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Extended Eviction Moratorium? All Is Not Lost for the Landlord

Larry is a real istate investor. He has bought, sold, fixed, and leased houses for decades.

There is an ancient Chinese curse that says “may you live in interesting times”. Interesting is a good term for the days we live in, made more so by the fact that the cause of hyperventilation these days comes from China.

Numbers don't look like we are approaching a dip in the real estate market, however some people are experiencing financial distress, putting them in a position similar to the last major real estate crash, During that time, many people found themselves owing much more than their property was worth. The banks weren't in a bargaining mood, or people didn't try, so more than a few homeowners simply walked away from their property after living there many months while pocketing the mortgage payment.

This may happen this time around for those who bought with no, or almost no, money down and they have no equity to speak of and not much income. Fortunately, much of the economy is coming back and, barring a catastrophic event in November, may well continue and iron out many of these issues.

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Commercial Owners Have Learned

Owners of some commercial properties that have been particularly hard hit by COVID-19-inspired personal isolationism have adopted a similar strategy. Not to mention any names, they are available to those who seek them, some large hotel and mall organizations have stopped making payments on the troublesome locations... while they are gathering funds for investments better suited for today's world.

The economic slowdown is hitting the banksters as well. It will also be hitting local governments unless these same banksters will kick in the property tax payments. Some of these same commercial property owners, and others, have found a way to make lemonade out of these lemons. The ones with decent cash positions that help them weather this financial storm have bought back the notes at significant discounts.

Their actions, if nothing else, show us that when bad things are happening, don't hide under the bed in a fetal position, but look around. There ARE opportunities. You may have to understand leverage to make them work. I mean, what is a bankster going to do with an empty mall or hotel?

Bringing It Down to the Individual Investor

Will this strategy work for the individual investor with his rental properties? The banksters really don't want to take back massive numbers of properties. With banking regulations what they are, they cannot have too large a percentage of non-performing loans on their books.

Many investors buy properties with private loans from individuals – sometimes friends, sometimes sellers taking back paper on their properties. In these cases, it is not a faceless, heartless institution that gives money to causes you don't like, it is personal – real people getting hurt.

In either case it can be damaging to the property owner. With the banks, unless you had a good relationship that they did not require a personal guarantee on the loan, personal credit is trashed. Even if there was no guarantee, there will probably not be another similar loan in the near future. With individual lenders, your personal integrity, and possibly friendship, is gone, along with the potential for future profitable deals.

Considering Eviction

Whether you want to do it or not, sometimes evicting the tenant is a matter of your own survival. How many rent payments on how many units can you miss before the financial crisis sets in? I know of some landlords who start the process if the rent check is five or ten days late. I try not to rent to that type of tenant and don't like being put into that position. However, it is a fact of life when you provide housing.

Particularly if you have few units and know the tenants personally, you might even consider them to be friends. However if you have expenses and are running it as a business instead of a charity, sometimes you will find that their problems become your problems.

Years ago, I was offered a property that was rented to an older gentleman and his daughter. They were having trouble making the rent that was way below market, and the owner felt he would rather sell the place and let someone else deal with it. I looked at the place and talked with the man and came to the conclusion I was not the one to get the owner off the hook. For some of us this is not just a dollars and cents business ... even though it IS a business.

Along Comes the Eviction Moratorium

Recently there has been heard in the back room of real estate investors offices a weeping and wailing about the CDC ban on evictions. That is nice for the renter but what about the property owner who still has mortgage payments and property taxes, and is still expected to maintain the property in livable condition. This ruling only takes care of half the problem.

Will the banksters forego payments? Maybe. Will the tax collector be sympathetic? Here you may have a little leeway if you aren't far behind already. How about the electric company if you have been handling the utilities?

No Need To Panic

Things are not as dire as you might think from listening to the talking heads on TV. Tenants can't just use this as an excuse to stiff the landlord. They have to apply for this protection and show that they have lost their income and that they have paid as much as they could toward their rent. If run properly, it will not be a haven for deadbeats.

As is usually the case, if there are tenants who have been hurt financially by thie panic-induced shutdown, and you are generally happy with them, working out some kind of deal is usually better than kicking them out. If you have a bank loan, now may be the time to revisit the terms of the loan. The same may apply to private lenders, but keep in mind most banksters do have the resources to carry you (and your tenants) as BoA, if they chose to do so. Just keep in mind they can only carry so many non-performing loans.

All we can do is what we have been doing. Taking things one day at a time, looking for opportunities that may be lying just below the surface, and not being overcome by the gloom and doom served up to us on most news channels.

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