Sorry California Multifamily owners (I'd be panicking)

[Cody L.]

I don't panic often, but if I was a LL in California I'd be freaking out.  I've said in the past I invest in Houston because I don't fear hurricanes or floods.  I only fear what the government may decide to do to me.  So I want to invest where I have less chance of the government smashing my face.

No evictions until 90 days *AFTER* this is over?  Tenants could literally squeeze half a year of rent before you can get them out.

"Empowered by Governor Gavin Newsom with expanded emergency authority, the Judicial Council of California voted at its emergency meeting to suspend all unlawful detainer actions until 90 days after California’s COVID-19 State of Emergency ends or until the Judicial Council rules are amended or repealed. The only exceptions are cases where public health or safety is involved."

How can they tell people (with a wink/nod) that rent doesn't have to be paid, yet have no plans to help the people who have bills to pay FROM that rent?   If the government wants to help make sure people are not evicted, come up with a plan that helps them pay rent.  Otherwise you just shift the pain from one person to another.

I guess they assume if they tell a 30 unit building "no rent!", they gain 30 votes (tenant) and lose only one (LL)

[Dan H.]

Originally posted by @Dan V.:
What was the lead time for evictions previous to this?  I am not as pessimistic as you are.  In order for the tenant to actually try and F the landlord he has to think he has a better place to jump after he does.  Many times in harder markets there is a fear that they can't get something else.  Obviously some percentage of People will do as you say.  What will screw the Landlords if it goes from 5%-25%.  There will also be a fairly large percentage of folks who genuinely cant pay.  Those guys need to be incentivized to pay their Gov't Checks towards rent.

We gave all of our tenants a COVID care package 2 weeks ago.

I agree with @Dan V. sentiment.

Lets be real, evictions in CA rarely happen. Why?  Well you could state that it is because the process is cumbersome (that likely is true) and that it is easier to buy out a bad tenant (also likely true).  However, that has not been my experience.  My experience, having done this too many years to want to admit, is that it is the coastal CA vacancy rate that makes evictions so rare.  A tenant with an eviction on their history is automatically ineligible to rent one of our units.  This includes evictions during the Great Recession.  We are far from alone in this policy.  So a tenant who gets evicted will find it difficult to obtain a class A to C unit.  They could probably find class D units, but this would be for years they would be precluded from renting a nice unit.

My family and I have had rentals (granted we started with just one and have built up the count) since the 1970s.  We have ~20 units today.  You know how many formal evictions we have done?  Zero!   You know how many tenant buyouts we have done?  Zero!   This is both a function of screening well, including no past evictions, and due to the low historic vacancy rate (typically around 3.5%).

So evictions, that basically happen fairly seldom in this state, are postponed.  Does it mean anything when there are so few evictions?

I was anticipating 85% of the LTR April rent (STR rents have been $0 since second week of March - We are currently down ~$24K STR rent and counting). Two tenants had contacted us about possibly being a little short on their rent payment. We received 100% of the rent including full rent from the two tenants that had contacted us. I realize that is just month 1 and each subsequent month will be more difficult for the tenants to pay their rent. But it is a great start considering there was eviction moratorium. For May, I am once again forecasting 85% of LTR rents. This high expected rent is for the following reasons: 1) we screen our tenants well. They range from pretty good to outstanding. 2) We take care of our good tenants. They want to stay with us. 3) they understand that we will work with anyone with a severe hardship due to Corona (we did not require an eviction freeze for us to do this - I posted prior to the eviction freeze that we would not be evicting anyone that could not make their rent due to a real impact from the Corona virus), but we expect those without any significant hardship to be paying their rent. 4) If they get evicted, not only are they not going to be our tenant again, but they will be hard pressed to find as nice a unit in this area.

Does this mean I have zero fear?  Not necessarily.  We have the reserves to handle this but if tenants get behind and decide they would rather be evicted than pay for the missed payments, that is money that we will never get back.  We would in effect be paying our tenants rents out of our reserves/savings (and our rents range from $1.5K to $4K per unit so it adds up fast).  If it is one tenant for a few months, maybe chalk it up to the cost of doing business.  What if it is 10 tenants (10 units at $2.5K/unit is $25k/month, so 3 months would be $75K)?   Note, I do not expect this to happen (so I do not fear it much), but it may happen.  I like to be prepared for anything.  I like to have reserves for worse case scenarios.  Having 10 out of 20 tenants not pay rent for multiple months is beyond any worse case scenario that I could have forecasted the need to be prepared for (however, I think it is real unlikely).

To be blunt, I worry less about my tenants paying their rent than the tenants in zero appreciation markets even if those markets do not have an eviction freeze (but many of them also have an eviction freeze).