Striking a Balance: Sucker or Scrooge?

“Compassion brings us to a stop, and for a moment we rise above ourselves.” ~ Mason Cooley

Aunt Tillie is on fire! Not literally, of course. She’s hot into real estate investing. She’s got six rental houses, all occupied, and every tenant is up-to-date on the rent. At least, they were up-to-date until last month. Mr. Farkle’s rent was three weeks late last month and he still hasn’t paid this month. Tillie’s having a hard time deciding whether or not to start eviction proceedings. She knows he’d pay it if he could, but she can’t afford to give him free rent. Is it better to be kindly and poor, or mean and rich? And are those her only choices?

This balancing act – Should I be a sucker, or a scrooge? – is one of the toughest things real estate investors have to walk through, and we have to do it on a regular basis.

I had a disturbing conversation recently that brought this point home for me. A couple I know invests in real estate together. They have about a dozen rental houses, and they do very well. When the economy tanked, though, they found they had to be a little more flexible about collecting rent payments.

Now that the economy is looking up, the husband has decided it’s time for some tough love. He was never too keen on the flexibility thing anyway, if truth be told. In fact, his usual procedure is to start eviction proceedings on the second day of the month if the rent isn’t paid.

So now, one of their long-time tenants is a couple of weeks late on the rent. The tenant, who has lived there for three years and usually pays early, was 18 days late last month. When she called to ask if she could have some extra time this month too, the husband said no. The tenant, who is seven months pregnant, somehow got the money together and hand-delivered a money order for the full amount of the rent. Unfortunately, she filled it out wrong and has to go to the bank to get a new one. This could be done in less than a day. There was little doubt that the money was coming. Yet the husband started eviction proceedings anyway.

In discussing the situation, I asked the husband whether it mattered that the tenant was pregnant. His response: “Frankly, I don’t care if she has to give birth in the parking lot. I shouldn’t have let my wife talk me into giving her extra time last month.”

Now, I’m all about making money, and I don’t like being taken advantage of, but this guy seems a little extreme to me.  The tenant had never been late before last month, and she takes good care of the place. Would I really want to risk an empty house when a couple of weeks would help a good tenant get back on her feet?

Still, there’s that other kind of tenant. You know, the one who is always late, and hasn’t mowed the lawn since he moved in. The one who won’t take your calls. The one whose big Doberman chased the postman for a half a mile last week. Hey, I’m all about tough love for that kind of tenant.

The trick, of course, is figuring out the in-between cases. At what point does a good Samaritan become a sucker?

When it comes to sticky issues like this, I like to see how other investors strike that balance. We all come across the same situations, after all, and I want to hear what you have to say. You already know where to find the kind of community I’m talking about: It’s your local Real Estate Investment Association, or REIA, of course.

I’m a technology kind of guy, though, so I don’t just limit myself to local events. I check out the articles and forums on my REIA website. Maybe I even start a conversation string myself. And I don’t stop there. I can create an Internet “turbo community” by looking beyond my local chapter.  Other chapters have a lot to offer, as well as national sites like www.nationalreia.com and www.biggerpockets.com.  And don’t forget about other resources, like your place of worship. Those folks have created turbo communities, too.

Once you’ve gathered other viewpoints, though, what then? How do you deal with that late tenant?

There’s no chart or graph or excel spreadsheet that can tell you whether to evict a tenant. No website will give you the answer. When it comes down to it, there’s only one place to find the answer, and it’s is right in front of your face. For this kind of answer, you have to look in the mirror.