Managing multi-family properties has always had its own challenges and considerations … but the COVID-19 crisis makes it considerably more complicated.
How are landlords managing the risks and the responsibilities during these difficult times?
We’re checking in with The Apartment King, Brad Sumrok, to get his practical tips for property and portfolio management in the COVID-19 world.
In this episode of The Real Estate Guys™ show, hear from:
- Your managerial host, Robert Helms
- His unmanageable co-host, Russell Gray
- The Apartment King, Brad Sumrok
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Management in a COVID-19 world
COVID-19 has affected all kinds of industries … and real estate has certainly felt the blows.
Everybody is figuring out how to reinvent themselves and reinvent their businesses.
Real estate is at its base a brick and mortar business. You don’t have virtual real estate. People go in and they live somewhere.
For the last few weeks, we have been talking about the various ripple effects of what has happened. When your tenant is suddenly unemployed and can’t pay rent, you can’t pay your mortgage servicer … and they can’t pay the underlying investor.
So, today we’re talking about how investors like YOU can manage your properties and portfolios in a COVID-19 world.
We’re talking with someone who has got a big, big portfolio and lots of people he works with … but he also knows how to be proactive in a crisis.
What apartment investors need to know
We call Brad Sumrok “The Apartment King.” He is a gentleman and no stranger to the ups and downs of real estate.
“Obviously, none of us have been through a crisis like this before, but as an apartment investor since 2002, I not only survived the 2008 depression, but I thrived during that time,” Brad says.
Brad says he implements a strategy of “winterizing” his portfolio … and he teaches his students to do the same.
“This is what we call an economic winter, so it’s important to winterize your portfolio,” Brad says.
There are specific actions that apartment investors need to be taking in the midst of the coronavirus storm. Ideally you do these things while the sun is still shining … but if you didn’t, it’s not too late.
The vast majority of Brad and his students’ deals have these Fannie Mae and Freddie Mac loans. As it stands, those people have 120 days during which they cannot provide notice to vacate for nonpayment of rent.
The good news is that these moratoriums don’t allow a resident to break the lease. They don’t allow the resident to never pay the rent. They simply have to pay later if they can’t pay now.
The reality is that most tenants in B and C class properties don’t have several months’ worth of savings set aside.
So, owners need to be in contact with their managers, and managers need to be in contact with the tenants.
“I’m having biweekly calls with my management companies and frequent emails just checking in on collections. We’ve been talking about strategies to preserve capital,” Brad says.
Those strategies include suspending investor distributions, capital improvements, and value added upgrades.
Leasing has also gone from physical tours to virtual tours … which Brad says may have its advantages.
“I think as we come out of this and move forward, we are all going to be looking at how to do online business even better,” Brad says.
Brad and his team have also been proactive in providing notice to their tenants on what to do if their income has been impacted.
This includes informing them of the resources they can get under the Cares Act, how to get government assistance, and when they should be expecting stimulus checks.
“We want to position ourselves as a resource for our residents during this time,” Brad says.
Residents are home more than they ever were before … so it is even more critical that they have a safe, clean place to live.
Managers should also be thinking about how to help residents maintain social distancing in the complex and in common areas like the laundry room.
Agency lenders, primarily Fannie and Freddie, came out with guidance on what is being known as forbearance.
Forbearance is a process where the property owner can delay paying the principal and interest. Brad recommends these things be considered as a last resort … but it depends on your situation.
Entering into one of these programs gives you the ability to delay payments. You can get up to 90 days or three months of your payments delayed.
Remember … these payments are not forgiven. You have up to 12 months to pay back the amount you delayed.
And, investors have to apply for these programs. It isn’t guaranteed that you will be accepted to delay your payments.
You’ll have to show a decline in collections. For example, you would need to show your collections for January, February, and March … and then show a substantial drop off in April.
You’ll also need to be in a position where you have no positive cashflow. And, you’ll have to agree not to evict residents until you pay all of the money back.
Communicating with investors
Brad suggests sending out weekly updates to your investors. Be open and transparent.
“I will say that there is always going to be that one out of a hundred investor that is going to be really upset that they aren’t getting distributions right now,” Brad says. “There isn’t a lot you can do about that.”
But outside of those few individuals, Brad says everybody really understands that this is temporary to keep things running until we start to come out of this crisis.
For more on how to manage properties and portfolios during the COVID-19 crisis … listen in to the full episode!
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