How to Get Up to $100,000 From the Coronavirus Stimulus Bill

Most people are focusing on the direct cash payments from the $2 trillion coronavirus stimulus bill. However, it also includes provisions to have individuals can used their retirement accounts, such as a 401(k) or IRA.

In the past, if you wanted to withdrawal money from your 401(k) or IRA, you would be required to pay an early withdrawal fee of 10% and income tax on the distribution. Now, you are allowed to take a coronavirus-related hardship distribution of up to $100,000.

Individuals who qualify are people who are diagnosed with coronavirus, spouses or dependents who have coronavirus, or those experiencing financial consequences from quarantine, furlough, layoffs, or having their houses cut due to coronavirus. But the rules are loose and retirement plan sponsors are told to rely on employees’ word that they’ve eligible.

Therefore, this provision may be able to help your residents pay rent, help you or someone you know cover living expenses, or help you cover business expenses.

The up to $100,000 distribution is also tax free for 3 years, at which point the money must be replenished or an income tax will be incurred.

If you haven’t experienced a coronavirus-related hardship, you can still access up to $100,000 from your 401(k). In the past, the maximum loan amount you could take against your 401(k) was $50,000 or 50% of the vested amount, whichever is higher. With the coronavirus stimulus bill, the maximum amount has doubled to $100,000. The loan process is the same, which means you need to pay back the loan with interest or else it will be treated as a withdrawals which is subject to a fee and income taxes.

This loan can be used to cover rent, living expenses, or business expenses. Also, many investors use 401(k) loans to acquired investment property.

 

If you have a 401(k), IRA, or other retirement account and experienced a coronavirus-related hardship, you may be able to access up to $100,000 without paying an early withdrawal fee or paying taxes for up to three years. If you haven’t experienced a coronavirus-related hardship, you can still access up to $100,000 by taking a loan out against your 401(k) balance.

Click here to access our other coronavirus-related content.

How the Fed Can Prevent a Mortgage Crisis

How the Federal Reserve Can Help Prevent a Mortgage Crisis

According to CNN Business, unless the Federal Reserve provides more emergency lending, a surge in missed mortgage payments could crash the real estate market. This is because, even though homeowners are being provided forbearance on their mortgage from the Coronavirus Relief Bill, the mortgage servicers are still required to pay principal and interest on the mortgages to investors. It’s likely that, as of right now, mortgage servicers don’t have enough cash to cover all of the missed payments. There’s a real threat of these defaults creating a housing crisis.

 

So, what’s next for mortgage servicers? This article explains how the Fed will invoke emergency powers to prevent a credit crisis.

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 service she uses is Rhino. 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:

  1. Offer discounted rent to those who pay rent on-time or early
  2. Offer a repayment plan
  3. Allow residents to apply security deposit to rent
  4. Ask residents to pay for security deposit insurance
  5. Communicate with residents to see who can and cannot pay rent
  6. Volunteer your units for free to coronavirus volunteers
  7. Use federal or local programs created for landlords and renters
  8. Ask residents to pay rent with a credit card
  9. Offer an emergency repayment program
  10. Provide free rent to residents who lost their job
  11. Reduce rents to breakeven

 

What other strategies do you plan on implementing to collect rent?

 

The Families First Coronavirus Response Act

Whether you’re a small business owner, a W2 employee, or a self-employed freelancer, it’s important to understand the benefits available in the event that you, one of your family members, or one of your employees contracts COVID-19. The Families First Coronavirus Response Act was signed into law on March 18, 2020, and addresses the paid sick leave, insurance coverage of coronavirus testing, nutrition assistance, and unemployment benefits. This Act is the second major legislative initiative to address COVID-19, after the first was signed on March 6 to provide emergency funding relief for domestic and global efforts. The main impacts on small businesses and employees include the following.

 

  • Under the Families First Coronavirus Response Act employees of businesses with fewer than 500 employees, will be given paid sick leave for two to 12 weeks. Employers will be fully reimbursed by the federal government within three months via 100% tax credits.

