August 27, 2020

How COVID-19 Has Impacted Rental Income for Landlords and Strategies to Recover

The U.S. unemployment rate spiked to 14.7% in April; the highest it has been since the Great Depression. High unemployment has caused landlords to be creative on how to solve issues arising from tenants that are unable to meet their rental agreement obligations. Landlords are using different techniques to keep vacancy rates down and rental income coming in. Some solutions landlords are considering include rental forgiveness, postponement or seeking outside short-term financing. 

Protection from Evictions Under the CARES Act

Previous to COVID-19, if tenants failed to meet rental obligations landlords had the option to terminate the tenancy by filing an eviction lawsuit to have the tenant physically removed. Health and safety concerns related to COVID-19 have halted evictions in some areas which has led landlords to think of other ways to cope with the lack of rental income. One of the ways landlords are managing their tenants’ inability to pay rent is by allowing postponement of their payments with an agreement that it will be repaid at a later date, either in a lump sum or spread out. Some have done this by agreeing to allow tenants to repay their missed payments when they receive government stimulus funds or by extending lease agreements and allowing payments to be made at the end of the lease. 

Every landlord strives to generate profits after covering any debt servicing with their rental property. However, with the affects of COVID-19, cutting losses has been the best option for some landlords. Temporarily lowering rent rates for tenants has allowed landlords with mortgages to retain tenants along with having the ability to meet their short-term financial obligations and not default on their loan.

How Landlords Can Recover

Having a financial safety cushion is important for landlords in times like these. Seeking a line of credit or having the assurance of being able to obtain a loan from a private lender is important as part of a disaster recovery plan. Many landlords have taken these measures to protect themselves and be better prepared in case of emergency.

Our advisors are closely following COVID-19 relief efforts and will continue to publish insights to keep you informed about potential impacts and benefits. Visit our COVID-19 Resource Center for more resources. To discuss your situation and recovery options, contact an Anders advisor below. Learn how Anders works with the real estate and construction industries.

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