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!
@Mark Whittlesey what county are you in, in AZ?
Our insurance rates are higher than other markets!
What cap rate/COC are you securing?
I'm seeing a lot of investors take comfort in section 8 right now. Purchase price 80k, rent rate $800/month, gov pays $650/month, that's enough to cover all expenses even if the tenant has a delay in payment!
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!
I think most people understand the following but in the event that this is news please know that you cannot use a security deposit to offset somebody’s rent. Technically, the security deposit doesn’t even belong to you and it should have been, all along, maintained in a separate account. Using a security deposit without the express written permission of the owner of the security deposit (I.e.) the tenant, would be considered theft.
I think those assessing that LL's don't understand risk vs reward have just been caught unexpectedly are wrong about many of us. I like to believe most LL's are reasonable people and from reading this forum most are very intelligent and business savvy. What we are fighting now isn't just a down market but a government that is telling them they're giving people a pass on rent and forcing us to take the hit.
I personally agree we should help our fellow man (tenants) to a point but I disagree with the government ceasing our properties without our permission and without any compensation (even from their own taxes). This is a mafia move.
As for the persona of LL's being evil, much of the real estate out there is owned by REIT's that are favorites of older, retired people for the safe monthly income. I'm not about to call grandma a demon.
In Wisconsin, the government has sent out an order that we cannot file for eviction until 60 days. It also says there will be no foreclosure for 60 days too. What should I do? I asked my lender and they say that we have to pay mortgage using the reserves. Should I pay mortgage or not? I am expecting some tenants not paying mortgage.
@Lokesh W. I would say for now you just wait and see. Most of your tenants may pay rent. Contact the ones who don't and see if you can work something out with them, maybe half rent. Explain to them you have to pay the bank ortherwise loose the property. Most tenants don't know that. The stimulus checks will hit, and there will be more of it.
On the bank side, work with them - the first thing you can do is not pay your escrow for the month. If you have to, cut the principal and only pay interest.
Do some math: how much rent do you have to collect to break even? How much if you suplement with reserves? How much if you cut escrow?
@Mike Wood could you share a copy of your tenant letter? Thank you,
This is the letter you need to send not to your tenant but to your representative.
Dear President/Govenor/Senator/Congressman/HUD Secretary/Govenor (You Fill in the blank)
Thank you for all that you are doing to help citizens and businesses affected by COVID-19.
As you are aware, Landlords provide a vital service to many millions of American. We provide safe and affordable housing to citizens who can't afford to purchase homes themselves.
Second only to to food, shelter is important as a basic need that no American should live without.
This is why I am writing to you to ask for help in the implementation of emergency changes to the Federal Housing and Urban Renewal Section 8 program.
As a landlord I propose the following:
The qualification for Section 8 should be opened to all unemployed American receiving unemployment benefits.
All Landlords who file a IRS Schedule E are eligible to receive benefits based on properties listed on their Schedule E for 2018 or for any 2019 tax return filed.
Section 8 will waive the home inspection and Landlord requirements for the participants in this emergency program and will not remove the traditional application process for those seeking to participate in the Section 8 program. Section 8 will only provide payments while the citizen is receiving unemployment insurance.
This emergency program requirements are easily verified for participates through the unemployment insurance offices and the Internal Revenue Service.
The program limits payments only for the rent amount. At the end of the year the citizen receiving benefits will receive a 1099-MISC for rent paid subject to their tax bracket.
The Landlord will receive a 1099-MISC which they will file with their Schedule E as rent received. This will not require any tax difficulty for the landlord and is subject to depreciation and valid deductible property expenses.
This provides benefits to two segments of the population simultaneously, efficiently, and seamlessly.
Housing and Urban Development is the correct office to manage this program and provide rapid relief to the people who need it the most.
I can be reached for further questions at.........
Thank you,
J.Q. Landlord
Learn more here
Had our first tenant approach us yesterday, unable to pay April rent due to job loss. I worked with our property manager to establish protocols to deal with this situation because we anticipate more of our tenants being impacted in the coming months. Our goal is to work with tenants impacted by this global pandemic, but at the same time we need to protect ourselves from less scrupulous tenants looking for a free ride.
We explained to the tenant that we are willing to work with him, but needed him act in good faith by upholding his part of our contract (lease agreement), and asked him to a) provide documentation from his employer showing that he was terminated (i.e. he did not quit), b) demonstrate that he had exhausted all options, including borrowing from friends or family, using a credit card, or obtaining a short term loan from a local bank or credit union, and c) pursued applying for federal, state and local assistance programs (we provided links and phone numbers to these programs). If all avenues for assistance were exhausted we would be willing to work with him, but he had to demonstrate effort.
Long story short, tenant was unable to provide documentation of termination (I stalked him on LinkedIn, and it turns out he quit his job in February - but waited until March 31 to contact us), claims he does not have a credit card and is unable to get a credit card or bank loan (his credit was good when he moved in 9 months ago), and he was unable to get through to any of the government agencies for assistance (sent a screenshot to our property manager of one 4 second phone call attempt to local housing authority).
Curious to hear how everyone else is determining which tenants are truly in need of assistance versus those that are simply looking to take advantage of the current situation and skip paying rent.
I sent this and variations of it (depending on a particular tenant's lease, etc). This letter is inspired by another one someone else posted here.
