In today’s Syndication School episode, Theo Hicks, shares some insight on the new eviction moratorium and who this applies to, and what you should be doing as an investor.
To listen to other Syndication School series about the “How To’s” of apartment syndications and to download your FREE document, visit SyndicationSchool.com. Thank you for listening and I will talk to you tomorrow.
Theo Hicks: Hello, Best Ever listeners and welcome to another episode of The syndication School Series, a free resource to focus on the ‘How to’ of apartment syndication. As always, I am your host, Theo Hicks.
Each week, we air a podcast episode that focuses on a specific aspect of the apartment syndication investment strategy. For a lot of these episodes, we have released free documents, either free pdf ‘How to’ guides, PowerPoint presentation templates and Excel calculators that will help you along your apartment syndication journey. Make sure you check out the previous Syndication School episodes, as well as those free documents at syndicationschool.com
Today, we are going to be returning to the Coronavirus, and we’re going to talk about the recent CDC Eviction Moratorium. This was signed early in September, and effectively banned evictions nationwide through the end of the year.
The previous eviction moratorium expired at the end of August, and then there was like a week where you were allowed to do evictions, and then this renewed eviction moratorium came into place.
Today, I wanted to talk about who this moratorium applies to, and then some of the things that you should be doing, and mostly continuing to do, right? These are things you should have been doing already and you’ll just have to continue doing them until the moratorium expires.
Who does this eviction moratorium apply to? What type of resident is eligible? Here’s some of the criteria that you can find, and all this is on the CDC website.
One, the resident has sought all available government rental assistance. There are some websites you can go to where rental assistance is available to residents. I’ll read this off a little bit later in the episode. The resident also cannot earn more than at $99,000 or $198,000 combined. Below that, they cannot be evicted. The resident can’t pay the rent in full due to substantial loss of income. The resident is trying to make timely partial payments to the extent they can afford to do so, and the resident would, if evicted, likely end up homeless or forced to live in a shared living situation.
It sounds like the resident would need to submit a CDC declaration form to notify their landlord that they’re not going to be able to pay rent because of one of the aforementioned reasons. If you are to receive one of these from your residence, well, what should you do?
The first thing you should do is reply, in writing, and encourage them to make partial payments, whether it be of rent or any other things that are due to the extent that they can, in accordance, again, with the CDC declaration where they may be able to pay some of their rent, but they just can’t pay all of it. They might be able to make partial payments, right? Because they’re supposed to be trying to make partial payments to the extent that they can in order to avoid being evicted under this moratorium. You can also remind them of the rental amounts that are due at this time, and that they will ultimately need to be paid. Just because someone is not evicted doesn’t necessarily mean that the rent that they can’t afford to pay now are forgiven. Let them know, “Hey, please pay what you can, because these rents will be due at some point” or else once the eviction moratorium has expired, then they can be evicted.
Also, one of the other stipulations is they’re supposed to have a sought all available government Rental Assistance Programs. It probably makes sense to provide that information to them, because that’s again, more collections for you.
In this written correspondence, you can include a list of resources, like the ‘How to’ of resources, so how to say this to some non-profits that received some emergency solutions or grants, or community development block grant funds from the original CARES Act, and those can be used for rental payments.
The websites are going to be https://www.hudexchange.info/, http://hud.gov/coronavirus, and then https://home.treasury.gov/policy-issues/cares/state-and-local-governments. We have these links on our website under the blog post the CDC Eviction Moratorium – What You NEED To Know, posted on September 16. Either type in the links I just said to your web browser, or you can click on those links from that website.
There might also be some other local programs available, so make sure you are investigating that and providing that info to your residents as well.
The next thing to kind of think about would be okay, well, let’s say that the resident doesn’t meet the criteria, or you’re uncertain if they’re meeting the criteria – what should you do? Ultimately, that’s going to be up to you, but there are penalties and they’re actually pretty severe for individuals. It would be if you just own the property yourself as an individual, and you evict someone who falls under the eviction moratorium stipulations. It’s up to $100,000 fine and one year in jail, or if the resident ends up dying because of this eviction, the monetary penalty is even higher, up to $250,000. Then if it’s an organization or if it’s the syndication, the penalties are even more severe.
Again, keep that in mind if you’re going to attempt to evict someone. Also, keep in mind that because of the current climate, you might draw additional judicial scrutiny. There might be a news article written about you. Again, keep all the negative consequences in mind when you consider evicting someone, even if they explicitly fall outside of these stipulations.
