TRP086: Rent Is Due – What Do You Do?
April 8, 2020
If you’re looking for honest, real world, no BS advice on how to create income, build wealth, and achieve true freedom with real estate, you’re in the right place. Welcome to another episode of the real estate preacher podcast Where your host Randy Lawrence shares with you his experiences and strategies from over decades as a successful real estate investor. This episode is sponsored by prosperity capital partners. Learn more at prosperitycapitalpartners.net now onto the show.
All right. Hey, I want to welcome you to another episode today. Today we’ve got an exciting topic. Rent is due. What are you going to do? Right today is April 1st a little bit of no doubt an uncommon time and uncommon moment that we’re in with all of the Corona virus that’s going on. Shutdowns, lay offs, government stimulus, all of these various things. And so as a landlord, the question becomes, what are you going to do? I’ve been putting out some information, but again, what we’ve been focusing on a team level is over the last two weeks, being prepared, really getting ready for the things that we’re dealing with here in this country. And so I’m going to talk with you about a number of the things that we’ve done in terms of preparation. So that being said, with all of our projects and all of our communities that we’ve purchased with our investors is the last probably two and a half years, we have specifically underwritten each project with a higher economic vacancy.
Meaning if the area was operating at a 4% vacancy because you know, times are so robust, we were underwriting that deal to have a 10 or 12 or sometimes 14% economic vacancy year one or two or three for that kind of thing. And what that means is it’s building in that cushion for extra vacancy based on the possibility of an economic slowdown. The other reality is we had included into our modeling where we have repairs and maintenance at a higher level in the first year. Given the fact that we’re conducting all these renovations. And again, that builds in for what could be some additional turnover costs. And then also factoring in and realizing what we would be dealing with respective to bad debt. So all those things were done in place with our properties in light of there would be an economic slowdown.
Now, however you cannot plan for and think about a pandemic on a national basis that instantly in like basically two weeks closes down most all companies. And so, but that being said, as we saw those things beginning to happen, we became very proactive with our teams. And so just want to talk about a number of the things that we’ve done that really have helped us to prepare. So again, first and foremost is to begin to think through what are going to be the impacts, what are going to be the scenarios that have an effect on our complexes? Who are our residents? And then of those residents, how many of them are likely to be affected by this and, or be laid off by it. And then beginning two weeks ago is this began to unfold, you know, right at the beginning of the timeframe where the government’s coming out saying, Hey, we want to implement a 15 day stay at home.
And now it’s like, Hey, stay at home through the end of April with a social distancing type policy. We began to implement these things with our senior leadership team and then also our on the ground management teams at each property. And so with that, we developed just quite a number of things that we have done beginning with weekly coaching with all of our senior leaders, coaching meetings that we’ve had basically every two days with our onsite management teams and also with our senior leaders. And so with that, it’s been a communication process of talking about where we’re at, what we expect, also coaching them on how to frame and how to handle things in dealing with residents, in dealing with, you know, the collection of rent, really being ahead of the curve in preparing them and also in recognition that some areas we deal in, for example, we’re going through, where they were doing, stay at home orders, helping them to see that when that happens, the likelihood is going to be, we will be considered an essential business and giving them that reassurance.
So all of those things taking place with respect to, the actual communities itself. You know, we implemented immediately as this thing began to unfold, all non-essential areas that, you know, are the common areas would begin to be close to the playgrounds, the fitness center, the swimming pool, business centers that we had at certain properties. You know, those types of things. We immediately began to implement that, communicate with the residents, posting, you know, preventative safety tips really that are then provided to all residents. So immediately when we posted that out to the residents doors individually, you know, maintenance and onsite staff posting those to the front door of each resident’s home. But also inclusive of that was messaging that also communicated to them that even in these uncertain times there is an expectation and a necessity for us to pay rent.
So we’re communicating the safety tips but also we’re undergirding and reinforcing the reality that they need to pay their rent. And that, you know, again, we are going to be open to talk about that and discuss with them. So additionally we communicated to and implemented that we are only going to be doing emergency type maintenance inside the apartment, but otherwise limit, you know, the interaction that we have with them. And then even with that, if there is the need to do, say an emergency plumbing leak in a unit, we’re asking the person to go into another room, step outside also, you know, inquiring, you know what they’re, you know that they’re in an okay health status, that kind of thing. So again, making sure that they understand that we are, you know, operating as best we can. And then also really communicating to them that we are minimizing the limiting face to face interaction during the social distancing phase.
