Apr 14, 2020
James:. Hi, audience and listeners, this is James Kandasamy from Achieved Wealth through Value Add Real Estate Investing podcast. Today we have a special session with Rama Krishna from Zovest Company from California. Hey Rama, you want to say hi to our audience and listeners?
Rama:
Yeah. Hi James. Thank you for inviting me on this special session. I know definitely the primary reason is we are attending so many webinars on this COVID19 impact for multifamily, a lot of other groups that we're discussing. I wanted to just compile all that strategies that I have compile and also mine as well. What I'm actually going through right now with my properties, compiling the blog posts and whatever you wanted to talk about it.
James:
Yeah. Today's a special session. I'm trying to make all this podcast release. I'm actually rearranging all my podcast releases to make it really timely. So all of you guys, listeners, can we take action from whatever you're listening from this podcast and listening to podcast that was recorded one or two months ago, which is like super boring because all that is pre-Corona. I'm sure all of you guys are wondering what is this guy talking about. 3% rent growth at that time, so this is timely. We're going to release as soon as possible. Rama has done a really good job compiling fifty strategies for multifamily operators and asset managers to tackle Covid19 and we're going to go to each one of those quickly and also in detail so that each one of you can take a pencil and paper and write down what are some of the things that you can use right now. Rama, let's get started.
Rama:
Yup.
James:
What's the first one?
Rama:
I think before even getting there, I'm reading the primary thing that we need to do here is, people lost jobs in the sense that we need to become passionate about the way how things are going. I think we are actually suffering as operators. We also have to put ourselves in the tenant's shoes and they got impacted. Some of these strategies to also have to work with them to see how they can weather the storm, including us, have to weather the storm here. Another thing is, I mean, there are federal regulations right now that we cannot evict tenants. So in a sense, even though, we can do some of these things, but the strategy is what we have before we cannot do it because of the regulations in place and then also shelter in place right now.
The first primary thing that we wanted to do to alleviate the problems of tenants is the late fee waiver. We actually wanted to not to communicate this thing until the fifth, but we did communicate before that itself, just wanted to give some assurance to the tenants saying that you're not going to charge late fee for the month of April and May. That's the first strategy you want to do. Also they cannot; they are impacted. The primary thing we wanted to do, James is when you're working with the tenant that they have an issue, you want to get a proof from them that they got laid off from their job and then put it into your resources, your folders so that in case if you're applying for any other benefits in the future, any ADL program or a PPP program, or maybe a forbearance or forgiveness, you can have all these things noted in your documentation.
The second thing is some of the tenants are not misusing this thing. There is a late fee waiver. There's a flexible payment plan, but if you're not impacted, you're not eligible for that. That's the reason. The second point where we wanted to put them into a payment plan, if they are impacted and then they can continue catching up these payments. The second thing again and then typical guidelines to the tenants saying that you need to do the shelter in place and follow the state or CDC guidelines to make sure that there are protected. The last thing that you need is a Covid19 patient in your properties and then they're spreading and they don't know what, and God forbid there's a death. There are lot of things that you need to do to make sure and also fundamentally you want your tenants and everyone to be safe. Then follow the state guidelines and what you have to do or they have to do somebody tested positive in your property. How they can do self quarantine and how you can help them also.
I know maybe there is one more point in here is to, for us as an operative to disinfect the common areas and especially, I think we'll come back to those points again in the later strategies is to disinfect the common laundry mailboxes and other things, leasing office and other things. The other thing from a financial standpoint was security deposits. When we found out about this program called [05:15unclear] there other insurance programs, even not just for this one later also the operators can use this strategy to actually use in lieu of security deposit. They can actually get into some of these insurance programs like the Rhino or like Nash tag, Lemonade, where in this strategy, James, I think you might already know. Let's say the security deposit is thousand dollars. They need to pay $5 per month as insurance and they don't need to deposit this thousand dollars. So somebody coming in new as a tenant instead of paying first month's rent plus a security deposit of say $2,000. Now the need to only pay $1,000 and an insurance program for $5 a month. If it is $2,000, it will be $10 a month.
