The COVID-19 pandemic has changed the game for the rental property industry. Those real estate investors with rental units are facing a new reality. Despite their best efforts, good tenants may not have the income to pay rent. However, there are ways you can help your tenant to pay the rent during a pandemic in the short-term.
Keeping the cash flow coming during the pandemic is critical for your real estate business to survive. It is also a good practice to have a monthly rent payment, even if that payment is partial. Every rental property owner knows that tenants are difficult to screen and qualify in the best of times. During the COVID-19 pandemic, we are already seeing record jobless numbers. How will you find qualified tenants in an economy that is putting people out of jobs by the millions?
Related: How the Coronavirus Is Affecting Real Estate Agents
Keeping your existing tenants happy and in place and assisting them however possible is the best strategy. Without overdoing the sentimentality, we are literally all in this together. Real estate property owners are going to face a headwind of political attacks in the coming months. Do your level best to be more than fair to tenants as the foundation of your crisis management strategy. Helping your tenant find a way to pay the rent is simply good business.
Begin with a discussion with your tenants. Ask how they and their families are doing health-wise. Offer to exchange emergency contact names and numbers. You should update this information periodically anyway. For my personal tenants, I created a list including my handyman, plumber, HVAC company, and electrician so they can get help if I become unavailable. This seemed to open my tenants up to their sharing information with me. I asked for the name of a person I could reach out to in the event I could not reach them. I also advised them to hide a key and make sure their emergency contact has a key to their unit.
3 Ways to Help Your Tenants Pay the Rent
Apply the Last Month’s Rent
The best result will be tenants who can still pay the rent. But that won’t be the case for all tenants. Take things one step at a time. If your tenants cannot pay the rent this month, one consideration is to apply the last month’s rent you collected already. That should be held in an escrow account.
Related: Understanding Escrow Accounts in Real Estate Investing
Assuming there are no odd regulations in your local area, you should be able to apply that rent payment by cashing it out. Create a clear document explaining the plan that you and your tenant will sign. Include in the plan to have your tenant replace this last month’s rent at a later date when the crisis has passed.
This use of the last month’s rent will mean that your real estate business is a bit more at risk. However, a quick glance at the news related to evictions and related actions is making clear that those are on hold. Your tenants are important to your cash flow. The last month’s rent is one tool you have to help tenants keep that rental cash coming.
Security Deposit
Another resource you should have at your disposal is the security deposit your tenants gave you to hold in an escrow account when you signed the lease. There are pages of regulations around security deposits. Many legal experts warn property owners to simply skip them altogether. If you have one from your tenant, it may come in handy.
Related: Five Tips to Prevent Damages From Tenants
You can return that security deposit to the tenant and they can then pay you back the rent. Be careful not to just take that money and keep it yourself. While we cannot offer legal advice, we are sure it is a bad idea to take it directly. Pay it back to the tenant. Ask that they then pay the rent with it. The two values may not match up of course, but it is a source of partial funding at a minimum.
Exchange Services
In normal times, this rental property business owner would not suggest ever trading services with a tenant to help pay the rent. These are not normal times. The COVID-19 pandemic has changed the game. One consideration should be considering reducing rent by exchanging services.
Yard maintenance is one possibility. If you are presently paying a landscaper to mow and clean up the rental property periodically, you could exchange that service. Your tenant needs to be able-bodied for this to be a possibility. Similarly, if there is any maintenance work the rental property needs that your tenant is capable of performing, you could pay them to do it. Or reduce the rent by an equal value.
You do run some risks here. You may be responsible if the tenant is injured. Ensuring that the tenant has medical insurance is a wise first step. Some solutions are not risk-free during a crisis. How can you manage the risks? No ladder work is a smart mandate. No cutting tools (saws and the like). Don’t ever put your tenants at any risk of serious injury.
As this unprecedented crisis unfolds, we will all know more. In the short term, the expectation will be that “Landlords” will bear the brunt of the lost revenue from unpaid rent. All tenants are different. Each situation will require a unique approach.
A reduction in rent may be a requirement in some cases. Those rental companies who have tenants receiving Section 8 rent assistance or one of the myriad low-income assistance programs should do their homework. These programs may be expanded to new classes as time passes. Watch your local real estate industry groups for webinars and read up on info from Mashvisor related to this coming topic of interest.
The global financial impact of COVID-19 and the response to it will be long-lasting. Mashvisor will have more guidance to come. You can find more information and get started at Mashvisor by clicking here. In the short term, help your tenants with rent payments in as many novel ways as you can.