Sunday, August 16, 2020

Lesson From the Pandemic For Residential Landlords

The effects of Covid-19 on the residential rental market are apparent—many jurisdictions have enacted rent freezes, landlord/tenant courts have been shut down and moratorium on evictions and foreclosures have been set. Moreover, the accompanying downturn in the economy has left many without the ability to pay rent on time, if at all.

Considered rationally, the need for all of the social safety nets put in place for renters is obvious. The only way to truly survive a global disaster is to band together and implement a series of solutions. Radical measures had to be taken to mitigate the global pandemic. “We’re all in this together,” is not just a motto, it’s a reality. As a society, we are tasked with taking care of our most vulnerable populations, because the repercussions of not doing so are far more expensive than the costs of their protection. In this instance in particular, increased homelessness and/or a wave of relocations due to a rise in home displacement would only serve to exacerbate infection rates around the nation. That said, here are some clear lessons that residential landlords can learn in the wake of this global event.

1.       Paying Tenants Are Worth Their Weight In Gold

Those who were able to enjoy relatively uninterrupted streams of cashflow during the past few months are truly ahead of the game. Finding tenants with the ability to pay rent on time and the willingness to do so is a difficult, but not impossible task. Great systems for vetting renters are key to doing so, but active, just and appropriate property management also plays a big part in the search and retention of paying tenants. Happy tenants are more likely to prioritize their rent expenses.

The compatibility of the property to its neighborhood is also key to the retention of paying tenants. Properties that effectively service the neighborhood’s population, such as those that are accommodating to the social and/or economic needs of the community tend to have renters that are more willing to pay their rent expenses. Although some of these characteristics can be relatively immutable, such as proximity to a popular bus or train line or to certain religious institutions, others are within the control of the building owner, such as providing high-speed Wi-Fi in areas that cater to the tech workforce. Whether immutable or not, these factors influence the rental experience of each tenant and can facilitate the connection that tenants have to the property, giving them further incentive to pay rent on time.

2.       Location Determines Approach

Once again the old real estate adage rings true—location, location, location. The location of a property, better stated, the laws of the jurisdiction of a property have a direct effect on the method of mitigation that a landlord can take for a loss of rent. In areas with more tenant protections, long term planning should be the order of the day. Tenant negotiations and/or buyouts, when legal, may be a viable, but time-consuming option. Analyzing and maximizing the value of one’s property in the interim will also be key. Utilization of advertising space, cosmetic upgrades of vacant units or even a higher standard of efficiency in building operations may all be necessary, as non-payments begin to resolve.

The same techniques can also be applied in jurisdictions with less tenant protections, as well, and will yield results. Their application, however, becomes more critical in areas where the law favors the tenant. Before writing off jurisdictions with strong tenant protections, please keep in mind that these areas typically boast lower cap rates, so if the price and time are right, exiting a property may be a viable option.

3.       Affordable Housing Is The Wave

Rental assistance programs, like Section 8, have been a lifeline to many landlords during this time. Some building owners have sworn by these programs prior to the pandemic and have been proven right. The government has not waivered in its consistency in rental payouts during the pandemic. Moreover, the relative scarcity of these programs makes them highly coveted by tenants, who tend to pay regularly to maintain their eligibility. The government has made it a priority to ensure housing program payments to stabilize rental housing and building owners should take advantage

By no means an exhaustive list, these three points are some of the many lessons that landlords can learn in the wake of this devastating pandemic. That is my take on this topic. Please feel free to leave your comments below.


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