The Rental Industry’s Future if COVID Lasts 6, 12, 24+ Months

The “new normal” that the Coronavirus has brought isn’t new anymore--it’s just “normal” now.

While US businesses are mostly operating as usual, there’s no end yet in sight for this pandemic, and we’ve all gotten used to being uncertain about the future.

In the words of the Greek philosopher, Heraclitus, “Change is the only constant.” The situation is changing, and will continue to constantly change, but that doesn’t mean that landlords should be nonchalant about the future of their rental investments.

Landlords have to prepare to adapt their rental portfolios to any kind of situation. The first step to doing this is to understand all the possible scenarios that could happen, and then know what your plan will be for each.

So what can rental property owners do to navigate the next few months - or years - depending on how markets react to the effects of coronavirus? Here’s our guess at what might happen in 3 different scenarios, and how landlords can prepare for each on

Scenario A: Coronavirus Pandemic Ends in 6 Months

Although slim, there’s still a possibility that the virus will be brought under control within the next six months. For all we know, there might already be a vaccine or new preventive measures being discovered as you read this.

What Would it Look Like?

If the virus slowly peters out in the next six months, the remaining quarantine measures will decrease, until things are pretty much 100% back to normal. That means people, including your tenants, might try to wait it out. They might continue to delay rent payments until they can return to their regular jobs, giving landlords even more eviction headaches than they’re already experiencing.

In the real estate market, with the current low mortgage rates, population growth, and increase in buyer interest, demand for suitable housing might continue to stay hot. The real estate market has not slowed down much, if at all, since the pandemic began, and if a vaccine is found soon, the market might shoot even higher.

However, the type of demand for properties is also shifting: families are increasingly looking for SF instead of MF rentals, and suburban instead of urban neighborhoods. The longer the virus lasts, the more this trend is likely to grow.

How to Prepare

• 1. Rental marketing: Even though it’ll only be for a few more months, it won’t hurt to be innovative and adapt to new remote marketing methods. Besides, things like virtual tours might become an expected option, even after the pandemic ends.
• 2. Finding tenants: When screening applicants, pay extra attention to their rental and employment history. Call up their past landlords and ask about how the tenants were during the pandemic months. Did they pay rent on time?
• 
  
• 3. Rent collection: Be aggressive about collecting rents and delayed payment plans agreed during the pandemic. Once tenants return to normal work, you may need to re-evaluate their financial situation, especially if their job has changed due to the lockdown.

• 4. Property maintenance: Some tenants might have neglected maintenance issues, hoping to have it fixed after the pandemic, which might lead to worse damages if left unchecked. Schedule in-person visits for any properties you’ve been managing remotely, and be prepared to carry out repairs yourself and charge tenants, if necessary - since many may not be willing to fork out the extra cash on maintenance now.

Scenario B: Coronavirus Pandemic Continues for a Year

What if cases spike again in Michigan, just like they did earlier this year? A vaccine is developed, but takes months to distribute to the population, and businesses and schools close down again for several weeks or months at a time?

What Would it Look Like?

If that happens, the quarantine measures might be made even stricter during the next 12 months. A good number of tenants might make long-term adjustments and look for a more secure source of income, as they realize that the situation isn’t something they can just wait out. However, some would still not take any proactive actions and just ignore reality. This would mean no guarantee for reliable rent payments for the next year or so, unless you have all Class A and B tenants. The more peoples’ finances are affected, the more they may look to cut back on rent expenses, meaning in the long term, we could see a shift in rental pricing.

In terms of housing market predictions, mortgage rates should continue to stay low, with a view towards driving up buyer demand. Buyers would continue to be aggressive, and would be worried that, since home prices increased during the past lockdowns, they could rise even further due to increased buyer competition and shortage of supply. New listings might still be scarce, but the demand for them would be high.