Now I did a Syndication School, Episode 2046, 11 Tips for Collecting Rent During the Coronavirus Pandemic. I think these tips still apply today; since you can’t evict people, you’re going to want to figure out ways to collect more rent. I’ll just very quickly to go over those again, but I went to a lot more detail on those in that episode 2046.
One is, offer discounted rent to people who pay rent on time or early. Offer a repayment plan. Allow the residents to apply any security deposit to the rents. Ask residents to pay for security deposit insurance. Communicate with residents to see who can and cannot pay rent. Volunteer your units for free to Coronavirus volunteers. Use federal or local programs created for landlords and renters. Ask residents to pay rent with a credit card. Offer an emergency repayment program. Provide free rent to residents who lost their jobs, and then reduce rents to break-even.
Some of these are going to be delayed, and the rents would be paid eventually. Some of them are most likely going to be a forgiveness or written off as a concession, but if you listen to the episode, I go into more detail on those. I think the most interesting one would be applying the security deposit to their rent and then having them do security deposit insurance at the same time.
One thing I guess I didn’t put on here was, if you do need to come to some sort of repayment program, maybe extend their lease. But again, the potential drawbacks of that are if they’re not paying rent right now, then you might be stuck with someone that you can’t evict for even longer. So make sure you check out that episode.
Another thing that I think would make sense to check out would be Episode 2074 where I went over some of the changes and adjustments that you can make when actually underwriting deals right now. This is when you’re looking into new deals. Check that episode out as well.
Now, one of the things I wanted to mention that is important to keep in mind, because as I said, just because someone is protected under this eviction moratorium, and let’s say they pay partial rent, or they’re not paying rent at all – at some point that rent is not forgiven. It’s going to need to be paid eventually. So so me of the things to kind of think about is okay, well, if I have all these residents with really, really high balances, what’s going to happen once the eviction moratorium actually ends? They have the option of either paying that high balance or leaving. This is something that you’re going to want to kind of be thinking about now, even though it might not necessarily happen. That eviction moratorium at the earliest, will expire in early 2021, and it’s really hard to tell if it’ll be extended or not. But assuming it expires in 2021, and assuming that you’ve got a certain percentage of residents who aren’t paying rent, you can kind of figure out how much bad debt you’re going to have come the eviction moratorium. Kind of think about, okay, well, what percentage of these residents are just going to skip and disappear once the eviction moratorium ends? What percentage are going to actually attempt to pay off their debts?
One thing that you can consider doing is obviously that repayment program, and thinking about that now and having that conversation now with your residents, because if they skip and that’s money that’s essentially gone, unless you want to pursue them legally. But most likely, you’re going to have a very high bad debt if they skip, and so what can you do today to minimize the number of skips you have in three, four or five months from now, that is going impact the cash flow and therefore impact the distributions you can send out to your investors.
That’s why I think the repayment program is going to be powerful. You can spread out the money owed maybe in another lease price, and assign an additional year, and then that rent is going to be higher. Essentially, their balance owed divided by 12 is what’s added to each month of rent.
I guess the main point here is, is to be aware that this rent is not forgiven, this rent is owed, and if it is not paid because the resident skips out, then that’s going to be a revenue loss. It’s going to be bad debt. If you have a portfolio right now, you should have a decent understanding of what that’s going to look like, based off of the number of skips you saw during the pandemic in general… But some of the skips that you saw towards the end of August, when the eviction moratorium was going to end, and then before anyone knew there was going to be a new one – did the residents who had high balances, the ones who you had a hard time getting in contact with, the ones who were not sticking to their repayment program, did they leave in August or early September? Then that should give you an idea of what will happen from the beginning of 2021; lots of things to follow up with.
I recommend checking out the blog posts we have; the CDC Eviction Moratorium – What You NEED To Know. I recommend checking out the Syndication School Episode 2049, where I went over 11 tips for Collecting Rent During the Coronavirus. I listed them today, but I go into more detail on each of those. Some of them are self explanatory, some of them by me just reading off the bullet points, like offering emergency Repayment Program or ask residents to pay for security deposit insurance. Those aren’t necessarily self explanatory, and I go into those in a lot more detail in that episode.
Then if you are looking into new deals, make sure you’re understanding what changes need to be done to underwriting by listening to Episode 2074, Ashcroft Underwriting Adjustments During COVID-19.
That’s going to conclude this episode. Thank you for tuning in. Make sure you check out all of those resources I just mentioned, make sure you check out the previous Syndication School episodes, as well as the free documents we have for those. And then have a Best Ever day and we’ll talk to you tomorrow.
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