Since the coronavirus pandemic first hit the United States, many small landlords have agonized over how it would affect both tenants and business. Would widespread unemployment affect tenants’ ability to pay? What would landlords need to do if many tenants do not pay rent at once?
Vipin Motwani
Vipin Motwani, an investor with Iron Gate Development in the Washington, D.C., suburbs who manages over 40 rental properties, has seen the number of late payments grow exponentially in May and April. But instead of becoming upset, he has been stressing the importance of preparedness and understanding. While landlords may have seen drastic drops in income, tenants often face direct layoffs and much less of a financial cushion — and, as Motwani stresses, confrontation is simply not productive at a time when there is a halt on evictions.
“Everyone who I’ve spoken to who is a single family rental owner, nobody has experienced Armageddon,” said Motwani. “Even the people who had less liquidity because mortgage lenders were offering deferments, they were able to manage.”
We spoke with Motwani about how small and mid-size landlords can take an empathetic approach to tenants’ hardship while also protecting their business when the unexpected strikes.
Inman News: Tell us about your properties. How many do you have and what are they like?
Vipin Motwani: I run a family-owned business. We have about 42 rental properties in several different counties in Maryland, mostly blue-collar and middle-class neighborhoods. They’re single-family homes and townhomes, very few condos, that are a little bit larger and more expensive than starter homes, with a market value between $200,000 and $400,000.
IN: Has the coronavirus pandemic affected your business?
VM: It has. What we’re seeing is that the initial delinquency in any given month has definitely increased. Our normal process pre-COVID was considering rent late after the first of the month, but only charging late fees after the 10th of the month. If you don’t pay or set up a payment plan with us, we file for failure to pay rent on the 15th of the month. That’s our normal process.
Normally, we only have a handful tenants who miss that 10-day mark. When COVID started, those numbers have increased significantly. In the past month, we’ve had 11 tenants miss that 10-day mark. This is a big number for us.
The next big metric we use is figuring out how many missed the 30-day mark, an entire month’s rent. By the end of April, we had two. I was expecting more but we only had two. Everybody else has paid.
IN: What do you do in the cases where people can’t pay?
VM: We’re taking on a more collaborative approach as opposed to a confrontational approach. We’re talking through tenants’ needs to work out a payment plan. Basically, they are dictating what the payment plan will look like, and we are accommodating to that extent.
So far, everyone’s been pretty reasonable. But if tenants do not abide by their payment plan or do not show that COVID was the cause of their hardship, then we are still filing for failure to pay rent. That’s obviously not going to move toward eviction because the courts are closed, but we are filing.
IN: What do the payment plans look like? You mentioned the importance of taking an empathic and collaborative approach.
VM: If someone could submit documentation showing that COVID has affected their income, we were willing to work with them on whatever payment plan they would propose. For the most part, we were accepting any kind of payment plan.
One tenant asked to shift payment from the first of the month to the second Wednesday of the month to have a bit more time. We were flexible with those tenants. We’ve waived credit card fees for those who wish to pay rent rent by credit card and waived court costs.
We are still dictating standards to protect the business, and filing for failure to pay rent if they can’t prove that it was COVID-related. But we are taking the humanistic approach, saying, “We know you’re in hardship, when do you think you’ll have the money? Let’s put together a payment plan and let’s abide by the payment plan.”
We’re not calling people and yelling at them. That’s not our approach.
IN: How did you navigate the loss of income? Were you prepared to absorb the losses?
VM: Right when COVID started, we set up a line of credit. We made sure all our lines of credit were active so that should we need to draw on them for cash flow purposes, we would be liquid. We’re also in the middle of refinancing almost our entire portfolio right now to reduce our interest exposure. That will help with cash flow purposes as well.
IN: Do you see things shaping up for both tenants and small and mid-size landlords?
VM: I do think the situation will improve in the coming months. April and May were not as bad as people projected, and now we have been opening up. I do see things coming back into balance.
But it wasn’t Armageddon for the last couple of months. Everyone who I’ve spoken to who’s a single family rental owner, nobody experienced Armageddon. Even the people who had less liquidity because mortgage lenders were offering deferments, they were able to manage.
Out of our portfolio, we got deferments on four properties. We took those preemptively because we had no idea what was going to happen in April and May, but we do plan on paying those back.
IN: What can the pandemic teach us about preparing for the unexpected?
VM: The way you have to think of it as a business owner is always “cash is king.” In situations like this, you have to have access to cash. You have to have liquidity, whether you’re in a pandemic or a regular financial crisis.
Any prudent landlord or business owner, as soon as they know the pandemic is round the corner, should start setting up lines of credit and ensuring that liquidity is there.
Once you have liquidity and cash, you know that you’re a lot more prepared to weather the storm.
