With the COVID-19 crisis we are faced with a challenge unlike anything we have ever had to deal with in modern times. Over the past few weeks, I have received a lot of information, to a point where I have been so over whelmed, it lead me to writers block.
As we are about to face the first rent day with the crisis in full force (Canada and USA, I know other countries have been dealing with the crisis longer). I wanted to start with the sensitive topic of what if your tenants either can’t pay (due to a loss of income) or refuse to pay siting something a politician in your area may have said.
This has created a lot of fear for many property owners. Especially to many of my readers who are in the small residential property business.
The residential property business for the most part is a low margin, expense laden, high leverage business. What that means is that without the rental revenue, the building owner will need to subsidize the expenses. If the owner has lost there job, or other sources of income, this can put them in a bad place.
In my home province, the government made a statement that there would be no evictions for three months (March 22 – June 22). It was a bold statement, and in my opinion very irresponsible without setting the stage first and putting it in context. It naturally caused a shock wave in the residential property community. You see the way it was interpreted by many tenants was they did not have to pay rent. Many property owners sprung into action and contacted various levels of government to ensure they would make a statement with clarification on this issue.
Yes, it is true, tenants cannot be evicted for non-payment of rent during this period of time, however, they are expected to pay the rent or work out a payment arrangement with the landlord. The eviction process will still begin, but hearings will not be set until on or after June 22. At the hearing the tenant will have to prove their income was reduced or eliminated by the COVID-19 crisis. They will still be required to pay the rental arrears at that time, or they will be evicted. The reason the government came out with the eviction freeze was not to give free rent to tenants on the backs of landlords, but to allow time for emergency programs to start, as well as unemployment benefits. Also to provide time for tenants and landlords to communicate and work out a payment plan or some sort of a solution.
The other interesting part in our area is that evictions not related to COVID-19 income loss will still be taking place.
Landlord applications regarding:
Tenant behaviour/actions that affects the safety of other tenants, landlords and/or landlord employees or landlord property.
What can you do?
You could worry and curl up in the fetal position, likely not the best option, a better option would be to make a plan.
This is where knowing your tenants occupation would be very helpful. For example if they work in healthcare, retail food, police, or do other jobs that are considered essential services, they will not likely see a decrease in income.
That being said, if they work in the food and beverage industry, cosmetology, clothing retail or other businesses that may have been forced to partially or fully shut down, there is a good chance they may have lost there job.
If they work in an industry that relies heavily on tips, the financial impact could be worse. Let’s face it, most people live pay check to pay check, having $0 coming in over a couple of week stretch, will be detrimental to a lot of people. The upside to all this, is that the governments in many places seem to be stepping in to help.
Reach out to the tenants that you know or think they have lost there job: My friend Jenna Ross of Happy Place Property Management is talking to all her tenants to find out if they need help, or are going to be late on rent / unable to pay due to a job loss. If they suggest they may not be able to pay, explain the importance of the rent payment. Most landlords will not last very long without rent payments, also most tenants believe that landlords have lots of cash and can afford to pay mortgages / insurance and operating costs without collecting rent. The reality is, the rent needs to be paid.
Get familiar with the government programs available in your area: The Canadian Priminister Justin Treadeau speaks just about everyday on the national news. He provides an update in a calm tone, tells everyone it will all be ok, and what new measures the government is taking. Then our provincial premier Stephen McNeil along with the Dr. Strang (Chief medical officer of health) speaks. If you are in the USA you will likely get your news from the state governor. I am not sure that president Donald Trumps information is very accurate. The reason you want to be familiar is that you may be able to help some of your tenants access money from a program, taking a helpful approach will be much better than strong arming your tenants at this time.
Work out a payment plan: Maybe half or a small amount on the first of the month and the rest on the 15th, or whenever, they start receiving unemployment benefits. Maybe you can do a one month deferral and then break that amount up over the following 6 months, or a 50% deferral.
Start the eviction process: If your tenants are unwilling to discuss an arrangement, or refuse to pay rent, because they think they do not have to. Even though you may not be able to enforce an eviction at this time, it will put you at the front, or close to the front of the line, if you start the paperwork now.
Let your tenant break the lease: If your tenant lost their job or perhaps their business permanently, maybe the apartment they are living in is too expensive, especially if they do not have a job or business to go to when the crisis ends. You might be better off letting your tenant break the lease and leave, rather than chasing them for rent they have no ability to pay in the foreseeable future. Also if you have a cheaper apartment, it might be worth moving them to a cheaper unit.
Show some compassion: I realize this might seem like the opposite of the previous idea, and I also realize everyone is in a different place financially. I know many landlords, especially if they are new, rely on every dime of the monthly rent to pay for the operating cost of their properties. Also some folks that are already in a negative cash flow position even when they are fully occupied. That being said, this is a worldwide pandemic that neither you or your tenants can control. Will some look at it as an opportunity to get out of paying rent? Absolutely. The interesting part in my area is that the vacancy rate is at 1%, so taking advantage of a landlord would be a poor choice, unless they plan on leaving the area for good, or can find a landlord / property manager that does not do credit checks.
Stay positive and away from the news: This might not be 100% possible, especially since this everywhere you look you see a reference to COVID-19. The residential housing market is always impacted when there are massive changes in the employment status in the community it serves. The bright side of this situation is that unlike a financial crisis (which areas may never recover), this will pass. There will unlikely be a switch, and it may take several months, but eventually all will get back to normal. Everyday that passes brings us one day closer to the other side.
Conclusion: As we head into the scary time of the first rent day of the crisis (Canada / USA) be strong. On the best days the residential real estate business is tough, so I know you have grit and what it takes to get through this. We are all in this together. Do not let the Corona Virus (COVID-19) beat you.
Until next time,
Design your landlord experience,
Michael P Currie
For other ideas, tips and advice to run your real estate business, check out our book
Photo credit goes to MarKus Spiske – Photography
Other useful links during the pandemic:
World O Meter Corona Virus Updates
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