Why is Rent still due during COVID-19?

328 Replies

Originally posted by @Jay Hinrichs :
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.....

 

Your in great shape more landlords should be like you..  your solution is to just liquidate .. sell one to weather the storm.. or sell them all go to cash.. which should be significant redeploy into assets that pay you monthly. problem solved.. if you have a lot of appreciation and a tax burden you could 1031 into a different asset class ?  But to think your in dire straights when your portfolio is paid for.. not sure about that. I just congratulate you on having it paid for and being in great shape.

 

 

@John Clark again, no idea what your obsession with Cheesecake factory is about or what you are referring to, you just seem really disgruntled and one-sided. Is shoplifting or the continued use of services without the intention to pay not theft? -- if you don't agree, then what would you call it? If you're continuing to occupy a unit with the knowing intention to never pay for your occupancy what would you call that? I hope that's straight forward enough John and can't wait to hear the reply. 

@Heather Frusco I think we are in agreement for the most part. You are describing procedures that are sound business practices in a typical environment to which I have no arguments. But these are extraordinary times. We are in the midst of a global pandemic and economic meltdown. There is a moratorium on evictions in many states and cities. The federal government is sending cash payments to a majority of Americans. This would have been unthinkable a few weeks ago. These are abnormal times that warrant a change in perspective from everyone for us to get through it. It is certainly possible that landlords will bear a larger share of the sacrifice than renters, but maybe not. That is more of a political discussion I'd like to avoid :)

"if you don't agree, then what would you call it? If you're continuing to occupy a unit with the knowing intention to never pay for your occupancy what would you call that? I hope that's straight forward enough John and can't wait to hear the reply. "

------------------------------------------------

Oh, but I do agree as to those who have a knowing intention "to NEVER pay." I just want to see if you extend the same label to established corporations pulling the same stunt. Now stop evading, and for the love of God, stop whining: Is Cheesecake Factory a den of thieves or not?


Originally posted by @Heather Frusco :
Originally posted by @Dan Heuschele:
Originally posted by @Greg M.:
Originally posted by @Mary Mitchell:

Howabout the idea that everyone should share in the pain equally??  

Well Comrade Mary, sharing the pain equally would reward those who failed to prepare/sacrifice and punish those that did prepare/sacrifice. 

I sacrificed to buy a unit. I pay to keep it in habitable condition. I sacrificed to build up reserves so that a rent interruption or major capital expense will not affect my ability to maintain ownership of the unit (and therefore allow you to continue to live there) or its habitability. The fact that you as a renter did not sacrifice and save and now are in pain is not a reason to try and have me share your pain. 

Renting is a business transaction. We rent a place for market price. Pretty simple. Now if a landlord is going to share in the pain during bad times, shouldn't they also share in the reward when times are good? Right, Comrade, we want equality! So if I as a landlord should take 50% of the market rent for the next 3 months because times are bad for you, shouldn't I be entitled to more when times are good for you?

I'm sure you are aware of the Fight For $15 movement. A lot of people here went from $12/hr to $15/hr. Should I as a landlord get a 25% bump in rent because the tenant got a 25% raise? Seems fair to share in the good times...

>A lot of people here went from $12/hr to $15/hr. Should I as a landlord get a 25% bump in rent because the tenant got a 25% raise? Seems fair to share in the good times...

If you are charging market rent, you already are sharing in the good times plus quite a bit (you had a greater share of the good times than those who are earning minimum wage).  The average rent has increased much faster than minimum wage and average wage for virtually any long term time span in Los Angeles.  The amount of household income going towards rent is near the all time high and this includes going back to when most households were single earner families.  This implies not only has rent gone up faster than wages, but it has gone up enough faster than wages that it has been able to overcome the increase in average number of wage earners per family.

In my market (San Diego), average rent has increased almost $500 over the previous 3 years.  Your comment seems to imply that low end workers should somehow be able to continue to pay for rent post increase on the same minimum salary that was in place when rent was $500/month less.

Dan, no need to backpedal out of it now... you personally... should the landlord then raise rent on you personally, when you get a bonus or get a pay raise at your job? -- Greg, makes a great point for all those looking for LL's to 'share' in the bad times, if that's the case should a Tenant then also 'share' with the LL in the good times. Looking forward to the answer.  

In coastal So Cal the LL have had years of good times.  The rents have increased faster than inflation, minimum wage, and average salary.  Did they share with the tenants?  Admittedly many have by charging below market rent because, even charging below market rent, the returns have been great.  But not all LL passed the good times to the tenants and I really do not expect the LL to have charged below market rent to the tenants to share the good times.  I think charging below market rent beyond what is financially advantageous (such as to keep good tenants) is poor business.

Similarly, being a LL is a business.  Businesses should 1) build reserves 2) should know risks.  In the case of a LL, the extent of likely tenant reserves.  The LL is typically compensated for this higher risk.  It is one reason that rent to value ratios are higher in lower class/poorer areas than in more affluent/higher class areas.  

We have LTR rentals from C to B+ class areas (We have 2 STRs in a class A area) with a majority being in the C class.  I expect the C class tenants will have less reserves and therefore more difficulty making rent than the B class tenants (but ironically only 2 tenants have talked to us about potential issues and one was from a B class unit)when they loose their jobs.   The point is the rent reflects the risk.  C class have higher rent to RE value in part because most of the tenants do not have the reserves to handle layoffs for an extended period of time and the LL is compensated monthly for this higher level of risk.

None of our tenants that fall behind in rent will be getting evicted.  Not now, not later.  Not because evictions are currently banned, but because it 1) I consider it immoral 2) I know the level of reserves my tenants have and took on the known risk when I purchase and rented in class C areas.  I have been compensated for this risk every month for years.  3) I have built up the reserves to be able to cover the rents for a protracted time 4) I am not over leveraged (very related to #3).

Every LL should have 6 months reserve.  Every financial planner would indicate this.  If you do not, then you are over extended per what virtually any financial planner would indicate.  Every LL should know and understand the risks of their investments including the likely reserves of their tenants.  If you want to reduce the risk of tenants not paying then purchase class A RE and accept the lower reward that is associated with the lower tenant risk.  Or stay our of RE.  What I am against is the LL who has been receiving rent appropriate for the amount of risk, crying up a river when the risk comes and bites them.

