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Truth #7: The IRS gets it wrong when they call rental property “passive income.”

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Truth #7: The IRS gets it wrong when they call rental property “passive income.”

You will be sadly disappointed if the only action you take as a landlord is to click the refresh button on your online bank account until your tenants’ deposits appear. Bad tenants rarely operate like Swiss watches with mechanical precision – if you aren’t staying on your high-maintenance tenants throughout the month, that online deposit probably won’t arrive.

Make sure that your bad tenants are continually aware that you are involved, that you are interested in what is happening at the property, and that you intend to be in their face if the rent is not paid. It shouldn’t be the 10th of the month before you address the fact that they didn’t pay on the 1st or at least the 5th day. You don’t have to be a pest, but you have to be on top of things. These actions don’t have to be performed by you personally, but it must be someone with boots on the ground, upfront and personal – not just nasty e-mails and text messages.

Effective landlording includes a lot of expectation-setting with trouble tenants, for example, “Hey, it’s the 25th, so I’ll see you with the rent in a few days,” or “Don’t forget that there is a 10% late fee if the rent doesn’t arrive by 5 p.m. today.” That doesn’t mean that the tenant will necessarily do what you’re asking, but the quicker that you get onto them, they quicker you will see the appropriateness of their response, which will let you know how to respond in kind. Notwithstanding what the Tax Code believes, you will have earned this money by the time you receive it.

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