Summary: Worried you won’t be able to pay your mortgage due to COVID-19? This article should help. Learn 8 tips from a landlord/attorney about how to collect rent during the Coronavirus pandemic.
This is an unprecedented time. If someone had told me a few months ago that by the middle of July a whopping 14.1 Million total humans would be suffering globally from a deadly pandemic with over 597,000 dead, I wouldn’t have believed it. It seems outrageous. Like a movie more than a reality.
But here we are. This is our new normal, and chances are it’s not going away anytime soon. As landlords, we’re in a tough position. With millions losing jobs due to the Coronavirus and many cities and states under eviction moratoriums, a lot of tenants haven’t paid rent over the last few months and perhaps more won’t be paying in the months to come. And while they will eventually have to pay the rent back, the big question is when?
With no foreseeable end to this crisis, many landlords are fearful that they won’t be able to maintain their properties, pay their insurance and property taxes, and make their mortgage payments.
Personally, I’m looking at this situation from multiple angles. I work for RealWealth®, a real estate investment club that helps people invest in real estate markets across the country. Most of these areas have issued halts on evictions or grace periods to give tenants extra time to pay.
My husband also manages his family business that owns and operates five apartment buildings and a restaurant space in the Los Angeles area. Many LA cities have declared that landlords must offer rent forgiveness and will allow tenants 12 months to pay their back rent, after the state of emergency is over (and who knows when that will be).
To put it bluntly… this is a scary time to be a landlord. And while many of us want to be compassionate, and would love to waive rents entirely for a month or two, it’s not necessarily feasible. At least not now, with all the uncertainty around whether landlords will get similar help to cover expenses and to pay their mortgages.
As an attorney, landlord, and all around kind-hearted person who wants to do the right thing, my husband has spent quite a few sleepless nights thinking about what to do. So, naturally I asked for his advice to write this article.
Here are his top 8 tips for collecting rent during the Coronavirus Pandemic:
Tip #1 – Look up your local regulations
As I mentioned above, many states and cities have ordered evictions to be suspended, but every state and city is different. In California, for example, there are more than 80 local governments that have passed temporary bans on evictions. Each of these areas has different rules and regulations.
This is why it’s important to check your state and local municipality’s regulations to see what’s going on. This information should be readily available on your state or city’s official website.
Keep in mind: Even if your municipality will let you evict, they will not place a new tenant for you. And it may be difficult to find renters when most people have been ordered to stay home.
Tip #2 – Communicate with your tenants
In many cities tenants are required to give their landlords notice if they won’t be able to pay rent due to COVID-19. The timeframe in which they need to do this varies depending on where your properties are located, so make sure to check with your local municipality.
However, it’s likely that many tenants who won’t be able to pay rent will let you know regardless of what the local law is. I know that my husband has already communicated with several of his tenants who won’t be able to pay, and he is going to work with them to set-up payment plans in line with local laws.
Tip #3 – Ask for Verification (If allowed by your city)
While it’s important to be compassionate right now, it’s also important to ask for verification when a tenant says they can’t pay their rent due to COVID-19. There’s a big difference between a tenant who has completely lost their job due to Coronavirus and one who lost a quarter of their income, but is still making $8,000 per month. The first tenant should be able to defer their entire rent payment. The second tenant should probably still pay their rent.
Long story short, if a tenant says they can’t pay their rent and their verification doesn’t line up, you may still be able to serve a notice to pay or quit depending on your local laws. In most areas you won’t be able to actually remove the tenant until after the state of emergency has ended, but it’ll send a strong message to your tenant that you are serious about collecting rent payments.
In other words, be willing to help the tenants that really need it, but don’t get taken advantage of by those that are fearfully hoarding money or just don’t want to pay rent for a few months.
From a legal perspective, it’s also important to treat all of your tenants equally in this situation (especially tenants at the same building). Helping out the people you like and not others is a very good way to get sued.
Please note: In some U.S. cities it is illegal for the landlord to require documentation at this point. However, this doesn’t mean you can’t request it. Make sure to check with your local municipality to learn about your local laws.
Tip #4 – Encourage tenants to pay what they can. Even partial payments are better than no payments.
I covered this a little bit above, but to reiterate… work with your tenants who are affected and see if they can swing making partial payments. If they lost half of their income, offer them half off their rent until the state of emergency is over. Just make sure to let them know in writing that their partial rent payment will not satisfy their full rental obligation.
Once they’re working normally again you can prorate out the amount they owe over a period of 6-12 months and add it to their normal monthly rent payment.
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Tip #5 – Set-up a payment plan (If allowed by your city)
If a tenant comes to you and says they won’t be able to pay all or some of their rent this month, and their verification checks out, work with them to come up with a payment plan.
If their rent is $1,500 per month, see if they can pay $250 per month over the next 6 months. If they still can’t pay rent next month, extend the payment period for an additional 6 months. Once the state of emergency is over, and they hopefully get their job back, you can add the additional $250 to their normal monthly payment until the debt is repaid.
Note: In some U.S. cities it is illegal to require your tenant to sign a payment plan. Again, please check with your local municipality about the legality of payment plans. If they are allowed, encourage your tenants to sign one.
Tip #6 – Reach out to your lender to see what kind of help they can give you
One of the biggest fears for landlords is that they won’t be able to make enough income due to lost rents, which will cause them to default on their mortgage payments.
If you’re in this situation, reach out to your lender and be transparent. Tell them exactly how much rent you’ve lost per property, give them a breakdown of your monthly expenses, and let them know how much you’ll reasonably be able to pay every month to avoid defaulting.
They may be willing to help lower your monthly payments or help you qualify for an additional low interest loan to cover the difference. It never hurts to ask!
Tip #7 – See if you qualify for a government loan
If your lender won’t work with you, you can also see if you can qualify for a government loan. For example, SBA Economic Injury Disaster Loans (EIDL) are available for rental property owners in all U.S. states and territories.
Here’s how it works:
- The loan offers up to $2 million in assistance
- The loan terms are 30 years at a rate of 3.75%
- No payments are necessary for the first 12 months
- There’s no prepayment penalty
- Funds are to be used for working capital needs
Unfortunately the EIDL grant is not available for landlords that don’t have employees. You can learn more about the loan options available for landlords in this recent article: Landlords: How To Pay Your Mortgage & Property Expenses (COVID-19)
Tip #8 – If you have vacancies, consider doing virtual tours and offering bigger incentives to get units rented
Filling vacancies right now may not be easy, especially because it’ll be difficult to maintain a six foot social distance when doing a tour. To combat this problem, many landlords are doing live virtual tours of their vacant units.
You can do this over Facetime, Zoom or Skype, and it will give you the opportunity to point out the custom cabinets, new appliances, or amazing walk-in closet. It will also allow you to get a feel for the prospective tenant (to make sure they’re someone you actually want to rent to) and to answer their questions in real time.
If you really want to get your units rented quickly, you might also consider offering an incentive like, 2 weeks or a month of free rent. You could also waive the security deposit or offer a free parking spot for a year.
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