Now that the explanation is out of the way on to the questions: I believe LL do raise rents with increased salary or bonus.  It may not be the moment of the raise or the bonus, but the statistics show that it has occurred for decades in coastal So Cal.  It is referred to as market rent.  For the bad times, the LL has already been compensated for the bad times.  Again it is referred to as market rent.  The market rent has built into it the associated risk factors including the risk of non-payment due to prolonged job loss.

Originally posted by @John Clark :

Oh, but I do agree as to those who have a knowing intention "to NEVER pay." I just want to see if you extend the same label to established corporations pulling the same stunt. Now stop evading, and for the love of God, stop whining: Is Cheesecake Factory a den of thieves or not?

FYI, Cheesecake Factory said they were not paying April rent due to their cash position. They are basically hoarding their cash along with drawing from a LOC to make sure they have the funds to continue operations when the time is clear. They also stated that they hope to work with their landlords on their rent payments. I've not seen a single article mention that they never intend to pay the April rent, but rather they want to work with landlords, paying the rent when their cash flow is back to normal.

Also, one thing that is very different from Cheesecake Factory and a normal apartment tenant is that CF is an anchor location. They are a big draw for a mall. They can be worth more to the landlord that their actual rent. 

@Heather Frusco I have contacted my lien holders and ALL have agreed to forebearance for 90 to 180 days.

I don’t like to accept less than the full amount of rent but many of my tenants are experiencing lost wages of between 40 and 100%....unfortunately most/all have NO cushion or credit cards or rich relatives to borrow from.

As a result, I am deferring a portion of the rent due commensurate with the income they have lost during the next 30 days. Hopefully in that time, some of the government programs will kick into gear and provide them with additional income.

At the end of 30 days I will reassess the overall situation and determine my stance going forward.

Best of luck to all and be safe!

"FYI, Cheesecake Factory said they were not paying April rent due to their cash position. They are basically hoarding their cash along with drawing from a LOC to make sure they have the funds to continue operations when the time is clear"

------------------------------------

So let's break this down, Greg. CF is deliberately not paying rent, borrowing money without income, AND has never said that it would pay the April rent at any time. It also spent money on dividends (frittering away money better used in reserves?) and paying exhorbitant (sp) salaries (2 million to the CEO).

By the way -- cheesecake factory is never an anchor tenant -- physical footprint is too small.

I just want Heather to admit that if non-paying tenant humans are thieves (her word was shoplifters), then non-paying tenant corporations are thieves, too. So far she's running away from her own words. Not the hallmark of a mature, intelligent, person.

@John Clark I'm sorry sir but if you are not able to realize that using a paid service without intending to pay for it, is wrong... don't really know what you would like anyone to say... I've got a tip for you... it's wrong. Something which you should have deduced from reading my original post. I'm not trying to offend you but your analogy/example not only does it not apply here... but no one really knows what you're referring to or what the basis of your argument is... which is why I'm one of the only here which has at least entertained your posts. So for the record John, and again not trying to offend you but if the my original post was not clear enough... if you are continuing to use a service with the known intention of not paying it back... it's wrong... extrapolate it out and apply it universally. Hope that helps you connect the dots. 

i'm glad to see most the replies aren't ice cold.  I'd also like to ask the question, how many people do you think are out looking for a place right now?  I'd guess damn few.  The unemployment line grows.  Those that can afford a roof over their head are trying to stay under it as much as possible and away from the 'infected.'  Even if you could boot a tenant, I don't think you'd have the best luck finding a quality one at the moment. 

Originally posted by @Greg M. :
Originally posted by @Mary Mitchell:

Yeah, more greedy landlord comments. Lets be sure to look like total asses to the world during this human crises. 

Eta: the govt is going to be the lender/payer of last resort - my guess is that all those that make snarky "comrade" comments will have no problem eating at the emergency fund trough - or, maybe you will be sending your cash the govt is sending back? When you do that, then lets talk :)

You're funny! The gas station charges full price during this human crisis and they aren't greedy. The supermarket charges full price during this human crisis and they aren't greedy. The dry cleaner charges full price during this human crisis and they aren't greedy. My pool guy charges full price during this human crisis and he isn't greedy. The landlord charges full price during this human crisis and ****ing mother****er, greedy son of a ***** deserves to die. 

Sorry, but I'm not getting a discount anywhere on my purchases. Not sure why I should be giving them out. Enjoy your 5 Star Yelp reviews. Maybe your family can eat them when hungry. 

And yes, I will be happy to take payment from the government for anything and everything. Because unlike around half of the people in this country, I pay taxes. I send the government well into six figures every year. So yeah, if they're handing out free cash I'll take some of my money back. 

Each of those trades have different risks.  For example during the fuel embargo gas stations had a lot less gas to sell but the government, after the prices started to sky rocket, capped gas prices.   Gas stations lost money, their supply was limited but they could not charge enough to reflect the lacking supply (for the same reason that on cannot charge $100 for hand sanitizer now - It is considered gouging).  It was a supply side risk.  Ideally this risk was reflected in every gallon of gas that was sold prior to the risk manifesting.  It is part of risk management.  You make sure that you can handle the risks (ideally reduce the risk (in RE terms this would be done by renting in higher class areas) and to overcome the risk (in LL this could be via reserves)).

To place the LL risks onto occupations that do not share the same risks is not a great analogy.  It is akin to expect LL to reduce rent on the gas station owners during the fuel embargo.  LL should know the risks and be prepared to deal with them.  Similarly the gas station owner should know the risks (supply risks, EPA risks, zoning risks, etc.) and be prepared to deal with them.

The pool guy and the dry cleaner have risks associated with the economy.  If I am laid off, I do not use a pool guy or wear clothes that requires dry cleaning.  Most businesses have risks, but they vary from business to business.  The pool guy services are not a necessity so he looses work/income.  Housing is a necessity.  I think we all knew this.  We cannot simply take away the housing on a large percentage of the population (3.3M seeking unemployment).

Originally posted by @Chris Dress :

@Heather Frusco I have contacted my lien holders and ALL have agreed to forebearance for 90 to 180 days.

I don’t like to accept less than the full amount of rent but many of my tenants are experiencing lost wages of between 40 and 100%....unfortunately most/all have NO cushion or credit cards or rich relatives to borrow from.

