If you own any kind of real estate, you’re probably pretty stressed right about now.
You’re concerned about the effects of Covid on your tenants, and the implications it may have on you as the property owner.
What if your tenants can’t pay?
What if they won’t pay??
Can they sue you???
I’m going to answer these questions in the video below, so let’s get to it!
Getting Ahead of the Issues
As owners, we’re concerned about several things that are a direct cause and effect of the pandemic.
Obviously, the major concern is job loss and a tenant’s inability to pay their rent as a result.
But you may also have concerns about tenants simply refusing to pay, because they know that they can’t be evicted. In observance of the CARES Act, some 39 states have announced a form of eviction moratorium so this is a valid concern.
The question is, just how BIG is this going to get?
There are some things you can’t control, but there are steps you can take to mitigate risk in your tenant base. Here's are the steps that Nighthawk and other operators across the country are implementing right now:
EXECUTE COMMUNICATION PLANS
Communicating with your tenants is a top priority and today’s central message. Communicate, communicate, communicate! At this time, you simply can’t over-communicate with them. You must let them know that rents are still due and initiate conversations with your tenants. If a tenant is in a tough spot, at least you are aware of the problem early on.
OFFER INCENTIVES / SOLUTIONS
For your tenants that pay on time, you might consider offering incentives like gift cards or consider holding a raffle. For those tenants that are honest about their situation and are having trouble, offer a solution. Redo the lease or spread the payments out over time. Be more flexible than you would be in normal circumstances. It’s the right thing to do.
We educate our tenants and share resources so they know what’s available to them. We want them to know how to file for unemployment and how to receive their tax refunds and stimulus checks. We are sharing resources on how to participate in PPP and other government-sponsored programs. We are even providing lists of companies that are hiring!
ANYTHING that you can do to help your tenants through this time is paramount. Not only are you serving them to the fullest during a very difficult time, but also you're also helping to ensure that people can pay their rent.
Trends & Precautions
What we're seeing, so far, is that people appear to be paying their rent with the money that they have available. Even in states where we are forbidden to evict.
This is not true for every single property, but in general, looking across our portfolio, thisseems to be the trend. People are trying to do the best they can, and making sure that they’re not going to lose the roof over their head.
That’s good news and, at this point, we're less concerned about strategic defaulting. However, we are taking precautions.
From an operational perspective, we never want to run out of cash, and we certainly don’t want to run out of it during a recession. To reduce spending and save our cash reserves, we have completely stopped all non-essential repairs on our properties.
Replacing countertops, flooring, all that stuff is on pause. We are deferring any kind of non-essential repairs and capex projects in order to keep cash readily available, should we need it.
As a property owner, it’s super important that you don’t run out of cash. If you have cash or liquidity of some sort, you can ride out the storm through to recovery. There’s always going to be demand for certain assets (like Class B & C), but you still need cash to get through it until we’re on the other side.
In addition to holding out on capex projects, you might also consider not taking distributions. If you have investors, explain to them that distributions will be put on pause for the time being in order to protect their investment.
To infuse yourself with cash for a period of time, I do encourage you to look into the subsidy programs that are out there: SBA loans, PPP, and forbearance programs. There are a lot of programs out there designed to help business owners. Just be sure to consult with a professional, like your attorney or CPA, to make sure you understand how the program works and to ensure that you qualify.
If you can get acess to a line of credit, make sure you secure it. Again, just in case you have to use it.
The worst thing that can happen to you is running out of money.
Mitigating risk really boils down to 2 things:
- Serve your tenants. In doing so, you serve yourself.
- Watch your cash and get really tight in your operations.
If you take the steps above, you can trust that your operation is going to come out stronger on the other side.
Taking on New Investments
Yes, we ARE going to get through this and it's going to be a little bumpy.
Having said that, I think there's going to be some really, really exciting buying opportunities coming out in Q3 or even sooner.
We're already seeing the effects of this. In fact, we're pursuing a deal right now and my advice, on the buy side, is to put a deal on a contract.
There's some people that are saying, “I'm just going to sit and see what happens until the dust settles.”
That's fine. We're a little more proactive.
Just be cautious and protect yourself:
- Make the due diligence period long enough to ensure a financing contingency is in place.
- Don’t put a deposit down on day one.
- Make sure you have an out.
Yes, we're going to have to tighten our belts. We're gonna have to pay attention to our cash, and we're going to be better operators for it.
The icing on the cake is that we're going to have some new buying opportunities!
Stay calm, stay positive, and keep moving forward. And while we have the opportunity, make sure that you build up your network and your support structure.
Because of these unique times, we've opened up our Dealmaker Mastermind to everyone, and have made it super affordable.
What is a mastermind?
It's an online community, and a great way for you to ask questions and to connect with others.
We have several hundred members in the community today, and many investor groups have been formed as a result. Use the group to connect to other people and build your support network.
I can guarantee that you’re going to find partners. You’re going to meet people who bring you deals, and people who will bring you money.
To find out more, head over to www.TheMichaelBlank.com/DMM
Thanks for joining, and we’ll see you in the next video!