Why is Rent still due during COVID-19?

328 Replies

Originally posted by @Robert McNeal :
Originally posted by @Jeff Cagle:
Originally posted by @Shiloh Lundahl:


As far as the government staying out of the rental business, this goes back to the same thing that @Jeff Cagle wrote, “a system produces what it incentivizes.” meaning that the government wants housing for its citizens so it incentivizes investors to get properties and provide housing to it's citizens and then to watch over the housing.  The problem is when the government drastically changes the rules of the game which then impedes me from being able to provide that housing according to my business plan. 

We have a system made up of a huge complex set of rules and regulations. So far that system has served most of us relatively well. You can't just walk up to a complex running machine and pluck a cog out of out of it and have the rest of the machine keep running properly. That's what the government does when it intervenes in one of these well established systems. Massive unintended consequences always follow. A change in even one part necessitates a cascade of changes in all the other parts in order for things to work properly, but that's generally "too complicated" to do during a state of emergency like this.. so things just get FUBAR.




 

Who are you referring to when you say the system has served most of us relatively well? Urban California has a massive housing affordability and homeless problem. I think many people would disagree with you, but very few of them would be landlords in California. 

The citizens of the United States of America. Roughly 99.85% have a roof over their heads at the end of the day. Seems that the current system has done a decent job of getting people housed.

 

Originally posted by @Cody L. :
Originally posted by @Dan Heuschele:
Originally posted by @Jay Hinrichs:
Originally posted by @David King:

Heather gets it, finally someone who gets it! As far as the tenant paying later, that's an absolute joke. The tenants wint pay a penny later. 

depending on asset class totally agree.. any lost rent is lost for good in the service work force housing sector.. white collar maybe not.

I seldom disagree with Jay, but I am confident that a mass majority of our C class tenants will make good on any rent they are short through this crisis.  How sure?  If I am wrong, I offer to take Jay to a steakhouse for dinner next time he is in San Diego.  Not a wager, I am not expecting anything from Jay if I am correct.  I have faith in our tenants.  We screen well and we build expectations.  

For missed rent payback: We were thinking one year payback time for up to 2 months missed, and 18 months if they are 3 months rent behind.  So it could be a while before I know if I am correct.

Related, I am expecting to receive a very large majority of our April LTR rents (probably none of the STR rents for most of March and all of April). I have communicated to the wife that I am predicting 85% of the total LTR rent. So far 2 tenants have contacted us about issues. They are both indicating that they will be paying the majority of their rent on time. We will know in about a week how accurate my 85% estimate is. We require just under 50% LTR rents to pay our rental mortgages but that includes the STR that will be getting virtually $0 rent.

 The problem I'd have is most of our tenants, if they get too far behind, won't want to pay extra to get caught up.  There is little downside to them just bailing on their balance and starting fresh somewhere else.  Lots of small owners don't check rental/credit history and will move them in for $200 or so. 

You have a different scale of number of tenants than we have (you have commercial MF while we have SFR to quad). I think our smaller number of tenants has allowed us to build a relationship that may not be possible if we had more tenants. I therefore would be more concerned if I were in you position. Has Texas halted evictions like San Diego city and county? Note most of our units are in Escondido and I have not heard that we cannot evict in Escondido for missed rent (you cannot evict in city of San Diego (5 of our LTR units) or San Diego county for missed rent during this crisis).

In about a week, we will know if I have been a fool on my expectations for April rents.  It will take a much longer time for me to know if the tenants will in fact pay for their missed payments.  However, I am willing to forgo interest and penalties even in Escondido where I do not believe I am required to, but if they do not make their increased payments when the virus crisis is over, their rent will quickly be higher than market rent and good riddance.  Basically I am willing to help them through the crisis by letting them postpone payment and not consider evictions, but I expect them to pay their rent including the rent from the period including the crisis (just as I will have to pay my expenses).  We are willing to distribute the missed payment over many months (we were thinking 12 months for 1 or 2 missed months of rent, and 18 months for 3 missed months of rent).  From my perspective I am giving them many months to make good on their missed rent, but from their perspective that is quite a lot of extra money to come up each month (our rents vary from ~$1500 to ~$4K).  A tenant in a cheap $1500 unit would need to pay $250/month extra if they missed two months payment.  If they are in a $1500/month unit they will be challenged to pay $250/month extra.  Maybe they can use the $1200/person bailout money for some of the missed rent.

