that if you’re going to do this with various platforms (meaning have steps in place to show tenants what comes after if they fail your mortgage), then you must document everything along the way.

Each payment, each conversation held or not held; paper trails can include photos for housing damage blurs texting efforts sent turned ignored/not saved because they hate hearing people ask niceties about it – and all of this helps collections efforts down the road or what’s needed in non-collection efforts – court.

Emotionally, there exists consideration into tenant debt – not wanting people who owe you money living in your property when you have expenses of your own – but dealing with someone else’s emotions because you’ve already had an emotional stake in your decision means staying strategic instead.

After all, if 70% through collections is better than 100% through drawn-out court proceedings when sometimes the latter means folks have nothing anyways, your time is better spent elsewhere.

While dealing with tenant debt is never enjoyable or an easy alternative – even with practical recourses outside eviction – it allows landlords (and resource-saving individuals) options beyond what’s best that’s don’t work out in hindsight anyway for anyone involved. Each situation is different and what works best for other landlord-tenants might not work best here; the goal is to protect your financial gains while keeping one foot in reality, so whatever’s made right at least is somewhat recoverable.