Why is the mortgage still due during COVID-19?

5 Replies

The mortgage is still due. Why?

1 - Investors should have saved 'reserves' in place - so if they are already worried about rent payments coming in April, just a few weeks into this, they have decided not run their venture in the appropriate manner. Owning rentals involves volatility in cash flows, if the investors can’t figure out the best way to deal with COVID-19 while paying all their bills, then they don’t deserve to have rentals.

2 - There are options available to Investors: They can always put it on a credit card, which really already has a payment plan set up for them with their terms... an investor can quite literally just pay the minimum until they get back on their feet, not suggesting anyone just make the minimum on a CC but that is an option, just like it is an option to put food, utilities and anything else on a credit card, investments are no different.

3 - There are loans available to Investors: Applying for temporary or unsecured loans to make ends meet are available and even more so now - and before anyone says you won't qualify - there's only one person to blame for getting yourself overleveraged in some vanity fueled quest to reach x number of doors and yes... a CC is a type of loan when used - so if you have a CC... you can access to borrowed funds with a re-payment system.

4 - Why does an investor have to own their current rentals? - As if there aren't options...Like selling. If an investor was so focused on cash flow and getting “$X/month” and they didn’t have the self discipline/ financial acumen to save cash and instead put all their cash flow into getting more doors, they should not be in this line of work. Sell the asset and pay the bank back.

5 – Why can’t the investor get another job to make up for the cash flow short fall? Wal Mart and Costco are hiring. I’ve seen you guys post on Instagram motivational quotes like “Rise and Grind” That applies to things other than taking selfies at your 10th door, which you got through creative financing.

6. Why does the investor need to live in their big house? Why can’t they sell their personal residence---- everyone does need shelter just like everyone does need food and water, yet the baffling question is... why do they need to pass the buck onto the tenant, who is the customer, for what is in reality their inability to meet a commitment they made? For years investors have been living high on the hog, borrowing money from the banks at 3-4% and buying assets that cash flow 5-7%, not to mention appreciation and rent growth - hypocrisy at its best. It is high time they reap what they have sowed.

Most that pass the blame onto their customers as it stands RIGHT NOW... only a few weeks into this situation... are unwilling to take on the responsibility for themselves onto their shoulders and find it just easier to put it onto someone else...

The mortgages that the banks have given investors are held in pension funds and retirement accounts. Americans who worked for years to provide for their family and build this nation rely on these payments to live their last days in relative comforts. And you, as a group have the audacity to try and pass the buck along to another group of hard working Americans, the nurses, truck drivers, the sanitation workers, who are doing all they can during this time of crisis to keep this great nation afloat. The gall!

Before you start a petition to Scott Trench to have me banned from BP, that last post was a satire of mainly this thread, but the discussions there have happened a lot in the pasted three weeks.

I adapted the first post of that thread to show how easy it is for all the things we say about our tenants to be applied to us by the banks.

There is no one magic rule that can be applied to all situations regarding rent payment during the months ahead. Each investor is going to have to think about their own financial situation, the location, asset class, type of asset, specific tenant, and their own best estimations of the duration of the pandemic to arrive at their own policy for how to handle l late or missed payment.

I am personally using the opportunity cost as a benchmark for my decision making; how much will it cost in terms of missed rent, costs to clean and market the property vs how much will I lose is I let a few months slide. I have a sneaking suspicion, that most investors would be better of letting their tenant’s miss 2-3 months of rent rather than trying to evict, but YMMV.

I wish everyone the best of luck and health in these trying times.

@Bill F. I actually agree with most of this. I personally have a large reserve, believe that most of my tenants will not lose their jobs or be unable to pay, and could cash flow my properties with other income streams even if my reserve (which is nearly a year of PITI) ran out.

I just think that if we are going to play a game where tenants no longer have to pay rent for a prolonged period of time and can't be evicted, that landlords should also be able to defer payments up the chain, even those of us who are well-capitalized. 

The key takeaway and most important thing to note is that the reality of the situation is that the vast majority of tenants will pay their rent, and the vast majority of landlords are reasonably well-capitalized and won't go belly up in the first months of this thing. 

A second reality is that a minority of tenants will lose their jobs and not be able to pay. In that case, a majority of landlords are going to react and respond with compassion and appropriately, making the right business and ethical decisions. A minority, of course, will panic and make the news, making all landlords look bad. 

And a third reality is that some tenants who otherwise are largely capable of paying rent (keep their jobs, receive unemployment, receive bailout, etc.) are going to not pay rent and use this temporary advantage of no evictions to exert power over their landlords and hold property hostage. They will cause the landlords temporary pain, accrue late fees and back rent, and eventually when America reopens, get evicted, sued, and have their credit ruined.

In that third case, a minority of landlords are being forced to basically donate free housing to the very worst behaving tenants. I think that even well-capitalized landlords should not have to bleed to maintain that situation.

Aside from this, and generally speaking, I think that a hands-off government that allows free competition and does not grant bailouts in any sense, just keeps the infrastructure and common defense, is better than one that intervenes. This bailout WILL allow those with weak financial positions to avoid consequences. It will weaken the long-term economy of this country, in my opinion. 

But, when the government decides to shut down the economy entirely, I don't think you can allow one segment to not have consequences and not have to pay, and force another to bear that cost with no recourse. Either allow a pause button for all, or for no one!

@Mindy Jensen

@Scott Trench  

That summary of the reality of the situation is the best I've read on BP.  Right now there is a lot of social proof going on, mixed with some loss aversion that is leading some to way over estimate the size of the third group of tenants you mentioned.  I agree with you 100% that, on the whole, most people will still continue to pay and it will be a small small minority of folks who take advantage of the circumstances. But they are the same people who find a wallet, take the money, and throw the wallet away. 

As for who gets what from whom when, I think we can fall into a Kantian Fairness trap real quick unless we are 100% sure we have a complete understanding of the system we are judging. A system may not be fair for all parties equally, but it still could be the best overall solution.  I don't know much, but I know that, for better or worse, our capital markets are incredibly complex and I don't understand them enough to make a call one way or another about many policy issues. 

Plus, I'm reminded of an anecdote I heard Gen. Peter Pace say: Life is a like walking in a rail yard between two sets of tracks. Sure, whats going on ten rails over could be interesting and cool to watch, but what matters to you is the two rails to your left and right, because those carry the train which can give you a bad day if you aren't paying attention to them. Point being, we are all best served to focus on things within our control.