It covers both security deposits and also any damages that they do,
including they haven't officially confirmed but when I talked to
rhinos representative, they're saying even wear and tear. Say if we
want to do and make ready and there is damage that you have under
the unit it covers that. So the way how it works is, so let's say
if the tenant vacates and you go and do the move out inspection and
you saw overall to make ready of this is twelve hundred dollars,
and you do it claim to rhino and then they pay you within 48 hours
and they collect from the tenant later because it's still learning
deposit. There is wear and tear or some damage happened to the
unit.
James:
So that is a sayrhino.com, that's what you're saying?
Rama:
Yeah.
James:
And there are a few other people as providers?
Rama:
Providers, yeah.
James:
Let me get a bit more structured here. We are on that line item number five, which is basically the first one, is look at late fee waiver. Second is look at payment plans for your residents who are impacted, make sure they are impacted. Third one is a make sure that you communicate to residents and make sure they follow the shelter in place and follow the State and CDC guidelines. Fourth is basically if they are exposed to Covid19 patients who are tested positive you want to do a self-quarantine as well. If you as a property manager knows about whether any residence has been impacted, usually a lot of property management software have given us access to additional fields in the tenant information to mark them as Covid19 quarantined and all that. I do have it recently on my property management software. So check with your property management company, so they can mark it as someone was impacted or quarantined or what's the status.
The fifth one is basically using some of the security deposit for some of the two months rents using some companies like sayrhino.com where you can use it as an insurance for evictions and if they evict out or if for any make ready, if the tenant cannot pay.
Rama:
If you collected the security deposit, you can convert to a sayrhino agreement.
James:
Okay.
Rama:
The minimum is at least they need to have six months more left in the lease because at least whether the new person coming in or maybe like another two months are done in the...
James:
But this program already existed before Covid19?
Rama:
No, sayrhino has 700,000 units insured.
James:
So they already existed right now. So you can just use this at this stage, I guess. Use some of the current security deposit and convert it to this insurance program, I guess.
Rama:
Exactly.
James:
Okay, got it. So sayrhino.com and REIG insurance, call home, [08:59unclear] king.com and these are the some of the providers?
Rama:
Yes, there are some other insurance providers in lieu of a security deposit.
James:
Okay. Let's go to number six.
Rama:
Okay. Let's say from an operator perspective you feel that there is one more point here that we can come back to this. I think I haven't ordered this in the right format, right numbering. The first thing before doing that is to privately segregate our profile tenants. Go each lease by lease and profile your tenants how exposed are they with this Covid19 impacted businesses. Are they in restaurants, are they in travel tourism industry or whatever it is to see what would be the impact of it. Say if you have 50% of your tenants are in medical profession or maybe some other which are not really impacted into that. So at least you will know yourself if you own [09:55unclear] unit, Hey, like, I'm 50% of my tenants are restaurants, maybe. Then you can actually be really alert and also do go to these programs, what we're talking about here. Talk to your Fannie/Freddie lender and see if they have any mortgage forbearance or relief. No, they already have it. Fannie and Freddie already rolled it out, for 90 days you can forbear your mortgage not to pay that. Then how the payment plan of twelve months to catch up on this 90 day payment.
But make sure that there will be some negative remark or agency loan history and to see, make sure you go through all the agreement before actually signing up. But yeah, if you're really impacted, definitely if you're going on water with not being able to make mortgage payments, for sure you should consider this mortgage forbearance.
James:
Okay, good. Let's go to the next one.
Rama:
Yeah. And then so that is one aspect of it. The other aspect of it is the SBA disaster loans. There is an EIDL emergency loan...
James:
I think it’s called Economic Injury...
Rama:
Economic Injury Disaster Loan. So that's the loan that SBA is
giving up to $2 million for small businesses including rental
apartment owners, there is 3.75% interest and then there is some
times that you need to pay. The idea here is based on your
situation you can actually apply for this a disaster loan for EIDL
program so that you can weather the storm for the next three to six
months or nine months. There's another loan for a payroll
protection program, PPP, which I can update this as well. If you
have a payroll that you're running by yourself, you can actually
apply for this PPP program to get two and a half months of payroll
from the government or if your property management company actually
runs the payroll, you can ask them to apply for this PPP loan so
that they cannot bill you for the next three months for the
property management personally.
James:
Yeah. I think the caveat is anybody who's applying for it to be
having less than 500 employees.