Now when it comes to leasing, we’ve also limited the amount of face to face leasing is necessary all of our complexes have the ability to remotely execute a lease. And in fact we have executed leases during this time. We’ve gone to a more virtual touring model where we’ve also required each of our management teams to take a video representation of renovated apartments or apartments that are made ready for rental. And so that now they have that on their machine via Dropbox. Also some have been posted to social media channels, and or our website that represent what the properties look like. And then when they also interact with somebody over the phone who calls to inquire, they can obtain their information, boom, email them the link or the video specifically where they can click on it and see the apartment just like they would see it themselves in person.
We’ve also worked with the tenants in developing a payment plan. Now, we didn’t broadcast that to every resident. What we did broadcast to every resident was the need for them to be responsible to have to pay their rent. Now again, the ones, you know, again, as we put that forth, some of the complexes, for example, you know, we have thankfully had a favorable response, meaning we haven’t had broad and widescale feedback from the residents that they’d been laid off yet. But there has been some, you know several complexes that has been the case where, you know, maybe there’s a hundred plus units there and eight people have communicated, they’ve been laid off. But with that, we’ve developed a payment plan process that is uniform across the board that we are working with all residents in this time to be able to keep a quality roof over their head during this time of uncertainty.
And all of our managers are aware of that. We’ve provided them with the necessary documentation or approve the necessary documentation to enter into payment plans, waive the late fees in developing a conscious payment plan that collects the rents for that resident. And that’s also been part of what we’ve done with our coaching calls. You know, again, part of that solution to where somebody enters into the payment plan and honors the payment plan. We’re waiving all late fees. Also too, we have entered in with our management, I focus on rent retention. So again, with any of our renewals that are upcoming over this next month of may and June we have implemented where we’re not increasing the rentals because again, we want to retain people. If we have properties where, you know, there’s still some that were in the transition phase of renovating units and you know, the market rents are below market rent and we are bringing them to a monthly rental, you know, so again, not changing their rent, you know, as an example, let me just these hypothetical example, but again, so if the market, if their current rent was 700, but the market rents nine 25, we’re allowing them to stay at 700 on a month to month lease and we’re not bringing about an increase to it.
Again, the purpose of that is one, providing them consistency during this time and to keeping them as tenants. You know, the other thing is that any unnecessary expenses with regards to a cap ex improvements are being suspended apart from ones where we already have the money budgeted for and is being held as a, uh, ready available capital at our lender. Then with that, we’re using this time of shutdown to be able to execute on a quite a number of finishing, of our external capital projects or on our internal vacant units, being able to renovate them. What I mean by that is that we already have in place with the lender X numbers of dollars. So it’s not money that’s got to come out of our investor’s pockets. It’s already budgeted into the program. And so with that, we’re able to execute the renovation in a timely manner.
CRA requests that money from the lender and we’ve also been in touch with all of our lenders to talk about how are they going to handle the expediting of those funds during this time. Because in some places it’s a little tougher to do inspections or that kind of thing. So again, that’s where we’ve implemented those procedures. The other thing is that again, all vacant units are being made ready for rent so that we can, you know, that’s an opportunity again, see right now where a lot of people don’t have the ability to work and so they’re not getting money. Whereas then now we still have the ability for our team members, both maintenance and external vendor contractors that we work with to be able to work because they’re considered an essential service. They can be helping us execute during a time where it’s otherwise a downtime for everybody else.
The other part of it is that we are really focusing on, you know, as some of the maintenance items are gone down because again, we’re only doing emergency maintenance at this time. Then our internal maintenance staff can also be used as part of a, you know, instead of bringing an outside person to paint a unit, the maintenance guy can paint a vacant unit. Uh, additionally, we have, as I mentioned earlier, we’ve created marketing videos of all of our renovated units and now we are using all types of online media and social platforms using our websites to be able to promote that using the online ability for people to really see the apartment. And as I said, we’ve already had success in signing leases that way. And again, with all of our complexes, we have the ability to execute a lease and to be able to do that without even seeing anybody.
And then they can also pay virtually as well. Now we are reaching out to the employers that are in our area and offering them rental opportunities. We’re also offering them a no contact opportunity so that again, they have the ability to have new hires, be able to find place to live and a use us as a recommendation additionally to, as needed. We’re offering to work with people to lease up properties anywhere where we have leases needed to be done, working to offer whatever concessions are necessary to lease it. And then additionally, we are proactively communicating with any of our vendors, contractors, lenders, really just exploring what type of deferrals in any other relief that may be available just to preserve cash flow and cash reserves at its highest level.
