What goes around comes around.
Elaine Rock hasn’t raised rents on her tenants for the last seven years. But after California mandated statewide rent control limiting rent increases for certain owner categories earlier this year, she increased rents roughly 5% on each tenant in her El Segundo fourplex.
Rock said she felt it was necessary as investors tend to value properties based on income generation.
On the heels of COVID-19 and subsequent eviction moratoriums, Rock received word that occupants of one unit were struggling financially with job losses. Another tenant was retiring and could no longer afford the rent. In total, three of her four tenants were having issues paying their rent.
Assembly Bill 3088, which passed the California Legislature, was signed Aug. 31 by Gov. Gavin Newsom. The bill extends a statewide eviction moratorium to Jan. 31, 2021, requiring tenants to pay at least 25% of their rent Sept. 1 through Jan. 1, and mandating landlords provide tenants a notice of their rights under the temporary law.
This new bill puts many landlords in a precarious position. It’s estimated some 30% of tenants are not paying their rent, according to a survey by Apartment List. A U.S. Census Bureau survey showed 20% of Southern California tenants reported being behind on rent in August while statewide, 15% said they were late in August.
At no time will a landlord be able to kick out the tenant for past due collections (even after the coronavirus crisis ends), so long as the tenant abides by the latest rules.
Rock requested and received a mortgage payment forbearance from her lender for her fourplex, presumably under the Cares Act, which allows borrowers in good standing to delay thieir payments.
I have received many complaints from landlords about tenants who have the means to pay rent but don’t pay, abusing the COVID-19 eviction moratorium.
Fortunately for Rock, her tenants left or are leaving cooperatively and voluntarily, so she won’t lose income.
There are 8 million independent U.S. landlords, according to the Urban Institute. How many of them are already at risk of loan default or foreclosure because they are stuck without rent? The U.S. lost 22 million jobs to the pandemic and has recovered nearly half. In California, more than 8.8 workers have filed for unemployment benefits since lockdowns began in mid-March.
When it comes to your economic well-being and managing your rental property, hope for a vaccine or cure for COVID-19. But plan for the worst as we just don’t know how long this pandemic and all of its financial and emotional angst is going to last.
Here are my tips for hard-pressed landlords stuck without rental income:
1) Ask your lender for a mortgage payment forbearance, payment modification, and to add any deferred payments on the back of the mortgage as needed.
2) Refinance property you own to pull cash-out and/or reduce your monthly overhead as mortgage rates are at historic lows
3) Apply for a private or hard money loan if you get turned down for an institutional mortgage
4) Borrow money from your stock funds, retirement asset accounts, family or friends in order to temporarily make due
5) Sell your property; it’s better than potentially losing it to loan default or foreclosure
6) File Chapter 13 reorganization bankruptcy to better manage your bills
7) Sell some goods: Think eBay or any other online sales websites as you might have a treasure-trove of personal or household items that someone else might pay for handsomely
8) Barter with your tenants for his or her craft or business in exchange for rent
Also, Mike Flood, Research Institute of Housing America’s senior vice president, brilliantly suggested landlords can support tenants (and themselves) through various rental assistance programs like HUD Section 8 or block grants. The National Low Income Housing Coalition has an information-rich interactive online map of COVID-19 Emergency Rental Assistance Programs at nlihc.org/rental-assistance.
Lastly, relationships matter. Fairness, attentiveness and respect as a landlord toward tenants might give you an advantage as Elaine Rock seemed to have accomplished. What goes around comes around.
Mortgage-related news this week
Freddie Mac rate news: The 30-year fixed-rate averaged 2.9%, up 3 basis points from last week. The 15-year fixed-rate averaged 2.4%, up 5 basis points from last week.
The Mortgage Bankers Association reported a 6.8% increase in loan application volume from one week earlier.
Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $510,400 loan, last year’s payment was $208 more than this week’s payment of $2,124.
What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with 1 point cost: A 30-year FHA at 2.25%, a 15-year conventional at 2.25%, a 30-year conventional at 2.625%, a 30-year FHA high-balance 2.625%, a conventional high-balance ($510,401 to $765,600) at 2.625%, a 30-year jumbo fixed rate at 3.125%.
Note: The 30-year FHA is limited to loans of $442,750 in the Inland Empire.
Eye-catching loan program of the week: A 15-year high-balance fixed-rate conventional mortgage at 2.125% with two points.
Jeff Lazerson at mortgagegrader.com is a mortgage broker. He can be reached at 949-334-2424 or [email protected].