Rama:
Exactly. I think they figured out some more than 500, but
overall, yeah, up to 500. Yes. And then also thing from I think
from a tenant perspective some of this one's four or five points
series. If they are actually having some hardships right now how
they can use some of these federal programs. They're actually
sending a $1,200 to $3,400 checks every person who actually filed
their taxes. Also they can apply, if they are a small business,
they can apply SBA loan or they can apply a PPP loan and they can
weather the storm and actually use that money and then if they get
referred, they can file the taxes immediately and use that money to
pay rents.
Some of these aspects that you can think on their shoes and see how
these federal programs can help them as a tenant. Maybe one of your
tenant is a restaurant owner, then you can see how the federal
programs can help them so that they maybe they can file an
employment benefits and then you can tell information about that or
you can find local companies which are hiring and then see if some
of these tenants that actually wants to find a job right now. Then
you can ask them to continue pay the rent.
James:
Yeah. Let me add some more things. Some of the apartment
association in many big cities have given renters resources, which
includes how to file unemployment. What are the resources for them
to get different types of help from different organizations.
Rama:
Yeah. So again, two aspects of our operations, one is income and
the other is expenses? Right now we've talked a lot of stuff from
income perspective and some are expenses perspective. The other
aspect that we kind of brought in is with all these people talking
about are expenses. So in the non-essential expenses, even send
email like a message to all the tenants, memo the tenants saying
that, if you have any emergency only like create a service request,
non-emergency service request will be done once the things settle
down. Now if you are a light bulb vendor where you can fix it
yourself or you leave the light bulb at the doorstep, let them fix
it. Instead of you exposing your maintenance staff to more people,
either they can fix it themselves or we can drop the light bulb
there or they can wait for a few weeks until these things settle
down so that you can cut your non-essential expenses and other
controllable expenses that you can eliminate and you can close
all the amenities, pool, the common amenities so there is no need
to continue maintaining them.
James:
I think also you do not want to people to use that and spread the virus more.
Rama:
Exactly. Those are shelter in place, not using the common amenities, throw a party in a club house then you will have 50 people infected there. Primary thing is the common amenities. You have laundry room, everybody's coming in there to do the laundry, how they can sanitize this thing or maybe one person at a time or have a roster, Hey, this building one to ten people using Monday to Monday 9:00 AM to 12:00 PM some roster so that not everybody coming in Saturday morning to do the laundry. Or maybe some mailbox to see if somebody is there at the mailboxes, have some instructions that say wait for them to leave and then you go, wait for a minute and then you can go and pick up your mail.
Some of this stuff that you can instructions at the mailing and laundry, or in any common areas. The other thing is aspect of income perspective is primarily focused on the leasing aspect. Can you put some deals on renewals or lease modifications or if you already gave notices and then maybe cancel the notices and then pause the rent increases right now to make sure that you're at least a hundred percent physically occupied and then later on 100% how it can be economically awkward as well. At least at this point right now if you can make this a hundred percent thing, James, both physical and economically, you can weather the storm for the three to six months and come back and again go back to your typical asset management strategies to increase the valuation of the property. Right now it's more a fight or flight mode right now. Let's see how to make it smoother for the next 90 days to 120 days is the strategy here.
James:
Yeah. So what you're saying is rather than pushing for rent, try to keep people in the units, whether they're paying or not.
Rama:
If you renew it, we're going to not increase it, let's say if
you renew it in April, May, we're not going to do any rent
increases. The last thing for you to do is make this unit empty
right now and then we don't know what the situation of leasing
activity in that building. So continue withholding rent increases,
especially if you renew it in the next two months, we will not
increase the rent, for example and the things that were discussed
already, it'd be sympathetic and then also profile your tenants,
see what jobs they do. Another strategy on this is, you don't need
to pay April or maybe May but that rent will be amortized in the
next 12 months. That's another strategy they're doing. Hey, you
know, you're affected. We're not going to charge you for April or
maybe half of May as well, but that $1,500 will it be amortized for
the next twelve months.
James:
Okay, so you'll give them a break for one month and you take that
money and amortize over 12.
