When Your US Tenant Stops Paying and You Live 4,000 Miles Away

With that said, here's my process.

The first time it happened to me I did the worst possible thing, which was nothing.

I waited, because the manager said it would sort itself out, and because from that distance waiting felt like the only option available.

It did not sort itself out. Three months later I was paying a mortgage on an empty promise and had lost the opportunity to end it cheaply and quickly.

1. What actually happens in the first ten days?

Rent is due on the 1st. Most leases allow a grace period to the 3rd or 5th, then a late fee. A good manager contacts the tenant on the first day it is late and tells you the same week.

That last part is the whole difference. A manager who tells you on the 6th gives you a decision to make. A manager who tells you when the second month is missed has taken the cheap options off the table without asking. Whether you hear early is a symptom of who you hired to manage for you, which is why the reporting and response clauses matter so much in the management agreement clauses a remote owner must check.

The next question is which kind of non-payment this is. There are only two.

Temporary means a short term cash flow issue, a job lost, a car repair, a hospital bill, a household that has paid every month for two years. Those tenants usually come back, and the sensible move is a written payment plan.

This happens quite a lot in the cheaper markets where we tend to own rental properties. While I don't deal in the lowest end of the market, my properties are still in bread and butter working class neighborhoods. In those markets, partial payments are very common.

If it isn't temporary, it's structural. That means the household cannot afford the rent. That does not improve with patience, and every month you wait is a month of rent you will not recover, on top of the one you already lost.

Ask your manager one question: has this tenant paid on time for the last twelve months? The answer decides almost everything that follows.

If you cannot get that answer quickly, that is its own finding. Knowing where your property stands within a week is the reporting standard I hold a manager to, set out in what good remote management looks like.

I had this issue recently for a client with a rental property in Cleveland. The manager placed a new tenant, and the very first month they were late. Then the second month too. But they communicated with the manager to let them know ahead of the payment date. They agreed to pay within a specific timeframe. And they kept their word. That's great. What you don't want is a tenant who is late going AWOL. That's a different matter, and probably won't end well.

2. What are your four options?

Four, and the costs below assume a house renting at $1,800 a month.

The fourth row is not a joke. It is the most common choice overseas owners make, because doing nothing requires no decision and no uncomfortable conversation. It is also the only option on the list with no ceiling on what it costs.

I did this. It didn't work out well. I had one tenant a few years back who just stopped paying rent. We gave chance after chance, but there was always a new excuse. It took over nine months to get them out.

What we should have done is set the payment plan and at the same time start the official process of serving notice. Then we could have got a court date for an eviction right away. We didn't, and it cost us.

A written payment plan is still your first port of call, on a tenant with a good record. Put it in writing, keep it short, and make the first catch up payment due within two weeks. If they miss that one, you have your answer and you have lost nothing if you also started the eviction process by serving the required notices at the same time.

Always, always, always start the process at the earliest possible opportunity. Post your 3-day and 10-day notices, or whatever the county requires, and keep proper records. You'll need a solid paper trail if you end up in eviction court.

3. When is cash for keys the right answer?

More often than people expect, and it is the option that feels wrong to almost everybody I explain it to.

You are offering money to somebody who already owes you money. The reason it works is that you are not buying the debt, you are buying time and condition.

A tenant who leaves by agreement in three weeks, with the keys handed over and the place broadly intact, saves you two months of rent, the legal fees, and a good part of a make ready.

Run the arithmetic on the $1,800 house. Cash for keys at $2,000, plus three weeks empty at about $1,350, comes to roughly $3,350. An eviction at $2,000 in fees, plus sixty days of lost rent at $3,600, plus the extra damage that tends to arrive with a contested exit, is comfortably double that before the property is re-let.

I've done this before when I acquired a rental property with an existing tenant. They were already months behind on rent with the previous owner, so I negotiated cash for keys before I closed.

Three rules if you do it. Agree it in writing, pay nothing until the keys are in your manager's hand and the property is empty, and inspect before the final payment. And never do it in a way that could read as pressure or a threat. A written offer, a date, and a sum.

4. What does an eviction really cost?

More in time than in fees, but time is also money, and the time is the part that varies.

In my markets I can usually remove a non-paying tenant in about 30 to 60 days.

In some states it is far longer, and in a handful of cities it can run past six months or more once court backlogs and local protections are counted. That range is the single most important thing to know about a market before you buy in it, and it belongs in the same conversation as taxes and insurance, alongside the running costs in how US property tax really works.

The eviction bill has four parts.

Attorney or filing fees, usually $500 to $1,500.

Court costs.

The rent you never collect while it runs.

And the make ready afterwards, which on a contested exit is worse than a normal turnover, and normal turnovers already came to $9,000 and $7,000 on the two I recently did and write about in what a turnover actually costs.

