All across the world, tenants are missing rent payments due to the coronavirus pandemic. According to the Wall Street Journal, an estimated 40 million Americans have been laid off because of mandated business closures. A large number of individuals laid off are already struggling to pay their bills, including rent.
For every tenant who can’t pay their rent, there is a landlord who was counting on that payment to pay their own bills, including mortgage payments.
Times are tough, but many landlords are being proactive and attempting to mitigate what could become a dire financial situation. Here’s what they’re doing to cope with the absence of rent payments.
Landlords are lawyering up
In the face of uncertainty, it makes sense for landlords to lawyer up. Laws are changing faster than anyone can keep up. Moratoriums on rent at the state and federal levels have different qualifications and time limits. Unless a landlord is glued to the news 24/7, they’ll probably miss some of the details. Without all the information, they might make a wrong move like evicting someone illegally.
Landlords who contract with a property management company don’t have to worry so much about making a mistake since their management companies are responsible for following landlord-tenant law.
Property management companies tend to know the laws better than most and usually have lawyers on retainer to contact as needed. For example, landlords in Georgetown, Texas using Green Residential’s property management services have an entire team of experienced professionals to help sort out uncertainties.
Landlords are selling smaller properties
Many landlords have decided to cut their losses and sell smaller properties to bigger property investors. The reasoning behind this move is not knowing how long it will be before they’ll see rental income return to normal. For property owners who only own one or two rental properties, financial losses are piling up and will soon be hard to recover from.
Investors with large portfolios won’t have as much of a problem staying afloat while rent goes missed. This makes a win-win situation where investors are able to sell despite a bad economy.
Landlords are giving renters big breaks
Amazingly, there are landlords across the U.S. who have waived rent entirely for their tenants, either for one month or several months. For instance, several landlords from New York have waived one month’s rent for hundreds of tenants and a New Jersey landlord waived rent for three months. These landlords are taking a huge hit, but they feel it’s the right thing to do considering the dire circumstances many people are in.
Landlords who can’t waive rent are giving tenants discounted rent and others are planning to collect unpaid rent in future payments.
Some landlords are encouraging other landlords to give their tenants a break on rent to help alleviate the huge financial hit tenants have no choice but to take.
Rental income losses from waivers are tax deductible
While some landlords are waiving rent because it’s the right thing to do, some are motivated by tax breaks.
On April 23, 2020, the Amending Finance Law was updated making losses resulting from a rent waiver tax deductible without requiring the landlord to have a commercial motive for the waiver. In other words, the Amending Finance Law was intentionally redesigned to make COVID-19 rent waivers qualify for tax deductible status.
For landlords with significant investments, it makes more sense to waive rent than to evict a tenant. Provided all eviction moratoriums have expired, if a landlord evicts a tenant, there’s no guarantee they’ll find another tenant. A vacant unit provides no value to a landlord. On the other hand, if the landlord allows a tenant to stay and waives the rent, they can claim that lost income on their tax return.
The future of rental income is still unknown
Landlords don’t know how long their tenants will need rent breaks because nobody knows how long the economy will remain shut down. Just when some states begin to reopen, they backtrack with more closures as coronavirus cases rise.
Tenants need jobs to pay the rent. The economy needs to reopen for tenants to regain employment. Until the economy is back to normal, unemployed tenants will either need to rack up some serious debt to their landlords or find an alternative like bunking with friends and taking on the first part-time job they can find.