Rama:
Yeah. Just like forbearance from a mortgage, same thing. That is
amortized for the next 12 months. Same thing that you can do here,
but some of these are lease modifications and see how painful it
is, but whatever that is kind of, it takes it to get this thing
done right and extending the leases. One more thing in the leases
we can come back to later on is usually when you do a short term
rentals at the three months lease, six months lease, you have a
premium. You can actually reduce the premium, no premium for short
term rentals. Say, hey, like, we are leasing right now. Hey, you
want a six months, and then it will be same as the 12 months’ rent.
So at least you can fill up your units by doing that.
James:
Yeah, even on a month to month. I think they can usually we charge
premium for month to month, but you can either reduce it or don't
charge that for now.
Rama:
Exactly. So I think maybe for them also they also wanted to try for
month to month, three months, and then they can do an annual
release after two to three months. So you can at least fill
them in coming in, let them pay, and then you can think about this
after three months. The same topic we discussed before is the go to
a local; even though there are jobs lost, some are trying to hire.
Amazon is hiring for the warehouses, grocery chains, hospitals;
some of them, they're not able to have enough staff. So you can
find these in your market, in your sub-market and see and take
those information and then send you to your people who actually
came, Hey, I lost my job. Hey, why don't you try to go to Amazon
warehouse five miles from here, they're actually hiring. That you
can help to see if they can come back to the employment at least
for temporary for the 90 days until this thing comes
back.
A lot of these people are furloughed right now just because they can get unemployment benefits, but if they can get some other job for the next 90 days, because what if just delays more, they can get some job for the next six months and come back to the workforce later. Another thing is something similar is lot of charities and churches and they pay the rent and if they're part of the local church or a charity program now there are so many people paying rent and also their utility payments.
James:
To help our residents and one good resource that you guys can use,
all the listeners can use. It's findhelp.org, that has all the
completion of all the organizations which are helping people in
terms of money, housing all kinds of things there, so use that
resource.
Rama:
Yeah. And like this is the first step. So whatever that's
happening for us or for them, the message to tenants is the rent is
due, just because we have to have utility payments, we have to have
mortgage payments, we have to pay salaries for employees. This is a
laser thin business. This is not; we're making 50% as profits here.
So we had to send that message properly that we also have expenses.
We cannot just not forego this thing, not paying rent. That's
the message that I might not be putting into the right way here,
but you have to [21:24unclear] because some of these
articles in some of these markets saying, Hey, don't pay rent for
three months. So it's just showing a wrong message, but they're not
thinking about the operators.
James:
Yeah and the government or our mortgage providers did not give us a
break on our mortgage. The rent is still due, we do sympathize with
all the residents. Let's work out some plan. But rent is rent and
it still needs to be paid in some way. So we have to figure that
out and see.
Rama:
Then another thing is if you're doing renovations, if you have draw
requests, it's already competitor immediately do the draw request
because there might be some delays right now because of this demo
here, the inspector might not come in to verify that renovations
that you did to approve the draw request. Submit your draw request
as soon as possible so that your money, you had to pay your
vendors.
James:
So this is the capital or replacement reserve, what we're talking
about here?
Rama:
Exactly. So you renovated like say five, ten units and usually the
bridge loans, other loans which we have escrow money. Get the draw
request and then get the money at least and then you can pause. The
idea here is to release what you did to now, get the money, pay
your vendors and pause your renovations for some time until this is
done. Another aspect is until it is utilities, because now
everybody's at home. They're going to use all their deliveries for
the maximum, the water, the electricity, the heaters, the air
conditions, and the internet, everybody utility company is right
now maxed to the capacity. So just keep it down on the utilities
and see how things are going on that. All bills paid or you're
doing the reps program. Do you need to increase the reps? Like
whatever it is, just keep an eye on it. It'll definitely be a much
higher.
James:
Yeah. I think because everybody's staying at home right now and the
one or two months when the utility bill hits to everyone is going
to be much higher and now I appreciate why all this spend people go
to work, somebody else is paying for their utilities when they are
at work. Now operators do feel the heavy load here, but it is what
it is.
Rama:
And also the load on this, if you're continuously using something
like your HVACs maybe break broken, or your water, something that
issues that you need to make sure that you do the regular
maintenance of these stuff and then make sure that you have ducks
in row. Like, hey, we're talking to the Water Company, talking to
your Plummer, talking to your electrician or HVAC Company, making
sure they're ready for any service request that comes in. Because
if the HVAC broken or some water broken, last thing is that the
tenants are not happy.
