New to Real Estate · Evergreen Park · Member since 2017 · 10 posts · 0 votes
Hi Biggerpockets! Newbie here. Some back story to where my question of the day comes from. During Christmas i got together with family and was telling one of my family members how Im looking for a building to house hack. He immediately tried to put me off the idea and started telling me his horror story of how he had to sell his 3flat in 2021 because his renters stoped paying rent during Covid. Of course me having some knowledge from bigger pockets, I immediately noticed the mistakes he made. I patiently listened and didn’t say anything knowing his ego would be bruised if I mentioned anything and he probably wouldn’t give me any details. It turns out he was house hacking but his cash flow was practically nonexistent. He only made $200 above the mortgage. He also did not accountant for vacancies, maintenance, and repairs so the rent that he was getting was immediately going to pay off the mortgage and the other $200 he considered it profit so he didn’t have any of that saved up. So as soon as his renters stopped paying he started to drown in debt so he ended up cutting his losses and selling the property for a loss. I have a question for those who have or had properties during Covid. What was your situation like? Did your renters stop paying at any point in time? If so how did you move forward after that? Were there any programs in place to help renters with rent? How were evictions processed during Covid?
Hi Biggerpockets! Newbie here. Some back story to where my question of the day comes from. During Christmas i got together with family and was telling one of my family members how Im looking for a building to house hack. He immediately tried to put me off the idea and started telling me his horror story of how he had to sell his 3flat in 2021 because his renters stoped paying rent during Covid. Of course me having some knowledge from bigger pockets, I immediately noticed the mistakes he made. I patiently listened and didn’t say anything knowing his ego would be bruised if I mentioned anything and he probably wouldn’t give me any details. It turns out he was house hacking but his cash flow was practically nonexistent. He only made $200 above the mortgage. He also did not accountant for vacancies, maintenance, and repairs so the rent that he was getting was immediately going to pay off the mortgage and the other $200 he considered it profit so he didn’t have any of that saved up. So as soon as his renters stopped paying he started to drown in debt so he ended up cutting his losses and selling the property for a loss. I have a question for those who have or had properties during Covid. What was your situation like? Did your renters stop paying at any point in time? If so how did you move forward after that? Were there any programs in place to help renters with rent? How were evictions processed during Covid?
Thank you for any and all responses!
This is honestly a very state by state experience for a lot of landlords. While there was a national moratorium for a while, the levels of enforcement and loopholes varied by state. Illinois was unfortunately one of the tougher states to operate in. I assume your family member owned in Illinois?
Your relative might have made some mistakes, but he also frankly got unlucky. Who could have predicted COVID? It's good that you are trying to learn from his mistakes.
To answer some of your questions. Evictions were pretty much nonexistent in Illinois. You could still file, but it would get tossed. Basically, the only reason to file was to go to court for breach of contract. You could get a monetary judgement, but the tenant still would not be removed from property.
I had two tenants stop paying. One accepted a cash for keys deal after 2.5 months. The other fought a lot harder. We ended up filing for an eviction in June of 2021 and she left after a few weeks. I actually faired pretty well. I had sizable reserve and other units to cover during the 5 months of lost rent on those units.
There were programs to support tenants, but not enough money to cover all the rent. I read one statistic (not verified) that out of 64k applications for a second round of funding IHDA, only 27k were approved. If your tenants did not get approved, you were left holding the bag.
Honestly, COVID made me a much better landlord. It was pretty awful if you had tenants not paying, but you learned to handle the stress and adapt to the situation. My takeaways: have ample reserves, tenant screen, report to the credit bureaus (you were still allowed to do that in Illinois) and toughen up. It's not an easy business, no one frankly cares about you as a landlord. Be fair, be understanding, but know when to draw the hardline. And like @Charles Carillosaid, it probably doesn't hurt to be in landlord friendly jurisdictions.
Hopefully we get 200-year hiatus from this kind of event!
We had some renters stop paying and the properties we had in tenant-friendly states made it very difficult to evict them. We had some tenants that didn't pay for a year. How we managed it is that we had many units and only a small portion of them were in tenant-friendly states (sold now). If you want to minimize the risks of having a long eviction moratorium in the future with the next COVID or the next recession; buy in landlord-friendly states. Secondly, have reserves (like 6 months of expenses in reserve).
I manage 400 units. We had 5-6 stop paying and we managed to terminate their lease or get them on assistance. Only one was a loss because she originally stopped paying during the 12-week lock-down and we didn't have much choice. As soon as we opened up again, we gave her notice of termination and she left within a week. Like many around the country, she was making almost double her income thanks to the unemployment bump and other "free" money. A couple weeks after she moved out, I saw her driving a new car.
