Arthur,
I was speaking with my wife about this very issue this morning. We have not yet felt the effects of the hit our tenants will feel if they cannot or do not pay their rent. However, we have decided, and this is not for everyone, that we will require them to forfeit their deposits for the month they miss. If they miss again, we will evict.
Like you, we finance our properties and the banks are not going to allow us to miss paying our notes. It's a business transaction. Thus, we treat our tenants the same way: it's a business transaction. They have a place to live in exchange for paying their rent.
This is not a hard line, it is a real world line. We don't get to miss our house payment. We have saved for these possibilities. Once they make their lack of preparedness my problem, I will deal with it like its my problem. That may mean they are without a place to live, which is not my problem.
Others will disagree with me, but others are not paying my bills or paying for my properties. You need to do what is best for you.
Good luck!
Best Action Plan from RE Attorney
Same link that I had already posted ;)
I think the general public has a perception that rental property owners are largely a bunch of wealthy fat cats flush with cash who can weather any economic storm, and if landlords still demand rent at times like these it's only because they're greedy.
They average person probably doesn't understand just how much rental property is leveraged, much of it highly so, and if rent isn't paid, debt on those properties isn't paid, and we simply a see a line of debt dominoes falling into the abyss. This isn't news to any of you, but talk to some renters and you'll see this is a fairly common sentiment.
Whatever the "solution" for all this is, it needs to involve help for all parties from tenants, to property owners, to the owners of debt on those properties.
As for what this does for the overall market, it doesn't seem like much yet. I've seen a FLOOD of new homes hit the market this past week, but not at reduced prices. It just looks like folks trying to sell before the inevitable dip. The dip will come though, eventually.
I think the general public has a perception that rental property owners are largely a bunch of wealthy fat cats flush with cash who can weather any economic storm, and if landlords still demand rent at times like these it's only because they're greedy.
They average person probably doesn't understand just how much rental property is leveraged, much of it highly so, and if rent isn't paid, debt on those properties isn't paid, and we simply a see a line of debt dominoes falling into the abyss. This isn't news to any of you, but talk to some renters and you'll see this is a fairly common sentiment.
Whatever the "solution" for all this is, it needs to involve help for all parties from tenants, to property owners, to the owners of debt on those properties.
As for what this does for the overall market, it doesn't seem like much yet. I've seen a FLOOD of new homes hit the market this past week, but not at reduced prices. It just looks like folks trying to sell before the inevitable dip. The dip will come though, eventually.
I agree with this.. but it's also more complicated than that. You can be under-leveraged but still be at risk. Equity is NOT spendable. And the monthly payment is based on the original loan regardless of how much you have paid or how much the property has appreciated. I am talking about being equity rich and cash poor.
@Shashi P. There is no “getting away with it” given this will be a renegotiation of the lease agreement. While evictions are stayed the contract is not stayed and cannot be stayed. No court has that authority. Rents are still owed.
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IANAL ... but I think everyone who is giving their tenant some kind of a break should make a written addendum to the lease, with whatever had been negotiated incorporated in writing and signed by the tenant. Should things go bad and the tenant becomes unable to uphold their end of the bargain, this shows you were compassionate to some degree and you did not just take a “hard line” stand.
I think the general public has a perception that rental property owners are largely a bunch of wealthy fat cats flush with cash who can weather any economic storm, and if landlords still demand rent at times like these it's only because they're greedy.
They average person probably doesn't understand just how much rental property is leveraged, much of it highly so, and if rent isn't paid, debt on those properties isn't paid, and we simply a see a line of debt dominoes falling into the abyss. This isn't news to any of you, but talk to some renters and you'll see this is a fairly common sentiment.
Whatever the "solution" for all this is, it needs to involve help for all parties from tenants, to property owners, to the owners of debt on those properties.
As for what this does for the overall market, it doesn't seem like much yet. I've seen a FLOOD of new homes hit the market this past week, but not at reduced prices. It just looks like folks trying to sell before the inevitable dip. The dip will come though, eventually.
I agree with this.. but it's also more complicated than that. You can be under-leveraged but still be at risk. Equity is NOT spendable. And the monthly payment is based on the original loan regardless of how much you have paid or how much the property has appreciated. I am talking about being equity rich and cash poor.
@Mark Whittlesey Yes, that is exactly what I was referencing in my post above about re-evaluating your cash position. As you say, you can be equity rich and cash poor. That is why I plan to start increasing my cash reserves and making sure my business line of credit is in good standing.
