Class C landlords - better build up some cash reserves

Class C landlords - better build up some cash reserves

Investor · San Diego, CA · Member since 2015 · 435 posts · 421 votes

To any LLs who rent to people who are working class but pay their own, unsubsidized rent: be advised that you should build up some cash reserves.  New England Journal of Medicine just published a case report of the disease course of the first patient in the US diagnosed with coronavirus, and it's not pretty.  Take home message is that this is highly contagious, is contagious for several days before the patient is showing symptoms, that patients can be ill and NOT have fever for at least the first six days of illness, and that the blood test for coronavirus may very well not detect it, although apparently nasal and oral swabs do detect it.  What this means is that the measures used thus far to detect infection in people returning from China were inaccurate, and that there is a high likelihood that we are going to have coronavirus sweep across the nation in the same way that the Spanish influenza did in 1918, probably with a similar death rate of 1-2%.  People who are salaried will probably continue to be paid, and continue to pay their rent.  Section 8 will continue to make its payments, and their residents' rent portions will be adjusted accordingly if they cannot work.  But working class people will not be paid when the businesses they work for shut down temporarily, and since these people live paycheck to paycheck, they're not gonna be able to pay their rent.  I have a feeling that judges (and a higher authority, too) would not look kindly on LLs evicting because a tenant couldn't pay rent during a pandemic.

I would not be surprised if we, as LLs renting Class C housing, wind up holding the bag on as much as 6 months of unpaid rent, if this winds up going the way that China is going.  So make sure you have cash reserves to keep up and running as we go through this.

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Real Estate Broker · Northeast PA · Member since 2017 · 2k+ posts · 3k+ votes
6y

@Karen F., thanks for the projection of epidemic, and it's ALWAYS a good practice to have cash reserves.  However, I think we have to see how this plays out before we start to scream 'the sky is falling'.

NOTE:  Remember a few years ago the "Ebola pandemic" that threatened the entire known universe?  Let's hope this one goes the same way.

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  • Real Estate Broker · Northeast PA · Member since 2017 · 2k+ posts · 3k+ votes
    6y

    @Karen F., thanks for the projection of epidemic, and it's ALWAYS a good practice to have cash reserves.  However, I think we have to see how this plays out before we start to scream 'the sky is falling'.

    NOTE:  Remember a few years ago the "Ebola pandemic" that threatened the entire known universe?  Let's hope this one goes the same way.

  • Specialist · Riverside, CA · Member since 2015 · 6k+ posts · 3k+ votes
    6y

    I highly doubt it but it is never a bad idea to have adequate reserves.

  • Cory LucasPro Member
    Rental Property Investor · Brighton, IL · Member since 2019 · 431 posts · 139 votes
    6y

    @Karen F. Always good to have cash reserves from my understanding, I’m in the healthcare industry and I’m not buying the whole pandemic things. Bunch of overblown hogwash to jack up news ratings in my opinion. Same with Ebola, 11 people were treated for Ebola from 2014-2016. Not that an outbreak can’t occur, it’s just pretty unlikely here in the US as opposed to less industrialized countries.

    For what it’s worth here’s a snippet from an article of a confirmed coronavirus case in the US...

    “This may be concerning, but based on what we know now our assessment remains that the immediate risk to the American public is low,” said Robert Redfield with the CDC.

  • Bjorn AhlbladPro Member
    Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
    6y

    The US averages 50,000 flu deaths annually. I don't think Corona virus will top that!

  • Investor · Chicago · Member since 2018 · 113 posts · 51 votes
    6y

    I'm in China where this is all happening.  The virus isn't as scary as everything else it affects. closed down highways, busses, cancelled flights, most businesses are closed too. 

    its being contained quite well

  • Rental Property Investor · TN · Member since 2018 · 2k+ posts · 2k+ votes
    6y

    Schools in the County I invest in were closed for the last few days of last week due to so many people -staff, teachers, bus drivers and students--being out with the flu to give everyone a break to get it under control.  We already have  closures in some areas due to the flu.

    BTW, several drug companies say they are close to having a vaccination for this virus.

  • Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    6y

    Same with the Zika virus , swine flu , h1b1, west Nile , haunta virus , avian flu , etc ..

    What will it be next year ? What a load a crap ! every year there’s a worldwide pandemic outbreak that scares everyone and all you see in the news headlines . People need to stop being afraid of their own shadow !! . More people die from bee stings and being stomped by elephants or bit by sharks than most of these so called “ pandemic outbreaks “ that world health organization labels every 6 months .

