Real estate offers a terrific path toward financial independence, but navigating the eviction process can be a daunting challenge. Real estate provides many advantages. So, it’s easy to see why it has gained so much attention among small investors seeking to build long-term wealth.
The Daunting Reality of Tenant Evictions
However, few things strike more terror in the heart of the real estate investor than the eviction process. If you’ve done any research, you undoubtedly have come across articles advising ways to reduce the risk of having to evict a tenant. Indeed, resources for screening tenants abound.
Unfortunately, every real estate investor will likely have to deal with a deadbeat tenant at some point. The pain associated with the eviction process is hard to exaggerate. Your tenant stopped paying rent. Even worse, you must also expend significant time and money to evict them from your own property. And, of course, your regular expenses don’t stop simply because your income has.
This article will explore the eviction process and how short-term rentals can help you avoid this nightmare.
The Arkansas Eviction Process – A Case Study
Kicking a deadbeat tenant out of your property is easier said than done. The law provides significant protections to tenants, making their removal a complicated process. However, the difficulty of evicting a tenant varies from state to state.
We will briefly discuss the eviction process in our home state to demonstrate how painful the process may be. This despite the fact that Arkansas is probably the most landlord-friendly state in the country. If you live in a jurisdiction like California or New York, you can expect this experience to be exponentially worse.
Steps in the Eviction Process
Navigating the eviction process can be intricate and stressful for landlords. Each step requires specific actions and documentation, ensuring both the landlord’s and the tenant’s rights are upheld. Here’s a detailed breakdown of this procedure, using Arkansas as a reference.
Initial Steps: Issuing Notices and Filing Suit
If a tenant doesn’t pay rent, the landlord must give a three-day notice to vacate. If the tenant doesn’t pay or leave, the owner can then file suit. This almost always requires the landlord to hire an attorney and incur the often significant legal fees associated with that.
Court Proceedings and Tenant Responses
After filing suit, the landlord must then serve the tenant with notice of the lawsuit. Then the tenant will have five days to provide a written response. In Arkansas, a tenant wishing to fight the eviction must put the rent due in deposit with the court. However, not all states have this safeguard.
The Final Stages: From Court Dates to Forced Removal
If the tenant wants to dispute the eviction, a court date will be set. Then, the landlord simply must wait until that date, which may be several weeks off. However, even if the tenant fails to answer, the landlord must go to court to request a writ of possession. In Arkansas, the sheriff will then serve the writ on the tenant, who will have twenty-four hours to vacate. If the tenant still doesn’t leave, the sheriff will forcibly remove the tenant from the property.
The Aftermath of the Eviction Process
If everything goes right, you may be able to go through this entire process in four to eight weeks. And who knows in what condition the tenant will leave your property. When it’s all over, you’re out rent, legal fees, and court costs. In addition, your mortgage statements have kept coming due. Furthermore, it’s unlikely you will be able to secure another tenant until this entire process is over. So, if you evict a tenant, you can expect to be without rent for at least a few months.
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Post-Eviction Challenges
At this point in the lawsuit, the landlord has only gotten the property back. He hasn’t received any of the back rent. The landlord can continue with the lawsuit. If successful, the court may enter a judgment against the tenant for these damages. Eventually, the landlord may even eventually be able to get a garnishment order.
However, this whole process will just cost more money. In addition, the old cliché “You can’t squeeze blood out of a turnip” is particularly apt here. If the tenant were able to pay, he probably would have paid his rent in the first place.
The entire process is just a no-win scenario. It’s all about damage control, as the landlord is forced into a situation where he’s required to provide free housing for someone who has refused (or is unable) to pay until the state gets around to making that person leave.
The Power of Short-Term Rentals: Bypassing the Eviction Process
Short-term and long-term rentals each have their pros and cons, and which one makes the better investment will depend on your market and the specific property. But one of the major advantages of investing in short-term rentals over long-term ones is avoiding the risk of having to endure the eviction process.
