If the recent COVID-19 economic disruption has shown us anything, no one is immune to a crisis. Sometimes a small setback is enough to derail you from your goals. When a significant crisis hits the economy, property owners need to respond quickly and effectively to keep your long-term financial goals intact.
An economic downfall makes it harder for property owners to enforce lease agreements and collect rent from tenants. Without a crisis plan, missing rental payments for a month or two could put you into a financial free-fall without the resources to climb back out.
You hope it never happens—but successful investors know that planning for the worst is a smart idea. Follow these insights from an expert in McKinney property management to create a crisis plan for your investment property portfolio!
Please note: This article is not intended as a substitute for the great legal advice of a skilled attorney or the expert services of a property professional. When in doubt, reach out to RentHub Property Management!
Every Investor Needs a Plan
Even if you have an excellent track record of investment success, you're not immune to the impact that a crisis can have on your real estate investment portfolio. Your properties and your forward financial progress are too important to put at risk by not having a crisis plan in place!
It can be challenging to think or act quickly when tenants can't pay the rent, or you need to deal with a difficult tenant while evictions are on hold. Taking the time to put a plan in your back pocket to help you make decisions and act confidently through a crisis can help protect your bottom line.
A property owner with a plan also instills confidence in their tenants! Good planning helps build better tenant relationships—even during a crisis.
Your Plan Needs Key Components
An excellent crisis plan can jump into action with a seamless transition. It also covers the most critical areas of your property investment success. As your trusted guide to McKinney property management, we recommend including three key components in your property investor crisis plan to safeguard your rental properties.
What to Do About Tenant Evictions
As we've seen with COVID-19, landlords were not allowed to evict tenants during the crisis—with few exceptions. If property investors experience another government-regulated moratorium on evictions during a crisis, how can you handle when you have a tenant who needs to leave your property?
Consult with your attorney or your trusted property management partner to document your crisis plan for evictions:
- Keep thorough records about the reason for tenant eviction
- Communicate clearly with the tenant
- Reference the lease agreement when enforcing the rules
- Encourage the tenant to leave early on their own.
As soon as evictions are allowed again, consult your legal counsel and proceed with the eviction process.
You might have to delay taking action, but evictions can still be a valid resource to respond to repeated lease violations during a crisis. Make sure tenants understand that penalties for rule violations still apply as soon as you're able to proceed.
How to Handle Loss of Income Due to a Recession
A recession can affect your tenants' abilities to pay the rent. Are you prepared to handle tenants who struggle to pay the rent?
Your crisis plan should include the steps you'll take to enforce rental payments to help mitigate your losses while helping tenants through a tough time. Consider:
- Implementing a payment plan for tenants who need help paying the rent.
- Finding community resources to help tenants with food or rental assistance.
- How you'll encourage tenants to prioritize their rent even when experiencing income loss.
Thinking through these details before a crisis helps you manage tenants and your resources when something unexpected happens to the economy.
A Savings Plan
Investment profits are nice to see in your bank account! How much of those profits do you save for emergencies?
Property investors need cash reserves to help cover expenses when tenants can't pay the rent during a crisis. If you're assisting tenants with a payment plan, you'll have less monthly income until tenants resume payments-in-full.
- As an expert management company, we recommend planning a savings safety net that covers six months' worth of your property's mortgage payments.
- That might sound like a lot, but a month or two without rental income or the cost of an emergency maintenance situation can quickly burn through your cash savings.
- As part of your crisis plan, start by saving a portion of your profits every month. Set a goal amount and work to save (and not spend) that money until you reach your goal for cash reserves.
McKinney Property Management Helps Investors Prepare for a Crisis!
Planning for the worst-case scenario won't be the most fun aspect of being a property investor. However, if another crisis comes along, you'll be glad you have a crisis plan in place.
Working with McKinney property management is the best way to prepare for a crisis! With RentHub managing your properties, you're always prepared when something goes wrong—even when tenants can't pay the rent. We handle rent collection from struggling tenants and manage difficult tenants until evictions can take place.
Get our free resource, the Collecting Rent in a Crisis Handbook, to learn more about helping struggling tenants pay the rent!