The eviction and mortgage moratoriums have not yet been lifted and real estate losses from COVID-19 are already big. Thousands of property investors fell behind on their mortgages within months of the introduction of the national eviction moratorium. Many of those investors ended up selling their properties to avoid going further into debt.
Some investors are still hanging on in forbearance. Others are heading toward foreclosure. The U.S. has extended the eviction and mortgage moratoriums into 2022, but it’s unlikely that anyone – renters or investors – will be able to afford to pay up when the time comes. The real estate crisis has officially arrived and it’s only going to become more intense.
According to data published by CNBC, 2.7 million properties were delinquent as of November 2020, mortgages in forbearance rose to 5.35%, and 81% of mortgages in forbearance have been extended.
Unfortunately, forbearance won’t last forever and eventually, all past-due bills will become due. With the eviction moratorium in place, investors don’t have any recourse to evict non-paying tenants and find new tenants with income. However, some are pursuing evictions illegally, which will only cost investors in the end.
If you want to avoid damaging losses from the COVID-19 pandemic, here are several ways to mitigate your potential for loss.
1. Acknowledge your situation
What is your current situation? Are you behind on your mortgage? Will you be unable to pay your arrears once your mortgage comes out of forbearance? Do you have other sources of income to cover your mortgage payment for an extended period of time? Is it futile to hang onto your investment property?
It’s important to acknowledge your situation realistically so you can devise an effective plan. If you’re losing money and you’re not likely to catch up anytime soon, you may need to sell your properties to cut your losses before you dig a deeper hole.
On the other hand, if you can cover your mortgage for a while, you may want to hang on to your properties and wait for signs that the economy is going to bounce back.
Either way, only a realistic assessment of your situation will help you make the right choice.
2. Get support
Getting support is critical in these uncertain times. While strong financial advice is always beneficial, you need more than advice – you need physical help.
Managing your property in such a chaotic time is stressful. When you’re under stress, you’re likely to make costly mistakes with your tenants. For example, if the eviction moratorium is extended, but you don’t know the status, you might begin an illegal eviction lawsuit against a tenant.
To prevent these types of situations, and to take the stress off their shoulders, investors in San Antonio, Texas are turning to property managers for help. Having a property manager is like having a business partner, except they do all the work.
One of the property management companies helping landlords in San Antonio is Green Residential. If you’re in the area, check out their website to learn how they can support you during this uncertain time.
Here’s what a team of property managers can do for you:
· Collect rent and late fees
· File valid eviction lawsuits (not all evictions are protected under the moratorium)
· Market vacancies
· Handle repairs and maintenance
· Manage inspections
· Screen tenants
· Manage tenant issues/disputes
· Run applicant credit scores and background checks
· Help you sell your property
· And more
Having someone manage all the above for you will take a huge burden off of your shoulders during the chaos of the pandemic. Having physical support will bring the relief you need to focus on maintaining your investments without accidentally or unknowingly violating your tenants’ rights.
3. Sell your high-mortgage properties
If you have multiple property investments and your tenants aren’t paying rent, consider selling the ones with a large mortgage and keep at least one property with a smaller mortgage. When the economy finally turns around, you’ll still have investment property, but you won’t have massive debt.
If you only have one property, you may need to sell it and walk away from real estate for a while. If all of your mortgages are high, keep at least one property located in an area most likely to have job opportunities even during an economic shutdown.
Consider the possibility that the economy may not turn around for at least another year or two. Do you really want to pay multiple mortgages out of your own pocket for another year or more? If you’re not paying your mortgages, do you want to get another year or two into debt?
Think about how much money you’ll need to come up with to pay back a year’s worth of unpaid mortgage payments for each of your properties. If you sell them now, you won’t dig a deep hole of debt.
Some losses are inevitable – be prepared
Some losses are both inevitable and unrecoverable. For example, if your renters haven’t been paying rent for 6 months or more, you’ll probably never get the back rent you’re owed. Be prepared to cut those losses regardless of how you move forward.
Be prepared to take some substantial losses and don’t give in to the knee-jerk reaction to scramble to make things work. For example, avoid taking out loans if you don’t have rental income to cover your payments. If you can’t pay your loan payments, you’ll only sink deeper into debt with no certainty around how you’ll get out.
Under normal circumstances, you could take your tenants to court and file a lawsuit to recover unpaid rent, but that’s not a working remedy at the moment. Many tenants are lucky if they have a job that allows them to feed their family.
When mitigating your potential for losses, be ready to accept the losses and damages you can’t recover. Do whatever you can to cushion the fall, and don’t put any unnecessary money into your investments until you see the economy start turning around.