When I published my last fourplex post, I had no idea how many of my tenants would or could pay rent for the month of April. Now that I have all the figures, I wanted to share a quick update.
First, you might be wondering why it took so long to get rent income information. I mean, it’s already the END of April… Shouldn’t landlords know on April 1st who paid rent and who didn’t?
Well, typically property management companies don’t reconcile the monthly ledger until around the 10th of each month. This allows time for late paying tenants, as well as other busy activities for the managers (such as organizing move in-outs). I did talk with my fourplex manager at the beginning of April and got a heads up that “most tenants had paid”, but my official report didn’t come out until the 15th, as it does every month.
April Rent Report:
I’ll start with the good news… We only had 2 tenants who didn’t pay rent in April. But, it should be noted that 1 of these tenants hasn’t paid for March either. (We were actually half-way down the eviction process in March before the County instituted the stay-at-home order and closed the court house. We can’t evict people during quarantine, so this tenant is basically using my building as a free place to stay until the lockdown is over).
For the other tenant that didn’t pay April, we have come to an agreement where they will make additional catch-up payments on top of usual rent payments going forward. They believe they are OK paying for May and going forward.
I say this is “good news” because I was anticipating it to be worse. Maybe the worst is yet to come?
Here’s the bad news:
Currently we have 4 vacancies. This is the most we’ve ever had simultaneously, and this is the first month it’s hurt us so much. So with the 4 vacant units, and 2 no-pay tenants, that puts us at ~62% of the total *potential* income for April. Ouch.
If you recall from my last post, my break-even cash flow point is around 75% for all 4 buildings (no rent from 4 of 16 units). So, we are a little underwater for April. This isn’t the first time, and it won’t be the last time. That’s just the ups and downs of owning long term rental properties.
Going into May…
Unfortunately, we’re in the same boat now as we were before April… We don’t really know who will pay rent and who can’t for May. We’ve only heard from 1 tenant who expressed they are under “financial hardship”, and I’m assuming our mid-eviction tenant won’t pay again. So that’s 2 no-pays that we know of already for next month.
All we can do is brace for another hit and see how it all pans out.
As for vacancies, we’re actually getting a lot of interest and new applications for move-ins. This is surprising to me because I thought people wouldn’t want to move houses during a pandemic. But, I think some Americans are anticipating the need to downsize this year, and are planning moves out of higher-cost housing into low-cost areas. This may be the reason we see an uptick in interest.
As for showing vacant units to prospective tenants, my property manager is offering “virtual tour” experiences, which is working out well. Pretty cool what technology can do these days.
How does this all compare to others nationwide?
One thing all real estate investors want to know is… What is everyone else experiencing right now?
The short answer is, nobody really knows exactly.
I’ve been reading this megathread where over 500 real estate investors posted their collection numbers. Most landlords are claiming they have 100% of rent collected, but there are definitely some below and some really struggling.
Regardless, we can’t take these numbers at face value, because there’s no background information to make good comparisons. There’s not enough accurate data yet to know how the nation is truly doing in each real estate asset class.
One thing’s for sure though… Most people are expecting a worse May than they had April. This is mostly based on *feelings* from what I can tell, not specific forecast data. Only time will tell how May will go.
2 Quick Lessons for Newbie Real Estate Investors:
- Vacancies hurt just as much as (or more than) delinquent tenants. Vacancy is a sneaky thief to your bottom line profits. Always account for vacancy income loss in your projections when evaluating a new rental investment.
- Maintain a healthy emergency fund. Always always always. The negative ~$1200 cashflow I was hit with this month puts a small dent in my fund. But it won’t drown me. If I had no fund, or just a little one, I’d be screwed.
That’s all I got for now! Let me know if you have any questions!
Pic up top by Tierra Mallorca