AMA - Help for Residential Landlords
Brian from Ottawa Canada asks.
I'm wondering if there has been any discussion about the lack of government support for residential landlords? In this environment, it seems like we're one of the forgotten ones. Deferring mortgages seems to be a decent temporary measure but replacing rental income is far more important.
Brian, this is a great question.
Tenants and Residential landlords are both feeling the pinch from the current economic conditions. The economy is facing millions of claims for unemployment benefits. This is the time when you need to be in contact with your tenants on a regular basis to make sure they are clear on the terms of any reduction in rent payment.
Governments all over the world have implemented a moratorium on evictions for non-payment of rent. That is not the same as saying that the tenant doesn’t need to pay rent. All it has done is remove one of the remedies that landlords have to enforce the payment of rent.
If a tenants says that they can’t pay rent, then you need to ask them to produce documentation that supports why they need some rent relief. This includes, paperwork from the government on their new unemployment cheque. They need to demonstrate what their income was before they lost their job, and now what their income is now while they are collecting an unemployment cheque. In many cases, the current income numbers are very close to the previous numbers.
If their income has gone down, then you need to ask the tenant to show you their budget. They can’t just stop paying rent because they feel like it.
In a handful of cases, we have negotiated with our tenants a reduction of their rent for a period of time. The change has been written into a rent forgiveness letter, and the tenant must continue to pay the revised number.
You see, right now the government is stepping in and helping people who are out of work and replacing their income. If their income truly goes to zero and they don’t have the money to feed their family, then that’s a different story. A moratorium on evictions does not mean tenants no longer are required to pay rent.
If a property owner is experiencing a shortfall in revenue, there are a number of different types of discussions that can be had.
- In many markets, we are seeing that the city has offered a 6 month deferral of property taxes. This ultimately won’t help with a shortfall of money. The city eventually wants its money. But if you have a short term cash flow problem, a deferral of 6 months in property tax is better than going out and borrowing money.
- You want to have a conversation with your lender. If you are experiencing a cash flow problem, you may be able to negotiate a small loan modification that consists of a deferral of the principal portion of your loan. Under that scenario, you would still pay the interest. The loan would be considered current, meaning there would be no default on the loan. The principal would not reduce according to the amortization schedule, and the effect of the principal deferral is that you would essentially be adding, say, 3 months to the length of the loan. Just like there is a moratorium on evictions, there is a moratorium on foreclosures in a number of jurisdictions. That doesn’t mean that property owners don’t need to pay their mortgage all of a sudden. The same logic holds here as well.
While you are correct in saying that there are no programs specifically aimed at residential landlords, this actually makes sense.
You see, the money is needed by the people who lost their jobs at the outermost extremities of the economy. I’m talking about the people who produce through their labour, who have earned income.
Landlords are further up the food chain so to speak. As a landlord, I would not want to see a situation where the government pays the rent to me, but pays nothing to my tenants.