I am very sorry and very concerned you are out of work. I pray that everything returns to normal very soon. Thank you for contacting me about being out of work. I have contacted my own bank and was told that since I am not laid off (working from home) I do not qualify to defer my mortgage payments. Rent is still due as usual on the 7th of the month; however, if you are experiencing a financial hardship, please review the temporary options below to assist you.
FINANCIAL HARDSHIP PAYMENT OPTIONS:
1) Please make every effort possible to make alternate arrangements – family, friends, deferring other expenses – to ensure you can still pay rent on the 7th of the month. As part of this, I will be paying close attention to government and local programs that may offer financial aid and will let you know as soon as possible if I become aware of any of these programs. Please also be on the lookout for any of these programs that you may qualify for. One example of this is the fact that the state has waived the one week waiting period for unemployment benefits.
2) If Option 1 is not possible, you have the option on Innago to pay with a credit card. They do charge a fee, but I WILL REIMBURSE YOU for this if you need to use this option. Please let me know if you choose to use this option and I will credit your online account. I would ask you to provide a letter or verification from your employer that your layoff is related to the COVID-19 pandemic.
3) If the above options are not possible, I am willing to offer a grace period, which will allow you to make the full rent payment no later than the April 21 – two weeks late. There will be no late fee charged if you pay by the 21st. I would ask you to provide a letter or verification from your employer that your layoff is related to the COVID-19 pandemic. Please understand that this is not preferred and should be one of your last resorts. Please let me know if you need to use this option as soon as possible.
4) Your lease ended on 2/29/2020. You can give me 30 notice on April 1 that you intend to move out at the end of April and I will allow you to use half of your deposit as rent, so that you only have to pay half a month’s rent for April. I would ask you to provide a letter or verification from your employer that your layoff is related to the COVID-19 pandemic. However, I do not want you to move out. I would like to see you stay.
5) Even though your lease has ended, I will not ask you to move out. You can use up to $500 of your deposit to help you pay your April rent and up to $500 of your deposit to help pay your May rent if you authorize this use of your deposit. Starting in June 2020, I would ask you to pay the full month’s rent, then additionally, at least $150 a month until the full deposit is repaid to $1485. I would ask you to sign a new lease through December 31 2020, stipulating the deposit will be restored to $1485, to offer you this option. I had planned to raise your rent but due to the situation, I will not raise your rent this year. I would ask you to provide a letter or verification from your employer that your layoff is related to the COVID-19 pandemic.
If the pandemic keeps you out of work in June, I am willing to discuss options to assist you to pay your rent in June and beyond.
Ok thank god, I got 100%!!!!
But we were ready for less.
Give credit to that letter we sent out 4 days ago
What about forbearance on commercial loans? I have a loan with PNC Midlands. Does anybody have loan forbearance on their commercial loans if the tenants aren't paying? This is a commercial lease with 14 years left on the lease so I want to work things out but don't want to keep paying the 28K monthly payment without income.
I have 1 tenant that has not paid but he has a history of being late and pays the late fees. I only have 4 SFH's to deal with so not exactly a wide sample here LOL but to me that is 25% loss of revenue! None of my tenants have lost their jobs, or is out of work even temporarily. If the crisis eases in the next couple of weeks I do not think there will be any serious long term repercussions.
If this chronic late payer had a better payment history I would waive the late fees but he has NO excuse except for pure laziness. I always place a Pay or Quit notice on his door when he is late just in case I need to file an eviction. In TN they have a moratorium on evictions till April 30th that is right around the corner now.
3 SFH paid in full, 1 unit asked for reduced rent and I agreed to 30% less for 2 mos. I have 3 vacancies at the moment. I rent to students and University is closed/teaching remotely. Very little/no interest on my vacant units. Norman, OK
I have a few tenants and some of them were not able to provide April's rent so I waived it. To my surprise, today I received the full rent amount from them. I guess I have the best tenants!
These are certainly difficult times! The banks are likely to not show grace to the landlord for the mortgage responsibility, thus placing the landlord in an incredibly tough situation if the state deems evictions unlawful, which has got to be unconstitutional.
What about having all future contracts written up to include collateral in the form of personal assets should the tenant default/breach their contract/rent responsibility? Taking collateral from personal property/assets equal to the value of the outstanding portion of rent due if they cannot pay rent? It is all of our responsibility to save for a rainy day. Why should a landlord be on the hook for a tenant who hasn't prepared well over the years? Plus, it is likely that a landlord who also has a business/job outside of investing that it too will have been negatively affected just like could be true of the tenant's situation. Just thinking out loud. Could this even be done?
I understand there is tension where personal responsibility meets grace. That same grace will likely not be extended to landlords on the other side of the coin, however. The bank will get theirs, they always do.
If you are a landlord, it is often difficult to know what the best course of action is when your tenant cannot work due to illness or injury. There are many factors that need to be weighed before making any type of decision.
For example, if you have a tenant who is unable to pay their rent because of an injury or illness that was not caused by them or their guests, does that mean they are able to break the lease? Or how will this affect eviction proceedings if your tenant's inability to pay is due to an act of nature? If your tenant breaks the lease agreement by failing to pay their monthly rental fee, then eviction actions can commence. As long as there has been no previous agreement made between yourself and your tenant regarding non-payment situations, you should be legally excused from the hard times your tenant may be experiencing.
While you cannot forcibly evict a tenant because they are behind on their rent, it is still possible to begin formal eviction proceedings if your tenant does not make an effort to catch up with or pay past-due rent. This process should only be entered into by landlords who have exhausted all other means of resolving the issue peacefully and amicably with their tenants first.