We’ve instructed all of our team members, senior leaders, onsite managers. They are aware of what protocols with the CDC with respect to somebody, their staff or resident that has a high change of being affected with the Corona virus and then you know, utilizing best practice for disinfected, and sanitizing the office area in any common areas that we are able to access as well. In the end really this is critical to, is then been making sure that we have every resource available for our residents. So what I mean by that is we have, for each state that we operate in, we have state unemployment link for application along with UpToDate timelines of what’s going on. Like for example, where before, let’s just use one of our places in South Carolina where they were running about a week for processing unemployment benefits and then another week to be paid as of the recording of this.
In our most recent information, they were now running two to three weeks to be processed and then a week to be paid. So again, you can see how quickly that information changes and that’s really as a result of more people flooding into the system that are being laid off. Same thing in Georgia, Florida, Arizona, just you know, all the areas where we operate at. Having that information and in coaching our managers so that they recognize not only are you a manager or property, but you’re also a counselor to help this person get the resources they need. Additionally, making sure that we’ve already vetted each resident in their tenant profile to understand what they’re eligible for with the one-time treasury stimulus check, meaning that if it’s as an example, say a single mother with a dependent child, she’s entitled to a $1,200 check for her and a $500 check for her son or daughter.
And so she’ll be getting a check for $1,700 so now we can communicate that information as of the best, best case information we have right now. They’re tracking to have that available somewhere. You know, probably the next three to four weeks, call it April 27th that they begin to be mailed out. But again, that’s going to be able to be monitored and posted on irs.gov and so we’re tracking that in real time so that when we’re talking with a resident that’s been affected, we can tell them here’s what you’re going to get for the state unemployment benefit. You know, the average for this area is X amount of dollars. The timeline is going to take three weeks or four weeks or five weeks to get your first benefit, but you know, we’ll help you apply today. And then the benefit accruals start as of the date of application.
And then in addition to that, also the fact that qualifying for state unemployment benefits, they would also get the federal unemployment benefit, which is $600 a week. So again, all that information coming to Bay to Bayer, we’re able to now with our onsite managers, it’s happening right now as we speak. Be able to communicate with people confidently, securely, inaccurately, provide them the information that they need to understand what kind of resources are going to be there to help them in their family and then make an agreeable payment plan that they can honor and agree to. And then lastly, all of our managers in every location has contacted all of the resources in their local community to find out what, churches, what nonprofit, what religious organizations, all of those type of resources in the area, to know exactly what they have, food, banks, everything.
So that again, we’re using this as an opportunity to really provide the maximum benefit and resources to our people. And again, with that, it’s two fold. You know, our mission is to improve the lives of the people that live in our complexes. And second and equally important is to provide a quality return to the investors that invest with us. And so, again, by really benefiting our residents and providing that hope and that benefit and factual information, we’re providing leadership to them. They see that we care for them. And as a result of that, they in turn, are more engendered to appreciate that and then honor the agreements that we’re making. And so our initial response is that we’ve seen a good response and then I’ll look forward to updating you guys on the best practices that we’ve been doing. And again, all of these things, we’re not doing this on April 1st we’d put all of this in place over the last two weeks, just finalized all of our coaching calls with all of our senior leaders and all of our onsite staff yesterday, right?
So it’s game day. Everybody’s on their best, everybody’s moving forward and praise God. I believe we’re going to see fantastic results for the communities that we have because really in my worldview, we’re advancing the kingdom of God and the kingdom of good, where we’re seeking to bring a better quality of life to the people that live in our complexes. And we’re seeking to bring a better quality of life to the investors that invest with us. And so those two things combined are a force for good. And I think I love even to one of my mentors, Tony Robbins, you know one of his mantras is I’m a force for good. I’m a force for good and it’s true, right? I’m a force for good and changing this world. And so praise God, I’m grateful for that opportunity. So you guys who are listening stay safe, be wise, be strategic right now and again, I just tell you this, that in every challenge is the equivalent seed of opportunities.
So even though there’s a challenge right now, this is an opportunity to improve your operations, to improve your strategy, to improve your team, to improve the ability to execute on your vision and praise God, that’s exactly what we’re doing. And for those of you who are invested with us, I praise the Lord for that and know that we are on the right track. I look forward to talking with you. I look forward to hearing from you. Thanks for listening to another episode of the real estate preacher podcast. I hope today that you learned something that you can immediately apply in your life or business. Make sure that you check us out on iTunes or at therealestatepreacher.com for more information. If you want to find out more about partnering together with me personally on real estate deals, including apartment complexes, go to the real estate preacher.com and on the invest with Randy link. I look forward to talking with you personally. Have a blessed in Victoria’s week four this is the week God has ordained for you.