Do you have residents struggling to pay rent? Many property managers do. COVID-19 has accelerated the interest in deferment options for property managers nationwide. Deferred payments let tenants postpone payments to a later date. Almost always, this is done as a result of financial hardship (e.g., job loss, unexpected costs, illness). This feature is often used to defer rent, but it can also be used for other regularly scheduled charges such as utilities or parking.
Yardi Breeze Premier has an intuitive interface that makes rent deferment refreshingly simple. Let’s take a look at three types of deferred payments.
1. Deferred payment schedules
The first item on our list is the one we recommend for most rent deferral scenarios. In Breeze Premier, you can set up deferred payment and recovery plans for tenants. Best of all, the deferment schedule is done with a single, easy-to-use function.
Deferred payment schedules make it easy to track and manage all activity related to deferred payment requests. They also provide additional reporting capabilities that relate specifically to your deferments.
2. Ad-hoc credits/charges
Deferred payment schedules are often the best way to defer payments, but they’re not the only way. You may offer a one-time credit to a tenant for some or all of the payments due for a given month. This is called rent reduction. The property manager or IRO may also set up one or more charges with a future due date for the amount that was credited (rent deferral).
This strategy can be repeated as needed in following months but requires manual data entry and ongoing oversight. This makes it slightly more labor-intensive and time-consuming. It also adds the risk of human error. Try to limit how many ad-hoc credits you provide, or better yet, use deferred payment schedules to save time and ensure timely repayments.
3. Scheduled charges
Breeze Premier can be used to schedule negative charges (credits) over a period of time. This will temporarily reduce rent during that time. The same function can be used to schedule the recovery payments over a different period.
Charge schedules make it easy to spread the deferred payments over multiple months. This strategy involves less data entry than ad-hoc charges, but still requires more hands-on oversight than the deferred payment schedule.
The economic effect on residential housing
As we saw during the pandemic, residents and property managers are bound to struggle during hard times. This can have a profound impact on residential properties. There will likely be future situations where the property manager/IRO and resident alike face financial difficulties.
So, what can you do about it?
It’s important to find market upside in a down economy. Rent deferments can be that upside. They may temporarily hurt your bottom line, and they’re rarely the ideal solution to a rent problem, but they’re sometimes the only option.
If you can weather a temporary loss of income, you’re better off than receiving no income at all. Of course, if you do not have faith that a tenant will be able to pay their debt (however long the repayment period is), a repayment plan may not be the wisest choice. It will be up to you and your owners to decide what’s best on a case-by-case basis.
The economic effect on commercial properties
Businesses that are hit hard by financial loss may try to renegotiate their lease to get relief from their monthly rent obligations. As a result of COVID-19, many commercial buildings were vacated — in some cases overnight — as remote work policies were put in place.
In many cases, tenants who suffer revenue loss respond by reducing their costs. Likewise, the property manager must find ways to preserve their cash flow. They must also maintain occupancy to ensure long-term financial stability.
Setting up a deferred payment plan with a tenant may help prevent the tenant’s business from failing completely. Such failure would likely impact the landlord far more than a temporary payment deferral.
Deferments can be used to convert prospects into renters. For instance, you may have a prospect with a steady source of income but little upfront cash. If your owners agree, you could offer a “no rent due the first month” promotion. This would essentially be a deferred payment plan where the amount due would be evenly distributed over 6-12 months as additional charges. This type of plan could work to keep occupancy rates high in times of trouble.
Check out these tech tips for remote property management and social distancing for more ways to stay ahead despite difficult working conditions.
Help is here
Deferred payments are a form of rent assistance and can help avoid evictions. They make it easy to recover payments when a tenant is suffering financial hardship. Even during normal (aka not pandemic) economic conditions, they can help property managers and tenants make the most out of a bad situation.
And here’s something state and local agencies should take note of: As the U.S. recovers from the economic impact of COVID-19, emergency rental assistance programs are helping keep people housed. See what Yardi is doing to help.