James:
Correct. Correct.
Rama:
So I think we discussed it the month to month of high risk
tenants, rental increases on this. Yes. Pausing all upgrades and
the distribution side. Another thing is we've talked about lenders,
talked about the tenants but you did not think about the
investors. If you're syndicating this deal or if you have the
private money that you raised or whatever that you have investors
in your deal, make sure that you inform them about what's going on
and how well your assets are performing and what are the things
that you are doing as an operator to get some of these strategies
are what your strategies that you're already applying to whether
this storm and maybe there are some other great topics,
uncomfortable things that you need to talk to them. Say there might
be some pause on distributions because we don't know what's going
on here. We need to preserve the cash, preserve our reserves right
now, what if this goes beyond 90 days. So maybe pause or reduce
your distributions or pause it for now and then you can catch back
once everything kind of settles down. That's one of the
conversations you should have.
James:
Yeah. Make sure, I mean, just a caution to everyone who's
listening. Make sure that any operators are communicating to the
passive investors more frequently than what they used to know. This
is very important right now. Just because everyone knows Covid19 is
happening, the whole country is in a lockdown, doesn't mean that
you can't communicate. So make sure you communicate all your plans
and what are you doing to your passive investors?
Rama:
I think we kind of came through this reprint reserves. We need to
make sure that you're are person maintenance; so make sure that now
is the time that you have a pause. So you can actually flag kind
have all your depreciated items, have HVACs these other things.
Make sure that you have all of them done properly. Also, again, the
same thing, use audit, full use audit to categorize your employers.
So their dependents are at risk or not.
James:
Yeah, I mean, you can do a general lease audit as well because most
of the time, right now our offices are closed for public. Most of
the apartment office. So in my company, most of my staff are doing
lease audits. Just as part of the normal thing, but to keep them
busy.
Rama:
So this is the right time, everybody give it time we are running, now is the best time to profile your tenants lease audits and make sure that what strategies that you can employ to make them in place and again, same thing as utility, like just how you can do savings of utilities. Is it a new water leaks that are happening. Let's see your old bills in the last six months or one year. See any patterns that you can identify or any other measures that you can save utilities because the utilities will be stressed in the next a few months. Again from the expenses side, completely renegotiating all your contracts and [27:30unclear] every insurance, everything that you spend, your controllable expenses like non-controllable, property taxes and mortgage. You cannot do anything. Maybe yes, if you can refinance now if you have ability you can do that, if the rates are low. But if the controllable expenses you have the negotiating ability, your pool vendor, hey, pause for a few months or maybe renegotiate the contracts, go through every line expenses that you have and try to get renegotiate these things.
There are even companies it seems, which can do like this, that
can help you go through all your bills and then find anything that
you can renegotiate the contract. The thing is noise notices
because now everybody's home. There will be a lot of complaints.
Hey, like my neighbor is making a lot of noise. Make sure that you
again send it across back to the tenant notification saying after
nine o'clock it is a quiet time for what it is like in the
night.
Any of the notices that you want to do, the courtesy notices to
make sure that everybody's people are working from home. Whatever
it is and again, so a lot of people kind of saying maybe on the
section eight, what's yours? Maybe this is a time to think about
rethink...
James:
It's the best time to get section eight vouchers because that's guaranteed income for now.
Rama:
Exactly. So if your property is already approved and you have a few tenants in section eight now go through, go to your city and say, hey, do you want any more? We have vacancies right now. Hey, absolutely we have so many people are looking at it and we are already approved as section eight for your property, they'll let them send your way. And you can fill up easily and these are at least for the next one to two years, it'll be like in a way standard and then not all section eight is bad, just make sure that you profile your tenant properly and then...
James:
Yeah. And I also heard that the government provided a lot more funding for housing people so there could be a lot more section eight vouchers coming in and what you're saying, they're not bad people. I mean they are definitely a lot of good people there you just have to make sure that you screen them properly and make sure you get the good ones.
Rama:
Yes. I think we kind of briefly touched based on this too about the [29:57unclear] and all the forgivable loans or the loans and then property managers can use some of these loans. Each LLC, that own asset can use this. Check with your lending terms to see that it's not violating any terms. There are a couple of things, I got it from the CVRE webinar, make sure that you have fire productions on the building equipment and backups and mission critical operations that you have. These are kind of into the back-end of it that we already usually ignore. Make sure that all the buildings are inspected properly by the fire inspection because now that everybody's at home, there are higher chances of some of the stuff they could make big dormant happen. Do you have your backups of emergency? And then any mission critical operations your cooling any heating water or anything, we have redundancy on these things.