As a result, I am deferring a portion of the rent due commensurate with the income they have lost during the next 30 days. Hopefully in that time, some of the government programs will kick into gear and provide them with additional income.

At the end of 30 days I will reassess the overall situation and determine my stance going forward.

Best of luck to all and be safe!

this is great news for borrowers it really is.. and I have to say most humbly I got shouted down 3 weeks ago from folks thinking the lenders would not work with them.. I felt strongly they dont want a repeat of 08 to 2011.. this will be the norm now..  PHEW thats going to save a lot of folks bacon. 

 

Originally posted by @Heather Frusco :
Originally posted by @John Clark:

"If you say so John. Silly us for giving tenants the option to make ends meet by allowing them to pay with a credit card and absorbing the processing fees. "

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And if they refuse, Heather, you call them thieves. Now stop singing and dancing and evading the question. Are you going to boycott Cheesecake Factory for being a den of thieves? If not, why not? Its CEO made a deliberate decision to not pay rent.

John, don't really know what you're talking about... but there is no Cheesecake Factory where I am... way overrated. And again, CC is an option that Tenants fortunate enough have available during an emergency or you can certainly try to seek financial assistance from the govt. or you can seek a personal loan or you can ask family and friends for assistance or you can downsize all together. Hope that helps. 

 

I'm totally with Heather.  Heck, as a LL I've charged funds on a credit card to acquire a house to rent. Not hundreds or thousands, but tens of thousands of dollars. All on the faith I could make it work.

After twenty years of scrimping and saving and hustling and remodeling and borrowing I no longer need to, thankfully.

But to suggest asking a tenant to use a credit card for a bridge loan for a month is immoral. Give me a break. Much better to pay your rent with it then a 60 inch TV or Door Dash. 2 of my tenants favorites.

 

Originally posted by @Dan Heuschele :
Originally posted by @Heather Frusco:
Originally posted by @Dan Heuschele:
Originally posted by @Greg M.:
Originally posted by @Mary Mitchell:

Howabout the idea that everyone should share in the pain equally??  

Well Comrade Mary, sharing the pain equally would reward those who failed to prepare/sacrifice and punish those that did prepare/sacrifice. 

I sacrificed to buy a unit. I pay to keep it in habitable condition. I sacrificed to build up reserves so that a rent interruption or major capital expense will not affect my ability to maintain ownership of the unit (and therefore allow you to continue to live there) or its habitability. The fact that you as a renter did not sacrifice and save and now are in pain is not a reason to try and have me share your pain. 

Renting is a business transaction. We rent a place for market price. Pretty simple. Now if a landlord is going to share in the pain during bad times, shouldn't they also share in the reward when times are good? Right, Comrade, we want equality! So if I as a landlord should take 50% of the market rent for the next 3 months because times are bad for you, shouldn't I be entitled to more when times are good for you?

I'm sure you are aware of the Fight For $15 movement. A lot of people here went from $12/hr to $15/hr. Should I as a landlord get a 25% bump in rent because the tenant got a 25% raise? Seems fair to share in the good times...

>A lot of people here went from $12/hr to $15/hr. Should I as a landlord get a 25% bump in rent because the tenant got a 25% raise? Seems fair to share in the good times...

If you are charging market rent, you already are sharing in the good times plus quite a bit (you had a greater share of the good times than those who are earning minimum wage).  The average rent has increased much faster than minimum wage and average wage for virtually any long term time span in Los Angeles.  The amount of household income going towards rent is near the all time high and this includes going back to when most households were single earner families.  This implies not only has rent gone up faster than wages, but it has gone up enough faster than wages that it has been able to overcome the increase in average number of wage earners per family.

In my market (San Diego), average rent has increased almost $500 over the previous 3 years.  Your comment seems to imply that low end workers should somehow be able to continue to pay for rent post increase on the same minimum salary that was in place when rent was $500/month less.

Dan, no need to backpedal out of it now... you personally... should the landlord then raise rent on you personally, when you get a bonus or get a pay raise at your job? -- Greg, makes a great point for all those looking for LL's to 'share' in the bad times, if that's the case should a Tenant then also 'share' with the LL in the good times. Looking forward to the answer.  

In coastal So Cal the LL have had years of good times.  The rents have increased faster than inflation, minimum wage, and average salary.  Did they share with the tenants?  Admittedly many have by charging below market rent because, even charging below market rent, the returns have been great.  But not all LL passed the good times to the tenants and I really do not expect the LL to have charged below market rent to the tenants to share the good times.  I think charging below market rent beyond what is financially advantageous (such as to keep good tenants) is poor business.

Similarly, being a LL is a business.  Businesses should 1) build reserves 2) should know risks.  In the case of a LL, the extent of likely tenant reserves.  The LL is typically compensated for this higher risk.  It is one reason that rent to value ratios are higher in lower class/poorer areas than in more affluent/higher class areas.  

We have LTR rentals from C to B+ class areas (We have 2 STRs in a class A area) with a majority being in the C class.  I expect the C class tenants will have less reserves and therefore more difficulty making rent than the B class tenants (but ironically only 2 tenants have talked to us about potential issues and one was from a B class unit)when they loose their jobs.   The point is the rent reflects the risk.  C class have higher rent to RE value in part because most of the tenants do not have the reserves to handle layoffs for an extended period of time and the LL is compensated monthly for this higher level of risk.

None of our tenants that fall behind in rent will be getting evicted.  Not now, not later.  Not because evictions are currently banned, but because it 1) I consider it immoral 2) I know the level of reserves my tenants have and took on the known risk when I purchase and rented in class C areas.  I have been compensated for this risk every month for years.  3) I have built up the reserves to be able to cover the rents for a protracted time 4) I am not over leveraged (very related to #3).

Every LL should have 6 months reserve.  Every financial planner would indicate this.  If you do not, then you are over extended per what virtually any financial planner would indicate.  Every LL should know and understand the risks of their investments including the likely reserves of their tenants.  If you want to reduce the risk of tenants not paying then purchase class A RE and accept the lower reward that is associated with the lower tenant risk.  Or stay our of RE.  What I am against is the LL who has been receiving rent appropriate for the amount of risk, crying up a river when the risk comes and bites them.

