We hear the concern that some tenants may not be able to pay rent due to the Corona virus crisis.
While this is a valid concern, there are a couple of things to consider:
We talk about buying new homes in good areas. When these are the homes you buy, the likelihood of your tenants being “white collar” is high.
White collar employees are the ones who usually have the easiest transition to working from home. These would be high tech employees, engineers, etc. These types of employment lend themselves easily to working remotely, working from home, using Skype and Zoom for video meetings etc.
Thus, the likelihood of white-collar employees not being able to pay their rents is lower.
This is another example of why it makes so much sense to buy good homes in good areas.
Many new investors are attracted to the lower costs and supposed better cash flow (on paper), of house located in bad areas.
What is happening now is just one example of why that may not be a good idea.
An exception is very low-end areas, where most of the tenants are HUD-and-Section-8-helped tenants. HUD and Section 8 will continue to pay rent for the tenants regardless. However, these types of houses are always challenging and their future appreciation may not be as high as good homes in good areas.
During the last recession, which started in 2008, we obviously bought homes not only in good areas, but picked up bank foreclosures in any areas, including blue collar locations. However, during regular times, buying brand new homes in good areas is a staple of smart investing.
There may also be help on the other end for landlords, if rents aren’t being paid, there are forces now working with lenders to give abatements and postponements of mortgage payments. When there is an issue at one end, the other end has to be addressed as well. In California there are already lender concessions to 90-day delay on mortgage payments by some of the major banks, with no repercussions to the mortgage payers, or late fees. It is likely that the rest of the nation will follow suit.
We will discuss this, and other issues, during our next big 1-Day Expo on May 16th. If by May 16th large public gatherings are still not happening, we will have the event online.