Make sure that you're building physical aspects of your buildings,
make sure that you do those and then if you don't have credit card
payments, for rent payments, make sure to enable them and also
inform tenants that you can pay rent through credit card or maybe
in that you can actually give back the money or the transaction
fees. Usually in a credit card payment there is a two and a half
percent transaction fee. Hey, you can use credit card. If you use a
credit card, let us know. We can refund you the transaction
fee.
James:
Yeah. That's something that we are happy because we moved all to online payment for the past one year. So now it's so much easier during this kind of thing because...
Rama:
Especially if you're not yet on the credit card payment option,
make sure that you talk to your property management software and
enable that and then also inform them, Hey, like you already have
ACH but you have an option to pay through credit card. That's
another thing and also another incentive is, I think Neil was using
his, if you can give some credit, if they pay the rent before fifth
of the month, or if you pay April and May upfront now you'll get a
$100 off or $150 off. Give them incentive to pay for the next two
to three months upfront. So that if somebody has that capability to
do it now they can use up the program and they can get, they can
get a credit for that and make sure, again, this one is, I think
should be the first stop. If you're working with the tenant, either
a late payment waiver or a traded audit, lease modification,
any other that you're working with them, make sure that they show
the letter that they lost their job.
Otherwise people will make use of these features that you would
actually giving. So that's the primary and then the couple of
things we already talked about the short term rent leases and
renegotiating the contracts and other one is primary, the model
unit. Now that nobody's coming in and seeing the units, maybe you
can use your model unit as lease apartment for short term, but
this is the [33:07unclear] idea and lease to traveling
nurses because right now with the Covid a lot of these hospitals
are actually getting healthcare professional from outside, from
other towns, other places and they're hiring more people as a
temporary staff, but these traveling nurses and healthcare
professionals need to have some place to stay. You can go; I had to
find this link, James. I'll talk to Ellie and then send it to you
as well later on; you can put it into your notes.
James:
Is this a link for traveling nurses?
Rama:
Yeah, there is a way to find out these people and then post your apartments there. Hey, if your apartment is say five to ten miles from a hospital major hospital and you can actually use these resources to actually post, hey, we have available short term rentals, maybe for lease or not, we can give you this for the next 90 days to 120 days. That's another way to actually fill a unit.
James:
That's awesome, it looks like we went through the list. So let me
add one more thing, which I just remembered. If you have never done
a virtual 3D tour of your units, you want to prepare right now,
there's a lot of photographers out there that they can do a virtual
3D two of the units. Right now that's very useful because right now
we can't use our leasing agents to go and tour the units, we just
tell them to go themselves or drive around or look at the pictures
or look at the videos. But if they have a really nice virtual 3D
picture, there'll be a really good way to attract leases to
you.
Rama:
Rentally has a self-touring technology. You can purchase
webcams. So if you're using Rentally, also Rentally is also an app
into existing property management. You can put the webcams there.
You don't need to be there, your leasing staffs are not exposed. So
they can come in 24/7, you'll send them the lock core. You'll open
the unit and you can monitor from your leasing office or whatever
desk you are and then do that, Rentally has that.
James:
Yeah, I did look at that as well. So that's awesome. Rama, thanks
for sharing this. Is there anything else you want to mention to the
audience and the listeners?
Rama:
Yeah, I think we have some light on the other end of the tunnel.
The government is helping us. Hopefully I think this will pass and
we'll back stronger and stay safe.
James:
Yeah. Yeah. Multifamily is still one of the best asset classes to invest in because there's so much help we are getting from all our different sauces. Imagine if you are an office or warehouse or industrial or everything is closed down, or hotels. Right now things are doing really badly in that asset classes. But shelter is part of the Maslow's hierarchy of needs, food, shelter and safety. So absolutely everybody needs housing to stay on and live on. So thanks for coming in and hopefully we can add this as soon as possible and that's it. Thank you very much, Rama.
Rama:
Yeah. Thank you, James.