The reason why we decided to create this article is because a lot of people have been asking questions to us all over about what’s happening with their portfolio, and what advice can we give to you to manage properties. What tips do we actually have to share with you in order to navigate through this entire situation?
The number one thing that you have to do during a crisis as soon as you find out is to communicate. Communication, and why is it important? Because you need to figure out what’s going on. The first thing you should do is to call my tenants, and reach out to your property managers, and find out what was going on locally.
Real estate is usually something that is local, not every single state is affected the same way and not every single county is affected the same way. You need to know what is going on and find out what you can do as a landlord in order to provide the best support possible and, at the same time, manage properties, which is what you do.
How to manage properties if your tenants lose their jobs
If the tenants lose their jobs but they have some savings, what we need to think about is, how long can they make it last? Will it make it better if we work out a payment plan? Because it’s a horrible situation that they lost their job and therefore they’re trying to figure out what they can do financially so that they won’t wind up on the street and at the same time worry about feeding themselves and their families. Us as real estate investors, as landlords, also have our own financial responsibilities to meet, which is to pay the mortgage and make sure that the property taxes are paid and making sure that our property managers are also paid.
One of the solutions is to actually work out a payment plan to see if your tenants can actually take care of that. For example, their rent is usually $900, and during a crisis you can talk to one of your tenants and ask them to know how much can they possibly afford? Will it help out if you reduce the rent, and then spread out the payments throughout the following couple of months? That’s one possibility.
For example, we have April, then May, and then June, and so on. Let’s say your tenant says, “Well, I can only afford to pay $400 for the first three months.” That will leave you with a $500 difference because formally, you used to charge $900 and now it’s $400, what they can pay. That means that every month $500, it’s a total of $1,500.
What you would do in this situation, with this example, is just to simply take this and spread it out throughout the remaining months. All the way through July to August, we have a total of six more months. We’re talking about six more months, from July, all the way to December. Let’s assume that by July, things do get better and your tenant is able to find another job or maybe get additional side income and will have the ability to resume normal rental payments.
Payment plan solution
Part of the payment plan solutions is to simply take this $1,500, the $500 that they wind up not paying for the first three months, April, May, and June, and distribute this all the way across the six months. When you take this number and you divide that by six, you’re getting a total of $250. This $250, will be added to each month. That will be what they will be paying out to you. It could be any amount, this is just an example. It’s a payment plan, it definitely reduces some of the stress to them.
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Once this is figured out, you have the payment plan taken care of. What else can you do to improve your situation as an investor or take care of what’s going on? What a landlord should do is to also educate themself to be able to think about all the possible options.
Another solution for you tenants is to actually look for jobs, but how can you tell them to go ahead and find another job if they just lost one? There are other big companies hiring out there. Amazon is one of them, Walmart, they’re competing head-to-head and they’re hiring big time.
There are so many other agencies out there that are actually looking to bring more people into their workforce. If you’re wondering which ones, don’t worry, here’s a list you can check out and see if your expertise can be applicable to some of those companies that are looking to hire even during this crisis.
Another way your tenant could find a solution is to simply file their taxes. If you are one of those taxpayers who are expecting a refund or anticipating a refund, then this is one of the reasons to actually go ahead and try to file your taxes, so that refund can help you either take care of some of your personal expenses, take care of some of the rent, and help you a little bit with that financial situation.
How to manage properties during a crisis: CARES Act Stimulus
Another solution that you can actually propose to your tenant is to look for the stimulus that it’s been approved by the CARES Act. If you are a small business or a real estate investor who’s running your rental portfolio as a business, then this CARE Act could actually be very beneficial for you as well.
Another solution you can actually share with your tenant is the use of credit cards. You might probably be wondering: “why do I want to encourage my tenant to get into more debt?” Credit is not a way for you to get into debt.
Credit is actually a tool that’s going to help you get from point A to point B. In this case, you’re very fortunate if your tenant happens to have some funds saved for a rainy day.
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By having access to a credit card, you can actually have access to cash, you can use services like Plastiq or Venmo to pay for your rent, and therefore get access to that capital.
A lot of people are hoarding cash because they are afraid that eventually the banking system is going to go down, that credit card companies are not going to be working anymore. They prefer to keep more cash in hand, and therefore they’re using credit cards even more often than before.
Protect your investment
Let’s say that your tenants absolutely cannot, cannot afford to pay the rent and you have to take action in order to protect your investment because you cannot afford to default on that mortgage. You cannot afford to default in those property taxes.
- Reserve funds: Every time you have closed in on a property, what are some of the requirements that you get from the bank? That you have a lease somewhere between three to six months worth of funds depending on the bank.
- Consider the use of credit cards. Once again, it may sound counter-intuitive but in this case we are talking about business credit cards. Business credit cards, they stay separate from your personal credit card.
In the event that something were to happen, you could tap into those funds and then use that to pay either your property taxes or your property manager or just simply use services like Plastiq or Venmo to get some of the cash available and use that to cover some of your mortgage expenses.
401K funds
For those who don’t know what a 401k is, it’s just basically a retirement plan. It’s usually made available if you are working for somebody. Your employer usually helps you to contribute towards your retirement funds. Typically, you’re not allowed to access these funds before the age of retirement, but thanks to the CARES Act now they’re actually allowing people to tap into these funds and have the ability to withdraw them without having to pay the 10% penalty.
Why would you tap into retirement funds? because this is an emergency.
- Use of SBA loans. Real estate should be managed as a business. You should manage your real estate portfolio as if it is a business.
That means placing your properties and setting a Line Of Credit, making sure you’re keeping tab of the operating costs, keeping up your receipts, making sure you’re working with an accountant, a professional accountant that’s going to help you keep everything in check.
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