Originally posted by @Holly Uchida :

I am hearing that in the state of California, we can not evict tenants during this Covid 19 time. Is that true?

Evictions and foreclosures were halted on a federal level for 60 days.  

Im not sure if I have a better idea than you or the government. I was under the impression these were my houses and along with my houses I get to make my choices.

My private property has been commandeered by the US Government and they are forcing me to support and house people without compensation. 

I can hear it now, "Did the US Government force you to support and house tenants in your rental property? Contact Slacter and Slacter Law Firm. We will fight for your rights and get the compensation you deserve."



Originally posted by @Mary M. :

@David King i too live off my rentals, which are paid in full.... so i get it.... my guess is property taxes will be delayed if this situation continues...  

My point, is that if i have a tenant come to me i will share the pain.... ie if they are short 500 i will eat 250 and then they can pay the balance over time.  

Do you have a better idea?? You cant get water from a rock.... i just think its better for me to eat some of this so my tenants can remain stable and able to pay rent. I make plenty.... i have savings.... 

The bottom of our economic pile should not be the payer of last resort - we all should share that pain equally in relation to our ability to pay 

 

Originally posted by @Cody L. :

 At a point, when I see rules like this passed, my level of sympathy for those investors decreases.  And this is why:  When you buy in a place, you take on the risks of things like weather, politics, and other factors.  I own in Houston.  I like it because I can insure against things like hurricanes.  I don't invest in California or other politically liberal areas as I can't insure against a government who views property owners as the enemy.

So when you invest in NY, and make no cash flow but just hope for appreciation -- you should know the risks from the local government there.  They are pro resident / anti landlord.  And for that type of climate you also get no return?   Yeah, no thanks.

Yeah, I do feel bad for landlords that are going to struggle just due to market forces alone right now.  But if you're extra smacked because the left leaning area you opted to invest in also kicks you while you're down -- well, don't allow yourself to have that happen. Get out of those armpits. 

 What many people don't know (including yourself, apparently) is up until last June, all of those left-leaning restrictions and regulations were limited to the NYC metro area, and Upstate jurisdictions were free to govern themselves as the municipalities saw fit.  I'm assuming you weren't aware of this, because you identify New York State as a place where investors "make no cash flow but just hope for appreciation" - the entire State is a cashflow market, sir, with the exception of metro NYC.  The market I (used to) invest in has no appreciation;  if you look at the tax records you can see the same property being bought and sold for roughly the same price over the last few decades.  The lifestyle and political leanings north of the Tappan Zee bridge are very different than the City.  (If you want a real surprise, look at the county-by-county election results for the 2016 presidental race.)  So, decades of laissez faire ended abruptly when the legislators downstate started to paint a very diverse state with the same liberal brush.  What I'm trying to say is no one saw this coming and it certainly wasn't the status quo.

However, myself and other hard-working tax-payers have finally had enough and are voting with their feet.  Indeed NYS has had a net loss of taxpayers (yet a net gain of inhabitants, I'll let you read between the lines) over the last few years.

Originally posted by @Dan Heuschele :
Originally posted by @Gary L Wallman:
Originally posted by @Dan Heuschele:
Originally posted by @Gary L Wallman:
Originally posted by @Dan Heuschele:
Originally posted by @Gary L Wallman:
Originally posted by @Dan Heuschele:
Originally posted by @David King:
Mary the state school taxes can't be paid late. The state will evict and take my houses. I have to collect over $400 per month to cover a $5,000 school tax on each of 10 properties. That's around $50,000. I am retired so this income is all I have. Please explain how your math works for me? Please don't tell me about how the tenants are going to come to my rescue when they get their jobs back I have way more experience than that. My houses are paid off. I have tried to refinance and they say I don't make enough to pay a mortgage. If you're going to tell me about a fairy tale organization that is going to come to my rescue please post their phone number so I can call them. My wife and I will be out of money if the rent doesn't come in.

