April is here, rent is due, now what?

[Chris Clothier]

I have read across the forums for the last couple of weeks how fearful some investors are reacting to the current state of their investments.  I've also personally spoken with many entrepreneurs who own real estate related businesses and I was surprised by the number that had no idea what they should be doing and others were very nonchalant as if the little planning they had done in the past had always worked for them so why change now.

I have some advice for both groups.  My advice comes from an entrepreneur who has failed (more than once) and from a real estate investor who across his lifetime of investing, made enough mistakes to have a pretty good handle on how to avoid them.  Here is my advice.

1.  Landlords and Investors - It is never too late to plan

April is here and rent is due.  If you found yourself frozen with fear and worried about your residents ability to pay rent and your ability to pay your mortgage, you may find yourself relieved today.  Many residents across the country have paid rent on-time and many who are facing some tough decisions made partial payments toward their rent.  The idea that the entire world order would fall apart and no one would be making rent payments didn't come to fruition.  Still, many reading this may find themselves still waiting on rent.  In either case, start planning now on your next steps.

- If your resident paid rent, begin communicating now by thanking them.  Remind them that if they find themselves in need of assistance in the future, to communicate early in order to work together.  They will appreciate the check-in and the thanks, but will also remember to communicate early if there is a problem brewing.

- If your resident paid rent, make your mortgage payment.  Nothing will make you look like a safe risk in the future to a banker, like on-time payments when others may not be.

- Calculate where you are right this minute in your "no-big-deal" fund.  Others call it a rainy day fund and others call it the oh-____ fund.  Either way, know where you stand.  How many months can you make a mortgage payment without collecting any rent.  Let's say the number is three months without really feeling the pinch.  The reality is, you can go 6 months if your resident can pay half.  You could go longer if your resident can pay 75% of their rent.  You may forgo the extra dollars your investments bring in each month, but keeping your property occupied and producing an income right now trumps everything.  

 - If your resident did not pay, you need to make a connection now and find out what their situation is.  Some of you reading this will know that your resident always pays on the 5th.  Or they always pay half on the 5th and half on the 20th.   Congratulations for knowing an important fact about your property.  If they are always on time and haven't paid reach out.

- if your resident has not paid and communicates they are in a bind, show compassion.  In many areas, the courts are not working right now for evictions and filings and none will be sympathetic to a landlord who shows no sympathy.  So do your best to communicate and ask what help they need.  If you are already aware of just how far your no big deal fund can go, then your goal is collect what you can from your resident without putting them or you in jeopardy (you don't want to read about how you are treating residents in the local news).  The more you are able to collect, the longer you remain stable.

- If your resident has not paid rent, you need to make a connection with your mortgage holder and discuss alternative plans while you are not able to collect full rent.  If they know that you are working with a resident to collect what you can, they may very well be willing to work with you.  Half payments, interest only payments, deferred payments to the end of your term are all options they may have.  Again, if you are willing to work with a resident, a lender may very well be willing to work with you.

Bottom line, start planning today the exact steps you are going to take tomorrow.  If you are one of those whose resident has already paid in full, start planning for May now.  It is never too late to lay out the exact steps you are going to take.  And one more tip on planning - make sure you script out the conversation with your residents and your lenders and then practice.  Practice how you are going to respond.  Listen to yourself.  Do you sound sincere?  Do you sound confident?  Are you in control?  These are important in times like this.  The more prepared you are, the more confident you are.  The more confident you are, people around you will notice and follow your lead.  Trust me!

2.  Property Management & Entrepreneurs

My best advice right now is to get on the phone with as many mentors, entrepreneurs and fellow property management companies as you can.   Share your thoughts and ask what others are doing.  Listen to what is working and don't be shy.  There are plenty of bad ideas, but you won't know if you have one of them without asking others what they think.  You don't want to be the company that ends up with a story on the local news because you put out a callous, poorly worded and even more poorly thought out policy statement.  Right now, residents know that their rent is due.  The best thing you can do is prepare multiple plans for what comes next.

If your business is buying and selling homes, you need to plan for the extra time it may take to move your property.  You need to spend time thinking about what a buyer is going to want in their next purchase the most, considering what we are going through right now.  (It could be a private retreat space to get away from home-schooled kids!). You need to consider the challenges that are coming for buyers. Home sales and home pricing and more specifically the downturns are lagging indicators.  Meaning that by the time they arrive, your ability to make adjustments are gone.  Make sure you start planning now for what may be coming 6-9 months down the road. 

If your business is property management, you damn sure better have a plan and I mean right now!  I spoke to so many these past couple of weeks who either had knee-jerk reactions and came out way too hot too early, or they had a cavalier attitude that it would all work out as it always does.  Neither of those is a good plan.  Residents are going to need help and owners are going to need communication.  The situation for management companies is going to change in May.  It may change again in June.  For those who are happy right now to see how well their residents are paying - and were smart enough to have KPIs already in place to measure against previous months - congratulations.  Now, start preparing for when the pain hits your residents.

For those that are seeing their rental collections well below what they were expecting four to five days in, start planning for your conversation with residents.  Prepare to help them file for unemployment.  Prepare to help them find resources they are going to need right now.  And prepare how you are going to speak with them to help them make some sort of and as big a payment as they can toward rent.  

It is vital right now that everyone reading this forum understand that this is not over.  The time to be carefully planning every step you and your team are going to take is crucial.  As a company, we not only survived, but we thrived during the last recession because we were transparent with our communication, we had complete and total buy-in from all of our team members and we instilled trust in our owners.  There was no fake it until you make it, but we operated on a belief that our best chance for survival was to consider every possibility and what decision we would make as those possibilities became realities.  

Because of that we never surprised.  Many of us find ourselves surprised right this minute by just how quickly everything changed.  I can assure you that your best route forward is to calmly, but urgently plan for each step you need to take.  Practice your communication and prepare everyone connected to your business with how you are going to not only survive this time, but thrive as well.