How to Prepare

• 1. Rental marketing: You might need to completely digitize your marketing, and that includes having virtual tours, good photos, etc. Additional lockdowns may suspend in-person showings again and people in general may become more safety conscious and demand virtual tours.
• 2. Finding tenants: There will be more desperate applicants (maybe more applicants that were evicted during the height of the pandemic), so screen robustly. Is their income stable enough now? Fraud on rental applications will increase, so be prepared.
• 
  
• 3. Rent collection: You need to be persistent with intense payment tracking and strict payment plans. Carry out evictions legally, when needed. You can’t be stuck with tenants who can’t pay rent--not with the pandemic lasting for a while.
• 
  
• 4. Property maintenance: Make sure to track maintenance issues properly, requiring proactive reports from tenants about any issues that arise. Remotely inspect properties, if needed, using video walk-throughs, and prepare tenants for the possibility of fixing issues themselves, if contractors end up banned from working on non-essential projects again.
• 
  
• 5. Rental operations: The longer the pandemic’s effects last, the more important it is for rental investors to go paperless. You won’t want to be stuck with no access to important documents if offices are closed, and having your operations fully-digitized will help ensure continuity in the event of more local stay-at-home orders.

Scenario C: Coronavirus Pandemic Persists for 2+ Years

What if the virus persists for more than two years? What if it’s basically here to stay, and we have to make drastic, long-term changes to survive, both as individuals and as landlords?

What Would it Look Like?

Things will never fully return to pre-pandemic times. Lots of people permanently adapt to a work-from-home arrangement and remote schooling. Populations of urban areas will most likely seek safety in suburban and rural areas. So, rentals in suburban and rural areas would see increased demand and a corresponding increase in rents, while those in urban areas would see demand and prices drop.

Just like individuals, businesses would have to adapt, as well. The cycles and behaviors in the real estate market might follow new trends, while tenants expect new standards of service when renting. Things like cleanliness, a history of having Coronavirus negative tenants, and remote-enabled management SOPs will matter a lot more to these future renters.

How to Prepare

• 1. Digitize Systems: Fully optimize your real estate business for the new normal by switching to 100% digital platforms and tools to manage your portfolio. Have video tours and remote-access viewings enabled for marketing, and online tools for communicating with tenants, recording financials, and tracking property maintenance.
• 
  
• 2. Tenant screeningTenant screening will also need to be fully-digitized, including document signing. You might never meet tenants in person. So, make sure you do everything to verify the information they provide during screening, and conduct
  
• 
  
• 3. Property maintenance: Contractors won’t be affected by the lockdowns continuously, but you may need to schedule maintenance for times when businesses are allowed to operate. Make sure you have a strong relationship with your teams, and that your properties will be first on their list when business resumes. In the meantime, get tenants to handle non-essential repairs, or be prepared to do them yourself. 
  
• 
  
• 4. Financial reporting: Be thorough with keeping financial records, especially when tracking the pandemic months. Accounting for the change in rent payments or vacancy rates will help you accurately calculate how much income you can expect from the coming months, and see if you need to adjust your expenses accordingly.
  

The goal is to be prepared for anything that might happen, even when we don’t know what that will be yet.

One thing is for sure - the rental industry will not be going anywhere anytime soon. The difficulty lies in how landlords respond and adapt to the realities of managing their properties in the new normal, in order to keep their properties well-maintained and still have reliable cash flow coming in. Whether the pandemic lasts another 6, 12, or 24 months, the future of landlording will never be the same again.

An easier way is to hire a PMC, so that you, the landlord, can be assured of rent payments from tenants (which is your income) and manage your properties remotely (just check-in with your PMC every now and then). Just make sure your PMC is prepared to go digital and isn’t trying to avoid reality and keep doing business “old school”!

Be hands-off and focus on other things like your full-time job, family, or yourself especially during this pandemic!

Which scenario do you think is more likely to happen? For your rental portfolio in particular, what else would you need to adapt?

Image Courtesy of Jessica Bryant