Collecting Rent During a Pandemic

by Stealthy Rich · Published June 27, 2020 · Updated June 27, 2020

Hey everybody! Wow, it has been a long time since our last post. Usually, we then say how we haven’t posted in a long time because things are “crazy.” That typically means we’ve bought some houses and experienced some unbelievable tenant stories, and we’ve made some money along the way of building our net worth. Just insane productivity leaves us little time to document it. However, this time it’s a bit different. This time we’ve experienced the start of a global pandemic, the beginning of a potentially substantial economic downturn, political bedlam, and an oil crash. Fun times.

This time, things have actually been crazy since we’ve last posted.

So here’s our report and how the factories have faired through it all.

Good News – Rental Income

In March, I was supremely worried that with all that was going on with people losing their jobs, that a good portion of our tenants would be suddenly unemployed, and we’d be in a sticky situation. Of course, we’ve built this portfolio to withstand sizable events like this, but still, this would be our first time testing out our hypothesis. We waited anxiously as April 1st approached.

It came and went, and by some grace, we got the vast majority of rent with no issue. The other 10% called us and let us know there had been a loss of jobs or cut hours but that they could pay portions. We put those few on payment plans and got them to pay weekly. We reinforced these three valuable lessons throughout this experience.

Confirm the Plan – The Stealthy Rich only buy cash flowing deals that we can BRRR. Also, our global Loan to Value (LTV) percentage is around 57%. This LTV means that we can have a large chunk of our “factories” not paying/empty. While this is not ideal, we can validate this strategy works well for us, Keeps us cash flowing, and with plenty of equity in the tank for any unplanned disasters.
Show Empathy – We always listened first to our tenants and tried to understand their individual situations. We did not charge late fees throughout any of this, nor did we threaten evictions. We worked with them to come up with payment plans that worked best for each tenant.
Rent is still due – No matter the situation, we firmly made tenants aware that rent was still owed, and the owners were not in a position to forgive rent, as they had taxes, insurance, repairs, and mortgages to pay still. This helps tenants prioritize funds to make sure you as the landlord get paid sooner.

We were also worried about the government banning evictions for a time, that tenants would try and use that against us as the owner, but we can proudly report that none of our tenants even asked or threatened such an action. If tenants knew they couldn’t be evicted, we feared they might not pay rent. This was not the case. We firmly believe this is due to first, the high quality of tenant screening we do, and second, because of the healthy relationships we have with our tenants. We are straightforward, communicative, and fair with them. For April, we can report we received 100% of rent for the tenants planning to stay. We did have a couple of people move, which started a new troubling trend we will talk about in a minute.

Rental Month of May and Beyond

We made it through April with 100% collection, and of course on Tax Day, April 15th, most of America got a stimulus boost instead of paying taxes… The irony. We knew this would help prop up our tenant base, but for how long? Was it just a temporary band-aid? Fortunately again, May was excellent, and we got 100% of our rent. However, we had a few tenants move out unexpectedly due to job loss or other strange situations—no loss of rent, just unexpected turnover costs.

June showed us the same as May, where we still have 2 or 3 stragglers paying week to week, but they continue to be consistent, and that’s all we can ask for in this climate.

And by some miracle, we already have 10% of July rent on June 26th. That has never happened in the history of The Stealthy Rich. What is happening???

Turnover City

The unfortunate byproduct of all this economic churn is that some people can’t afford to own houses, so they have to sell/downsize. That’s great for our rental market as the rental supply roughly stays the same or can’t react fast enough; therefore, demand goes up quickly and also prices. Booyah. The flipside to that, however, is that many of the people currently renting have to downsize/move in with family, which means there’s a lot of “churn.” We had five turnovers in April/May, three of them were not planned. These were houses we knew at some point would require significant rehab as we purposefully bought them with deferred maintenance. While we knew this was coming eventually, we didn’t plan for it to happen all at the same time. We have the cash reserves for these repairs, which were about 10k per house, it just stinks that it happened all at once. Again, another “feature” of this economic downturn. The flipside is that these houses rented almost instantly (less than a week), and they rented for top dollar as from the point mentioned above that there seem to be tons of people needing housing at this time.

Rental Outlook

Texas is going through another Corona bout and with a possible shutdown on the table. We continue to be hopeful we can weather this storm and make it through better than ever. We know that those who have cash and liquidity will best equipped to fight it.