Now that the explanation is out of the way on to the questions: I believe LL do raise rents with increased salary or bonus.  It may not be the moment of the raise or the bonus, but the statistics show that it has occurred for decades in coastal So Cal.  It is referred to as market rent.  For the bad times, the LL has already been compensated for the bad times.  Again it is referred to as market rent.  The market rent has built into it the associated risk factors including the risk of non-payment due to prolonged job loss.

 Dan,

You buy in "C" class areas, but find evictions immoral? Do you find it immoral when a tenant destroys your property? Or is that ok because of the greater risk and return of "C" class as well. California is definitely in a world of it's own.

@Gary L Wallman I think there is a disconnect in this thread that keeps popping up. The thread title by the OP is discussing collecting rents in the context of the covid 19 pandemic. I don’t think anyone is arguing evictions are across the board immoral or that standard real estate investing protocol is inherently bad...but business as usual in the midst of a global pandemic and economic meltdown where our actions might make someone’s bad situation much much worse is a different story. 

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.

Originally posted by @Gary L Wallman :
Originally posted by @Dan Heuschele:
Originally posted by @Heather Frusco:
Originally posted by @Dan Heuschele:
Originally posted by @Greg M.:
Originally posted by @Mary Mitchell:

Howabout the idea that everyone should share in the pain equally??  

Well Comrade Mary, sharing the pain equally would reward those who failed to prepare/sacrifice and punish those that did prepare/sacrifice. 

I sacrificed to buy a unit. I pay to keep it in habitable condition. I sacrificed to build up reserves so that a rent interruption or major capital expense will not affect my ability to maintain ownership of the unit (and therefore allow you to continue to live there) or its habitability. The fact that you as a renter did not sacrifice and save and now are in pain is not a reason to try and have me share your pain. 

Renting is a business transaction. We rent a place for market price. Pretty simple. Now if a landlord is going to share in the pain during bad times, shouldn't they also share in the reward when times are good? Right, Comrade, we want equality! So if I as a landlord should take 50% of the market rent for the next 3 months because times are bad for you, shouldn't I be entitled to more when times are good for you?

I'm sure you are aware of the Fight For $15 movement. A lot of people here went from $12/hr to $15/hr. Should I as a landlord get a 25% bump in rent because the tenant got a 25% raise? Seems fair to share in the good times...

>A lot of people here went from $12/hr to $15/hr. Should I as a landlord get a 25% bump in rent because the tenant got a 25% raise? Seems fair to share in the good times...

If you are charging market rent, you already are sharing in the good times plus quite a bit (you had a greater share of the good times than those who are earning minimum wage).  The average rent has increased much faster than minimum wage and average wage for virtually any long term time span in Los Angeles.  The amount of household income going towards rent is near the all time high and this includes going back to when most households were single earner families.  This implies not only has rent gone up faster than wages, but it has gone up enough faster than wages that it has been able to overcome the increase in average number of wage earners per family.

In my market (San Diego), average rent has increased almost $500 over the previous 3 years.  Your comment seems to imply that low end workers should somehow be able to continue to pay for rent post increase on the same minimum salary that was in place when rent was $500/month less.

Dan, no need to backpedal out of it now... you personally... should the landlord then raise rent on you personally, when you get a bonus or get a pay raise at your job? -- Greg, makes a great point for all those looking for LL's to 'share' in the bad times, if that's the case should a Tenant then also 'share' with the LL in the good times. Looking forward to the answer.  

In coastal So Cal the LL have had years of good times.  The rents have increased faster than inflation, minimum wage, and average salary.  Did they share with the tenants?  Admittedly many have by charging below market rent because, even charging below market rent, the returns have been great.  But not all LL passed the good times to the tenants and I really do not expect the LL to have charged below market rent to the tenants to share the good times.  I think charging below market rent beyond what is financially advantageous (such as to keep good tenants) is poor business.

Similarly, being a LL is a business.  Businesses should 1) build reserves 2) should know risks.  In the case of a LL, the extent of likely tenant reserves.  The LL is typically compensated for this higher risk.  It is one reason that rent to value ratios are higher in lower class/poorer areas than in more affluent/higher class areas.  

We have LTR rentals from C to B+ class areas (We have 2 STRs in a class A area) with a majority being in the C class.  I expect the C class tenants will have less reserves and therefore more difficulty making rent than the B class tenants (but ironically only 2 tenants have talked to us about potential issues and one was from a B class unit)when they loose their jobs.   The point is the rent reflects the risk.  C class have higher rent to RE value in part because most of the tenants do not have the reserves to handle layoffs for an extended period of time and the LL is compensated monthly for this higher level of risk.

None of our tenants that fall behind in rent will be getting evicted.  Not now, not later.  Not because evictions are currently banned, but because it 1) I consider it immoral 2) I know the level of reserves my tenants have and took on the known risk when I purchase and rented in class C areas.  I have been compensated for this risk every month for years.  3) I have built up the reserves to be able to cover the rents for a protracted time 4) I am not over leveraged (very related to #3).

Every LL should have 6 months reserve.  Every financial planner would indicate this.  If you do not, then you are over extended per what virtually any financial planner would indicate.  Every LL should know and understand the risks of their investments including the likely reserves of their tenants.  If you want to reduce the risk of tenants not paying then purchase class A RE and accept the lower reward that is associated with the lower tenant risk.  Or stay our of RE.  What I am against is the LL who has been receiving rent appropriate for the amount of risk, crying up a river when the risk comes and bites them.

Now that the explanation is out of the way on to the questions: I believe LL do raise rents with increased salary or bonus.  It may not be the moment of the raise or the bonus, but the statistics show that it has occurred for decades in coastal So Cal.  It is referred to as market rent.  For the bad times, the LL has already been compensated for the bad times.  Again it is referred to as market rent.  The market rent has built into it the associated risk factors including the risk of non-payment due to prolonged job loss.

 Dan,

You buy in "C" class areas, but find evictions immoral? Do you find it immoral when a tenant destroys your property? Or is that ok because of the greater risk and return of "C" class as well. California is definitely in a world of it's own.

I just got off the phone with a bizz partner of mine who has 150 units in two buildings in the northwest.. His PM contacted him and told to him to expect 40% non pay for April. Hoping its not that bad.. but the PM is warning owners. this is B class 1100 a door apartments.

I think its going to be all across the board come april.  some will have no issues others might experience what this PM is warning his owners.

