Unfortunately for landlords, the COVID-19 pandemic has left many tenants unable to pay for their monthly rent due to shut-downs, furloughs, or complete job loss. As businesses struggle to resume operations, the threat of tenants not being able to afford to pay all of their bills continues to be an issue. So, what are property owners to do? Many property owners grow increasingly concerned by the day about fulfilling their own financial obligations the longer the pandemic drags on. Continue reading below as we discuss how to handle tenants not paying rent due to COVID.
What Happens When Tenants Do Not Pay Rent?
Under normal circumstances, tenants not paying rent is frustrating but can be dealt with through terminating the tenancy. Termination could take place through serving the tenant with a pay or quit notice. Therefore, if the tenants do not pay and refuse to vacate, the landlord can pursue eviction proceedings.
That said, we are not in normal times. The health crisis brought on by COVID-19 has led to unprecedented government action within the rental industry. Furthermore, many states and local jurisdictions have added rent freezes and eviction protections for tenants. However, this leaves landlords in a tough spot. As a landlord, there are several scenarios to consider –
Local Bans on Eviction – Landlords may still be able to file with the courts during the pandemic, depending on the local jurisdiction. However, your case will not be heard until the ban on evictions lifts.
Eviction is Bad for the Tenant and Potentially the Landlord – Keeping a tenant who does not or cannot pay is not usually advisable. However, these are special times. So, if there is an alternative to eviction, that could prove the better option. Besides, filling a vacancy will not be easy either.
5 Alternative Ways to Deal with Tenants Not Paying Rent
During the COVID-10 pandemic, handling tenants not paying rent with eviction is not always possible or even legal. However, even if eviction is allowed in your area, consider working with your tenant first. This not only helps them during a challenging time but helps the landlord avoid facing extended vacancy. After all, the tenant is still bound by their lease terms, even in a pandemic. But a vacancy is just a vacancy. Take a look at these suggestions below for dealing with tenants not paying rent during COVID.
Try to Work with Tenants and Their Situation
Help Tenants Research Their Options for Assistance
Take a Hard Look at Your Personal Finances
Work with Your Mortgage Lender
Research Alternate Options for Property Owners
Try to Work with Tenants and Their Situation
These difficult times present an opportunity to capitalize on a great landlord-tenant relationship. Therefore, if your tenants are falling behind, reach out and speak to them to better understand the circumstances they face. Have they lost their job? Were they laid off? Are they themselves ill and non-working due to quarantine?
Understanding where they are coming from, along with your own need for rental income, will help determine the next steps. That said, let’s review a few options for handling tenants not paying rent during the pandemic.
Negotiate a Payment Plan – Tenants know that they need to catch up on back rent at some point. So, before it gets out of hand, be open to a payment plan. Therefore, the landlord is still receiving something each month but at a more manageable rate until the tenant is back on their feet. That said, it is vital to have an honest conversation with tenants regarding what they can realistically afford during this time.
Reduce the Rent – If your financial situation allows, offering reduced rent for a certain number of months may help those tenants not paying rent. That said, if you need a certain amount to cover your expenses as a landlord, consider dropping to this number temporarily if possible. Although sacrificing some profit, it will pay off better in the long run.
Delay or Forgive Rent – Again, if your finances allow, postponing rent or forgiving it for a limited time may help renters catch up on their expenses. However, this is only a temporary fix, and it’s important to know the tenant’s future plans to afford the rent.
This is a tough time for all. Generally, landlords willing to negotiate or go the extra mile are appreciated by their residents. However, whatever negotiations a landlord chooses, having that agreement in writing is absolutely critical.
Help Tenants Research Their Options for Assistance
Federal and state aid may help those tenants not paying rent during the pandemic due to illness, furloughs, or job loss. This aid could come from rent vouchers or emergency funds that tenants in need can apply for. However, many tenants may not realize what or how much is available to them.
Additionally, helping tenants discover the resources out there benefits landlords, as they need the tenant to pay by whatever means available. Therefore, take the time to research all aid options and discuss them with your tenants.
Take a Hard Look at Your Personal Finances
As a landlord, having a handle on your personal finances is a must. Every landlord should anticipate a tenant missing a month or two at some point just to be safe. Unfortunately, in these unprecedented times, tenants not paying rent could last much longer.
Hopefully, you have a significant emergency fund to help navigate these uncertain circumstances. However, if not, now is the time to take inventory of your expenses and cut where you can. After all, landlords do not want to fall behind on their mortgage payments or personal financial obligations.
Work with Your Mortgage Lender
If your financial outlook is grim, taking a proactive approach is your best bet. That said, many mortgage lenders are willing to work with homeowners during these times to prevent them from losing their property. So, contact your lending institution right away to see what programs or options they have available.
Additionally, some lenders allow extended grace periods, deferred payment, or no late fees for homeowners in need. Furthermore, there may be aid available for property owners through federal or state COVID Relief. Also, any property owner with an FHA-insured mortgage is protected temporarily from foreclosure during the pandemic. So, thoroughly research what options are out there in your state.
Research Alternate Options for Property Owners
Today’s world is unpredictable, and even with the best intentions, landlords still may have tenants not paying rent. Taking proactive action is critical to not wind up in a financially devastating situation. So, consider saving money by checking out the flowing –
Maximize End of Year Tax Deductions – Tax time is here, and for landlords to ensure they get the most from it, consult a tax professional. These individuals can review documents to make sure landlords get the most benefit they can from every available deduction. In these difficult times, every little bit adds up.
Research Property Tax Breaks – Depending on where your rental is located, landlords may be eligible for extensions on property tax deadlines. Additionally, some states and counties are canceling late fees and interest. So, it is worth researching further through your county website.
Small Business Aid – The federal CARES Act helps small businesses and qualifying landlords to navigate these trying times during the pandemic. So, if you face tenants not paying rent, you may find a federal or state program that can provide relief.
Review Insurance Policies – While a landlord never wants to cut out liability coverage, home insurance policies could be a savings source. So, review your coverages and see if there are any opportunities to get a better deal. If not, look into what assistance your company provides to struggling homeowners. Typically, landlord coverage has around 25% higher premiums, and many companies are waiving late fees and negotiating payment plans.
In Dire Straits? Seek a Loan – If the going has gotten tough, consider applying for a private lender loan. Local banks, credit unions, or even family and friends may hold the key to getting past the worst months and staving off financial hardship. Also, check out the Economic Injury Disaster Loan, which offers small business grants of up to $10,000.
Final Thoughts
The most important thing a landlord can do during these uncertain times is to protect themselves. Sometimes, that means working with the tenants not paying rent, or reaching out for assistance yourself. Whatever the situation may be, leaning on a local property management firm’s experience can help landlords navigate COVID-19 rental industry changes.
At Overland Management, we bridge the gap between tenant needs and the owner’s best interests to keep your property profitable. Contact us today!