You don’t have to catch the virus to feel the effects of the resulting economic downturn. So what does this mean for landlords and real estate investors? Let’s flush this out, shall we?
In Italy, where the country is basically shut down, the government is asking banks to issue reprieves for mortgage payments. In the US, the government is asking nicely for banks to do something similar but they have yet to put it into law. That very well could be the next step.
This would be nice if you have a mortgage on your investment property but it does not help you with a non-paying tenant, does it?
Your tenants can very well be effected by the economic effects of this virus. They could work for airlines and have their shifts slashed due to travel bans. They could run restaurants that are forced to shut. They could be forced to stay home from work because their children’s schools close and they cannot afford childcare. There are many ways that people will lose out on their ability to earn a paycheck and pay their rent, which means you as the homeowner could see rent roll stop rolling.
What are we to do then? Well, we could draw a hard line and enforce evictions. This does not mean we are guaranteed to win those evictions. Local governments could put a stay on evictions until the economy bounces back and you’ll be stuck with a tenant that hates you and is not paying. That’s a lose-lose situation.
Are we saying let people not pay their rent? No, we’re not saying that. But can you work with your tenant and forget their late fees? Can you reduce rent for a short amount of time? This is where the human equation plays in and we have to get creative about coming up with a solution that works for you and your tenants.
Another way you can reduce expenses is to ask city governments for real estate tax abatements. There is no guarantee but you could ask for your late payment to be waived or ask for a reduction. It’s worth a shot!
And if the mortgage on your property is owned by a bank that is not showing signs of flexibility, go to them first! You never want your bank knocking at your door for non-payment. You want to be the one to bring up hardship. They would rather work with you to come up with a plan than have to chase you down, spend their time punishing you, and then have to foreclose in the end.
This is all worst-case scenario and we don’t want to spread fear. Hopefully none of this plays out in this way but it is prudent to think about how you would handle these hard choices. The best advice we can give is this: be prepared, be compassionate, and be level-headed. And of course wash your hands and don’t touch your face.
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