Are Landlords Increasing Occupancy: Or Are They Increasing Tenant Debt?
Posted by Bill Gray on November 21, 2009
[tweetmeme source=”your_twitter_name” only_single=false http://www.URL.com%5DThe poor economy has caused landlords and property managers to take drastic measures to lease units and keep them occupied. Some of the measures are understandable, considering the circumstances, but others make absolutely no sense at all.
This week I reviewed approximately 80 files from previous tenants who left a large residential property in Sarasota, Florida, owing money. I sat with the manager and discussed how the residential housing market has been turned on its ear, and in some ways seems to be in a downward spiral. I noted that not only had the number of debtor accounts more than doubled, the amount of the average debt had increased by at least a third.
The manager explained that the property had tried to increase its occupancy by allowing tenants to try and work out payment arrangements. As I looked at her over this mountain of files, I asked her, “How did that work out for you?” She understood my sarcasm and explained that the owners of the property had pressured her to do something to keep their residency rates up. She agreed that allowing tenants to pay late had only delayed the inevitable and increased the amount of bad debt the property must now write off.
I would argue that in such cases, if closely analyzed, the cost is actually even higher. The tenants she allowed to get behind on rent grew accustomed to management’s tolerance. When she finally drew the line and required payment, she was then often forced to file eviction proceedings before these tenants would leave the property. The cost of filing these evictions must be added to the lost rent and damages, etc. What if she had evicted the tenant after the very first month the rent was not paid and found a new tenant that did pay the rent on time? I realize this question is easy to ask in hindsight, but it is a question that should be asked when these kinds of management changes are considered.
I explained to her that not only had the new policy cost the property money in bad debt, the policy had also made the debt less collectible. As the amount each debtor owes increases, so do the odds that they will never pay. The amount becomes so high that many debtors will simply throw up their hands and live with the debt, rather than come up with a plan to pay it.
I understand that these are very trying times and difficult decisions must be made; but please make decisions with your eyes wide open and with an understanding of what the subsequent consequences could be.
Contact me with your tenant debt and screening issues.