The Business of Landlording

The covid-19 pandemic is forcing almost every business into new modes of operation. Landlording is no different. Being a landlord used to mean frequent and direct contact with tenants, potential tenants and others. Social distancing has put a stop to that.

However, business must still go on, people are still going to move (eventually) and repairs need to be made. We landlords are going to have to find ways to accommodate people and run our business in this new era of covid-19. This social distancing stuff may linger around for a while. One change I can see is in how we show and lease our rental units.

How?

First, the showing of occupied units to prospective tenants has come to a halt. Even though our lease allows us to show our properties before the current tenant has moved out, it is just not something that is practical or safe right now. There is simply no way that we can allow strangers to have access to a person’s home. The risks are too high. Yes, I still want to get the unit re-rented as quickly as possible, but showing occupied units, which has worked so well in the past, is now out.

So what to do? How do we adapt and change?

One option is to simply wait until the current tenant moves and the unit becomes vacant. Obviously this eliminates the concern of contaminating the current tenant. But what about you or your property manager? Should someone else be present? Not necessarily. It is more reasonable today to set up a showing time for the prospective tenant and then open the unit up a few minutes early to allow them to look on their own. Then, simply wipe the door knobs down and lock it up when they are done. Any further communication can be done by phone.

Another option is of course to go even more remote with video or pictures. All modern cell phones have video cameras on them and there are some apps out there that take excellent 360 degree photos. These videos and photos can then of course be shared on your website or through a dropbox account. These types of virtual showings are I think about to become really popular and perhaps even the norm.

Beyond the showings, almost all documents and meetings can be handled remotely. Zoom will allow you to have your lease signing meeting face to face and documents like your lease can be signed electronically. We currently use Docusign for electronic signatures, but there are many other programs and apps out there. Keys can be left in a key box and the code sent by text or e-mail to the new tenant so they can get the keys to their new place.

Business models have and will continue to change because of this virus scare and we landlords are going to have to adapt. The best thing we can do is to see these changes as opportunities to improve our businesses and make them more customer friendly and efficient. Even when this virus moves on, people are going to be expecting and practicing a new normal.

What changes have you made to your landlording business to cope with the new social distancing normal? Do you have any business tips that can help others? Please share with a comment below.

Kevin Perk is the founder and publisher of Smarterlandlording.com. He is the author of Advice From Experience To New Real Estate Investors.  Subscribe to Smarterlandlording here. Contact Kevin here.

Despite still being in the middle of the Covid-19 crisis, it is not too early for landlords and real estate investors to start thinking about what comes next. What happens in the real estate investing world when things start to return to normal? I do not have a crystal ball, but I can recall the recent crash in 2008 and logically think about what may be in store over the next few years. Yes, I said years. The fallout from this virus and the unprecedented response to it will, I believe, last for years.

I think that we can all agree that things are not going back to the status quo. The future world of landlording and real estate investing will not be the same as it was in March 2020. Perhaps things were about to change anyway as many thought our economy was overheated and about to pop. No matter what made it pop, pop it has and the effects will likely be many.

First, the money has stopped flowing. The economy has basically been shuttered and much of the county’s business operations have ceased or slowed significantly. This shuttering has resulted not only in a loss of jobs, but a slowdown in spending. Are you buying gas, clothes, going to the gym or planning your next vacation? I’m not and neither are many others. The lack of spending means no income for many businesses and a ripple effect for many more.

While the economy will shift to meet new demands created by the shuttering of the economy (delivery services, warehousing, etc), it will take time. Meanwhile people have been laid off. Others have had their hours or salaries drastically reduced. Businesses have closed and may never reopen. Entrepreneurs have canceled plans to open new businesses and government is becoming more and more interventionist in the economy.

We landlords will feel these effects through our tenants. Some tenants have lost all or most of their income and can now not pay their bills. These folks will be forced to make some tough financial decisions in the next few months. Will they be able to remain on their own or will they need to move back in with mom and dad? Perhaps they will decide to reduce costs by moving in with roommates or seek cheaper rental options. Many tenants may be able to make it through this month, but what about the next or the one after that? Thus, not only will we landlords experience unpaid rents, I think our vacancy rates will increase as well.

