With the pandemic hitting many households on a personal and financial level, more and more people are finding themselves jobless and unable to pay rent. As a Chesapeake property management professional, the lack of preparedness that we saw in the wake of COVID-19 has inspired us to address the importance of having a ready crisis plan prior to any disaster.
As a property investor, collecting rent is part of your livelihood—and, when a crisis hits, you must know what to do to preserve this income to continue operating your rental properties. When you make these preparations, it helps understand how to proceed should an event occur that prevents your rentals in Coastal Virginia from operating as usual.
The creation of your crisis plan should include an overarching structure that is flexible enough to address every eventuality you might face. That includes collecting rental payments, how to handle evictions, what to do if renters lose their jobs, and how much you should hold in your reserves. This crisis plan is something that all landlords should have—and it should include the following information.
Foreword: If you've found this blog, it may be because you're facing a serious financial crisis. While we are experts in Chesapeake property management, this blog is not intended as a replacement for legal counsel. If you need live support, get in touch with us!
What to Do If You Need to Evict a Tenant
Even though you went through every necessary step during tenant screening, that doesn't mean that you won't experience issues down the line with your renters. This reality is especially true if property damage has started to pile up, or tenants refuse to work with you regarding payment arrangements.
That's why you must understand what you can—and can't—do during a crisis regarding evictions. Here are some steps worth considering when building your crisis plan:
- Contact your local municipality to determine if there's a pause on evictions.
- Determine if there is a grace period following the crisis for when evictions can take place.
- If there is a pause or grace period, keep detailed records regarding all tenant issues for later use.
- Stay in touch with your attorney regarding on-going matters to determine if evictions must occur sooner than later.
What to Do in a Severe Recession or Crisis Causing Loss of Jobs
When a severe recession or crisis causes joblessness, those realities wreak havoc throughout the economy. That includes the real estate market because tenants struggle with little to no income. According to a press release issued by the U.S. Bureau of Labor Statistics, as of May 2020, 21 million Americans are unemployed, primarily due to COVID-19.
Joblessness is creating a significant amount of uncertainty and the inability to keep up with rent and other bills. These uncertainties mean it is your responsibility as a property investor to show compassion and find ways to work with your tenants. Remember, your tenants must put food on their tables and keep the lights on—the same as you do. While this is a reality no real estate investor wants to face, it could mean a loss of income for you without a way to address job loss.
Developing a proactive plan that protects you and your tenants ends up being beneficial for both! When a crisis or recession hits, take some tips from Chesapeake property management:
- Give tenants reminders that rent is due and that—despite the crisis—the lease must be upheld.
- Offer to create a payment arrangement that helps tenants who are struggling by offering temporary solutions.
- For any payment plan you develop, ensure it fits your needs as well—and capture all the details in writing as an addition to your lease.
Because you created this plan ahead of time, that means you'll experience less stress during uncertain times. These plans offer the flexibility you need, and they also show tenants that you're willing to work with them.
While great planning can be an asset prior to any disaster, a greater indication of how much—or how little—you'll struggle as an investor depends on your savings.
How Much You Should Keep in Savings
Reserving money in a savings account not only protects you during a crisis, but it also makes funds available if crucial appliances break down or damages need repair. As a general rule of thumb, your reserves should equal between two and three months of rent per unit. For example, if the unit rents for $1,200 per month, you should have $3,600 in reserve per unit.
Taking this step makes it possible for you to work with tenants who are unable to pay for several months. Crucial details to include during this phase of your crisis plan are:
- Having detailed records of how much your monthly income is for every unit.
- Reserving between two and three months of rent per unit to serve as a crisis buffer.
- Making notes regarding how much reserves you are using during a crisis and for which units.
Ensuring that you have flexible funds in reserve means you're protecting yourself if your rental income drops for any reason—including a crisis.
Which Advisors to Work With During This Time
Working with a professional Chesapeake property management company that has expertise in creating these plans is essential before, during, and after a crisis. Since 2007, Renters Warehouse has been working diligently with property investors in a variety of ups, downs, and economic climates. We know how to keep your properties profitable!
No one wants to experience a crisis—especially when investing in real estate. However, these black swans do happen—and you must know what steps to take. For more insight on how to round out your crisis plan, download your copy of our Collecting Rent in a Crisis Handbook!