It's not that your relative's deal was bad- it may have been, but there's not enough information here to make that call.
It's that their management was bad, which is actually what makes or breaks a deal. So many amatuers spend years agonizing over their first purchase until they find that "perfect" first deal, then they self manage with no experience, help or knowlege and destroy the deal and create all kinds of personal drama for themselves and their tenants.
My little PM company manages about 250 properties and we had approx 10 tenants with payment challenges due to covid. We worked directly with them and with HUD to get assistance. Every single one of them was made whole and 100% of their rents were covered. HUD was giving rent money away with very little effort on the tenant/PM's part. We actually had a local HUD rep calling us weekly asking if we had more tenants that needed assistance because they still had millions of dollars in rental assistnace that they had to spend. They were desperate to give that money away.
Your relative didn't get any of those benefits becuase they wanted to self manage and save $100 per month by not paying a professional PM. How many thousands of dollars did they lose by "saving" the PM fees.
Moral of the story- professional management (either by YOU or by a PM company) will make the biggest difference in how well your investment performs- it will almost make how great or poor the deal was irrelevant.
Hi Biggerpockets! Newbie here. Some back story to where my question of the day comes from. During Christmas i got together with family and was telling one of my family members how Im looking for a building to house hack. He immediately tried to put me off the idea and started telling me his horror story of how he had to sell his 3flat in 2021 because his renters stoped paying rent during Covid. Of course me having some knowledge from bigger pockets, I immediately noticed the mistakes he made. I patiently listened and didn’t say anything knowing his ego would be bruised if I mentioned anything and he probably wouldn’t give me any details. It turns out he was house hacking but his cash flow was practically nonexistent. He only made $200 above the mortgage. He also did not accountant for vacancies, maintenance, and repairs so the rent that he was getting was immediately going to pay off the mortgage and the other $200 he considered it profit so he didn’t have any of that saved up. So as soon as his renters stopped paying he started to drown in debt so he ended up cutting his losses and selling the property for a loss. I have a question for those who have or had properties during Covid. What was your situation like? Did your renters stop paying at any point in time? If so how did you move forward after that? Were there any programs in place to help renters with rent? How were evictions processed during Covid?
Thank you for any and all responses!
This is honestly a very state by state experience for a lot of landlords. While there was a national moratorium for a while, the levels of enforcement and loopholes varied by state. Illinois was unfortunately one of the tougher states to operate in. I assume your family member owned in Illinois?
Your relative might have made some mistakes, but he also frankly got unlucky. Who could have predicted COVID? It's good that you are trying to learn from his mistakes.
To answer some of your questions. Evictions were pretty much nonexistent in Illinois. You could still file, but it would get tossed. Basically, the only reason to file was to go to court for breach of contract. You could get a monetary judgement, but the tenant still would not be removed from property.
I had two tenants stop paying. One accepted a cash for keys deal after 2.5 months. The other fought a lot harder. We ended up filing for an eviction in June of 2021 and she left after a few weeks. I actually faired pretty well. I had sizable reserve and other units to cover during the 5 months of lost rent on those units.
There were programs to support tenants, but not enough money to cover all the rent. I read one statistic (not verified) that out of 64k applications for a second round of funding IHDA, only 27k were approved. If your tenants did not get approved, you were left holding the bag.
Honestly, COVID made me a much better landlord. It was pretty awful if you had tenants not paying, but you learned to handle the stress and adapt to the situation. My takeaways: have ample reserves, tenant screen, report to the credit bureaus (you were still allowed to do that in Illinois) and toughen up. It's not an easy business, no one frankly cares about you as a landlord. Be fair, be understanding, but know when to draw the hardline. And like @Charles Carillosaid, it probably doesn't hurt to be in landlord friendly jurisdictions.
Hopefully we get 200-year hiatus from this kind of event!
Hi Edwin, this is a great question. During COVID, my team saw only 2-3% of tenants stop paying rent. We managed approximately 450 residential units. And while Durham, NC tends to be a VERY tenant-friendly county (with evictions not resuming until late 2021), we were able to procure rental assistance in the majority of these cases. The majority of nonpayment situations occurred at larger multifamily properties, meaning that owners were less impacted than they might have been had they owned only one or two single family homes. I second the opinion that your family member might have done better with a property manager in this scenario. Things were changing rapidly, and it was difficult for part-time landlords to keep up with the situation.