Originally posted by @Mary Mitchell:

@Greg M. you left off utilities, mortgage companies, credit cards, banks.....etc.... and all of those are allowing payments to be delayed or added to the back of the amortization... utilities etc take amount owed and split it up over x months...
 

 4 people voted for this post???   You are a LL.   LL is a business.  A well run business has reserves and performs risk management.  Any financial planner would have told you to have 6 months reserve.  Clearly you should not have purchased property #10 (especially for all cash) that left you with zero reserves.  Likely you should not have purchased property #9 (again all cash).   You are the definition of over extended due to property acquisition.  This is something that is warned about everyday on BP and probably about once a week by yours truly.

You have risk due to over leverage.  Now that the risk has become a problem, you act like you played no role in creating the risk.  The reality is you created this high risk situation.  A situation that every financial planner would have pointed out is high risk.  A situation that was pointed out daily on BP as being risky.

I am not saying the tenants are coming to your rescue.  I do suspect that somehow you will be rescued, but your worse than the tenants that have no reserve.  Why?  Because you chose to invest in RE rather than maintain the reserve.  Versus many of the tenants are in their situation not due to having chose to invest the reserve, but because their living expenses do not allow them to create a reserve.

 Dan,

I couldn't disagree with you more (no offense). I have virtually no leverage and lots of reserves. But no amount of reserves is sufficient to offset a huge number of tenants in default. Make no mistake about it it is their default even if it's not entirely their fault.

When one invests in RE we plan (or should plan) for vacancies, cap-ex, taxes and other contingencies. The low rate of return we experience is based on the notion that RE is, by its very nature, a conservative investment. No one should or would expect the contingencies required to offset a large percentage of non-performing tenants. If that were entered into the equation, no one would invest in RE as the returns would be too small for the capital invested.

Let's face it, the government is the only entity large enough too create a buffer for the working folks. They should and that burden will be spread over the entire tax-paying populace.

Gary

 Our rents, including the STRs, are ~$45k.  I do as I preach.   We are in a position to handle an extended period of little/no rent.   We already know our STRs will have $0 rent.   That is ~$16k/month of lost rent. 

Do I want to lose thousands of dollars in lost rents? Of course not! I hope and expect to collect on most of any LTR deferred rent. I also am not expecting most of our tenants to not pay their rent, but I will not know until April 5th or so. I am projecting an 85% LTR rent payment. If I am correct, our rent, including the STR, will be just over $20k less than usual. That is a lot of money to be short in rent. Multiple similar months add up really fast. It will impact us by consuming reserves. It will not impact us by placing any of our RE in jeopardy or by making us not have money for essentials.

So similarly, I disagree with you.  It is possible to have reserves to handle a large number of tenants in default.   I know this because we can.  Certainly we do not want to consume our reserves.   You never know what reserves will be needed for and if they are consumed they should be replenished meaning less money available for vacations, toys, entertainment, and retirement. 

I also do not believe RE should be a low rate of return.   Because we do value adds extracting much of our initial investment, we have achieved outstanding RE returns.  Buy n hold RE is not passive.  If you are not obtain a return significantly better than the lifetime return of the S&P 500 (over 9% prior to this melt down), then you likely need to change something.  

Good luck

 Dan,

My average monthly rent collection is 3 times yours.  I only have 6 mortgages across 120+ doors, and those are ones I inherited through acquisition. I am closing on a 100k house today and a 140k one on the 31st. all cash. The point in this is that I have sufficient reserves to carry me for years and my returns have been excellent.

That being said, why would I want to give it all away now? I don't and I won't.

Good luck to you.

Gary

Your initial post indicated you did not have the reserves to cover a $400/month expense and that the state was going to evict and take your houses.  This was why @Jay Hinrichs indicated you may need to sell a property and it was the part that I was replying to.