Those increased vacancy rates will lead to further issues. Increased vacancy means softening demand. Softening demand means reductions in prices or rents as landlords try to reduce vacancies (Los Angeles has already witnessed it’s first rent decrease in over a decade). Vacancies will not only mean less income, they will also mean more expenses. As tenants move, they create turnover costs and as I have written before, tenant turnover is a cashflow killer. Expect this cashflow killer to rear its head in the next few months as the fallout from this crisis continues.

Secondly, some landlords will not survive. Those that are highly leveraged with minimal positive cashflow or have no reserves will not be able to weather this storm. As their tenants fall behind on their rent or move, their limited reserves will be used up paying PITI and trying to get their units rent ready again. Properties will begin to fall into the no income death spiral and some will be forced into foreclosure.

Foreclosure is a long and debilitating process. Banks do not really want to hold real estate and may be overwhelmed as well. Banks will perform only minimum maintenance and will shut the properties down by evicting tenants and turning off utilities. After a year or two, after much neglect, these properties will be listed for sale, probably at a steep discount. But not before displacing and disrupting many investors, tenants and perhaps even entire neighborhoods.

In sum, over the next several months things could be rough for all of us. Both tenants and landlords are going to face challenges. The rainy day is here and it is why I have written about the need to budget for reserves. If however you can hold on and ride this crisis out, there may well be a few real estate deals available for those of us still standing at the end of this thing.

In the meantime, keep those lines of communication with your tenants open. Try to face the problems that arise head on before the become too big. Remember too that we smaller landlords have an advantage. We are more nimble and have the relationships to get us through this thing.

How is your landlording business faring during this crisis? Please share with a comment.

Kevin Perk is the founder and publisher of Smarterlandlording.com. He is the author of Advice From Experience To New Real Estate Investors.  Subscribe to Smarterlandlording here. Contact Kevin here.

It may not always seem like it, but being a small business landlord does have its advantages. Some of these advantages are especially evident in extraordinary times such as the current coronavirus crisis. Our advantage is that we know our properties, we know our businesses, we know our employees and contractors and we know our tenants.

What is a small business landlord? It is someone who perhaps owns only a couple of dwelling units for investment purposes to someone who owns a few dozen units and makes their living being a landlord. It is not a large corporate entity that owns or manages hundreds, perhaps thousands of units. And while companies of all shapes and sizes are facing difficulties right now, I think being small does give us some advantages.  

The Advantage of Knowledge

The biggest advantage that we small business landlords have is knowledge. We are close to the ground and often very involved in day to day operations. We have an intimate knowledge of our properties and understand what has to be fixed immediately and what can wait. We know our employees and contractors. We are only a first name basis with them and may in fact even consider them friends. They know and trust us and they know our properties and tenants. Finally, many of us also know our tenants. We showed them the property, screened and approved them and got the moved in.

The situation may not be the same with larger companies. To a large company, the properties, the employees and contractors, the tenants, may all just numbers on a spreadsheet. Any contact with them is likely to be corporate and cold, if not downright ignorant considering the current situation.

Flexibility

There is another advantage that comes with our smaller size. The larger companies are dominated by corporate policies and procedures. Quickly veering away from them can be difficult if not impossible. Managers may not have the authority or be fearful of going outside of the playbook to respond to rapidly changing conditions.

Now, I’m all for policies and procedures. These types of things help any business run much more efficiently. But, being small business landlords offers us a lot of flexibility, and this flexibility is perhaps our main advantage. We can make decisions on the spot. We can turn on a dime so to speak. Larger companies simply may not be able to do that.

Thus, we can work with tenants as we need to. We can talk things through because we already have a decent landlord/tenant relationship. We can ask for and grant patience. We can directly communicate, and thus put a human face to a situation that can feel very frightful and uncaring.

So while we may not have the huge financial resources of some of the larger management companies, we have relationships and flexibility. Relationships often mean something. Flexibility can be powerful. We can use these relationships and flexibility to help everyone get through this crisis and come out better for it on the other side.

How is your small landlord business dealing with these extraordinary times? Please share what you are doing with other landlords by leaving a comment below.

Kevin Perk is the founder and publisher of Smarterlandlording.com. He is the author of Advice From Experience To New Real Estate Investors.  Subscribe to Smarterlandlording here. Contact Kevin here.