The pandemic has hit the rental property world hard. According to a new report from the Urban Institute, a whopping 18% of American renters (about 10 million people) are behind on their housing payments. The average overdue balance? That'd be $5,600. In New York City, renters owe even more -- around $6,000 each, amounting to a jaw-dropping $1 billion overdue across the city.
Truth be told, it's a staggering amount, no matter what part of the country you look at. And as the pandemic rages on and rents continue on unpaid, landlords are feeling the burn.
Are you one of the many rental property investors struggling due to unpaid rents? Try one of these five strategies to free up cash and stay afloat.
1. Reduce your overhead
If you can lower your monthly costs even slightly, you might be able to free up enough cash flow to scrape by. That might mean shopping around for a new insurance policy, switching utility companies, opting for an online tax service rather than a CPA this year, or one of many other cost-cutting measures.
Your best bet: Sit down and look at your expenditures over the last three to six months, and identify a few places you can pull back. You'd be surprised at how many expenses you can reduce just through negotiating or by switching providers.
2. Apply for forbearance
Even if you can technically pay your mortgage right now, you still have the option to enter forbearance (at least if it's a government- or GSE-backed loan). This would mean pausing those monthly mortgage payments and saving hundreds -- probably even thousands -- of dollars per month.
Just remember that you'll still owe those payments later on. So unless you want to pay tons more in interest and drag out that loan further, only use forbearance when you really need the financial break. You'll need to call up your loan servicer when you're ready to cancel the plan and get back to your regularly scheduled payments.
3. Make sure good tenants stay put
Vacancies are expensive. There are the repairs, the cleanup, and then, of course, all the marketing and lease-up costs. You're also stuck without rent for weeks or even months on end, eating into that cash flow even more.
Make efforts to reach out to reliable tenants whose leases are expiring and try to keep them from moving on. Offer incentives, consider waiving fees, or think about ways to add some COVID-19-related flexibilities that might help them out, like a shorter lease, digital rent payments, or something else similar.
4. Raise your rents on paying tenants
If you really want to make an impact on your bottom line, consider increasing your rents on tenants who are still paying up. Even something small, like $50 or $75 a month, can make a difference over time, especially if you've got multiple properties.
Just make sure you give your tenants plenty of heads up, and try to justify the increase, too. In your notice letter, include some comps that show higher rents in the area. You should also check local regulations (sometimes there are caps on how much rents can increase).
5. Change your pet policy
If you don't allow pets yet, consider doing so now. Doing so would mean charging a pet fee or pet rent -- often another $50 to $100 per month -- for very little work. Just be sure you have some animal and breed restrictions in place, and ask for a decent-sized pet deposit to account for any damage.
The bottom line
Times are hard, but you're not without options. Get creative, and find ways to cut costs as we ride out the pandemic. With vaccines being distributed and the economy picking back up, there's finally a light at the end of the tunnel. We just have to hang on a bit longer to reach it.