    Live your life .

  • Investor · San Diego, CA · Member since 2015 · 435 posts · 421 votes
    6y

    Once again, a warning.  We're going to have school closures soon here, a big economic slowdown.  Class C landlords, some of your tenants aren't going to be earning anything, won't be able to pay the rent.  Plan for this, build up cash reserves if possible.  If you're leveraged, and dependent upon the rent coming in to pay the mortgage, know that there's going to be a bump in the road and prepare for it.

    I think maybe a quarter of our tenants are section 8.  THat's good - that money will come in.  The rest, I'd say at least half are at risk of not earning during a pandemic shut-down.  School bus drivers, school aides, school lunchladies - no money.  I figure that we will carry them along for two to three months even if they cannot pay (those who have been good steady tenants), and when it's over, have them pay 110 percent of their usual rent until they're caught up.  But we own all our buildings free and clear, no mortgages.  We can afford to get by on the Sec 8 tenants alone.  Now, if the government stops paying, that's gonna be another story....

  • Contractor · Jacksonville, FL · Member since 2017 · 1k+ posts · 2k+ votes
    6y

    @Dennis M.

    Exactly...

  • Investor · San Diego, CA · Member since 2015 · 435 posts · 421 votes
    6y

    It sucks to be right.  I feel like Dick Deadeye from HMS Pinafore, the much maligned frank voice of reason.  The country will be in lockdown very soon.  Evictions have been suspended (along with utility shutoffs) in many of the states.  Our class C tenants will not be able to go to work, won't be able to pay us.  And the bailout bill bails out BIG OIL (as if they need it), but not the wage slaves, who are our tenants.  Get ready for several months without rent.

  • Anthony GaydenPro Member
    Rental Property Investor · Omaha, NE · Member since 2014 · 2k+ posts · 3k+ votes
    6y

    @Karen F.

    Actually you were wrong. You suggested Class C landlords would be in trouble. That was not correct. STR landlords are in trouble.

  • Rental Property Investor · San Francisco, CA · Member since 2018 · 19 posts · 2 votes
    6y

    During a recession Class B renters move to Class C. So the downside is not bad if the economy is affected overall. However, if it affects Class C renters more than Class B (Perhaps Class B renter can work from home but Class C renter can't due to nature of the job) then it will definitely affect Class C properties in the short run. However in the long run a Class C property might be a safer bet as it will have more competition.

  • Investor · San Diego, CA · Member since 2015 · 435 posts · 421 votes
    6y

    What's an STR? And I don't think you understood my warning. I wasn't talking about how to position for future profits. I was warning that if/when the country went to lockdown, (which is now imminent), our Class C tenants would not be getting paid, and so would not have the money to pay rent. We're going to have to carry them through until they're back at work, earning, and able to pay rent. So I warned LLs with Class C rentals to build up some cash reserves, in anticipation of no rent. I re-issued the warning a couple of weeks ago, and again today, because there are many, especially in certain political circles, who are still in denial about what is happening/about to happen.

  • Investor · IL · Member since 2019 · 151 posts · 135 votes
    6y

    You were right @Karen F. and I believe you are right about lock down. It's a matter of days. i had people laugh in my face when I talked about how bad it could get a month ago, and I had no idea it would go this far.

  • Investor · Port Townsend, WA · Member since 2014 · 103 posts · 50 votes
    6y

    @Karen F.

    Wow Karen, how on the money you were! And from 2 months ago! Everything you warned has occurred. 

    I know it's impossible to know how long this unprecedented economic shut down will continue...I saw various Curves of how long this is going to continue and it looks scary as to how many months of mortgage payments we (LLs) may be forced to pay without rent coming in.

    S.Korea seems more successful at managing this virus as a nation compared to US when both countries had their first case in January. S.Korea's confirmed cases are not increasing as more people are getting off quarantine vs. new numbers getting added starting a few days ago around at 8,500. 

    Do you think US will stop increasing their numbers in a few weeks...?  As long as the Infected numbers increase, I suspect the economy will stay shut which will be catastrophic to everything we know...

    (STR means Short Term Rentals like Air B&B owners, vacation condo owners, etc)

  • Investor · Tx, GA · Member since 2019 · 313 posts · 337 votes
    6y

    @Karen F.

    Just coming in here to give you props for being absolutely dead on with your corona analysis. Everyone likes to pretend these things don't exist and China isn't constantly finding new ways to produce new viruses, but you had the courage to sound the alarm bells and persist. 

