MANAGING RENTALS DURING A PANDEMIC
Managing multifamily rentals during a pandemic can be challenging. As a property owner/ manager you are faced with protecting your investments and preventing the potential loss of your property while also being sensitive to the hardships faced by your residents.
While multifamily has been more recession resistant than other asset classes, it is not immune from the effects of the pandemic. If you are a new or first-time investor this may deter you from even getting started. With a few practical strategies you can minimize risks associated with investing in multifamily and continue to grow your portfolio. Here are a few tips that can help you succeeds as a multifamily owner during this pandemic.
Update Your Budget Projections
Anticipate increased vacancy. Due to financial hardships faced by residents there may be increased economic vacancy as loss of income or concerns over loss of income may lead residents to default on their rent obligations. There may also be increased physical vacancy as responsible residents may move out when they realize they are no longer able to afford their units. It may also take longer to lease units in markets that are harder hit by the pandemic. Account for this increased vacancy in your monthly and annual budget.
Increase your reserves account. Profit that typically would have been paid out to owners of the property should be reallocated as feasible. This will provide additional buffer for economic vacancy/ defaults should they increase. Refinancing if possible, may reduce your debt service allowing you to put more capital towards reserves and preventing you from having to sell your property at an inopportune time.
Depending on the size of your multifamily property you may have to include additional line items for PPE and sanitization. The larger the property the higher the chances of this. If there are common areas that you wish to remain open, you can have residents sign waivers prior to usage of these areas. This strategy may help maintain cleaning costs at pre-pandemic levels and still allow residents who are comfortable doing so to use the amenities that make the property enjoyable to them.
If your rentals include utilities such as electric, and water you can anticipate higher monthly utility expenses as residents being home for a longer period will create a higher burden on utilities.
Reschedule Maintenance, Repairs and Upgrades
Focus on safety upgrades. If you are in the middle of a value-add improvement plan it may make sense to finish the current units under construction with the same planned changes or slightly more economic improvements.
Now would not be a good time to do a major upgrade such as adding a pool to your property or adding dishwashers and ceiling fans to every unit. The funds for this may be better allocated to reserves until there is more certainty that the costs can be recovered from property level income.
To maintain social distancing, you can adjust timing of your maintenance and repairs. Have maintenance and repairs done while residents are out of their units or when the least number of people will be home. It may even be reasonable to put off some maintenance items if they will not be a safety hazard in the near term.
Optimize Rent Collection
lIf you have not already, it is time to switch over to a digital payment platform. This will allow residents of your rentals to make contactless payments and avoids any slowdowns related to disruptions in mail delivery systems. These platforms also offer auto-pay options which help residents pay on time even if they forget to pay. If there are insufficient funds in the account, the ACH payment will not process.
If the auto-pay is scheduled on the 1st of the month, you will find out this information earlier than non-electronic payment methods. This can provide insight into income or financial management issues a resident may be experiencing. Unlike a check by mail, or cash where someone may not have had time to get to a bank or ATM, the payment for an ACH auto-pay is either in the account or it is not. There are few excuses to justify otherwise.
Some property managers have allowed residents to use their security deposits as payment for rent. If you pursue this option be sure to formally agree on a repayment plan. This way should the resident move out they will not be expecting a non-existent security deposit
If your residents are unable to pay without any prospect for a near-term return of income it may be best to encourage them to move out. It is important to address this in a legal and sensitive way.
If feasible you can forgive the remaining lease term in exchange for an early move out. If the resident does have income but it has been reduced (maybe one member of the household becomes unemployed), you can consider resigning a short-term lease for a lower price. Consider the unit turnover costs, current market vacancy and possible concessions to new residents to determine which option would be most financially sustainable.
In some extreme cases it may be worth providing residents with financial assistance to leave the property. If negotiating this, start with a lower number, of half of a month’s rent or less. Alternatively, you can write off the current month’s rent payment allowing the resident time to save the funds needed to move out.
Understanding your residents’ employment base will also help to plan for possible impacts to cash-flow. As part of the screening/ application process you should have collected employer info. Take the time to assess what industries or employers your residents work for.
What percentage of these industries or employers are at risk of suffering financially from the pandemic? If a large portion of your residents work in an impacted industry such as travel and tourism you will have to be more proactive to avoid defaults. This is an important assessment to do not only for your current portfolio but for any acquisitions you plan to make. These a just a few ways you can increase rent collection during a pandemic.
Top Tips For Managing Rentals During a Pandemic
The pandemic has caused economic fallout in many industries. Keep in mind, if there is a 14% unemployment rate then 80%+ of people are still working. This means there is still a large pool of qualified potential residents who may be interested in residing in your multifamily property. Here are key tips for managing your rentals during a pandemic that will help to keep them occupied and minimize defaults.
Increase reserves
Focus on safety related repairs and upgrades
Switch to digital payment platforms
Assess financial default risk of your resident base
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