Property owners face a dilemma when deciding how to deal with overdue rent. The recent eviction moratorium allowed tenants to accumulate overdue rent with little to no legal recourse available to property owners to recoup their losses. According to a recent Census Bureau Survey, 8.9 million renters are behind on their rent and approximately 15.9 million renters have slight or no confidence that they will be able to make their next rent payment.
Now that property managers can leverage eviction again, many are wondering the best way to get the most payment from past due tenants. Options include eviction and/or litigation, forfeiting rent owed, and exploring opportunities with innovative solutions made possible by new technology. Traditional methods of debt collection are expensive and the expense to sue or garnish wages against tenants under these conditions often outweighs any benefit.
Therefore, negotiating and settling overdue rent is becoming an increasingly attractive option. A new tool from fintech startup Debtle makes this easier and more secure than ever before.
Here is a summary of existing options:
- Current policy environment makes it extremely difficult to evict a tenant in certain areas. A successful eviction will involve some sort of legal action by one or both parties and the accrual of legal fees
- In order to recoup the overdue rent from an evicted tenant, property owners may need to rely on the services of a debt collector.
- After evicting a tenant and incurring all of the associated fees property owners are still left with a vacant property and no source of income until it is filled.
- Debt collectors are only successful 17% of the time according to the American Collectors Association
- Legal fees and court costs start at approximately $550 and can quickly increase
2. Forfeiting Rent Owed
- Forfeiting any rent owed will guarantee that property owners will never see that overdue rent
- Based on median rent and the average 3-month eviction process the average vacancy costs $2,540
3. Reinvesting to Attract New Tenants
- After an eviction, many property owners will have to make some sort of repair or renovation to fix any damages or improve the property
- Taking time to make repairs or renovations will extend the period of vacancy
- The total cost of property turnover is $1,750 in addition to the cost to repair any damages to the property
4. Negotiating Overdue Rent
- Debtle’s new software enables landlords and tenants to easily and securely negotiate overdue rent and settle bad debts. The proprietary process ensures that both parties are protected throughout the negotiation, collection, and settlement of the overdue amount.
- Negotiating through Debtle allows property owners to resolve balances at higher rates than expected through third-party debt collectors.
- Negotiating overdue rent can be used to avoid eviction or to collect as much as possible post-eviction.
- Debtle allows property owners to wipe the slate clean with their tenants and move forward under a new agreement: this can eliminate vacancy costs and expenses associated with renovations, in addition to legal and collections fees.
For example, settling 3 months of overdue rent with tenants who are now able to maintain their monthly payments can save an average of $4800. (legal fees, court costs, average vacancy post-eviction, property turnover costs).
Overdue rent is going to remain an issue for property owners as the country continues to battle the pandemic. Traditional means of collecting or settling overdue rents are expensive. Instead, to cut down on costs and limit vacancies, property owners should strongly consider negotiating overdue rent with their tenants. Negotiating overdue rent typically leads to more positive outcomes for tenants and property owners.
Why negotiate overdue rent with tenants?
- Higher success rate than traditional debt collection methods
- Avoid eviction, vacancy, and renovation costs and keep good tenants
- Inexpensive solution
- Less confrontational
Ways to negotiate:
- Discount the total due (You owe $1200 but if you pay $800 we can settle this debt)
- Lump sum totals in exchange for discounts (pay $200 today and I’ll discount the overdue amount 30%)
- Payment plans (pay $500 today and add the balance to the remainder of the lease. For example, add $100 to the monthly payment over the next 6 months).
- Discounts by deadline (pay by end of week = 30% discount, by end of month = 20% discount)
- Accept credit card payment
Instead of relying on debt collectors or lawyers, you can easily and efficiently settle overdue rents with your tenants using Debtle. Debtle is a cloud-based software that enables landlords to discount, negotiate and resolve outstanding debts quickly. For more information on Debtle and how it can help you as a property owner, please email [email protected] or visit www.debtle.com.