    The good news is the US has adopted a policy of social alienation to mitigate the spread, but there are places like Texas where plenty of people are still acting like it's no big deal. So there will be waves of infections, even when the curve is flattened, hospitals will be overwhelmed and plenty with pre exisiting conditions will not make it. 

    As far as rent, I think enough measures are in place in terms of short term mortgage help from the govt to not lose properties over this. Health of the nation is by far the most important thing, and we all need to not touch things, stay away from other humans for atleast a month and be very careful about any groceries we bring into house to keep the impact of the corona virus down relative to places like Italy. 

  • Investor · Tx, GA · Member since 2019 · 313 posts · 337 votes
    6y

    Karen's analysis is akin to Warren Buffet gems from the early 90s and 80s. Picked the right things to analyze and spot on. 

    One thing we need is for the private and public sectors of medicine to work together in mobilizing equipment , nurses etc. to tackle the crisis together instead of leaving large groups to die because they are beyond saving.

  • Investor · Tx, GA · Member since 2019 · 313 posts · 337 votes
    6y
    Originally posted by @Casey Rolland:

    @Karen F.

    S.Korea seems more successful at managing this virus as a nation compared to US when both countries had their first case in January. S.Korea's confirmed cases are not increasing as more people are getting off quarantine vs. new numbers getting added starting a few days ago around at 8,500. 

    Do you think US will stop increasing their numbers in a few weeks...?  As long as the Infected numbers increase, I suspect the economy will stay shut which will be catastrophic to everything we know...

    (STR means Short Term Rentals like Air B&B owners, vacation condo owners, etc)

    Do not get your hopes up looking at South korea and Singapore. They are very small countries that have camera's everywhere - and they use these camera's to track infections from the ground zero patient (chinese tourists) to all those they came in contact with. And then those people were froced to isolate.

    US has 400 million people , a lot more traffic and camera's do not cover every square inch. There will be waves but the economy should be able to stabilize if the initial onslaught is contained through social distancing. 

  • Investor · Port Townsend, WA · Member since 2014 · 103 posts · 50 votes
    6y

    @John Collins

    Yes there are cameras everywhere but also when travelers from China came in, they were asked to download an App which would track their GPS location. And on top of that, if they had fever, they were required quarantine themselves for 14 days and to check in with gov't Every Day to report on their condition. S.Korea had a meticulous system to track. I was horrified to see thousands of people crammed, waiting in line in various airports trying to come in from Europe several days ago. I suspect that 20-30% of those people were infected and they have returned to their home states and are now spreading this virus. If anyone recently traveled back from Europe, they should self-quarantine themselves for 14 days even if they don't have fever as many people are asymptomatic even if they are infected/spreading to other people. 

  • Investor · Tx, GA · Member since 2019 · 313 posts · 337 votes
    6y
    Originally posted by @Casey Rolland:

    @John Collins

    Yes there are cameras everywhere but also when travelers from China came in, they were asked to download an App which would track their GPS location. And on top of that, if they had fever, they were required quarantine themselves for 14 days and to check in with gov't Every Day to report on their condition. S.Korea had a meticulous system to track. I was horrified to see thousands of people crammed, waiting in line in various airports trying to come in from Europe several days ago. I suspect that 20-30% of those people were infected and they have returned to their home states and are now spreading this virus. If anyone recently traveled back from Europe, they should self-quarantine themselves for 14 days even if they don't have fever as many people are asymptomatic even if they are infected/spreading to other people. 

    They SHOULD, but they don't. In singapore they would get arrested if they didn't comply with self quarantine. Smaller populations benefit greatly from technology whereas a place like America can't make sense of it, just pray for supercomputers to be able to use an algorithm one day. 

    Great video for those interested - 

    https://www.youtube.com/watch?v=ddlRvqhGdPk

    Isolate, wash your hands alot (I don't touch anything outside the home right now), don't be arrogant! Last week I was speaking to a flooring designer who was mocking her kids for being scared of corona and cancelling their vacation to Mexico. 

