4 Ways to Work with Your Tenants

I have tenants, as do many of my clients (especially the house hackers).  During these challenging times, many people are unfortunately losing their jobs or getting hours and pay cut, forcing everyone to re-evaluate their personal finances. 

This of course not only applies to homeowners, but tenants as well.  Many are calling their landlords scared and worried about what they can do about their rent.  As a landlord in Los Angeles, there are a few things you can do.  Before getting into it, consider the following:

• This is a business and you might be relying on this income now or in the future (such as retirement).
• You don’t have a choice but to work with them.  In Los Angeles, they banned all evictions for the time being and even if you could, the courts are generally closed, making it extremely difficult to get anything done.
• These tenants were forced into this situation and we are all being affected by COVID-19 one way or another.  This is the time to show empathy for their situation, regardless of how much they pay in rent.  This is a time for us all to come together, not apart.
• The tenants are obligated to pay any lost rent back.  That has been made clear by the Governor’s office.
• Vacancy is a cash flow killer, so even if you could evict them, in many circumstances it probably wouldn’t be in your best interest.

Now that this is all out of the way, after speaking with some of my investor friends and clients, here are four things you can do to work with them:

1. Reduced rent:  Say your tenant pays $2,000/month.  One option is to reduce the rent by $500 (arbitrary number) for the next two months, but then raise rent by $200/month for the next five.  Of course, you must work with your tenants on a number that works for you, but this way they feel less pressure with not only making payments today, but also not get hit with a balloon payment.  If they couldn’t pay rent during those two months, what makes us think that we can force them to make up the difference all at once?  Remember that when they go back to work, no one is providing them back pay.
2. Offer them work:  Do you have a tenant that’s a fitness trainer and you need to get in shape?  How about a tutor for your kids?  Tenant who is a gardener?  What if your tenant is a chef and can meal prep for you?  Now is the time to get creative and while in quarantine, get those projects and goals done.
3. Total deferment: This is the tough one.  You can talk with your lender about the different options.  Some are taking the months off and putting it on to the end of the loan (effectively ending the mortgage period X months later) or a balloon payment at the end of the forbearance period.
4. Keep the rent at the same level and consider a structure where you gift/reduce a portion of it case-by-case each month. Yes, you are losing money, but if you avoid vacancy, it could be a measure.

Of course, every situation is different.  Check in on your tenants to make sure that they are healthy and safe and then, if needed, have the conversations.  Check your finances to see what you need to do as well.  I’m not a financial advisor and every situation is different.  Make sure you are navigating within the rent control laws when you structure the catch-up rent increase. Make sure you are restructuring of lower rents does not wreck any refinancing or news loans you intend to obtain now or in the near future.  This is more for general guidance.  Before making decisions check with accountants and/or attorneys as applicable.

This will quarantine will end, and when it does, we will all have a new outlook on how to manage and run our business.