JF2033: SOS Approach to Managing Your Investment During Coronavirus | Syndication School with Theo Hicks
In this episode, Theo will give you a three-step approach to what you should do during a crisis event, and when it passes. The three-step approach will be easy to remember by using the acronym S.O.S, which stands for Safety, Ongoing Communication, and Summary. Theo breaks down each step so you will know in detail so you have a better idea of what you can do during today’s pandemic.
To listen to other Syndication School series about the “How To’s” of apartment syndications and to download your FREE document, visit SyndicationSchool.com. Thank you for listening and I will talk to you tomorrow.
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“Until this goes away you want to make sure your continuously communicating with your investors and with your residents” – Theo Hicks
Joe Fairless: There needed to be a resource on apartment syndication that not only talked about each aspect of the syndication process, but how to actually do each of the things, and go into it in detail… And we thought “Hey, why not make it free, too?” That’s why we launched Syndication School.
Theo Hicks will go through a particular aspect of apartment syndication on today’s episode, and get into the details of how to do that particular thing. Enjoy this episode, and for more on apartment syndication and how to do things, go to apartmentsyndication.com, or to learn more about the Apartment Syndication School, go to syndicationschool.com, so you can listen to all the previous episodes.
Theo Hicks: Hello, Best Ever listeners, and welcome back to another episode of the Syndication School series, a free resource focused on the how-to’s of apartment syndication. As always, I am your host, Theo Hicks.
Each week we do two Syndication School episodes. Sometimes they’re part of a larger podcast series that’s focused on a specific aspect of the apartment syndication investment strategy. For the majority of these episodes we give away something for free. These are free PowerPoint presentation templates, Excel calculators, PDF how-to guides, something to help you along your apartment syndication journey.
All of the past syndication school episodes, as well as these free resources, are located at SyndicationSchool.com. Today is going to start a new longer series about the current Coronavirus epidemic we’re going through.
As I’m sure you’re aware, the CDC is responding to an outbreak of respiratory disease caused by a novel/new Coronavirus that was first detected in China, and which has now been detected in almost 70 locations internationally, including the U.S. as of today, which is March 24th.
The virus has been named SARS-CoV-2, and the disease it caused has been named Coronavirus disease 2019 (Covid-19). As a result, the main economic factor that everyone tracks, the Dow Jones, dropped more than 10,000 points over the past 30 days. It looks like as of this recording it has popped back up over 20,000, but still, essentially a 10,000-point drop.
According to the CDC, the best way to prevent infection is to avoid being exposed to this virus, therefore social distancing has been one of the main methods to combat the virus. Some states are issuing stay-at-home orders, like the state that I live in, Illinois.
As a result, many people are working from home, and others have been either laid off or furloughed, so don’t have money coming in.
As real estate investors, this is really one of the main concerns, in addition to obviously the safety of themselves, their team members and the residents… Are the residents – if you’re a multifamily investor/apartment syndicator – can the residents pay rent on time? So what’s gonna happen on April 1st if nobody pays their rent?
Obviously, this is a crisis, and from a business perspective whenever a crisis occurs, you need to have a process for approaching the situation. Since we are apartment syndicators, we need to have a process for approaching our passive investors.
I’ve talked about this approach before, it’s called the SOS approach to managing an investment during a crisis. We originally came up with this during Hurricane Harvey two years ago, but the same overall concept applies. So this is the overall 3-step approach you want to use once a crisis like the Coronavirus begins, and then what you should do right away, what you should do during it, and what you should do once it has passed.
In the coming weeks, the goal would be to talk about more specific things that multifamily investors can do based on if people don’t pay their rents; what if you can’t pay your mortgage, should you be buying, should you be selling? We’ve kind of compiled a whole long list of questions that we plan on answering… And not only us answering, but we’re gonna share it on our Facebook group. So if you haven’t done so already, make sure you join the Best Ever Show community on Facebook and reply to those questions in order to add value to the community, provide others with solutions that you’ve come across, find solutions, as well as have the opportunity to be featured on the Best Ever Blog, as well as on the podcast.