 

  • Single household workers are eligible for 80 hours of sick leave with full pay, capped at $511 per day, or a collective $5,110 per worker, if they are unable to come into work or work remotely due to self-quarantine, Covid-19 medical treatment, are at risk for shedding viral debris, or are mandated to remain quarantined by the government. Part-time workers will receive a proportionate share of the benefits above.

 

  • If you are currently staying home to care for someone who has been infected by the coronavirus or is suspected of having it, or for a child whose school or daycare is closed, the two weeks of sick pay will be two-thirds of compensation and capped at $200 a day or an aggregate $2,000 per worker.

 

  • Sick-leave and family-leave payments mandated by the Act are exempt from the 6.2% Social Security tax component of the employer’s federal payroll tax that normally applies to wages. Employers must pay the 1.45% Medicare tax component of the federal payroll tax, but they can claim a credit for that outlay.

 

To get a better idea of how the Families First Coronavirus Response Act will impact small businesses owners and self-employed people, read this article by MarketWatch.

 

Solutions for Homeowners who need quick cash

Solutions for Homeowners Who Need Quick Cash

Many Americans may find themselves struggling to stay afloat during this Coronavirus pandemic. We’ve been warned that unemployment could skyrocket from 3.5% to 20% this year due to the economic impact of the virus. Hopefully, the Families First Coronavirus Response Act and the Coronavirus Relief Bill will provide enough assistance to get you through these difficult times, but, if not, you can find additional cash reserves through your home if you own.

This article on Forbes.com will tell you about some options you have to allow your home to help pay the bills. These options include:

  • Home Equity Loans and HELOCs
  • Refinancing
  • Equity and Appreciation Sharing
  • Leaseback

It’s also important to remember that foreclosures have been halted for at least 60 days on Fannie Mae-, Freddie Mac- and FHA-backed loans.

Coronavirus Relief Bill

An Update on the Coronavirus Relief Bill

With the $2 trillion Coronavirus Relief Bill unanimously approved by the Senate Wednesday night, we now wait for the House to take up the Bill and send it to President Trump to be signed into action. The expectation is that this will occur by Friday. As the largest fiscal stimulus package in modern American history, here’s a quick rundown of what you can anticipate coming from the Bill:

 

  • Single-households that earn $75,000 or less a year (as per their latest tax return) will be supplied with a one-time payment of $1,200. Couples who earn $150,000 annually will receive a one-time payment of $2,400 with an additional $500 per child within that household. These benefits are capped around the $99,000 income level and tapper between $75,000 and $100,000.
  • State benefits will increase to $600 per week during that same four-month window, and regular state unemployment aid will be extended for an additional 13 weeks. Unemployment benefits will also be expanded to include gig workers, self-employed contractors, and freelancers. These members of the workforce will have an approximation of their salaries remunerated on a state by state basis for the ensuing four months.
  • $500 billion of corporate aid will be supervised by an inspector general alongside a congregational board to properly administer provisions and prevent instances of fraud.
  • At least $350 billion will be supplied to small businesses to put toward payroll, and employers will be able to defer payment of the 6.2% Social Security payroll tax. Lost salaries will additionally be backed up by federal installments that operate like grants to allow business owners to keep their employees staffed during the economic downturn.
  • Companies will be given a $50 billion tax credit to facilitate employee retention.
  • Industries that have been critically impacted, namely airlines and cargo carriers will receive $25 billion and $4 billion in direct financial assistance respectively.

 

Whether you’re a landlord or an apartment investor, this is potentially good news, at least temporarily. The added unemployment benefits should keep your renters afloat for the next four months. We’re keeping a close eye on this Bill to see what, if any, changes happen between now and when it passes. Check back often to see how this unfolds and get expert advice from a multitude of sources.

You can read more about the Coronavirus Relief Bill here: