Landlords - current renewal offer strategy?

[Bongleur]

My mom's house is coming up for tenant renewal at the end of June, so I have to present a renewal offer. It goes towards her nursing home bill.

Getting someone signed up, for as long as possible, seems like a good idea. I predict a lot of AirBnB properties going on the market, not only as long term rentals but firesale priced by speculators who have no equity built up, no cash in the bank, and no business. I know that landlord receipts have dropped because tenants, at least at the low end of the rental market, don't even have $400 in the bank. etc.

The worrying issue is that once a long contract is done, they are immune from eviction proceedings "for the duration."
Since Mom is not a "qualified" real estate business, there is no relief for her from the SBA loan program etc. AFAIK.

I could offer a shorter term, say 6 months at the current rent.
OTOH a short term contract gives them more chance to find a really cheap property and move out without penalty, right when cash-strapped property owners are flooding the market... Has the industry produced any projections about that sort of thing?

I've asked my PM to review their income situation again. Part of it is a home based service business which I'm sure has crashed. So what if they don't quite make the numbers on the remaining income?

Has the rental industry started to think about including contract terms for deferring payments specifically wrt the pandemic situation?
Maybe bumping the rent, but allowing for deferment of a certain amount with no interest.
AFAIK the mortgage industry is allowing deferral, but the interest still accrues.

Have to make a guess between deflation and inflation over the next 2 years. A 24 month contract at the current rent could make or lose money on that. OTOH a vacant house in July might stay empty for... Any industry insight on that? Washington DC market.

Best guess might be to try for 24 months at current rent, or the first 12 at a discount if they have lost income + the next 12 at a higher rent. Probably a wash for me as long as no significant inflation, since the theoretical interest value I would forego is pretty low.

The PM's initial idea was to NOT ask for the usual small bump, and keep the rent the same.

 

[pb4uski]

A bird in the hand is worth two in the bush.. especially when one suspects that the bushes have no birds in them.

I'd go with what the PM suggested and see how it evolves from there... if the tenant needs concessions then they'll ask for some.

IOW, extend the current deal unless there is a good reason to change. Asking for the usual bump is just giving them incentive to look around and you probably don't want them to do that.

 

[friar1610]

How are the current tenants with respect to care of the property? Do they damage it? Do they throw parties that bring a lot of strangers into the house? Are there beer cans all over the front lawn after they've had guests? Do they pester you with minor complaints that they could just as easily take care of themselves? If the answers to these and similar questions are no then I'd be willing to cut them a deal that would keep them in the house. The devil you know is better than the devil you don't know.

Recommendation is based on experience with my late parents' house after I inherited it.

 

[Offgrid Organic Farmer]

I have Rental Real Estate. Two store fronts, one commercial office space and eleven apartments. The retail stores are having a hard time right now. They are not allowed to open for business, so they have no cash flow and are not able to pay rent.

The SBA program is for businesses that must meet payroll expenses. I have no employees, so I do not fit the SBA program.

 

[Winemaker]

My lease contains a provision that a tenant must give 60 days written notice as their intentions at the end of the lease. I have 30 days to respond. While there is a moratorium on evictions, they're still liable for all rent. Realizing you can't get blood for a turnip, or rent from someone who has no money, there has to be an incentive that benefits both parties. In the DC area, you should have no issues finding a replacement, but it will cost you a month's rent to clean up and refurbish for next tenant. If your tenant has been paying and is going to miss May's rent, then it's a wash, you should have a month's deposit to cover one month non payment. Tell him/her/them that you'll forgive a month's rent to keep it the same for next renewal year. If they miss both months, raise the rent, if they want to renew, but why would you renew with a non payer? They only have a lease til the end of June, then they have to leave. It's not an eviction, it's a holdover, which should be forbidden in your lease, and easily enforced.

 

[RenoJay]

Make sure your area allows for longer term leases. I've heard that in some areas, leases beyond 12 months are not legally enforceable.