Now you indicate you have sufficient reserves (great).  If you had not indicated you did not have reserves for a $400/month expense, I would not have replied indicating that you should have had some reserves and that not doing so was risky.  It now seems that you have reserves which is indicating you agree with the need for reserves (great).

As for "giving it away", We all would prefer to not have to spend reserves to cover for this virus (including me). The reality is that a majority of us will be coming out of this with less net worth (I am way down (over 7 digits) on two of my investment categories not including RE) than prior to this virus. Who would be happy about that? But we should be compassionate to others. I already know that I am down at least $16K in rent (the STR rent) for Mar 11 to April 16. I wish we were not down any of our rent, but it is what it is and we have the reserves that it will not force the sale of anything. We will see over the next 1.5 weeks how our LTR rents do, but I am expecting most of our tenants will pay their entire rent (my guess is we collect 85% of the due LTR rent). My reserves will be taking a hit, the only question is how large of a hit.

I hope your can somehow shield your reserves from taking a hit, but I would suggest not trying to rely on doing so.

Good luck

 Dan,

Not my original post. You're mistaken.

Gary

Your correct. It was David King that indicated he did not have reserves to cover a $400/month expense (total across all the homes) but had 10 homes with 0% LTV and indicated he could be foreclosed on. This lack of reserve is why I replied in the first place. Buying the 10th house without having enough reserves to handle $400/month expense is too risky for me.

When I got you two confused, I was hopeful that he had significant reserves and would not be forced to sell a property and that there was some sort of miscommunication (that he had not really done what he seemed to be indicating).

Sorry for confusing you.  Good luck.

 Dan,

I couldn't agree with you more on that point.

Gary

@Heather Frusco

I love this. What you said about only one person to blame is spot on because people don't like to take responsibility for their actions. Many people dont understand the power of saving for rainy days until the rain starts falling then it's too late. From the book the Richest man in Babylon "For every ten coins, 💰you earn spend but nine."

If we all learn to do so in times like this we won't have to fret.

@Scott Mac

This is true Scott. I am a renter at the moment but I learned from my mom to always save for ☔ days. Now I can honestly say we have 6 months of expenses saved up and growing. I know many others who are renters that have less than the $630 in their savings and it's not because they dont make enough. Take my co-workers, for example, we all make the same but they have poor habits of eating out every day while I cook at home and bring to work. If you can't save $10 out of $1,000 you won't save $1,000 out of $100,000.

@Jay Hinrichs hit the nail on the head. Lets see what real world numbers actually look like. I suspect from my clients that the number will be lower then you think. Tenants also have checks coming from the government to help them out and their businesses. @Heather Frusco also makes very good points. At the end of the day it comes down to what kind of land-lord and business owner you are going to be as well as personal and financial decisions of your own.

I just received an email from one of my tenants and I quote:

No Subject

I (John Doe) and (Jane Doe) are not able to pay rent do (sic) to both of us being laid off.

No other details or mention of when or how they plan to repay or if this is even permissible to us. No please contact us to discuss. Nothing but this f-off one liner.

This is why I get so pi..ed off at the give it all away crowd on this thread. These people (in a B+ class SFR) have the ultimate entitlement mentality. So many others in our populace due as well.

I hope this event teaches some people about personal responsibility and a rainy day fund.

BTW we are in Ohio and have been closed down 4 whole days.

It is my hope that most of those fears most of us have will be alleviated by the stimulus/bailout package.  Folks who lost their job will get unemployment and get full paycheck amounts, not the lower percentage they normally get.  There is the direct stimulus money too.  Funny thing, I can see some tenants being responsible and paying all their bills, and working to help others who are less fortunate, I can also see a few tenants not paying rent for 3 or 4 months, taking all the unemployment and incentive money and spending it like water until they are finally kicked out in 6 months hehe.  I hope that number is low, but who knows.  

@Gary L Wallman . That really stinks.  You might engage with them and help them understand unemployment is available for 100% of lost wages there are food stamps available etc. 

you might also inform them that they need to provide documentation to get rent delayed   ? 

This info might help them pay you?

Originally posted by @Mary M. :

@Gary L Wallman. That really stinks.  You might engage with them and help them understand unemployment is available for 100% of lost wages there are food stamps available etc. 

you might also inform them that they need to provide documentation to get rent delayed   ? 