 

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

Originally posted by @Gary L Wallman :
Originally posted by @Dan Heuschele:
Originally posted by @Heather Frusco:
Originally posted by @Dan Heuschele:
Originally posted by @Greg M.:
Originally posted by @Mary Mitchell:

Howabout the idea that everyone should share in the pain equally??  

Well Comrade Mary, sharing the pain equally would reward those who failed to prepare/sacrifice and punish those that did prepare/sacrifice. 

I sacrificed to buy a unit. I pay to keep it in habitable condition. I sacrificed to build up reserves so that a rent interruption or major capital expense will not affect my ability to maintain ownership of the unit (and therefore allow you to continue to live there) or its habitability. The fact that you as a renter did not sacrifice and save and now are in pain is not a reason to try and have me share your pain. 

Renting is a business transaction. We rent a place for market price. Pretty simple. Now if a landlord is going to share in the pain during bad times, shouldn't they also share in the reward when times are good? Right, Comrade, we want equality! So if I as a landlord should take 50% of the market rent for the next 3 months because times are bad for you, shouldn't I be entitled to more when times are good for you?

I'm sure you are aware of the Fight For $15 movement. A lot of people here went from $12/hr to $15/hr. Should I as a landlord get a 25% bump in rent because the tenant got a 25% raise? Seems fair to share in the good times...

>A lot of people here went from $12/hr to $15/hr. Should I as a landlord get a 25% bump in rent because the tenant got a 25% raise? Seems fair to share in the good times...

If you are charging market rent, you already are sharing in the good times plus quite a bit (you had a greater share of the good times than those who are earning minimum wage).  The average rent has increased much faster than minimum wage and average wage for virtually any long term time span in Los Angeles.  The amount of household income going towards rent is near the all time high and this includes going back to when most households were single earner families.  This implies not only has rent gone up faster than wages, but it has gone up enough faster than wages that it has been able to overcome the increase in average number of wage earners per family.

In my market (San Diego), average rent has increased almost $500 over the previous 3 years.  Your comment seems to imply that low end workers should somehow be able to continue to pay for rent post increase on the same minimum salary that was in place when rent was $500/month less.

Dan, no need to backpedal out of it now... you personally... should the landlord then raise rent on you personally, when you get a bonus or get a pay raise at your job? -- Greg, makes a great point for all those looking for LL's to 'share' in the bad times, if that's the case should a Tenant then also 'share' with the LL in the good times. Looking forward to the answer.  

In coastal So Cal the LL have had years of good times.  The rents have increased faster than inflation, minimum wage, and average salary.  Did they share with the tenants?  Admittedly many have by charging below market rent because, even charging below market rent, the returns have been great.  But not all LL passed the good times to the tenants and I really do not expect the LL to have charged below market rent to the tenants to share the good times.  I think charging below market rent beyond what is financially advantageous (such as to keep good tenants) is poor business.

Similarly, being a LL is a business.  Businesses should 1) build reserves 2) should know risks.  In the case of a LL, the extent of likely tenant reserves.  The LL is typically compensated for this higher risk.  It is one reason that rent to value ratios are higher in lower class/poorer areas than in more affluent/higher class areas.  

We have LTR rentals from C to B+ class areas (We have 2 STRs in a class A area) with a majority being in the C class.  I expect the C class tenants will have less reserves and therefore more difficulty making rent than the B class tenants (but ironically only 2 tenants have talked to us about potential issues and one was from a B class unit)when they loose their jobs.   The point is the rent reflects the risk.  C class have higher rent to RE value in part because most of the tenants do not have the reserves to handle layoffs for an extended period of time and the LL is compensated monthly for this higher level of risk.

None of our tenants that fall behind in rent will be getting evicted.  Not now, not later.  Not because evictions are currently banned, but because it 1) I consider it immoral 2) I know the level of reserves my tenants have and took on the known risk when I purchase and rented in class C areas.  I have been compensated for this risk every month for years.  3) I have built up the reserves to be able to cover the rents for a protracted time 4) I am not over leveraged (very related to #3).

Every LL should have 6 months reserve.  Every financial planner would indicate this.  If you do not, then you are over extended per what virtually any financial planner would indicate.  Every LL should know and understand the risks of their investments including the likely reserves of their tenants.  If you want to reduce the risk of tenants not paying then purchase class A RE and accept the lower reward that is associated with the lower tenant risk.  Or stay our of RE.  What I am against is the LL who has been receiving rent appropriate for the amount of risk, crying up a river when the risk comes and bites them.

Now that the explanation is out of the way on to the questions: I believe LL do raise rents with increased salary or bonus.  It may not be the moment of the raise or the bonus, but the statistics show that it has occurred for decades in coastal So Cal.  It is referred to as market rent.  For the bad times, the LL has already been compensated for the bad times.  Again it is referred to as market rent.  The market rent has built into it the associated risk factors including the risk of non-payment due to prolonged job loss.

 Dan,

You buy in "C" class areas, but find evictions immoral? Do you find it immoral when a tenant destroys your property? Or is that ok because of the greater risk and return of "C" class as well. California is definitely in a world of it's own.

I never said I find evictions immoral.  I find evicting someone that can not pay rent due to the Wuhan virus (I prefer to call it by its source over how it looks) to be immoral.

We screen very well.  In many years of being a LL, we have had 2 LTRs with heavy damage (and one of those was a B class).  I charged them appropriately for the damages.  

Your analogy though is highly suspect.  In the one case, a tenant causes heavy damage and is responsible for the damage.  The other case is the result of an issue that resulted in a 3M increase to unemployment in one month (from ~0.3M to ~3.3M).   There may be some people who deserve some blame, but it is not the majority of these people.  So your analogy is to compare/contrast an item that the tenant is 100% responsible for with an item that the tenant has minimal responsibility (I use the word minimal because ideally everyone builds reserves, but it is very challenging for a class C tenant to build reserves).  I suspect you can see the flaw in the analogy.  If not, I cannot help.

Good luck

Originally posted by @Jay Hinrichs :
Originally posted by @Gary L Wallman:
Originally posted by @Dan Heuschele:
Originally posted by @Heather Frusco:
Originally posted by @Dan Heuschele:
Originally posted by @Greg M.:
Originally posted by @Mary Mitchell:

Howabout the idea that everyone should share in the pain equally??  

