In a perfect world, a resident is timely with their rent payment, gives proper notice to quit and leaves the rental property on time and in good repair. However, the reality of operating a rental community includes residents who, for economic or other reasons, are sometimes delinquent with their rental payments.
Last year, approximately 20 million renters in the United States paid more than thirty percent of their income on rent. Additionally, of that group, an estimated 2.7 million renters faced eviction. This number is likely to increase as the stock of affordable housing throughout the nation dwindles. Such an increase will create a greater financial burden on property managers since the fees, costs and other financial losses associated with tenant delinquencies can result in thousands of dollars incurred by the property manager.
The True Cost of an Eviction
A common mistake made by owners and managers of multifamily communities is to estimate removal costs based solely on expenses incurred. However, the real cost to evict a resident for non-payment of rent is more than just court and legal fees.
Below is a chart of the fees that a property manager will incur when filing a formal eviction in court.
Although this chart exhibits eviction costs totaling hundreds of dollars, it does not provide the full picture. For instance, owners incur the following costs, as well:
- Legal cost – This represents legal fees owed to an attorney (which may also include the services of a licensed process server, as well). Hiring a lawyer could generate a bill of over $1,000.00.
- Lost rent – If a resident chooses to delay the non-payment process, an eviction can occur months down the line. Such a delay will most likely result in the loss of rent which continues to accrue monthly. Depending on the rental value of the property, this could translate into thousands of dollars.
- Locksmith – Hiring a locksmith to change the locks after an eviction can cost more than $150.00 in many jurisdictions.
- Cleaning costs – A resident who is forced to leave by way of an eviction is not inclined to clean the rental property. In fact, an owner’s cleaning bill may be as high as $500.00.
- Repairs – Malicious damage by residents facing eviction is very common. Accordingly, following removal, an owner could face repair bills that go beyond the reasonable wear and tear expected. The repair of such damage – which must be done in order to get the premises “market ready” - could reach into the thousands of dollars.
- Loss of productive time – The eviction process can take up a significant amount of a property manager’s time. Even if an attorney or a third party is hired to prosecute a non-payment matter, a property manager’s staff must still spend significant time and resources attempting to recover the delinquent rent before, during and after litigation is commenced.
- Reputation and social costs – While an owner is legally entitled to pursue eviction as part of its delinquency management process, there is a social cost that an owner faces from this process: especially today when approximately 20 million renters in the United States pay more than thirty percent of their income on rent.
Strategies for Managing the Delinquency Management Process
Since eviction is an inevitable part of property management, there is no avoiding it. However, there are two major strategies owners can utilize to manage the process: (a) the “last resort” approach; or, (b) the “preemptive” approach.
As a last resort, the objective for a property manager is to reduce all legal and processing costs associated with an eviction. In this strategy, the property manager will try to work with the delinquent resident to recover the late rent owed to it without going to court. The last resort method is particularly popular in states where the court process is long and legal fees are costly. When this approach works, it reduces the eviction costs for the property manager. However, if the resident employs delay tactics, the resulting costs to remove the delinquent resident could become very high.
Conversely, when filing an eviction in court is pursued as the first option by the property manager, a resident is more inclined to get their finances in order to prevent homelessness. For the owner, this is a way to take control of the problem before it gets worse. Generally, in this approach, proceedings begin shortly after the first month of late rent and the cost to commence an eviction is typically low.
Good delinquency management is a critical factor in maintaining a good real estate investment. To this end, at ClickNotices, we encourage our clients to pursue the delinquency management process which best fits their needs. We tailor our approach to that of our clients to ensure each client’s process is disciplined and supported by the best software to help offset as much of the late rent costs as possible.