Rent Collection and Expense Management FAQs During COVID-19
- Apr 22, 2020
Since the coronavirus pandemic walloped the U.S. economy, residential rent collections have been better than expected. According to the National Multifamily Housing Council, 84 percent of renters paid full or partial rent for April by the second week of the month. But there is growing concern that that figure could drop significantly in May as the unemployment situation worsens.
During our most recent snap session, Editorial Director Suzann Silverman interviewed Daryl Carter, founder, chairman & CEO of Avanath Capital Management, an owner and operator of 10,000 affordable and workforce residential units. She asked Carter about how his company is maximizing rent collections and managing property-level expenses during the public health crisis.
What is the most effective approach for managing rent payment problems?
Maintain consistent dialogue with residents. Communicate information to them and make yourself available for any concerns they have, whether about payment or otherwise. Be empathetic, and make sure the residents who have been impacted are aware of the federal and local resources they might be eligible for.
At Avanath, the initial approach was to implement a 10 percent rent discount for the month of April. Rents average $1,300 to $1,400 per month across the portfolio, so that is $130 to $140 that could offset some costs as it relates to the virus and might mitigate some rental default. As it turned out, Avanath planned for 10 to 15 percent of residents not paying, and it was nowhere near that.
How much should payment solutions be customized for each resident’s situation?
One size does not fit all. You may have someone who paid in April who may need help in May. Every state is different, and every situation is different. In Orlando, some theme parks have continued to pay their hourly workers for a period of time. Those theme parks will reopen, so the situation is shorter term. Someone who works at a restaurant that has closed is a completely different situation.
Avanath considers a number of criteria:
- How long has the resident lived in the community?
- What is their track record in consistency of paying rent?
LISTEN TO THE WEBINAR: Snap Sessions: Managing Rents and Expenses During COVID-19
What is the value of maintaining an ongoing dialogue with residents?
Outreach, interactions and relationships pay dividends in this type of situation. Owners who have not maintained relationships may have found there is a different situation for them in this crisis. At Avanath, “85 percent of what we own has some level of rent restriction and affordability, so we have to recertify many of our residents every year. There is a need to have an ongoing dialogue.”
Should you require any documentation proving that the resident has been impacted by COVID-19 before offering a discount?
You can ask for documentation. Avanath has drawn on the recertification forms HUD provides for its Section 8 housing and asks residents that need some level of assistance to fill out a form it provides. It also provides these residents with documentation of the government benefits they are getting and are about to receive.
How should you handle upcoming renewals for which you had already scheduled a rent increase?
If someone’s lease is up, this is not the time to give them an 8 percent rental increase. Even at Avanath, where turnover is generally under 1 percent and where they have the ability to raise rents as HUD Median Area Incomes go up, they are being very sensitive about rent increases in this environment, even if people have not had a job loss. “People who have kids may still be working, but they have to spend a lot money on childcare,” Carter noted.
Should managers waive late fees or credit card fees during this time?
In many states, including California and New York, the governors have banned evictions and late fees. “I think that’s good policy,” Carter said. But in reality, he believes the number of multifamily evictions is much smaller than perceived. In 2019, for instance, Avanath had under 60 evictions in 10,000 apartments, and most of those were not related to payment of rent.
How can owners and managers best meet their expenses if fewer residents are able to pay their full rent?
Crises make you innovate. While income may be reduced, some expenses have increased as a result of COVID-19, such as those for cleaning. It helps to find efficiencies that may lower expenses long term.
Is this the time to change to all-electronic payments?
Try to incentivize residents to pay electronically. While Avanath’s resident base is 40 to 60 percent of MAI and often under-banked, favoring check-cashing stores, the company often encourages residents to get a bank account. “It saves a ton of money in fees, and then very often we are able to convert them to electronic pay,” Carter observed.
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