  • Investor · San Diego, CA · Member since 2015 · 435 posts · 421 votes
    6y

    I'm a retired primary care doctor, have lived through several significant viral epidemics, and  lived through the hell of the H1N1 pandemic, which hit my patient population VERY hard, plus I read a lot of history.  If you read the history of the 1918-19 flu, you'll see that history repeats itself.  Here is what I've done with my tenants (we have a little over 30 class C units).  First I sent out texts about a week ago, as soon as school closed, telling them that if they were in trouble, they should reach out to us, that we cared about them.  We DO care about them - these families pay MY mortgage, and pay for my upper middle class lifestyle.  Most of them are good tenants, have been for years.  My self-pay tenants, I told  that even if they'd only had a cut in hours, that they could apply for unemployment, and also food stamps, medicaid, and if there was a disabled person in the home who was receiving home care, or was on the verge of needing to go into a nursing home (God forbid right now), someone might be able to get paid by Medicaid to care for them at home.  My Sec 8 tenants I advised that if they had a reduction in income, they should notify Sec 8 immediately, so that Sec 8 would adjust their payment according to change in income.  I notified them that utility shutoffs were suspended.  Most of our tenants replied that they were fine for now.  One family, with two waitresses and a retired, ill, disabled elderly person, applied for everything I told them about.  

    As the situation has developed, I sent out further texts to everyone, warning them of the risk, especially in households with older or vulnerable adults.  I warned them not to flush anything except toilet paper, because of the risk of clogging the plumbing (since a lot of people are having trouble getting toilet paper).  Again, I reminded them that if they were in trouble, rent wise or anything else, they should reach out to us.  Most thanked us, and said they were okay.

    It's not altruism.  I feel that our good relationship with our tenants will make them more likely to keep paying us rent, if they can, during this difficult time.  Fact is, with the courts closed, there's no way we can evict someone for non-payment now, even if were wanted to (which we do not).

  • Investor · San Diego, CA · Member since 2015 · 435 posts · 421 votes
    6y

    In general, it has been my experience with flu that it's about 6 weeks ramp up time, 2-3 months of high prevalence, and about 6 weeks wind down time.  But there's a vaccine for flu, and much of the population has some immunity to it, plus the incubation period is much shorter, maybe 2-4 days.  The incubation period for coronavirus really IS up to 14 days, and a person can be shedding virus and spreading it for quite a few days before they feel sick, if indeed they ever DO feel sick.  

    We are going to follow the path of Italy, Spain (and Wuhan until about a month after the strict lockdown was put into effect), not of most of China.  Our political system will not allow the brutal lockdown that was able to be enforced in China.  What we need is for Trump to order a complete and total lockdown, call out the Army to enforce it, and to set up field hospitals.  We need ALL our governors to order complete and total lockdown, call out the state National Guards to enforce it, and to set up field hospitals.  It's almost too late.  But Trump won't, and by the time the individual governors do, it will be too late.

    We're going to have our hospital system collapsing in about 3-4 weeks, with rationing of ventilators according to patient age and risk factors.  Over 55?  Have diabetes, high blood pressure, some form of cancer?  No vent for you, just sedation.  The hospital hallways will be blocked with stacked corpses.

    Yes, many people will have mild cases, especially the young.  But with 360 million people, expect at least 70% (probably 90%) to become infected, and with a 2% death rate overall, expect 6 million dead, concentrated largely among the elderly and vulnerable.  If you have a parent in a nursing home, and can possibly bring them home, do so.  Otherwise, they are likely to get it in the home, unless homes lock the caregivers in with the patients, and I haven't heard of any of them doing it.

    I'm over 55, and am on cancer treatment, no functioning immune system.  If I get it, I'm dead.   I stocked the house over the past two months with enough food and supplies for more than 3 months, sent my healthy teenager to live with my healthy young adult son the minute school closed, and am on extraordinarily strict lockdown with my husband and daughter (who is on immunosuppressive medication). Another 5 days, and we will know we made it in time.  Meanwhile, a friend who has been on lockdown for 9 days, just came down with the virus.  He's over 60, and has risk factors.  I hope he makes it.

    From China, approximate death rate for the young is 1:500.  For people in their 50's, 1%.  In their 60s, 5%.  In their 70's, about 10%.  In their 80's, almost 20%.  They didn't mention for people in their 90s.  Realize that many, many people simply died at home and were cremated (the crematoria were running 24/7 at top capacity for a couple of months, with the cause of death as "died at home")  Those deaths may not be included in these statistics.  I think that Italy's death rate is running closer to 4%, because they're honestly recording the deaths as coronavirus deaths.

    Your mileage may vary, according to individual risk factors, and the availability of an ICU bed and a ventilator.

    If you have risk factors or are an older adult, STAY AT HOME AND DO NOT GO ANYWHERE!  Keep your entire household at home, do not host visitors, do not go out.