This info might help them pay you?

Mary,

Thanks. We intend to do all of those things. Gets tough to do it on a timely basis with 120+ doors and a staff of one. LOL

My reason for the post was more to show how audacious people are. No sorry or we can try or will you accept half. Nope just F off Mr. Landlord.

Gary

 

@Gary L Wallman maybe they are afraid of the situation and are trying to mitigate that fear by waiting to the last minute and just stating the facts.... 

Hoping this is your only “dear landlord” 


Yeah, I do feel bad for landlords that are going to struggle just due to market forces alone right now.  But if you're extra smacked because the left leaning area you opted to invest in also kicks you while you're down -- well, don't allow yourself to have that happen. Get out of those armpits. 

In the place you call the "armpit" i.e the Bay Area, I have a townhouse occupied by an engineer paying over 3500$/month whose rent I have no doubt whatsoever will hit my account on the 29th as it always does. In your capitalist heaven red state of Indiana I have multiple rentals that I have no idea will pay or not. And even if I can evict them, who will rent now?  Your so called armpits are the economic engines that drive America while the opiod addicted trash in the red states suck up our taxes. Sound a bit harsh? I know its an exaggeration but no different than your categorization of the most productive and educated states in the country as its "armpit". 

 

Originally posted by @Anish Tolia :

Yeah, I do feel bad for landlords that are going to struggle just due to market forces alone right now.  But if you're extra smacked because the left leaning area you opted to invest in also kicks you while you're down -- well, don't allow yourself to have that happen. Get out of those armpits. 

In the place you call the "armpit" i.e the Bay Area, I have a townhouse occupied by an engineer paying over 3500$/month whose rent I have no doubt whatsoever will hit my account on the 29th as it always does. In your capitalist heaven red state of Indiana I have multiple rentals that I have no idea will pay or not. And even if I can evict them, who will rent now?  Your so called armpits are the economic engines that drive America while the opiod addicted trash in the red states suck up our taxes. Sound a bit harsh? I know its an exaggeration but no different than your categorization of the most productive and educated states in the country as its "armpit". 

 

 Educated in America is not something we should brag about. 

I can say this, I have had 13 years of post high school higher education (college, medical school, residency) in the US. Other countries are miles ahead of us in all aspects of education.

California is okay, but being taxed to death doesn't justify living there IMO. Hawaii has better weather (best in the world many would say), world class hiking and scenery (often a 5-10 minute drive, as opposed to 1-2 hours from a city in CA), better beaches by far, better surfing, less taxes and less red tape, more landlord friendly in HI (can evict in 3 weeks), better travel hub to Asia, etc.

CA and NY residents suffer from the same fate. Most have never traveled overseas because they think its the best where they are. Well, I don't enjoy being taxed at 52% not to mention the random taxes they seem to dream up every year.

I believe its your patriotic duty to pay as little taxes as possible legally. There is ALWAYS leakage, beaurocracy, and red tape when you give you hard earned money to the government. Therefore its wasted in one way or another.

Its not the 60s or 70s anymore. All of the preconceived notions we were brought up on about "the rest of the world" as patently false once you step outside the US and take the time to travel.

In a situation where one (of 2) on the lease has money while the other is laid off and offering half her share of the rent. We are required to defer unpaid rent and allow 6 months to repay. The paying tenant wants me to deal directly with the short paying tenant and collect when possible. One lease. This is not the agreement. One tenant pays and collects from the other. Thoughts how to handle?

@Mary White this applies to good responsible tenants. Yes i have those as well as i respect them and trust them enough to work something out. Then theres the crap renter's warehouse tenant that we had evicted due to nonpayment since mid-November who trashed our beautifully kept home when they left. Each tenant has to be treated accordingly depending on how they handle their relationship with you. It's based on trust.