The acronym for this 3-step process, as I mentioned, is SOS. It stands for Safety, Ongoing communication and Summary. The first step when a crisis occurs is to ensure the safety of both the people involved, as well as the money. So from a people perspective, for the Covid-19 crisis, it involves the safety of your residents, and then your team members… So obviously reaching out to your team members and making sure they’re okay, offering to, if they don’t do so already – for real estate investors it’s a little bit easier, because they most likely don’t have an office, but offering or allowing them to work from home… And then when it comes to the residents, what we did is we sent out a couple of websites, as well as a note to all of our residents…
So I’m just gonna go ahead and read that note here, just so if you haven’t done so already, you wanna make sure you’re notifying your residents of anything they’re supposed to be doing, important safety information, and then what you’re doing to ensure that the virus does not spread at your apartment community. So our letter read:
With the recent reports surrounding the 2019 novel Coronavirus there is an increased concern with the health and well-being of our families, loved ones, and communities. We would like to take this opportunity to remind everyone of the resources in which you can follow the preparedness, prevention and developments. For the most up-to-date information on the Coronavirus, please visit the CDC website at *link to the CDC website* or international updates at *link to the WHO website*.
We are continuing to work closely with our property teams and vendors to take extra precautions. We would request that any resident that is experiencing symptoms of illness, stay home and contact their local health provider, in line with the CDC-recommended guidance.
Additionally, please do not enter any public common areas or leasing office on the property if you are ill, running a fever, or experiencing symptoms of Covid-19. If you require maintenance services and are experiencing symptoms of Covid-19, please advice the management personnel prior to their entry into your home, so appropriate precautions can be taken for the staff and other residents.
If you are Covid-19 positive, only emergency maintenance requests will be addressed, until further notice. We appreciate your understanding and efforts to promote healthy communities for everyone who lives, works and visits the community. We are committed to providing you with the highest quality of service and we will continue to stay informed about the situation to ensure recommended measures are followed. Should you have any questions, please do not hesitate to contact the property management through your resident portal, by phone, or by email.
Sincerely, our property management company.”
In addition to that we sent out a health flier, a workplace and home handout, as well as an additional letter to the residents.
So that covers the safety side for the residents and for the team members. Obviously, the other end of that would be the investors as well, which is kind of in line with the money aspect, because it’s the passive investors’ money from the deal, so you’re obviously worried about their health, but also making sure that you’re able to keep them from losing money.
At this point it’s difficult to tell what’s actually going to happen, how it’s going to impact multifamily… Obviously, the stock market has been going down; it’s briefly going up today, with talks of federal government intervention in the economy, but it’s still down overall for the past 30 days, which typically means that more money will flow into real estate. However, at the same time many people are losing jobs or being furloughed, which means they might not be able to pay rent on time. We’ll have to see how collections are impacted over the next few months and what people are saying… But one interesting strategy that we did come across as of now – and it is posted in our Facebook group – comes from Julie Fagan. Basically, she’s going to allow residents who have lost their jobs or lost income to use their security deposits to pay for rent.
For example, if a resident owes $1,000/month in rent and put down $1,000 security deposit – well, then she’s going to discount the rent to $500/month, and that security deposit will cover two months’ worth of rent.
Now, in exchange for this help, the residents are required to sign a new lease, so a new 12-month lease or a 6-month lease, depending on what the original lease was… As well as sign up for security deposit insurance. Basically, it’s an additional $10-$15 per month to cover the security deposit experience.
This is a good strategy, because it helps the residents, but it also allows you to not necessarily get your full month’s rent right now, but over time you make up the difference with that security deposit. I’m sure we’re gonna hear a lot of interesting strategies over the next few months, of what people are doing to collect rent in this time, so definitely stay tuned to our Syndication School series, as well as our Best Ever Show community on Facebook, because we’ll be having conversations with actual investors about that in the future.