Well Comrade Mary, sharing the pain equally would reward those who failed to prepare/sacrifice and punish those that did prepare/sacrifice. 

I sacrificed to buy a unit. I pay to keep it in habitable condition. I sacrificed to build up reserves so that a rent interruption or major capital expense will not affect my ability to maintain ownership of the unit (and therefore allow you to continue to live there) or its habitability. The fact that you as a renter did not sacrifice and save and now are in pain is not a reason to try and have me share your pain. 

Renting is a business transaction. We rent a place for market price. Pretty simple. Now if a landlord is going to share in the pain during bad times, shouldn't they also share in the reward when times are good? Right, Comrade, we want equality! So if I as a landlord should take 50% of the market rent for the next 3 months because times are bad for you, shouldn't I be entitled to more when times are good for you?

I'm sure you are aware of the Fight For $15 movement. A lot of people here went from $12/hr to $15/hr. Should I as a landlord get a 25% bump in rent because the tenant got a 25% raise? Seems fair to share in the good times...

>A lot of people here went from $12/hr to $15/hr. Should I as a landlord get a 25% bump in rent because the tenant got a 25% raise? Seems fair to share in the good times...

If you are charging market rent, you already are sharing in the good times plus quite a bit (you had a greater share of the good times than those who are earning minimum wage).  The average rent has increased much faster than minimum wage and average wage for virtually any long term time span in Los Angeles.  The amount of household income going towards rent is near the all time high and this includes going back to when most households were single earner families.  This implies not only has rent gone up faster than wages, but it has gone up enough faster than wages that it has been able to overcome the increase in average number of wage earners per family.

In my market (San Diego), average rent has increased almost $500 over the previous 3 years.  Your comment seems to imply that low end workers should somehow be able to continue to pay for rent post increase on the same minimum salary that was in place when rent was $500/month less.

Dan, no need to backpedal out of it now... you personally... should the landlord then raise rent on you personally, when you get a bonus or get a pay raise at your job? -- Greg, makes a great point for all those looking for LL's to 'share' in the bad times, if that's the case should a Tenant then also 'share' with the LL in the good times. Looking forward to the answer.  

In coastal So Cal the LL have had years of good times.  The rents have increased faster than inflation, minimum wage, and average salary.  Did they share with the tenants?  Admittedly many have by charging below market rent because, even charging below market rent, the returns have been great.  But not all LL passed the good times to the tenants and I really do not expect the LL to have charged below market rent to the tenants to share the good times.  I think charging below market rent beyond what is financially advantageous (such as to keep good tenants) is poor business.

Similarly, being a LL is a business.  Businesses should 1) build reserves 2) should know risks.  In the case of a LL, the extent of likely tenant reserves.  The LL is typically compensated for this higher risk.  It is one reason that rent to value ratios are higher in lower class/poorer areas than in more affluent/higher class areas.  

We have LTR rentals from C to B+ class areas (We have 2 STRs in a class A area) with a majority being in the C class.  I expect the C class tenants will have less reserves and therefore more difficulty making rent than the B class tenants (but ironically only 2 tenants have talked to us about potential issues and one was from a B class unit)when they loose their jobs.   The point is the rent reflects the risk.  C class have higher rent to RE value in part because most of the tenants do not have the reserves to handle layoffs for an extended period of time and the LL is compensated monthly for this higher level of risk.

None of our tenants that fall behind in rent will be getting evicted.  Not now, not later.  Not because evictions are currently banned, but because it 1) I consider it immoral 2) I know the level of reserves my tenants have and took on the known risk when I purchase and rented in class C areas.  I have been compensated for this risk every month for years.  3) I have built up the reserves to be able to cover the rents for a protracted time 4) I am not over leveraged (very related to #3).

Every LL should have 6 months reserve.  Every financial planner would indicate this.  If you do not, then you are over extended per what virtually any financial planner would indicate.  Every LL should know and understand the risks of their investments including the likely reserves of their tenants.  If you want to reduce the risk of tenants not paying then purchase class A RE and accept the lower reward that is associated with the lower tenant risk.  Or stay our of RE.  What I am against is the LL who has been receiving rent appropriate for the amount of risk, crying up a river when the risk comes and bites them.

Now that the explanation is out of the way on to the questions: I believe LL do raise rents with increased salary or bonus.  It may not be the moment of the raise or the bonus, but the statistics show that it has occurred for decades in coastal So Cal.  It is referred to as market rent.  For the bad times, the LL has already been compensated for the bad times.  Again it is referred to as market rent.  The market rent has built into it the associated risk factors including the risk of non-payment due to prolonged job loss.

 Dan,

You buy in "C" class areas, but find evictions immoral? Do you find it immoral when a tenant destroys your property? Or is that ok because of the greater risk and return of "C" class as well. California is definitely in a world of it's own.

I just got off the phone with a bizz partner of mine who has 150 units in two buildings in the northwest.. His PM contacted him and told to him to expect 40% non pay for April. Hoping its not that bad.. but the PM is warning owners. this is B class 1100 a door apartments.

I think its going to be all across the board come april.  some will have no issues others might experience what this PM is warning his owners.

 

40% seems insanely high for B class. I am not disputing the number it just does not jive with B class as I imagined. 

 

Originally posted by @Dan Heuschele :
Originally posted by @Gary L Wallman:
Originally posted by @Dan Heuschele:
Originally posted by @Heather Frusco:
Originally posted by @Dan Heuschele:
Originally posted by @Greg M.:
Originally posted by @Mary Mitchell:

Howabout the idea that everyone should share in the pain equally??  

Well Comrade Mary, sharing the pain equally would reward those who failed to prepare/sacrifice and punish those that did prepare/sacrifice. 

I sacrificed to buy a unit. I pay to keep it in habitable condition. I sacrificed to build up reserves so that a rent interruption or major capital expense will not affect my ability to maintain ownership of the unit (and therefore allow you to continue to live there) or its habitability. The fact that you as a renter did not sacrifice and save and now are in pain is not a reason to try and have me share your pain. 

Renting is a business transaction. We rent a place for market price. Pretty simple. Now if a landlord is going to share in the pain during bad times, shouldn't they also share in the reward when times are good? Right, Comrade, we want equality! So if I as a landlord should take 50% of the market rent for the next 3 months because times are bad for you, shouldn't I be entitled to more when times are good for you?

I'm sure you are aware of the Fight For $15 movement. A lot of people here went from $12/hr to $15/hr. Should I as a landlord get a 25% bump in rent because the tenant got a 25% raise? Seems fair to share in the good times...

>A lot of people here went from $12/hr to $15/hr. Should I as a landlord get a 25% bump in rent because the tenant got a 25% raise? Seems fair to share in the good times...

If you are charging market rent, you already are sharing in the good times plus quite a bit (you had a greater share of the good times than those who are earning minimum wage).  The average rent has increased much faster than minimum wage and average wage for virtually any long term time span in Los Angeles.  The amount of household income going towards rent is near the all time high and this includes going back to when most households were single earner families.  This implies not only has rent gone up faster than wages, but it has gone up enough faster than wages that it has been able to overcome the increase in average number of wage earners per family.

In my market (San Diego), average rent has increased almost $500 over the previous 3 years.  Your comment seems to imply that low end workers should somehow be able to continue to pay for rent post increase on the same minimum salary that was in place when rent was $500/month less.

Dan, no need to backpedal out of it now... you personally... should the landlord then raise rent on you personally, when you get a bonus or get a pay raise at your job? -- Greg, makes a great point for all those looking for LL's to 'share' in the bad times, if that's the case should a Tenant then also 'share' with the LL in the good times. Looking forward to the answer.  

In coastal So Cal the LL have had years of good times.  The rents have increased faster than inflation, minimum wage, and average salary.  Did they share with the tenants?  Admittedly many have by charging below market rent because, even charging below market rent, the returns have been great.  But not all LL passed the good times to the tenants and I really do not expect the LL to have charged below market rent to the tenants to share the good times.  I think charging below market rent beyond what is financially advantageous (such as to keep good tenants) is poor business.

Similarly, being a LL is a business.  Businesses should 1) build reserves 2) should know risks.  In the case of a LL, the extent of likely tenant reserves.  The LL is typically compensated for this higher risk.  It is one reason that rent to value ratios are higher in lower class/poorer areas than in more affluent/higher class areas.  

We have LTR rentals from C to B+ class areas (We have 2 STRs in a class A area) with a majority being in the C class.  I expect the C class tenants will have less reserves and therefore more difficulty making rent than the B class tenants (but ironically only 2 tenants have talked to us about potential issues and one was from a B class unit)when they loose their jobs.   The point is the rent reflects the risk.  C class have higher rent to RE value in part because most of the tenants do not have the reserves to handle layoffs for an extended period of time and the LL is compensated monthly for this higher level of risk.

None of our tenants that fall behind in rent will be getting evicted.  Not now, not later.  Not because evictions are currently banned, but because it 1) I consider it immoral 2) I know the level of reserves my tenants have and took on the known risk when I purchase and rented in class C areas.  I have been compensated for this risk every month for years.  3) I have built up the reserves to be able to cover the rents for a protracted time 4) I am not over leveraged (very related to #3).

Every LL should have 6 months reserve.  Every financial planner would indicate this.  If you do not, then you are over extended per what virtually any financial planner would indicate.  Every LL should know and understand the risks of their investments including the likely reserves of their tenants.  If you want to reduce the risk of tenants not paying then purchase class A RE and accept the lower reward that is associated with the lower tenant risk.  Or stay our of RE.  What I am against is the LL who has been receiving rent appropriate for the amount of risk, crying up a river when the risk comes and bites them.

Now that the explanation is out of the way on to the questions: I believe LL do raise rents with increased salary or bonus.  It may not be the moment of the raise or the bonus, but the statistics show that it has occurred for decades in coastal So Cal.  It is referred to as market rent.  For the bad times, the LL has already been compensated for the bad times.  Again it is referred to as market rent.  The market rent has built into it the associated risk factors including the risk of non-payment due to prolonged job loss.

 Dan,

You buy in "C" class areas, but find evictions immoral? Do you find it immoral when a tenant destroys your property? Or is that ok because of the greater risk and return of "C" class as well. California is definitely in a world of it's own.

I never said I find evictions immoral.  I find evicting someone that can not pay rent due to the Wuhan virus (I prefer to call it by its source over how it looks) to be immoral.

We screen very well.  In many years of being a LL, we have had 2 LTRs with heavy damage (and one of those was a B class).  I charged them appropriately for the damages.  

Your analogy though is highly suspect.  In the one case, a tenant causes heavy damage and is responsible for the damage.  The other case is the result of an issue that resulted in a 3M increase to unemployment in one month (from ~0.3M to ~3.3M).   There may be some people who deserve some blame, but it is not the majority of these people.  So your analogy is to compare/contrast an item that the tenant is 100% responsible for with an item that the tenant has minimal responsibility (I use the word minimal because ideally everyone builds reserves, but it is very challenging for a class C tenant to build reserves).  I suspect you can see the flaw in the analogy.  If not, I cannot help.

Good luck

Dan,

I think my analogy is spot on. People don't not pay you due to the virus.  They don't pay you because of their lack of reserves. The same lack of reserves you rail to landlords about not having in sufficient quantity and expect them to give away. I'm sure if any LL's tenants actually contracted this virus, we'd be more then happy to carry them for 3 or 4 months.

Gary

 

Originally posted by @Matt R. :
Originally posted by @Jay Hinrichs:
Originally posted by @Gary L Wallman:
Originally posted by @Dan Heuschele:
Originally posted by @Heather Frusco:
Originally posted by @Dan Heuschele:
Originally posted by @Greg M.:
Originally posted by @Mary Mitchell:

Howabout the idea that everyone should share in the pain equally??  

Well Comrade Mary, sharing the pain equally would reward those who failed to prepare/sacrifice and punish those that did prepare/sacrifice. 

I sacrificed to buy a unit. I pay to keep it in habitable condition. I sacrificed to build up reserves so that a rent interruption or major capital expense will not affect my ability to maintain ownership of the unit (and therefore allow you to continue to live there) or its habitability. The fact that you as a renter did not sacrifice and save and now are in pain is not a reason to try and have me share your pain. 

Renting is a business transaction. We rent a place for market price. Pretty simple. Now if a landlord is going to share in the pain during bad times, shouldn't they also share in the reward when times are good? Right, Comrade, we want equality! So if I as a landlord should take 50% of the market rent for the next 3 months because times are bad for you, shouldn't I be entitled to more when times are good for you?