 

[Bongleur]

The SBA program is for businesses that must meet payroll expenses. I have no employees, so I do not fit the SBA program.

If you are an S Corporation, you ARE eligible. You get 2.5 months worth of whatever you paid yourself last year. My neighbor just got $14,500. Or maybe if you are a sole proprietor -- neighbor recently swapped one to the other, so I don't know if its his current status or last year's status.

Anyway, if you pay yourself from the business account, you are your own employee.

***
Tenant has not yet missed any payments. They & I split the cost of some work, to improve a room to suit the home business.
***
24 month lease is as usual as 12 in this area.

 

[pdxgal]

A bird in the hand is worth two in the bush.. especially when one suspects that the bushes have no birds in them.

I'd go with what the PM suggested and see how it evolves from there... if the tenant needs concessions then they'll ask for some.

IOW, extend the current deal unless there is a good reason to change. Asking for the usual bump is just giving them incentive to look around and you probably don't want them to do that.

+1. Both units of my rental duplex were up for renewal notices. Decided to maintain status quo, even though doing so means I won't be able to increase rent for anothe year (due to rent control). It seems the tenants are still working, for 'essential' businesses, so fingers crossed they can keep paying the rent.

 

[HawkeyeNFO]

Where in the Washington DC area? Things in the District are very different than MD or VA these days, and have become even more different in the past 3-5 years. If it's a MD address, I'd be more concerned about finding tenants. I've noticed a shift of the wealth out of the MD suburbs, while the VA suburbs are continuing to grow and flourish.

 

[ckelly78z]

It sounds like if you have a reliable renter who cares enough about working from home to split costs with you on improvements, you should praise the lord, and extend their contract for the same monthly amount as now.

We haven't seen the devastating economic impact from this virus shutdown yet, wait until small businesses, and unemployed workers are able to claim bancruptcy, you will glad to have a paying renter.

 

[ivinsfan]

I'm not a landlord but it sure seems they will be getting the short end of the stick for the foreseeable future.

A landlord in our state got a civil citation for trying to carryout an eviction notice a few days after the rent payment moratorium went into law. The tenant called the cops and the news people. You all know that tenant was seriously behind on past rent as we have very tenant friendly laws in this state. The landlord already had the eviction notice in progress before all this started but he is now in trouble with the law and still not getting rent income.


OP it seems like you might just keep the renter you have.

Landlords most likely are going to stuffer more then the average Joe.

 

[pb4uski]

Yeah, that is what gets me. I was watching the news the other day and there was a sob story on about a woman who was about to get evicted because she was 3 months behind in her rent... so if she is 3 months behind now she would have had to have missed her Feb 1, Mar 1 and Apr 1 rent. Apr 1 can be blamed on COVID... but the others are on her... she is just using COVID as a smokescreen to continue living there without paying rent.

While I am sympathetic to tenants who normally paid their rent on time and lost income because of COVID and have troupble making their Apr 1 and May 1 rent payments, I have much less sympathy for those who were behind in their rent before COVID happened... they're just further milking the system.

 

[Sunset]

OP - If you are concerned about the renter, moving (looking at new places, packing, moving, unpacking, transferring services, etc) which is a big chore and not something most folks want to do.
Offer them a 12 month lease with 0% increase.
Why commit to a 24 month lease with no increase.

 

[Starsky]

Not sure how writing a longer contract affects your ability to evict someone foe non-payment. The only eviction laws I've seen are meant to be short-term and it doesn't matter what the length of contract you have. They protect month-to-month tenants too. (FWIW, I'm in NC. Not the most tenant-friendly state.)

I don't see the disadvantage in writing a longer-term contract. In fact, I had two tenants renew for two years this past week at full rent. Fantastic! No turnover costs for two years. I think people are starting to plan for 2 years of COVID disruptions before a vaccine is ready. Hard to imagine what the world will look like in that time. I feel good having a bird in the hand.

