Friday, July 10, 2020

Being a Landlord During COVID-19

This post was originally written on April 16, 2020.  While I don't always specify that information, it seems important given the rapidly changing face of COVID in our country.

We own a rental property on the west coast.  Pre-COVID-19, our tenants were going to pay for items that needed repair due to their own negligence.  We had already paid for the repair, and they were going to pay us back for it the following month.  It honestly was a really minor issue, no big deal to either party.  Then, the coronavirus struck.  Out of concern for our tenants, we reached out to the management company and offered to allow them to spread out or defer this charge-back as needed.  I have no idea what industry they work in and to what degree their finances have been impacted. We have no direct contact, it's all via the management company.

Apparently, the tenants were happy with that and deferred the charge-back.  Additionally, they requested to pay their rent in two installments, which was fine.  So far things in that arena are working out alright for me, but I am very much aware that as these "stay at home" orders continue, things could get increasingly stickier for everyone involved in rental real estate.  Right now there are orders in place all over the country that prevent evictions for a certain amount of time.  They also allow renters to avoid late fees for nonpayment.  The problem is that these rent payments stack up.  Who wants to have a several thousand dollars past due rent bill hanging over their head?  That sounds like a huge mountain to climb, and I don't wish it on anyone.  There are some proposals out there that suggest paying rent simply be suspended for a certain duration of time. This proposal operates under the idea that property owners will be able to place their mortgage loans into forbearance for that same duration of time.  Meanwhile, interest and fees stack up for them.  With no money coming into pay such fees, they just keep growing.  Forbearance is expensive even if you can get one!  If you can't get one, you run the risk of falling behind on the mortgage.  If things don't clear up soon enough, you lose the property.  That's a way down the pipeline, and hopefully, it doesn't go that far, but it could.  If the home is foreclosed upon, the tenant's world also gets turned upside down.

Additionally, if there's no rent, management companies won't get paid, and will no longer be able to pay their staff.  What about repairs?  I have paid for three different (small) repairs since the beginning of 2020, which is fine.  If no rent gets paid, there is no money to make repairs, so they'll probably be put off.  This is not good for living conditions. It's also not good for the small business owners and repair people that count on that income.

At the same time, you can't expect people to pay rent with no money, right?  This is where individual states need to come up with solutions that stand a chance of helping the most people.  Individual states have the ability to direct the manner in which funding from the CARES Act gets used in their state to a certain extent.  I've read about proposals being made by various rental real estate organizations.  They are appealing to states to utilize CARES Act funds to issue rent vouchers to individuals that have been financially impacted by COVID-19.  These vouchers would prevent renters from ending up with a backlog of rent payments due at some later date.  It would also provide some much-needed relief to a renter's wallet.  Meanwhile, management companies keep operating, owner mortgages keep getting paid, and repair people keep servicing homes as needed.  Personally, I appreciated this proposal.

This is a huge problem, and I am very interested in hearing some of the proposals that are out there.  I just hope that they serve everyone.  While some landlords are huge corporations, others are just individual people like me...  People that have a regular job, one rental property, and a mortgage on that property that needs to get paid.  Our governors have a big job to do.  I do not envy them.  I just hope in the process they protect as many people's interests as possible.

What are your thoughts?  How could individual states protect renters, property owners, and the incomes of those contractors involved in rental real estate in the fairest way possible?

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