Are you receiving rents? I am. But the media certainly had me thinking that wouldn’t be the case.
The moment I saw this article pop up, my spidey-senses went off. I waited until the end of the month to discuss it, though, because I wanted more data to come in. The wait was entirely worthwhile.
Thirty-one percent of tenants didn’t pay rent in April?!
The title of the Yahoo article “Coronavirus fallout: One-third of Americans missed rent payments in April” is very misleading.
First, you need to know that this article was published on April 8, 2020.
Secondly, this article was based on a National Multifamily Housing Council (NMHC) report that was published on the morning of April 7, which means the data was most likely pulled from April 6.
Thirdly, April 3 was Easter Friday, April 4 was Saturday, and April 5 was Sunday. That means there were only two or three days in April for a tenant’s check to have cleared by the time this data was pulled.
As every landlord knows, there are always tenants who pay their rent late, sometimes two or three weeks. Heck, I have two tenants who routinely don’t pay until the tenth, but since they pay late fees every month and always pay eventually, I don’t complain.
The Yahoo article expresses that on the same date in the previous month, 19% of tenants had not paid rent, and in April 2019, that number was 18%.
Even with a three-day weekend where people weren’t paying rent and social-distancing protocols were keeping people inside, it is only a 13% increase from last year.
Thirteen percent is still a big drop, but it isn’t 31% by any means.
Vast Majority of Rents Are Being Paid
I’m writing this on April 24, and all but one of my tenants have paid rent. The one tenant who hasn’t paid rent is somebody I was trying to evict (for not paying rent) before the coronavirus happened. Essentially, the only thing that has changed for my rentals is that I cannot evict this guy, even though I was a week away from doing so.
As I began looking through the data, I realized this situation was not as dire as we had been led to believe.
On April 22, the NMHC reported that 89% of apartment households made full or partial payment by April 19, 2020. In March and April of 2019, they reported that 93% had made full or partial payment by the 19th.
That means that 95% of apartment households paid rent when compared to the same date in the previous month and the previous year.
Strategies for Late Payments
Look, real estate is a people game. You need to be able to work with people from all walks of life if you want to be a successful real estate investor. Yes, that especially includes your tenants.
So, if you are in fact not receiving rents, here’s how I recommend handling it.
1. Send a Letter
The first thing I would do if you haven’t done so already is to send your tenants a letter. In this letter, show empathy toward their situation and give them information about applying for federal/state unemployment.
The point of this letter is to extend kindness and offer resources to help them navigate the COVID-19 waters and keep themselves afloat.
2. Ensure You’re Top-of-Mind
People will pay the most important bills first. If your tenant thinks their car is non-negotiable but their rent isn’t, they will pay their car payment first.
Make sure your tenants understand that you are their most important bill. You do this by being firm but fair in your dealings with them. Balance the line between them feeling like they must pay you because they don’t want to disappoint you and because they will lose the roof over their heads.
3. Accommodate on a Case-by-Case Basis
The next thing you can do is open up the conversation with struggling tenants to figure out solutions. This could be forgiving a month of rent, setting up payment plans, waiving late fees, whatever you come up with.
I assure you that (most) solutions will be better than having somebody not paying rent who you can’t evict due to moratoriums. Even when you can evict, you wouldn’t be recouping any of those missed payments.
If all else fails, you, the landlord, can file for forbearance with your bank. This essentially defers your mortgage payment for the time being, but you will have to pay it back, generally within the year. I don’t recommend this except as a last resort, but it is an option.
I don’t recommend this for two reasons. Real estate investing is a people sport, and I don’t want to be known as the investor who needed forbearance to survive COVID-19. I want my lender to know my business can weather a storm, and I think you should, too.
Also, my bank is currently requiring a statement of understanding (SOU) of forbearance. In this SOU, I must certify that I understand what forbearance is and that I’ve not had to use it in the last seven years.
If you plan on needing bank financing in the near future, I wouldn’t touch forbearance. I don’t know about you, but I’m skeptical that forbearance would get correctly annotated. Imagine thinking it was done correctly, and then a missed mortgage payment appears on your credit report.
This obviously would not be the case in most situations, but I wouldn’t touch forbearance with a 10-foot pole unless it was my last resort before filing bankruptcy.
Here are some pointers and what I’m doing at the moment to ensure I’ll survive this mess.
- Ensure you are budgeting for increased vacancy for the near future.
- Store more liquid reserves to ensure you can weather this storm.
- If you buy a rental, don’t overleverage. It is okay to pay 25% down and have an equity buffer. You can always get it back later.
- Slash your expenses. There is no reason you can’t lower your expenses by 10-20% while you’re staying at home.
- Save money, and keep your eyes open for opportunities to arise!
Happy hunting everyone, and remember, survival is more important than growth potential.
Are your tenants paying on time? How do you handle late payments in stressful times?
Share your strategies in the comments below.