One thing I can confidently predict is that home ownership rates will not increase during the pandemic. There will be more renters, and everyone needs a roof over their head. I'm just very glad I don't own any retail real estate assets right now. The big challenge for landlords like me will be to find those good tenants with reliable sources of income. (I can't imagine what poor AirBnB investors must be going through right now. It must be brutal!)

 

[rodi]

I would stick to a one year contract - extending the current rent, or maybe a bit of a break since the home business has taken a hit.

As mentioned - a bird in the hand is worth 2 in the bush... Keep these tenants unless they are horrid... which you don't imply.

We have a detached 1 br granny flat. Prior to COVID we had planned on raising their rent this year (Aug 1st) since it's been 2 years since we last raised it. (They've been renting from us since 2014). They are both still employed/working from home. We are delaying their rent increase until the economy and society open back up more. Since we don't have a PM - we would have to do showings ourselves... That's something we'd like to avoid during a pandemic. So we're hanging on tight to our existing tenants.

 

[Sunset]

I'm going to soon be sending out a letter to some long term tenants, will be raising the rent 2%.

I wouldn't if my costs were flat, but taxes,water,insurance have all gone up 5% or more in the past year and water will be going up 5%/yr for the next 5 years.
So really I'm making less money each year as more of the rent is going to the fixed costs.

I don't think anybody is going to move out for $40/month increase.
I'll still be flexible to take late payment (no charge) or partial payment for a few months (with remaining owing).

 

[Running_Man]

Sell as soon as possible, there is going to be a reversal out of cities and out of vacationing vis AIRBNB. Home prices were saved by investors buying houses and listing under airbnb. You are near an all time peak in the Washington DC area, take advantage of it. My view is home prices are going to drop Washington DC, you could be selling near the top. If keeping get the longest possible lease.

 

[ut2sua]

As a landlord of single family rentals, I learned that rental contracts didn't do much to protect the owner. I have had tenants breaking the lease, and the property management company was pressuring me to get new tenants so the "current" tenants don't have to pay. I normally takes my own time to select new tenants, and I do feel more pressure to pick a new tenant when the current tenant breaks the lease (moving out early). I think the rental contract protects the tenants more. I don't think I can ask them to vacate during lease term under whatever circumstance. It could be that I am not handling this the correct way.

 

[Bongleur]

Sell as soon as possible, there is going to be a reversal out of cities and out of vacationing vis AIRBNB. Home prices were saved by investors buying houses and listing under airbnb. You are near an all time peak in the Washington DC area, take advantage of it. My view is home prices are going to drop Washington DC, you could be selling near the top. If keeping get the longest possible lease.

That's another thing that I need to ponder. It may be too late to sell already, since those with cash will obviously be bargain shopping & the AirBnBs MUST sell at just about any price...

If sold now, there are taxes and recapture of depreciation that would amount to a lot of money.

If sold after I inherit, there is a basis step-up and reset of the depreciation. So zero taxes, for a year after.

The big question is how much real estate taxes will be raised to pay for all the pandemic spending, and if owners can cover it by raising the rent.

 

[Bongleur]

Anybody use Rentometer to find comp pricing?

https://www.rentometer.com/pages/about

 

[Sunset]

That's another thing that I need to ponder. It may be too late to sell already, since those with cash will obviously be bargain shopping & the AirBnBs MUST sell at just about any price...

If sold now, there are taxes and recapture of depreciation that would amount to a lot of money.

If sold after I inherit, there is a basis step-up and reset of the depreciation. So zero taxes, for a year after.

The big question is how much real estate taxes will be raised to pay for all the pandemic spending, and if owners can cover it by raising the rent.

Pandemic spending would have to be paid by raising income taxes as that is what the Fed gets, the Fed does not get real estate taxes.

 

[NgineER]

Anybody use Rentometer to find comp pricing?

https://www.rentometer.com/pages/about

Rentometer is my go to for setting rents. But you also need to know the average comp.

 

[Bongleur]

Pandemic spending would have to be paid by raising income taxes as that is what the Fed gets, the Fed does not get real estate taxes.

The local governments are also spending big money.