So that covers S of the SOS, so Safety of the people. Safety of the money is something that’s to be determined, and we’ll really need to determine if your property is gonna be impacted by these lower rent collections.
Number two is Ongoing communications. Obviously, you initially let your residents know about the crisis, make sure they’re okay. Any initial safety precautions that need to be taken… And then obviously, on an ongoing basis, give them updates if anything changes. So if the local government or the state government or the federal government makes any changes at things that you’re required to do, any new safety information, make sure you’re continuing to communicate with your residents… But also make sure that you communicate with your passive investors.
For us, we’ve sent out one notification to our passive investors so far. It’s pretty similar to the information we sent to the residents about important safety information, but we also obviously talked about the money situation.
What we said in our email is:
“We have been working closely with our property management partners; it’s too early to tell what impact the pandemic will have on our properties, but we will have a better idea during the April monthly email update, and will provide a status update at that time. That gives us a chance to see how April rent collections look, and also what impact the virus has on the markets, and some markets where our properties are located. As a reminder, your monthly update is sent out by this date.
For March, you will receive your monthly distribution as planned. If you would like to read the official communication our residents have received, you can click the links below to view documents that our property management companies sent out to residents” and then we’ve got links to those.
“Lastly, our team and our property management partners are getting updates via CDC and WHO, and local health departments in the cities and states in which we own. Our teams are then communicating the information to on-site staff to adhere to. Some of those updates are…” and we go through a list of things like “Stay home if you’re sick. Wash your hands with soap. Avoid close contact with people.”
Then we ended up with saying “We will send a more informed update on any business implications during our next monthly update, which will be received by this date.”
Obviously, that’s the first point of communication. Once we see how rents are impacted, we send another update in a month from that communication, so in about 20 days or so… And again, if any of the safety information changes, you obviously wanna include that in there. And then just continuing to monitor the situation, and letting them know that you’re continuing to monitor the situation. “Here’s what we’re actually doing to alleviate any issues if there are any problems that we come across” and then when you will contact them again.
Basically, the structure of the ongoing communication is make sure you’re addressing what you said you were gonna do before. In our first email we said “Hey, we’re gonna reach out on this date. And here’s the information that we’re gonna include in that correspondence”, so making sure that you are actually doing it on time, and doing what you say you’re going to do… And then also explaining in that email what you plan on doing in the future, and then when you’ll follow up with them again.
It’s hard to tell how long this will go on for, how long the ongoing communication, the O aspect of the SOS will continue for, but until this goes away, you wanna make sure that you’re continuously communicating with your investors and continuously communicating with your residents… But make sure you’re not over-communicating. You don’t wanna send daily updates. Make sure you’re only sending updates when you have substantive information to provide, as opposed to doing hourly updates or daily updates.
And then lastly, once we’re past this, a summary. Once things return back to normal, obviously send your residents a notification that things are going back to normal. We go back over things that had changed, that are now going back to normal – because who knows how long this will take [unintelligible [00:14:25].12] At the same time, with your passive investors, you wanna summarize any actions that were taken during this time. If distributions or operations were disrupted, what the plan is to get those back on track, or how long it’ll take to get those back on track, and really anything else that’s relevant to your passive investors or your residents that is going to happen after this event has occurred that’s not usual; you’ll wanna let them know in the last summary email.
Overall, when a crisis occurs like the Coronavirus, you wanna follow the SOS approach – the safety of the people and of the money, the O is Ongoing communication to provide your investors and your residents with status updates, and then providing a summary once things return to normal.
As I mentioned, we’re going to be having a lot of conversations about the Coronavirus on our Facebook group, that is the Best Ever Show community on Facebook. Make sure you are following that, so that you can take advantage of not only all of the information that will be provided, but you can provide us with input as well… And then also have the opportunity to be on the podcast – this podcast – as well as on the blog.
Until then, make sure you check out some of the other syndication school series we have, download our free documents, stay safe, have a Best Ever day, and we will talk to you tomorrow.