YOu are right. These people are just trying to blow smoke up peoples Butt in the name of Humanity. Its all self serving .
Compassion is taking the little dog with a broken leg to the vet. Writing letters is Screaming i want my money Its Business.
Do you play chess? That's my gambit - my opening, in which I sacrifice something, in order to gain something else.
@Account Closed no need to get upset. Don't worry we'll still work out deals with our tenants... while the paperwork as been submitted to the city for an eviction... should it come to that... just keeping everyone honest. Now you can understand that can't you?
@Michaela G. I think that is commendable and in my honest opinion on of the most kind things one can do, you have my respect. But that doesn't mean it makes any sense as an investor. For instance, would you pay for other tenants which are not in your own properties... would you help other tenants make rent?.... if the answer is 'No' then I can assure you didn't get into rental properties to provide housing for free or to break even.
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In some cases, it makes good business sense to be at least “break even”, so that the business gets a chance to survive. Those who make the business decision to give a tenant a break on rent due to this pandemic are probably doing so with that in mind.
I also agree with you that both landlords and tenants should have reserves set aside for just this sort of unforeseen situation, but expecting that of all tenants is unrealistic - especially in the low income paycheck to paycheck neighborhoods.
@Michaela G. I think you would make a great chess player and someone which I would just quite honestly get enjoyment from just spending time together. I this game however, it's not a clean slate... we're playing a game that is already skewed against us. I hear your point and see it as a strategy... the kicker is do I really need to sacrifice something right now without having a closing move? --- I see being able to work out a deal with your current tenant as your sacrifice and your closing move... should it come to that is having your eviction paperwork filled and ready to go should it not pan out like you envision. I also prefer to keep my sacrifice moves close to the vest and without letting my opponent know what I plan on doing... so no need for me to forecast to all my tenants that I will work out a deal with them... because truth be told some we will workout a deal with and some we won't purely based on their payment and tenant history leading up to now.
@Michaela G. I think you would make a great chess player and someone which I would just quite honestly get enjoyment from just spending time together. I this game however, it's not a clean slate... we're playing a game that is already skewed against us. I hear your point and see it as a strategy... the kicker is do I really need to sacrifice something right now without having a closing move? --- I see being able to work out a deal with your current tenant as your sacrifice and your closing move... should it come to that is having your eviction paperwork filled and ready to go should it not pan out like you envision. I also prefer to keep my sacrifice moves close to the vest and without letting my opponent know what I plan on doing... so no need for me to forecast to all my tenants that I will work out a deal with them... because truth be told some we will workout a deal with and some we won't purely based on their payment and tenant history leading up to now.
Again, we'll have to agree to disagree. We each do what we think is best for us. I have a creative community and all of those tenants know each other and are on the same property. Anything good or bad I do goes around and can benefit or backfire on me. Works for me
And if I had a $ for every time another investor told me that I'm crazy, for doing things in the way they wouldn't, I'd be a millionaire - oh, wait, I am, despite all that crazyness
We own and operate multifamily residential properties in the suburbs of Chicago, IL. As you may know, Illinois is currently under a government mandated shelter-in-place order until April 7,2020. As a result of this, many of our tenants are not working, therefore many tenants will have issues making rent payments, and consequently we will be challenged to meet our debt service payments. Additionally, all evictions are suspended.This is an unprecedented time, and the thing to remember here is that we are all in this together: Tenant, Owner and Lender. My suggestions (and the actions we are taking) is as follows:
For your lender:
- Contact your lender, let them know this is going to be a significant problem. Ask them what options are available to you. Remember, this isn't your problem, this is a worldwide problem. Every lender is different, but most are working on plans for this situation and may have options for you. Once you understand your lender's position, you'll be able to devise a plan for your tenants.
For your tenants:
- Explain that you need to verify their employment hardship claim. Most people are legitimate, but unfortunately, some folks may be opportunistic, so you'll formal evidence of hardship.
Based on your lender's position, you can message a combination of any of the following to your tenants (where applicable)
- Partial Payment / Rent Deferral: Let the tenant know that rent is still due. Given the circumstances, you may elect to set up a payment plan deferring part or all of upcoming rent.
- Late Fees: If deferring rent, address late fees. Allow fees to be waived during this period.
- Rent Forgiveness: Unless your lender is participating in debt service forgiveness or you have high reserves, this is likely not an option.
Lastly, we want to work with our tenants. If we can get money in their hands, it helps all of us. Any info you can provide your tenants on the following will help the cause:
- Unemployment: How to file and collect benefits
- Federal & State Emergency Stimulus - Providing updates and information to tenants that may qualify to collect any federal or state funds as part of a government stimulus package
@Steve Babiak I'm sorry but your comment on 'sometimes it makes good business sense to break even' is just a soundbite.... 'breaking even' is not what you do as a business... breaking even is what do as your worse can scenario not 'good business sense' ... which I know is not what you meant... but if you are aiming for 'breaking even' without a backup plan... I hate to break it you but you've already lost... whether that means just lost rent for month or two or a property lost to foreclosure that will depend on the investor.
Like I said for those that wish to treat it like a business, there's no need to be callus but being naive is even worse. I agree with and plan to put all of our tenants which have issues right now on a re-payment plan, alleviating the current stress but ensuring they remain responsible all the while, while still going through the steps and submitting evictions into the que once they do open back up again... JUST IN CASE some don't plan on coming through or moving out on their own accord. Now are we going to completely absorb missed rent... heck no... are we going to let all our tenants know that we'll try to work something out pre-maturely... of course not, who in world would do so and then expect an honest effort. So to recap... will we help to temporarily alleviate tenants payments concerns... sure... will we still carry out evictions as they become available and report to credit agencies if those new agreements still aren't fulfilled... you bet.
DC has halted all evictions (the court system is currently on a modified schedule, postponing all non-criminal proceedings) and utility disconnects (water, electricity, gas) have also stopped for the moment.
The good thing is that the District has setup grants for small business owners to include 1099 recipients and independent contractors, so if you are in the real estate industry and this is your source of income, you can apply for the grant.
I would say (only because DC is so tenant friendly), check with your jurisdiction before negotiating the security deposit as rent, you may be able to get a grant for lost rent.
Another thing to think about is obtaining a "rent guarantee" insurance plan.
Good luck everyone and please stay safe during this virus challenge. Jean
@Brian Boyd pretty confident if your governor declared a state of emergency your civil courts are closed and evictions can't be completed because of that...
Dont want to cross across as un-sympathetic, but this corona event should serve to remind all investors that when the value is NOT there, don't buy the asset even when the whole world is buying...
For years, investors are buying up stocks and real estate even when the math does not make sense, just because other people are buying, just out of fear of missing out....Those will be at the risk of heavy loss...
Full disclosure - I kept my 401K in cash for the past 2 years, until last Thursday.....
So my fellow investors - keep dry powder and stay on the sideline when the numbers do pan out...For example, a forward P/E of 20 does not make sense in my books, a purchase to rent of 18 years in SF does not make sense....Wait until that P/E is 16 or the purchase to rent of 15 years..
Best wish to all
Well said Diane. Thanks for sharing and reiterating the importance of investing when fundamentals make sense.
@Kyle Bumpus
Just curious why you think airlines and big corporations need a bailout? Small and local business owners only get the option of a 3.75% loan from the SBA, when they are getting money at a 0% interest rate?
Seem to be a large disconnect most people haven’t pointed out.
Would a loan to big business be a better solution than a handout?
Math. The final terms of the stimulus plan haven't been revealed so we don't know what it will look like. Either way, a 0% interest loan doesn't count as a handout any more than a 3.75% interest loan does.
@Jerome Myers civil hearings are telephonic until April 1 and evictions are handled by judicial district and local rules of practice. Criminal courts are having video hearings if the defendants are in custody- in my states where I practice.
Lawyers, CPAs, Medical staff and professionals have been deemed “essential.”
Stay healthy and good luck.
I think this whole discussion is moot. Governors are declaring emergencies and prohibiting disconnection of utilities and evictions. The courts have decided that evictions are not an emergency, and won't even put the case on the docket.
The governor of Kansas has even prohibited any evictions until May 1st, so even if you could have the case proceed, they can't be physically evicted till then.
As the administration has halted all evictions for federally backed mortgages, it will loosen your leverage on your tenants. This is going to be a trying time and we will need to get creative to be able to weather this storm. Perhaps you can create a rent deferment plan with your tenants where rents will not be forgiven, rather pay some percentage of monthly rent. This way as we can get more clarity on the economy you can have access to some cash flow as well. Good Luck!
I hate to be the bearer of bad news but we are going to self-evict if push comes to shove. Allow me to explain... when the government steps in to stop evictions but fails to stop mortgages from being due essentially putting the burden of housing directly on individual investors/landlords without any help I'm sorry but... as investors we're smarter than any politician and can consequently move faster than policy will allow. What are we going to do?.... You heard me right we're gong to self-evict when and if it comes to it. Now before some of you on here go all high and right about how we can't do that.... we can... we will... and we'll do it without repercussion.
We have just passed management of our properties to our LLC and the Tenants have been notified of this change as of last week. We'll try to work out payment agreements with tenants when possible however, if it ever comes to an issue where someone in one of our properties is not paying and the government is not compensating for it... we will give our non-paying tenants a warning and will then surely proceed to lock them out... change locks... moved items to the street for 24 hours before being discarded etc. all under the LLC... we will then dissolve the entity... good luck going after a discarded entity and to make matters good luck with the legal back log that will surely ensue. Again this is for extreme cases in which tenants are non-payment even after striking a new repayment agreement and which the local government is still not allowing for evictions - extreme measures for extreme cases... but just another example where uneven government intervention will come back to bite the very same people they are trying to protect.
I bet your residents break everything in your property that can be broken and fill your pipes with cement.
This is going to be a catastrophic write down of all assets. So get ready, this isn't going to be a reversal like 2008. Interest rates cannot go lower. We're witnessing a major paradigm shift in global financial markets. This is the end of the dollar reserve currency. How that plays with real estate is a measure of how leveraged one is. Everything is relative ultimately. If you don't have debt to service on rentals, you're fine.
We can all thank the Fed for suppressing interest rates for so low for so long. Low interest rates are a mirage that everything was going well when it was all nominal gains. This is going to be a painful recovery, we're heading into an economic depression. Try and show kindness to tenants, we live in a time when people are angry. The best assets in times like these are community. A lot of people have been scraping by in this country as prices for everything became more and more expensive. This is a supply & demand shock, we've actually never seen this before in any economic crisis.
If you're sitting on cash, the best opportunities are to come, but will likely be in emerging markets. Keep in mind, the US housing market is valued at $33 trillion, but we have $16 trillion in outstanding mortgage loans, this has a long ways to fall from a price perspective. If there are widespread mortgage defaults as a result of job losses piling up (at some point they'll need to unfreeze mortgage payments), the prices can fall significantly before they bottom out.
Best bet is to be patient. The economy is, in part, based on real estate. We need to be cordial, kind and understanding. I would not have any official communication until the federal government comes out with a statement.
@Arthur P.
I have some properties that are in need of service repair painting flooring etc. those tenants who cannot pay you might use them to barter In Lieu of partial or no payment
I hate to be the bearer of bad news but we are going to self-evict if push comes to shove. Allow me to explain... when the government steps in to stop evictions but fails to stop mortgages from being due essentially putting the burden of housing directly on individual investors/landlords without any help I'm sorry but... as investors we're smarter than any politician and can consequently move faster than policy will allow. What are we going to do?.... You heard me right we're gong to self-evict when and if it comes to it. Now before some of you on here go all high and right about how we can't do that.... we can... we will... and we'll do it without repercussion.
We have just passed management of our properties to our LLC and the Tenants have been notified of this change as of last week. We'll try to work out payment agreements with tenants when possible however, if it ever comes to an issue where someone in one of our properties is not paying and the government is not compensating for it... we will give our non-paying tenants a warning and will then surely proceed to lock them out... change locks... moved items to the street for 24 hours before being discarded etc. all under the LLC... we will then dissolve the entity... good luck going after a discarded entity and to make matters good luck with the legal back log that will surely ensue. Again this is for extreme cases in which tenants are non-payment even after striking a new repayment agreement and which the local government is still not allowing for evictions - extreme measures for extreme cases... but just another example where uneven government intervention will come back to bite the very same people they are trying to protect.
You are scum and I will be happy to watch you get sued out of your ***. Slumlords like you give the rest of our industry a bad name. An LLC won't protect you and honestly your comments show how ignorant and clueless you are in this business. People like you will lose your buildings and I will happily be buying them for a discount.
@Syed H.
It’s a shame what I’m reading here it’s not about business LLCs or government it’s about integrity of oneself being a moral decent person faithful to god which is higher than all this