Before the effects of the COVID-19 pandemic spread to your rental property business operations, take action. You can protect your business by making some important financial moves right now. While much of what will come may be out of your control, you are not helpless. You can fight the financial difficulties and strengthen your rental property business before things get bad.
Mashvisor has identified four key areas in which you can take action now or begin to prepare your rental property business from the financial downturn to come. COVID-19’s economic impacts will be severe. This is the time to make your moves to ensure your rental property business survives this pandemic.
Related: US Real Estate Market Data Shows COVID-19 Effect
While each of our rental property businesses is unique, we all rely on financing, rental income, and a full understanding of tax implications. It is time to add to that a habit of following the new government assistance programs becoming available this very week to help those with rental property businesses survive.
Here are Mashvisor’s four recommended moves to protect your rental property business in the era of the COVID-19 pandemic.
Move 1 – Protect Your Rental Property Business Income Stream
Without rental income, your rental property business will not survive. As the spread of the COVID-19 pandemic evolves, your tenants are increasingly important to you. Their financial situation is about to change if it already hasn’t. Now is the time to reach out and have a discussion with your tenants.
Related: How to Create Rental Property Income: 12 Tips
You should already have an emergency contact list for each of your tenants. If it is more than a month old, ask your tenants to update it. In your request, offer yours. Who will your tenants reach out to if they need help and you are unavailable? Your list should start with your property manager if you work with one. Next, list the main contractors you rely on for handyman, HVAC, plumbing, and electrical services. Advise your tenants that they can seek help from your service suppliers directly if they cannot reach you in an emergency. Give your contractors a heads up that you will cover the costs of repairs if the tenants ask for help.
In addition to exchanging this information, you should have a conversation with each tenant in your rental property. Politely ask about their health. Try to politely inquire about their employment status and be ready for some bad news. It is better to know the situation than to worry about it. Some tenants may not wish to share this information. Do what you can.
Be aware that this is not the time to engage in any sort of pressure on tenants to pay rent. Local laws are quickly evolving and this may, in fact, be illegal. Your goal in the short term is to open the lines of communication.
Once you know the situation, if a tenant simply does not have the funds to pay you, form a rental plan unique to each tenant. Mashvisor has identified three ways to help a tenant continue to pay rent in the short term. One is by using the last month’s rent now held in escrow. The second is by paying a tenant back their security deposit to enable them to use that for rent. The third is by trading services. Each has some risk. See our full overview on this topic here: 3 Ways You Can Help Tenants Pay Their Rent During the COVID-19 Pandemic.
Move 2 – Slash Spending and Stash Cash
As the COVID-19 spread impacts your rental property business financially, you may be the person who is missing payments. With your rental income in jeopardy, this is the time to stop any discretionary spending. Defer home renovations. Do only the most pressing property maintenance. Better to have the cash on hand than a new kitchen in one of your rental units.
If you have a lender willing to provide you with a line of credit, cash-out refinancing loan, or similar, take the money! Call your lender today. New restrictions may be put in place soon. Don’t count on a loan later.
Although we are suggesting that you slash your renovation and maintenance costs, do it wisely with the help of a good rental property or Airbnb calculator. Identify your most loyal and important contractors. Shift any available funds to them. Speak to them and ask how they are doing. A small payment by you for needed repairs may mean a lot to them. If they are out of business, then you need to find a new contractor with whom you have no history. Be strategic in your payouts. Help those you need most.
Move 3 – War on Two Fronts – Secure Your Personal Finances
Protecting your rental property business is just part of what you need to prepare for. As the pandemic spreads its financial woes, step back and ensure that you have protected yourself as an individual. If you have not already set up an LLC or corporation, do so immediately. Segregate your rental property finances from your personal finances. Should your business fail, you don’t want lenders to seek repayment from your personal assets. If you are a small business owner, this may not be practical. Do what you can.
Related: Forming an LLC for Your Rental Property Business
Do you have a spouse out of work? Or perhaps sons and daughters at home from college or high school? Put them to work in your investment property business. Landscaping, painting, and cleaning are skills any able-bodied individual can learn. Supplement your own family’s income by putting your family members on the payroll legally and keep the funds coming back to your family.
Now is the time to ensure your personal bills can be paid for three to six months. Do what you must to prepare. Historically, independent small business owners get the short straw when government assistance is provided.
Move 4 – Understand Government Aid Available to Your Rental Property Business
This very week, a $2 trillion aid package was passed by your federal government. States across America are also making important changes to help individuals and business owners survive financially. Here are just some selected highlights from the aid package that may benefit you as a real estate investor in the short term and long term.
- Heads of Household with Adjusted Gross Income (AGI) under $136K will receive a check.
- Families with Adjusted Gross Income (AGI) under $198K are about to receive a check.
- The IRS extended the April 15, 2020 federal income tax filing and payment deadline to July 15, 2020.
- First-quarter estimated tax payments usually due April 15, 2020 are now extended to July 15, 2020. Second-quarter payments are still due on June 15, 2020.
- States have extended deadlines for tax returns.
- Unemployment benefits to workers who are not traditionally eligible such as self-employed or independent contractors (including gig economy workers) become available starting Friday, April 3, 2020.
- Mortgage payments are being extended. Anyone with a loan backed by Fannie Mae, Freddie Mac, FHA, VA or Rural Housing can receive forbearance and delay up to one year on their mortgage by reporting that they have a COVID-19 related financial hardship.
- New loans are available. Some include forgiveness if the money is used to pay employees. Speak to your tax professional or do the research yourself.
Learn More: How the CARES Act 2020 Will Impact Real Estate
It would be an understatement to say that you have some work to do to protect your rental property business. However, with some planning and preparation, your chances of weathering the storm are much better.
Mashvisor has all the real estate investment tools you need to find and evaluate new rental property opportunities. Mashvisor is also a resource for COVID-19-related topics. See how Mashvisor can help by starting here. Be well.