The second of the “Next” ten commandments of successful investing is to hold your tenants accountable. This is a critical component of income property investing, and it is one that many investors unfortunately ignore.
As the owner of a rental property, your tenants have a legal responsibility to pay for the rent from their lease contract, and to pay for any damages that they cause to the property.
All too often, landlords will fail to pursue their former tenants for what they are owed because of a concern that they will not have the financial resources to pay. This may certainly be true in some cases, but it is not true in all cases. When your tenants have failed to complete their legal obligations, you should obtain a judgment for the unrecovered funds.
The reason for this is because judgments are created by the power of the legal authorities, accrue interest, and can only be discharged through payment or bankruptcy. By collecting a judgment, you place a very powerful force in your favor. If your former tenant decides that they want to acquire financing to purchase a house, or receive a tax refund, or have their credit pulled, the judgment will come up.
In the event that they eventually turn their life around, the judgment will continue to be standing as an impediment in their journey toward the life that they want to live. The power of this situation should not be underestimated. Many people encounter difficult stretches in their lives, and make decisions that they come to regret in the future.
As time passes, the fortunes of people can change. The person who was unable to buy gas for their car at one point will not necessarily be in that situation indefinitely. People who lose their jobs and incur debts frequently find new employment further down the line. As the trajectory of their life improves, they will inventively seek to rectify the problems of their past. This process will involve clearing the judgment that you hold ownership over.
In the end, holding your tenants accountable is, and always will be a critical component of being a successful landlord.