Generally, guests don’t receive rights as tenants—including the right to due process before being evicted—until they have occupied the property for a certain amount of time. Simple reflection bears out why this is. After all, the hotel industry would be untenable if a hotel had to spend months evicting an overnight guest who simply refuses to leave.
With short-term rentals, you can have the police come and remove a guest if the situation calls for it. We have, unfortunately, had to do this on one occasion. The nightmare that this event could have been had we had to go through the courts, however, is almost unfathomable.
This is a significant protection for your investment. If a tenant stops paying, you must expend substantial amounts of time and money to have that tenant removed. You cannot simply call the police and change the locks.
If a guest at your short-term rental doesn’t pay, however, you can have the police remove them in most situations, and, if you’d like, you can change the locks to prevent their return. (We typically use smart locks that give guests codes that are only good during their stay anyway. If they stay past the end of their reservation, they will no longer be able to gain access to the property.)
Short-Term vs. Long-Term: Understanding Tenant Rights
Who Gets Tenant Rights?
While the amount of time required to secure tenant rights varies from state to state, one month is a pretty typical timeline. However, many states have different timeframes or use a variety of other factors to determine whether the guest has secured tenant rights.
In Arkansas, for example, property owners do not have to go through the eviction process for a “transient guest,” which the law defines as anyone who rents a property, other than his primary residence, “on less than a month-to-month basis.” (See AR Code §§ 26-63-402 and 18-17-202)
So, as long as you limit your guests to “transient” stays, you will probably never face a situation where you have to evict someone. Those protections will simply never attach, saving you from a significant potential headache.
However, if avoiding the eviction process is important to you, you must be vigilant, particularly when a guest wants to stay for a more extended period of time. Avoid situations where a guest could reasonably argue that your property is their home.
Remember that laws that protect tenants exist to prevent people from being thrown out of their homes without due process. Losing the ability to stay at a short-term accommodation, however, is not the same as losing a place to live, and the law reflects this.
Navigating Extended Stays without Eviction Risks
While short-term rentals are typically limited to just a few days at a time, you will occasionally receive requests from guests wanting to stay for more extended periods. People who need a place to live for a relatively short time—perhaps just a couple of months—may not want to sign an extended lease and may be looking for a furnished place as they move from one period of their lives to another.
These requests are tempting because they can be lucrative and provide you with a break from the constant turnovers that typically come with operating a short-term rental. However, when you receive these offers, consider whether potential tenant rights may attach. You should protect yourself in these situations. Either do not accept stays beyond a certain period of time—twenty-nine days, for example—or require a security deposit sufficient to mitigate your risk.
Dealing with a problem guest usually comes with a story to tell your friends, perhaps some damage—for which you can secure insurance—and a bit of an inconvenience. Dealing with a problem tenant, however, creates a long-term headache. You must decide whether you are willing to risk dealing with the troubles associated with tenants when you receive requests for longer-term stays.
You should consider the risk you are willing to take in this regard as well as the laws in your jurisdiction before making this decision.
Conclusion: Weighing the Eviction Process Against Rental Strategies
Evicting a tenant is probably the worst thing you’ll have to deal with as a real estate investor. There are some situations where long-term leases make the most sense, and with great care in tenant screening, you can significantly mitigate the risk of having to evict a tenant.
However, suppose the situation makes long-term and short-term rentals financially comparable. In that case, you should consider the risk of having to endure the eviction process when deciding which route to go. If you can avoid dealing with the hell that is an eviction, you should.
This is a significant advantage of short-term rentals over traditional long-term ones. Guests pay your mortgage for you, just like long-term tenants do. Guests provide you with a stream of income, just as tenants do. But guests do not receive tenant rights and can be removed relatively easily if there are any hiccups.
While short-term rentals can be more labor-intensive, we have found the rewards far outweigh the efforts, particularly if you hire a property manager.
If you’re interested in learning more about how Weekender Management can help you get started in real estate, schedule a call with us today!
