11 Tips for Collecting Rent During the Coronavirus Pandemic
The first of the month is right around the corner. In the previous months, rental property and apartment owners knew that the vast majority of their residents will submit their rent in full and on-time. It was something that they really didn’t even think about. However, this first of the month will be different. It will be the first time rent is due during the coronavirus pandemic.
Between now and when rent was last due, many people have lost their only source of income. They’ve been furloughed indefinitely or laid off.
The US Senate passed a $2 trillion stimulus bill March 25th which will be voted on by the House this March 27th. According to MSN news, “the bill would extend $1,200 to most American adults and $400 for most children, create a $500 billion lending program for businesses, cities and states, and establish a $367 billion employee retention fund for small businesses. It would direct $130 billion to hospitals and provide four months of expanded unemployment insurance, amount other things.”
This is good news for real estate investors, as they may be able to take advantage of the $500 billion lending program and their residents can cover a few months rent with the direct cash payment. However, even if the bill passes through the House on Friday, neither you nor your residents will receive the benefits before rent is due on April 1st. So, what do you do?
I’ve scoured the Internet to see what other real estate investors are doing to collect rent this month and here are the top 11 tips I came across:
The first pieces of advice came from our Best Ever Show Community on Facebook.
Justin Wright’s plan is simple: offer a small discount to residents who pay their full rent early or on-time. For those who cannot pay their full rent on-time, he will offer a re-payment plan to allow residents to make up for unpaid rent later (more information on a potential rental repayment plan later on in this post).
Julie Fagan came up with a very unique approach to collect rent on the first of the month. First, she will allow her residents to apply their security deposit towards a reduced monthly rent payment. For example, if a resident has a $1,000 per month rent payment and a $1,000 security deposit, their monthly rent is discounted to $500 so that they can cover two month’s rent with their security deposit. In return, the resident must sign a new 12 month lease and sign-up for security deposit insurance. The residents pay $10 per month per $1,000 in security deposit insurance, which covers damages and unpaid rent.
The next two ideas came from a Best Real Estate Investing Advice Ever Show podcast interview Theo did with Daniel Purcell (which will air in early April). The first tip is to communicate with all of your residents to understand their ability to pay rent in full and on-time. You definitely don’t want to skip this step. Not every single resident will have an issue paying their rent. All of Daniel’s long-term rental residents will be able to pay rent on-time (it is a different story for his short-term rental portfolio). Click here to learn how we are communicating with our residents as a result of the coronavirus pandemic. You need to understand who will struggle to pay rent to determine if you need to take any extra measures to maximize your rent collections.
Daniel’s other strategy was very interesting. Half of his portfolio consists of long-term rentals, which – as I mentioned – he doesn’t expect to be impacted by the coronavirus. The other half of this portfolio are Airbnb rentals, which are obviously impacted immensely by the coronavirus. While he is attempting to pivot his strategy on those properties to traveling nurses, he doesn’t expect to find renters for all of this units. Therefore, rather than have the units sit vacant, he plans on volunteering his units to professionals who are traveling to help with the coronavirus, like Red Cross workers. He said “the worst case scenario is that you help someone else.”
Brandon Turner of BiggerPockets created a YouTube video with his strategies for collecting rent during the coronavirus pandemic. His five step plan included three great strategies. First was to keep an eye out for federal and local programs that will be created to help residents pay their rent (like the $2 trillion stimulus bill discussed earlier). Second was to have residents pay their rent with a credit card. Third, which is the last option he offers, is to offer an emergency rent deferral program. His program allows residents to defer paying rent for up to two months, at which point a 10 month repayment program will commence. For example, if a resident misses a $1,000 rent payment in April and May, they will owe the regular $1,000 rent payment in June and will owe $1,000 plus $200 per month for 10 months.
A few others ideas I came across are to provide a month of free rent to residents who can provide you with a financial hardship letter from their employer, stating that they have been laid off or furloughed due to the coronavirus. The other was to reduce rents to the point where you don’t make any money but are still able to cover all your expenses.
The 11 tips are to:
- Offer discounted rent to those who pay rent on-time or early
- Offer a repayment plan
- Allow residents to apply security deposit to rent
- Ask residents to pay for security deposit insurance
- Communicate with residents to see who can and cannot pay rent
- Volunteer your units for free to coronavirus volunteers
- Use federal or local programs created for landlords and renters
- Ask residents to pay rent with a credit card
- Offer an emergency repayment program
- Provide free rent to residents who lost their job
- Reduce rents to breakeven
What other strategies do you plan on implementing to collect rent?