If you’re a landlord long enough you’re eventually going to have to evict someone. Well, that day finally came for us this past month. We had a tenant in one of our properties that was receiving assistance through the Section 8 program. If you’re not familiar with this program, Section 8 helps low-income tenants by paying a portion or all of their rent. For those in the program, it’s obviously very advantageous for them to stay in the program. Well, in February we were notified that this particular tenant had their Section 8 status revoked because they failed to submit their renewal paperwork.
Honestly I couldn’t believe that someone receiving free rent would fail to send in their renewal paperwork to make them eligible to receive another year of free rent, but I guess that’s a whole other story. The unfortunate thing for us is that we now had a situation where this particular tenant had no ability to pay the rent, and our only recourse was to evict her for non-payment right.
If you know anything about the eviction process, it takes a minimum of one month to evict a tenant in Michigan, and because of court delays it typically can take closer to 45 days. This amount of time creates several distinct issues. First and foremost, you don’t receive rent during this time period so you’re losing there. Adding insult to injury, your expenses go up because you have to pay court costs will typically run about $300. In addition to all of this you run the risk of upsetting your tenant leaving your property vulnerable, and a pissed off tenant can do a lot of damage in 45 days. If you add up loss of rents, court costs and damage to the property, you can easily run into the thousands of dollars to evict someone.
Rather than take on all of this risk, we took a different approach. We wrote the tenant this letter:
As you are aware, you have lost your Section 8 status and you no longer have the income level to afford the home you are living in. We understand your situation and we are willing to work with you through this transition.
As you are aware, we have begun the legal eviction process. The costs to you to go through this process are excessive, and can run into the thousands of dollars. We would like to avoid all of these charges, and we have decided to make the following offer to you. If you fulfill the following terms of this offer, we will agree to compensate you $300.00.
Terms of the offer:
- You will vacate the property by Friday March 30, 2012 at 3:00pm.
- The home will be clean and be cleared of all your personal possessions.
- The home will not be damaged in any manner other than normal wear and tear.
If these conditions are met, we will offer you a payment of $300.00.
Please contact our office by Friday March 30, 2012 if you would like to work towards these terms. If you do not contact us by this date we will assume you have rejected the offer and we will proceed with eviction.
I’m sure there a number of hard nosed landlords out there that completely disagree with this approach because it rewards a tenant for bad behavior. While I agree with this to a certain degree, we made this decision purely from a business standpoint. We talked above about the ramifications to the eviction process. If we went through the full eviction, we would have lost a minimum of $1730 due to lost rents and court costs. In addition to this we would have faced the high probability of excessive damage to the property.
With the cash for keys approach, we minimized our vacancy to one month, eliminated court costs, and we guaranteed the property would not be damaged. By doing this, we would limit our loss to $1000 thereby saving us at least $730 and probably much more.
While it is a bitter pill to swallow, in this case it was the right business decision. Sometimes there just comes a time when you need to cut your losses, and paying tenant to leave happens to be one of those times.
In the end, the tenant accepted our offer. We showed up this past Friday and the place was immaculate. It was clean, there was no damage, and the tenant handed over the keys. We paid $300 and we were happy because we could immediately begin showing the property. Of course we had already thought about that and lined up 7 showings on Saturday…we’ll talk more about that next week.