In the current climate, landlords and tenants are both concerned about how to handle rent, especially if the renter’s employment status was impacted by shutdowns due to the outbreak.
Importantly, please note that this is not to be construed as legal or financial advice, but a collection of resources and landlord discussion around how to cope during this period of uncertainty. Please consult your financial and legal counsel to better understand what resources are available to you and how to best proceed should any of your renters be affected.
Contact your tenants preemptively
Contact your tenants preemptively and ask them to reach out to you if their employment status has been impacted by closures. If their job status has been affected by the shutdown, it’s better to know sooner than later so you can the tenant can proactively work out a plan.
Lower the rent temporarily
With renters whose income has been impacted by COVID-19, you might temporarily lower rent to enable tenants to pay some portion of the rent, if they cannot pay all of it.
Remember, lowering the rent doesn’t necessarily mean that you are losing out on that unpaid portion forever, as you can set up a payment deferment plan to collect the lost rent when the tenant is able to return or find new work.
Set up a rent payment deferment plan
Another option to consider for how to handle rent is deferred payments.
To defer payment is merely to delay or postpone it. Many landlords are setting up a deferred payment plan with their renters. Write up an emergency contract or lease addendum that stipulates when their back rent will be due so that, if the time comes and your tenant still hasn’t covered the missed months of rent, you can take the proper course of action.
One recommendation from Brandon Turner of BiggerPockets for a rent payment deferment plan is to work out an amount the tenant can pay and then divide the rest of the rent across the next 10 months, in addition to the regular rent amount.
Use the security deposit
In an emergency, and if legal to do so in your state laws, a security deposit can be used to handle rent.
Using the security deposit for a month can allow renters time to get unemployment or other government assistance if their job status was impacted by shutdowns and closures.
You and the tenant can sign an agreement that if they use the deposit now, they will have to repay it by a certain date to recoup the forfeiture of their original security deposit.
Use your rental reserve
If you have rental property reserves, this might be a good time to use them to cover the cost of delayed rent.
Some landlords suggest that you should have 3 months of back rent in your rental account saved to cover contingencies. Use this savings to continue to pay the bank while you work out a deal with your renters.
Rent default insurance
Look into rent default insurance which can provide you coverage and protection from financial drain due to unpaid rent.
How to Handle Rent During the Pandemic
When it comes to how to handle rent during the pandemic or other financially difficult times, it’s important to consider all the options.
Especially, if your tenant is typically able to pay rent and has experienced recent job loss or layoffs due to the coronavirus, it might make better sense to have laid-off or unemployed tenants pay 25-50% rent for a few months to ride out the storm.
Especially because evictions might cost more (with property cleaning, vacancy period, and new tenant screening process) than temporarily reducing rent. It is a difficult situation, but it will be more difficult to begin eviction proceedings with the courts closed and finding a new tenant with social distancing, quarantines, and shelter-in-place order enacted will be extremely difficult.