For many investors right now, the worst part of the coronavirus financial fallout is the uncertainty of where the economy is going to go.
How much longer are tenants going to be out of work? Are they going to use the current situation as an excuse to not pay rent? How am I going to meet my mortgage payments if I don’t have income from my rentals?
It may feel like you’re trapped upside down in the water. Watch this video about that and see if it illustrates how one might feel right now.
It’s a video a guy shot that went through the training Marines get to prepare them to crash in a helicopter in the ocean.
The trainees are put in a simulator that is sunk in the water and then flipped upside down.
When you watch it, notice that the first thing that the instructors teach is for the trainees to grab their seat and ANCHOR IN PLACE (the rodeo grip) AND KEEP CALM!
Towards the end of the video the narrator says;”If you freak out in that moment you’re going to stay in that dark place…you cannot do that.”
To deal with any situation you need to figure out what the problem is and find out what resources you have to deal with it. You need to do the rodeo grip and anchor in place, then find the exit so you can make your way to the light.
Start with your tenants. Talk to them, text them, whatever. They’re feeling uncertainty also. Just like you they’re surrounded with bad news. It’s in social media, broadcast media, and they are hearing it from their friends. You may find out that they do have some financial difficulties or you might find out that they’re fine. They’re just sick of being stuck at home and not being able to go out and be with their friends and family. The only way you’re going to know their situation is by communicating with them.
Many people are responsible and want to pay their bills just like you. But if they can’t, let them know that you want to hear from them. Invite them to approach you. Be conversational. It may seem unprofessional, but if you ask people how they’re doing and let them talk, they’ll frequently tell you what you want to know by accident. It’s an old interrogation tactic.
You aren’t promising anything. You’re staying on good terms with your tenants and gaining assistance in finding out what your situation is. Yes, I said YOUR situation. If they can’t pay all or any of their rent that affects your situation.
If you have tenants that have been financially affected by the coronavirus, let them know that they have options like the additional unemployment insurance measures that have been implemented by the governor in a proclamation.
Waives the one-week waiting period for all applicants who are otherwise eligible.
Makes it easier for claimants to be considered as job-attached if they have been laid off due to COVID-19 related reasons. An employer must provide reasonable assurance of a return to work and the claimant must be able and available for suitable work.
Considers claimants have met the available-for-work criteria if they are isolated and unavailable to work at the request of a medical professional, their employer, or their local health district and they will be returning to their employer.
Provides parties an additional 14 days to appeal claims decisions beyond the normal 14 days.
Is backdated to March 8, 2020
These measures should help tenants without work meet their financial obligations.
It’s been suggested by some sources that tenants should reprioritize their spending so that they can put their rent first. It’s an entirely appropriate idea you might suggest, gently. Remember, you’re dealing with Idahoans and they don’t take well to being told what to do. All kidding aside, be helpful but not confrontational. You catch more flies with honey than vinegar.
Many service providers that tenants utilize offer direct withdrawal of funds to pay for their services. People take advantage of this because, #1 their bills are paid on time every time and #2 frequently there’s a discount for direct payments. This can add a level of complexity and extra expense to tenants that are trying to reprioritize their spending and meet their obligations.
Even though the press has been trumpeting the protections being offered to tenants, there are protections being offered to investors as well in the form of mortgage forbearances. I wrote about these protections in an earlier blog post you can find here:
Read the post to get an idea about what options there are for you. Even if you don’t need to utilize those options right now, knowing they are there will help you develop a strategy to get to the light.
Talking to your lender and finding out what options might be available is another good tactic. If you feel like you can, just talk to them. Focus the conversation around what other investors are doing and not what your situation is. Pump them up a little bit by asking what they think the market is going to do and what they’re hearing from their sources. After you ask, let them talk. Everybody likes to talk about what they know. In the process you’ll gain situational awareness.
This is the same way you would want your tenants to stay in touch with you. What’s good for the goose is good for the gander.
The next person you should consult is your attorney. Find out what your rights as a landlord are in the current legal situation. This is not something you want to have to learn when the chips are down and you need to react to a situation. You don’t want to figure out what your options are after you’re upside down and underwater, in a helicopter.
The National Apartment Association released a mini webinar (26 min.) on March 31st . In the webinar an attorney offers guidance regarding rent collection and some specifics about the CARES act.
The final expert you want to consult is you. You know your balance sheet and cash flow statement. You’ve found out what your tenants’ situations are. You’ve done the homework and found out what your legal options are and what your lenders can offer. Be the final expert on your situation because you know what you’re willing to tolerate and for how long.
Decide what your assets are. Do you have enough cash to get by if tenants are late or can’t pay rent? Will you need to create liquidity? If so, how and when? Will you borrow or liquefy assets? If you sell of assets, which ones would you sell first?
What is the threshold you have set before you take action and decide to ask for a forbearance?
Form a flexible plan that deals with as many contingencies as you reasonably can. Decide what you want to do, if things continue, at three month intervals out to a year.
You’re not predicting the future by forming a plan. You’re giving yourself a framework to work within. A good plan doesn’t define any behavior. It’s simply a flexible guide for dealing with contingencies and enabling you to deal with change that will come.
In the end simply hang in there. Do your best and accept that you’ll probably make some choices that are less than perfect or bad choices. But then you’ll make some good choices and a few that were spot on. When you look back to this time in your life, you’ll be amazed how well you held up. Take a look at how some people started their fortunes during the Great Depression and left billion dollar legacies.
A man named George Jenkins quit his job at Piggly Wiggly and started Publix Supermarkets in 1930. Publix now has more than 1,000 stores and $29 billion in sales.
The McKee family started off selling cakes out of their car in 1928. In 1934 they bought a bakery and started making Little Debbie snack cakes. The McKee family has an estimated worth of $1.4 billion.
E.&J. Gallo started crushing grapes in 1933 and selling the wine for fifty cents a gallon. Gallo is the largest wine maker in the world and the Gallo family is worth $9.7 billion.
Closer to home, Mr. J.R. Simplot bought an Idaho potato farm in 1929. The Simplots are now worth $8 billion.
We can’t all be billionaires, but we can make the best choices possible with the knowledge and the tools we have. Do your best and believe you will prosper.
If we may be of help please contact Kirk Rehfield (Jacobgrant Owner Relations) Kirk@jacobgrant.com or 208-795-8298.