I'm sure you are aware of the Fight For $15 movement. A lot of people here went from $12/hr to $15/hr. Should I as a landlord get a 25% bump in rent because the tenant got a 25% raise? Seems fair to share in the good times...

>A lot of people here went from $12/hr to $15/hr. Should I as a landlord get a 25% bump in rent because the tenant got a 25% raise? Seems fair to share in the good times...

If you are charging market rent, you already are sharing in the good times plus quite a bit (you had a greater share of the good times than those who are earning minimum wage).  The average rent has increased much faster than minimum wage and average wage for virtually any long term time span in Los Angeles.  The amount of household income going towards rent is near the all time high and this includes going back to when most households were single earner families.  This implies not only has rent gone up faster than wages, but it has gone up enough faster than wages that it has been able to overcome the increase in average number of wage earners per family.

In my market (San Diego), average rent has increased almost $500 over the previous 3 years.  Your comment seems to imply that low end workers should somehow be able to continue to pay for rent post increase on the same minimum salary that was in place when rent was $500/month less.

Dan, no need to backpedal out of it now... you personally... should the landlord then raise rent on you personally, when you get a bonus or get a pay raise at your job? -- Greg, makes a great point for all those looking for LL's to 'share' in the bad times, if that's the case should a Tenant then also 'share' with the LL in the good times. Looking forward to the answer.  

In coastal So Cal the LL have had years of good times.  The rents have increased faster than inflation, minimum wage, and average salary.  Did they share with the tenants?  Admittedly many have by charging below market rent because, even charging below market rent, the returns have been great.  But not all LL passed the good times to the tenants and I really do not expect the LL to have charged below market rent to the tenants to share the good times.  I think charging below market rent beyond what is financially advantageous (such as to keep good tenants) is poor business.

Similarly, being a LL is a business.  Businesses should 1) build reserves 2) should know risks.  In the case of a LL, the extent of likely tenant reserves.  The LL is typically compensated for this higher risk.  It is one reason that rent to value ratios are higher in lower class/poorer areas than in more affluent/higher class areas.  

We have LTR rentals from C to B+ class areas (We have 2 STRs in a class A area) with a majority being in the C class.  I expect the C class tenants will have less reserves and therefore more difficulty making rent than the B class tenants (but ironically only 2 tenants have talked to us about potential issues and one was from a B class unit)when they loose their jobs.   The point is the rent reflects the risk.  C class have higher rent to RE value in part because most of the tenants do not have the reserves to handle layoffs for an extended period of time and the LL is compensated monthly for this higher level of risk.

None of our tenants that fall behind in rent will be getting evicted.  Not now, not later.  Not because evictions are currently banned, but because it 1) I consider it immoral 2) I know the level of reserves my tenants have and took on the known risk when I purchase and rented in class C areas.  I have been compensated for this risk every month for years.  3) I have built up the reserves to be able to cover the rents for a protracted time 4) I am not over leveraged (very related to #3).

Every LL should have 6 months reserve.  Every financial planner would indicate this.  If you do not, then you are over extended per what virtually any financial planner would indicate.  Every LL should know and understand the risks of their investments including the likely reserves of their tenants.  If you want to reduce the risk of tenants not paying then purchase class A RE and accept the lower reward that is associated with the lower tenant risk.  Or stay our of RE.  What I am against is the LL who has been receiving rent appropriate for the amount of risk, crying up a river when the risk comes and bites them.

Now that the explanation is out of the way on to the questions: I believe LL do raise rents with increased salary or bonus.  It may not be the moment of the raise or the bonus, but the statistics show that it has occurred for decades in coastal So Cal.  It is referred to as market rent.  For the bad times, the LL has already been compensated for the bad times.  Again it is referred to as market rent.  The market rent has built into it the associated risk factors including the risk of non-payment due to prolonged job loss.

 Dan,

You buy in "C" class areas, but find evictions immoral? Do you find it immoral when a tenant destroys your property? Or is that ok because of the greater risk and return of "C" class as well. California is definitely in a world of it's own.

I just got off the phone with a bizz partner of mine who has 150 units in two buildings in the northwest.. His PM contacted him and told to him to expect 40% non pay for April. Hoping its not that bad.. but the PM is warning owners. this is B class 1100 a door apartments.

I think its going to be all across the board come april.  some will have no issues others might experience what this PM is warning his owners.

 

40% seems insanely high for B class. I am not disputing the number it just does not jive with B class as I imagined. 

 

I know that's just what he said. His manager has almost 8000 doors from Northern CA to Seattle. Highly experienced PM

only handles 100 and up C + to A .  I am thinking he might have thrown out a high number so that if it comes back at 20% its not such a shock. but he does not want his owners also being caught flat footed.. my client has no money issues so its not a stressor other than its lost income and he knows he will not get it back in the future IE trying to get tenants to pay he does not believe will be too successful and frankly not sure if he will even try.. Just reporting my conversation today.

 

@Heather Frusco "I'm sorry sir but if you are not able to realize that using a paid service without intending to pay for it, is wrong... don't really know what you would like anyone to say... I've got a tip for you... it's wrong."
--------------------------------------------
My dear lady, I understand all too well, and what I understand is that you are trying to evade and make excuses for your corporate masters. Cheesecake Factory has already announced that it will not pay rent for April, 2020, due to its desire to save cash, whilst paying dividends, paying huge and unjustified salaries, whilst not saying that it will make up April rents at all, and while drawing down lines of credit without income.

I especially like the drawing on lines of credit bit, because it is an EXACT analogy to you telling tenants to use credit cards. Yet, yet!! . . . Cheesecake Factory STILL WON'T PAY APRIL RENT!!!!!!!!!!!!!!!!!!!!!

The horror! The Horror! And yet while you whine that human tenants not paying rent is "wrong" and label them as thieves, you refuse to criticize, or label as thieves, corporations doing the exact same thing.

Your whining hypocrisy is showing, Heather. Why won't you just admit that according to YOUR standards, Cheesecake Factory is a thief?

BTW -- you say there's no Cheesecake Factory near you, but you are from union City, NJ. There's a Cheesecake Factory at
Newport Centre Mall 30 Mall Drive West, UNION CITY, NEW JERSEY.

God I can't stand whiners.






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.