You can use my free rental property cash flow calculator to stress test your cash flow for vacancy. Put your own numbers in rather than mine. Two months of lost rent, a legal bill and a turnover, on your actual property, is the honest cost of this.

One piece of advice. Never attempt anything that looks like a self-help eviction: changing locks, removing possessions, cutting off utilities. It is unlawful in every state I know of, and it converts your problem into their claim. The US is litigious, especially when it comes to housing.

5. What can you do from another country, and what can you not?

You can do more than you think, and one thing you cannot.

You can approve a payment plan, authorize cash for keys, instruct an attorney, sign filings electronically and read every document in the case. Nothing in that list needs you to be in the country, which is no different to the remote purchase process.

What you cannot do is appear in court yourself.

Somebody has to attend the hearing on your behalf, and in most states that somebody must be the owner or an attorney, because a property manager is generally not allowed to represent you in court. Some states permit a manager to file the initial paperwork. Fewer allow them to argue the case.

So ask two questions now, not later. Does your manager handle evictions, and up to what point? And do they have an attorney they use, at what cost? A manager who says they handle everything, without naming the attorney, has not thought about it.

The practical answer for most overseas owners is a local attorney instructed by the manager, with you copied on everything. Build that relationship into your team the same way you build the rest of it, which I set out in how I built an out-of-state portfolio.

This is also the clearest argument against self-managing, which I have also done with varying levels of success. Handling arrears and a filing from another continent, with no local attorney and no manager, is exactly what I wrote about in self-managing from abroad against hiring somebody.

6. What if the tenant is on a voucher?

The mechanics change, and mostly in your favor.

With a housing voucher, part of the rent comes from the authority and part from the tenant.

The authority's portion generally keeps arriving even when the tenant's share stops, so a non-payment is usually partial rather than total. That is a real cushion, and it is one of the few places where the voucher program does what people expect it to.

The complication is the other direction. The tenant's share rises as their income rises, which moves money from a reliable payer to a less reliable one, and that mechanism is set out in when your Section 8 tenant does better, you do worse.

And your rent can stop for a reason that has nothing to do with the tenant at all, because a failed inspection suspends the housing payment until you fix the fault, which is in the Section 8 inspection problem.

Two other things are worth knowing. Ending a voucher tenancy involves the authority as well as the court, so it is typically much slower. And what you may lawfully refuse or act on is narrower than most owners assume, which is covered in how to screen a Section 8 tenant and what the law says.

Whether a program like Section 8 suits you at all is a separate question, which I tried my best to answer realistically in is Section 8 a good investment, and what running 37 Section 8 properties from Europe taught me is in Section 8 for overseas investors.

7. How do you stop it happening again?

Screening, and nothing else comes close. We all talk about how to find and analyze deals. We don't talk nearly enough about what comes after, and that is the most important part.

My standard is an income multiple of three, a credit score floor of 620, no recent evictions, and no felony criminal record, applied to every applicant the same way. I did not always work that way. I was the owner who would rent to almost anyone, and I learned what that costs the hard and expensive way, which is part of the account in when your manager is the biggest risk.

Consistency is also your legal protection. A single written standard applied to everybody is far safer than judgment calls made case by case, and it is the thing you can check from another country.

The second lever is the property itself. Non-payment is not evenly spread, and a cheap house in a street with no owner occupiers produces a different tenant profile than a solid house one grade up. That is the whole argument in why I buy quality over yield, and it is why my own portfolio is smaller and better than it used to be.

The third is the manager. Ask how they handle arrears, at what day they contact the tenant, and how many evictions they filed last year. Those questions belong in the hiring process, which is in how to vet a US property manager.

8. What should be in place before it happens at all?

Five things, all arranged beforehand.

A reserve equal to at least one turnover, in cash, from the day you buy.

Named contacts for the attorney your manager uses.

A copy of the current lease in your own files.

A written arrears policy from your manager, so you know what happens on day 6 without asking.

And a decision, made in advance, about the point at which you stop waiting.

Daniel, one of my clients in Germany, is now buying a second property while the first runs without him, and you can read his case study. That is not luck. It is a decent house, a screened tenant and a manager who reports properly, which between them make this article theoretical rather than urgent.

If you would rather have somebody handling arrears who has done it before, that is part of our remote management service, and the arrears checklist is in the foreign investor starter kit.

The bottom line

The expensive part of a non-paying tenant is not the eviction. It is the eight weeks you spend hoping and praying.

I have made that mistake with real money and the lesson is simple enough to write in one line: set the decision point before you need it. Mine is that a tenant with a good record gets one written payment plan and two weeks (but the process starts anyway), and a tenant without one gets an offer to leave.

Everything else follows from screening well and holding a reserve, which are both decisions you make long before the rent stops.

Investing is a game of probabilities. You cannot make this impossible, but you can make it rare, and you can make it cheap when it happens.