Americans are having trouble paying the bills -- particularly their housing payments. According to new data from Apartment List, about one in three could not make their full, on-time housing payment this month. Though some of those made at least a partial payment, 22% made no payment at all.
If you're a landlord, this news signals a few things. First, if you haven't had a late or missed payment from a tenant just yet, expect to. Prepare yourself financially (and mentally) for a late payment to come. The pandemic is still raging on around us, so if you've gotten off scot-free thus far, there's no guarantee your streak will continue. You'll need to be ready if it happens.
Second, get ready to negotiate. Apartment List's data shows that almost half of tenants with unpaid housing bills have either renegotiated with their landlords or are in the process of doing so now. If you're not sure how to handle this situation should you be approached by a tenant, here what you should do:
Talk to the tenant
Find out what their situation is. Why do they need the help? Did they lose their job or lose hours? How long do they expect their hardship to last? You need to get a good handle on their financial scenario before you can start looking at options.
Redo your comps
Pull comparable properties in your area and see what they're renting for. Is yours still on par with the average? You might also ask other landlords you know whether they've reduced rents in light of recent events. If your rents are higher than average or you're the only one who hasn't reduced or renegotiated rents recently, you might want to consider it (more on that later).
Know your operating costs
Before you can even begin to think about reducing that rent, you need to know whether you can afford it. Sit down and calculate out your property's full operating costs. What do you spend on it every month and what does it bring in? How much are you making on the home every month (and annually)? Is there even any wiggle room on rent if you still want to make a profit?
Determine your basement
If there is room to reduce your rent and still see a return on the property, then figure out your basement -- how low you could possibly go and still see an ROI. Once you know that number, you can move forward with negotiations.
Suggest other options first
See if your tenant is up for other options before reducing your rent. Could they do a bi-monthly payment plan, splitting their rent into two? Would it help if you accepted credit card payments? You might also think about letting them break their lease if the situation sounds really dire. Just make sure you feel good about your ability to find a new tenant should they take you up on it.
Consider the big picture
Don't forget to take the bigger picture into account. How long does the tenant have left on the lease? If they're only there for three more months, how much could a slightly lower rent hurt? You should also consider the consequences of keeping your rent as-is. Isn't a lower payment better than no payment at all?
Finally, ask yourself: Do you like the tenant and want to keep them around for the long haul? If so, being flexible and understanding during these hard times can go a long way.
Clearly outline your expectations
Whatever you decide, it's important to clearly define your expectations of the tenant moving forward. What exactly is the new rent? What days of the month is it due? You should put all these details in a lease amendment, and make sure both you and the tenant sign off on it. Call in a real estate attorney if you need assistance.
The bottom line
You don't have to renegotiate if a tenant approaches you, but it is worth considering given current events. Just make sure you're thorough in your calculations, you suggest other options, and that you're clear about what's expected going forward. In some cases, letting the tenant break their lease may be the best option -- for both them and your bottom line.