I’ve told you a lot about my transition into real estate. I’ve talked about tackling my biggest fears. I’ve written about how I purchased my first rental property, funding the purchase and getting started in real estate. However, no one could have prepared me for the environment in which we’re operating today and how I’m managing rentals.
There is a global health crisis unfolding before our eyes, and almost no industry will be left unscathed. Aside from highlighting several cracks in our economic structure (paid sick leave, parental leave, healthcare, federal vs state execution of mandates, etc.), there are real impacts to people all across the nation. Many who are fortunate enough to work from home can do so, others who aren’t that fortunate may have lost jobs and sources of income. Jobless claims are already on the rise, and I expect they’ll be much higher before things start to go back to normal.
While I am fortunate enough to be experiencing minimal financial impact personally and professionally, my portfolios of both stocks and real estate rental properties have been impacted. While I believe they will both bounce back over time, there are some real issues at hand that I would have never expected to have while managing rentals. For stock holdings, the short is that my portfolio has declined about 20% in a matter of weeks, but I am not concerned as I am a long-term investor and my time horizon is over 20 years. As for real estate, there is not only a financial component but a PEOPLE component that’s going to take a little more time to tell you about. Things are very fluid and changing every day, but these are some of the things I’m thinking about and the actions I’ve taken over the last few weeks as I’m managing rentals.
The Impact of COVID-19
First and foremost, my concern with the coronavirus pandemic and managing rentals is on my tenants.
I am fortunate to have the means to invest in real estate, work from home and see little change in my salary. But, I know my tenants might not be as fortunate in dealing with this pandemic. My first thoughts are about taking care of my customers.
I started tracking the news around the pandemic very closely in Ohio where my rental property portfolio is located. The governor, Mike Dewine, has done an amazing job at combating the pandemic and has been very swift in his actions. Ohio’s shelter in place order went into effect on March 22, 2020, as the state’s cases surpassed 350, early enough to have an impact on the spread of this disease.
Immediately, I thought about how my tenants could be impacted. Were they safe with their families? Would they be able to continue working remotely? When we screen for tenants, we look for whether their income meets our thresholds for rent and their financial history. We don’t think about what type of work they do and how it would be impacted during a pandemic. In order to make sure my tenants are OK and come up with solutions for problems they may be facing, I decided to act fast.
Steps Taken to Help with Managing Rentals
1) My strategy is to focus on the tenant experience.
One of the main things I focus on with managing rentals is to provide tenants (customers) with the best experience. I immediately connected with my property manager to start outreach to all tenants in our units to (1) see how they are affected and holding up and (2) whether there was anything that we as landlords can do to assist. We quickly found that about 15% of tenants are affected financially (job loss, reduction in hours). While some are applying for unemployment and looking for additional work, there is still a near term impact while those items are worked out. All the tenants were EXTREMELY grateful for the outreach. While this is a business, there is a very big human element involved that is top priority for me, which brings me to my next point.
2) Empathize with my tenants’ situation.
This is a situation that no one has experienced. While real estate is a business, there are real people involved and everyone is scared and anxious. I kept thinking “don’t be an asshole” and you should, too. Remember to be human and keep people before profit when discussing options.
3) But, the rent is still due.
Even though the situation is scary, rent is still due. Evictions are being suspended around the country and some may believe they do not need to pay rent, but that’s not true. Everyone has bills to pay, including me, and ultimately paying rent is going to help maintain the property to it’s high standards. I would like to keep tenants and maintain their existing living experience. We explained this point to tenants so they understand our needs as the owners.
4) Outline and share the resources available to them.
Once we explained rent is still due, we provided assistance to our tenants to navigate the situation together. We are keeping an eye out for programs that can help tenants with rent payments at the federal, state and local levels. For example, the government plans to issue checks as part of a $2 trillion stimulus package which may help, but there may be other options, some of which are more desirable than others. Various other options for cheap and free government loans or assistance from public agencies may become available.
5) Discuss the Emergency Rent Deferral Plan and Rent Reduction Plans.
If there are no other options available and tenants are unable to pay, we will move to a deferred payment plan for those who are affected. We plan to ask each tenant how much they can pay towards rent.
Depending on their burden, we plan to offer an option to pay the remaining amount over a 10 month period as an addendum to their lease OR reduce the overall rent amount by some percentage. For example, if May 1st rent is $1000 and a tenant can only pay $300, we would take the $700 and amortize it over a 10-month period starting three months in the future. Starting August 1st, rent would be $1070 vs. $1000 to allow tenants to have some breathing room. Another option would be to reduce rent altogether. I am not sure which path to take yet but will discuss options with tenants as it comes up. The main thing is to be proactive.
How I’m Staying Ahead of This Crisis
Keeping track of the news in Ohio and for real estate investors
There is no real source of truth for how to prepare for COVID-19 as a landlord, but there is one source that I’ve found to be helpful. Stessa, the financial management software tool we use, has a daily blog of news that tracks new items related to COVID-19 and how it affects landlords. There are a lot of resources out there and this blog aggregates anything that could be useful. While I don’t have all the information available today, I check this site daily for updates, tips and tools that I can leverage during this uncertain time.
Preparing myself financially
While there is an impact to the tenants, that will also impact financial resources as a property owner. Though I have been keeping track of news on mortgage moratoriums, I haven’t been able to find information on where investors fall in the hierarchy. As a result, I have been focusing on adding additional cash buffers to accounts in case rents are unable to be paid and also making tough decisions on repairs (e.g., deferring maintenance unless it is a must-have). Additionally, since Ohio’s mandate is in place, that also affects contractors and maintenance people, so we are being mindful of ensuring they are safe while also maintaining a positive tenant experience.
There are no real ways to describe what is happening currently and I am still digesting a lot of it (as I am sure are a lot of people). However, I am doing my best to use resources at my disposal and try to let tenants know that I am here to help as much as possible.
Derrick Deese got started investing when he was 18, buying Starbucks stock. He is still kicking himself for not holding it, but has learned a lot since then. He’s passionate about investing, financial freedom, and photography. He works in marketing and lives with his wife Natalie in Seattle.
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