  • Developer · New York City, NY · Member since 2015 · 812 posts · 718 votes
    6y
    Originally posted by @Karen F.:

    In general, it has been my experience with flu that it's about 6 weeks ramp up time, 2-3 months of high prevalence, and about 6 weeks wind down time.  But there's a vaccine for flu, and much of the population has some immunity to it, plus the incubation period is much shorter, maybe 2-4 days.  The incubation period for coronavirus really IS up to 14 days, and a person can be shedding virus and spreading it for quite a few days before they feel sick, if indeed they ever DO feel sick.  

    We are going to follow the path of Italy, Spain (and Wuhan until about a month after the strict lockdown was put into effect), not of most of China.  Our political system will not allow the brutal lockdown that was able to be enforced in China.  What we need is for Trump to order a complete and total lockdown, call out the Army to enforce it, and to set up field hospitals.  We need ALL our governors to order complete and total lockdown, call out the state National Guards to enforce it, and to set up field hospitals.  It's almost too late.  But Trump won't, and by the time the individual governors do, it will be too late.

    We're going to have our hospital system collapsing in about 3-4 weeks, with rationing of ventilators according to patient age and risk factors.  Over 55?  Have diabetes, high blood pressure, some form of cancer?  No vent for you, just sedation.  The hospital hallways will be blocked with stacked corpses.

    Yes, many people will have mild cases, especially the young.  But with 360 million people, expect at least 70% (probably 90%) to become infected, and with a 2% death rate overall, expect 6 million dead, concentrated largely among the elderly and vulnerable.  If you have a parent in a nursing home, and can possibly bring them home, do so.  Otherwise, they are likely to get it in the home, unless homes lock the caregivers in with the patients, and I haven't heard of any of them doing it.

    I'm over 55, and am on cancer treatment, no functioning immune system.  If I get it, I'm dead.   I stocked the house over the past two months with enough food and supplies for more than 3 months, sent my healthy teenager to live with my healthy young adult son the minute school closed, and am on extraordinarily strict lockdown with my husband and daughter (who is on immunosuppressive medication). Another 5 days, and we will know we made it in time.  Meanwhile, a friend who has been on lockdown for 9 days, just came down with the virus.  He's over 60, and has risk factors.  I hope he makes it.

    From China, approximate death rate for the young is 1:500.  For people in their 50's, 1%.  In their 60s, 5%.  In their 70's, about 10%.  In their 80's, almost 20%.  They didn't mention for people in their 90s.  Realize that many, many people simply died at home and were cremated (the crematoria were running 24/7 at top capacity for a couple of months, with the cause of death as "died at home")  Those deaths may not be included in these statistics.  I think that Italy's death rate is running closer to 4%, because they're honestly recording the deaths as coronavirus deaths.

    Your mileage may vary, according to individual risk factors, and the availability of an ICU bed and a ventilator.

    If you have risk factors or are an older adult, STAY AT HOME AND DO NOT GO ANYWHERE!  Keep your entire household at home, do not host visitors, do not go out.

    Respectfully, with your stats and crystal ball of 6 million deaths, you are nuts. Please, get some sleep.

  • Investor · San Diego, CA · Member since 2015 · 435 posts · 421 votes
    6y

    Of course medicine has improved.  We have antibiotics and ventilators now.  But people who are dying of coronavirus are not dying of bacterial pneumonia.  They're dying of viral pneumonia, and as of now, we have nothing to fight that.  But you're assuming that people will have ACCESS to care.  They won't.  In about 3 weeks, every ICU bed and ventilator in the country will be in use, and there will be many, many people in need of ICU/vent care who won't be able to get it.  They will die in place at home.

    360 million.  Say 300 million get it.  2% death rate.  That is six million.  You do the math.  This is only the beginning of the beginning, unless we can stop it by strict lockdown and intense contact tracing - and we haven't done either yet.

  • Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes
    6y

    @Karen F.. Doctor Karen was 100% right, 2 months ago. Unfortunately, the U.S. Government and I did not read her report back then. Several of you were quite incorrect in telling the Doctor nothing to see here. We are all seeing it now, and it is not over yet. The worse is yet to come, even if you're at home and healthy right now. My reserves are just fine and I will be fine, but my 401k is hating life right now. And, of course this is going to affect landlords. Even if every tenant you have pays their rent, it could easily result in longer vacancy times and lower rents for the immediate future. 

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