@Andrey Y. Education in the US is terrible and inconsistent.  This is what leads us to have around 16% of our population believing that Earth is flat.  It also gives us anti-vaxxers who ignore all science and simply spout heavily discredited stuff they read on websites that have no scientific validity.  We also have in America people who are told in science classes that the theory of evolution is entirely false and the Earth is in fact ~8,000 years old, and originally populated by Adam and Eve.  That is a religious theory and yet is presented as proven science that is never to be questioned to these people.  That is an unfortunate product of our education system that has little consistency or oversight and can pretty much teach whatever they want to.

Anyways, bringing the point back to the discussion of renters and their ability to pay we should wait and see what happens with real-world numbers.  Given how people tend to act, the consequences of NOT paying your rent/mortgage have been taken away for 4 months so we shall see if people will continue paying given they no longer are forced to.  I'll be optimistic and say most will attempt to, or will keep paying their rent/mortgage but if too many Americans decide to not keep their promise to pay rent/mortgage we may have another financial disaster on our hands as many LL go out of business and banks panic.  That is unlikely I think, and I think only a few won't pay their bills.  So this would only bankrupt LL's who do not keep any reserves.  Like that guy earlier who bought 10 houses cash and somehow did not have a reserve set aside for a $400/month expense on each one.  If your financial health prior was terrible going in, it'll be worse or bankrupt by the time you get out.  That said this would only the the first month of any non-payments so we shall see what the effects shall be.  What a time to be alive.

Originally posted by @Gary L Wallman :

I just received an email from one of my tenants and I quote:

No Subject

I (John Doe) and (Jane Doe) are not able to pay rent do (sic) to both of us being laid off.

No other details or mention of when or how they plan to repay or if this is even permissible to us. No please contact us to discuss. Nothing but this f-off one liner.

This is why I get so pi..ed off at the give it all away crowd on this thread. These people (in a B+ class SFR) have the ultimate entitlement mentality. So many others in our populace due as well.

I hope this event teaches some people about personal responsibility and a rainy day fund.

BTW we are in Ohio and have been closed down 4 whole days.

 Oh my goodness! I hope I don’t get a letter like that. How disrespectful! Nonchalant; No sense of urgency; no fear: no worry.
If I was a tenant in this situation, I would be shaking in my boots!! I can’t wait to see your reply letter to them. Please post. 

It is not a rumor dumbass. Cuomo himself stated it. NO ONE IS ALLOWED TO CHARGE RENT OR MORTGAGE. AGENTS ARE NOT EVEN ALLOWED TO SHOW HOMES FOR SALE. WATCH THE NEWS. IT ALL OBER THE NEWS. I HATE STUPID PPL.
Originally posted by @Eddie T. :
Originally posted by @Miguel Sanchez:

@Heather Frusco I guess it depends on your state. In New York rent and mortgages are suspended for 90 days.

You are wrong sir their is no suspension of rent in NY, that is a bad rumor being spread. 

 

I, personally, will be testing my tenants well during this crisis. I believe it starts with good screening. I don’t have one tenant that I wished I didn’t have. I’m sure most renters live paycheck to paycheck, or close to it. I will not evict anyone of my tenants, if they lose their jobs or can’t work due to having the virus or caring for someone with it. Does that mean they get a free ride, and their rent is forgotten? No. But, I will work with Them to establish a rent payback plan, to get them all caught up, once this mess stops. I believe this event will have such a huge compounding effect on our economy that if we evicted everyone affected by this, it would be a disaster. I feel like I’m just ranting, but, I consider myself to have good ethics and I feel like I’m in a good position to help some people, of needed.

Welcome to Crazytown,USA pick a city or State. All new territory. TBH not sure what the right answer is but know one thing for sure. Whatever feels right for you do it and stop complaining because others disagree with your position. We have a mostly A/B tenant base and have not heard from 95% of our tenants. the 4/5 we have heard from our respectful and likewise we will treat them and all others with dignity.No one asked for this mess no one but here it is and we must deal with the cards in hand. Not suppose to be religious on here but someone much wiser than myself said "Love God love people" . Not sure how any of can do better than try to abide by these words by being a better human. Countdown 4 days  . . . Happy investing and I for one am very very thankful for ALL of my tenants as they have helped build our net worth.