A financial crisis is something that every rental property owner needs to be prepared for. As we've seen with the pandemic (and plenty of other changes in the market), a crisis can happen at any time, leaving renters unable to pay what they owe. Without the right rent collection strategy and protections in place, an unprepared property owner risks income loss when renters are late with monthly payments.
Our Abingdon property management experts share what a property manager does, how much you can expect your home to rent for, and what steps you should take now, so you're not left scrambling if you (or the economy) experiences a financial crisis.
What Happens When Renters Can't Pay the Rent
There will always be residents that don't pay the rent—but what about renters who can't pay the rent when impacted by a financial crisis? Whether it's personal financial struggles or a nationwide event, as we've seen through the pandemic, sometimes residents simply can't gather the cash for a rental payment (and that affects you)!
One or two months without a rent check impacts your cash flow and derails your long-term revenue. Without that rental payment every month, Abingdon rental property owners can't cover operating costs, like mortgages, taxes, landlords insurance, and repairs. Operating successful rentals requires careful planning to budget and generate enough income to meet your goals!
How Can Property Owners Prepare for a Financial Crisis?
What can property owners do to prepare for financial challenges? Even when a crisis comes up out of the blue, there are steps you can take to minimize the damage to your cash flow and protect your investments.
1. Build Cash Reserves for Your Rental Property
If every cent of your monthly rental income goes to paying bills, you don't have any cash left over to build your reserves (or "rainy day" fund). Without some savings put away, real estate investors risk not having the funds to cover late rent payments or emergencies.
Property management companies can tell you that one of the best ways to make sure late rent (or rental payments that never show up) don't leave you without cash to pay for critical operational needs and repair issues is to build up your cash reserves. Review your expenses and make sure you're not overpaying for services or contractors that you don't need. Reducing costs can give you a bit more wiggle room between monthly rental income and expenses.
2. Set the Right Rental Rate
If reducing costs still doesn't give you much money to add to savings, it's time to review your rental rates. Sometimes "how much can I rent my house for" isn't the right question when setting the ideal rental rate. When investors don't charge enough for their rental properties, they don't generate enough income to cover expenses and build an emergency fund.
A residential property management company can help you analyze the market and determine if the monthly rent amount is too low. The right rental property manager also analyzes your costs and enables you to find ways to reduce expenses.
You might think that it's a terrible idea to adjust the rental rate higher when a renter can't pay the rent—and in many cases, you're right! However, evaluating the monthly rent amount should take place before a new lease term in preparation for a day when a renter misses a payment or an emergency requires rainy day funds.
3. Have "Late Rent" Plans in Place
Starting with the rental agreement, property owners need plans to collect late rent—or help residents get caught up. During challenging financial times, a payment plan can help tenants pay something toward the amounts they owe until they can cover the total amount of past-due rent.
Abingdon property managers recommend ensuring your lease details when rent is considered "late," potential penalties for past-due rent, and a schedule of reminders and late fee assessments. However, don't forget to apply flexibility and compassion with renters who struggle to pay the rent for a month or two. Sometimes a payment plan is an excellent way to help residents get caught up while preserving a good landlord-tenant relationship.
4. Hire a Property Management Company That Guarantees Rent
What does a property manager do? In some cases, they ensure that property owners receive monthly income—even when renters can't pay. Partnering with a property management company that offers a Guaranteed Rent Program is the best way to make sure you get paid every month despite challenging financial times for renters!
Our Guaranteed Rent Program Helps Investors During a Financial Crisis
The last thing real estate investors want is to be caught off guard when a renter struggles to pay the rent. That’s why property owners need to review their rental rates and build cash reserves to manage any shortfalls in income or expenses caused by renters who are struggling financially.
It's also smart to partner with an Abingdon property management company like Renters Warehouse BW Metro that offers a Guaranteed Rent Program. Not every property manager provides this service to help property owners navigate challenging financial times with minimal impact on their bottom lines. If you're ready to learn more about this special program and our property management services, reach out, and let's talk!