The coronavirus pandemic has compromised many tenants’ ability to pay rent, which creates a big problem for landlords. The CDC eviction moratorium and individual state’s moratoriums, like California’s AB3088, may have provided a temporary respite for tenants who would otherwise face eviction for non-payment of rent, but have done very little to protect landlords from foreclosure. Here are some suggestions for landlords in need of assistance.
Stop and Think
Every real estate investor should already have a budget that factors vacancies and a plan of what to do in the event of vacancies, including long term vacancies. Additionally, the general rule of thumb is to have six months’ worth of rent set aside in the event of emergencies. Now may be the time to dip into those vacancy reserves, but before doing so, or anything, you should put together a plan.
Remember, you’re not the only person struggling, so people are working on getting out of the pandemic’s mess. Things are changing quickly as people learn more about the virus, legislation, and temporary fixes. Even the CDC moratorium lasts until December 2020, which means that new legislation and guidelines are on the horizon. It’s also an election year, which creates even more uncertainty.
Communicate With Tenants
If you take a combative approach with your tenants, they’re less likely to work with you. Instead, come from a place of empathy. Being unable to pay their rent is a symptom of your tenant’s larger problems: their employment has either been terminated or significantly reduced. Even if your tenants hated their jobs, they’re likely in demoralizing circumstances. They may also lack the financial literacy that you have by being an investor. And, finally, remember that we are in a pandemic. Millions of people have gotten sick in the US, and soon 200,000 will be dead due to the pandemic. This is hard for everyone.
Remind Your Tenants That Rent is Due
Fees, interest, and the threat of eventual eviction can all motivate your tenants to put more effort into paying their rent. Still, it may also compromise your relationship with your tenants. If they’re already unable to pay their rent, your tenants may be contemplating moving out. You don’t want to give them another reason to do so.
Your investment is your tenant’s home; they probably also don’t want to move out. And given how many people are themselves unable to pay their rent, finding a replacement tenant may be difficult. You may try to have stricter criteria for future tenants, but that may just make it harder to find a replacement.
It’s best to try to work with your tenants to figure out a mutually beneficial plan. Remind your tenants that to make use of the CDC eviction moratorium, they have to be doing their best to get governmental aid or housing assistance.
Propose an EDRP
An Emergency Rent Deferral Plan (EDRP) is a written addendum to your lease agreement that allows your tenant to pay their rent in equal portions over the remainder of their leases. So, if your tenants can only pay $250 out of a $1,000 rent bill, divide the remaining $750 and add it to their rent for the remainder of the year. You can revisit this arrangement as needed.
Explore Other Options
Given the severity and widespread nature of the coronavirus pandemic, you should research what sort of assistance may be available to you.
- Is your loan owned by Fannie Mae or Freddie Mac? Then you may be able to hold off on making payments without getting late fees or getting your credit score dinged
- The Federal Housing Administration (FHA) put out a moratorium on foreclosures for single-family homes back by FHA-insured loans.
- Check your state’s website to see if there’s any help available for you. Check State and Government on the Net for your state’s site.
- See if your state or county is extending the deadline for property taxes or forgoing late fees and interest. The best place to find this info is the website of your county’s tax assessor.
- Consider a loan. Consult with:
- Family, friends, or private lenders.
- The U.S. Small Business Administration.
- Your bank or credit union.
- You can also research options for your renters. The Pennsylvania Apartment Association has been collecting donations to provide funds for renters in need. A similar opportunity may be available for your tenants.
Check Your Homeowner’s Insurance
Landlord insurance policies can be pricey. Some states have instructed insurers to create payment plans, waive late fees, and not cancel policies for nonpayment. Insurers like Farmers and Liberty Mutual are extending grace periods and waiving late fees. Now might be an excellent time to revise your policy, but don’t necessarily cut liability coverage since coronavirus may create added risks.
Follow the Moratorium Guidelines
The punishments for landlords who don’t follow the moratorium guidelines can be stiff. For the CDC eviction moratorium, landlords may face upward of $100,000 in fines and a year in jail for the first offense. The CDC moratorium doesn’t mean you can’t evict tenants for reasons other than failure to pay rent because of the coronavirus pandemic. However, you can’t use the ability to evict for other reasons as a pretext for evicting someone for non-payment of rent due to the pandemic.
Sell Your Property With Tenants in It
Just because your tenants aren’t paying rent doesn’t mean your property won’t be appealing to other investors. Your investment may be otherwise golden, were it not for the pandemic.
Your tenants may even be good tenants even if they’re unable to pay their rent because of the pandemic, which may make their non-payment less of an issue if your buyer is interested enough. You might ultimately come out with a profit and save yourself the headache of having to deal with the pandemic as a landlord or at least downsize your portfolio to make it more manageable.
Renters have been getting more attention than landlords from both the press and charitable organizations. However, since renters are obligated to pay a portion of their rent under the CDC’s eviction moratorium and state and local moratoriums, that means that some of the help your tenants get may end up helping you as well.