Why Corona Virus Doesn’t Have to Rhyme with Rental Crisis

If you haven’t read the Spencer Johnson’s famous book Who Moved My Cheese, now may be a good time. It’s short. Don’t worry, I’ll wait.

Go read it and then come back here 🙂

In one line, Johnson’s point is this. We have a tendency to become over-reliant on using the same strategies for getting our “cheese” (whatever that might mean, metaphorically, think gangtser rap $$$$). When someone or something moves our “cheese”, we panic, become angry, depressed, despondent, hungry, stressed, confused, you name it! When the most effective reaction might be to zoom out (using ZOOM right now maybe), and reconsider our habits in light of new circumstances.

I invite landlords, real estate professionals or anyone else, to zoom out and consider what might be happening to our cheese.

 

The New Normal

Situations in Quebec and across the globe are evolving rapidly. Depending on what sources you listen to – the IMF, our politicians, economists proclaiming the start of the next Great Depression – it’s hard to know which way the economic ball is going to bounce. Will Canada be insulated by early curve-flattening and smart financial stimulus packages, or are we really the tip of the tail of a very large macro-economic dog?

There is no shortage of opinions, and so it’s hard to come up with mental- and economic models that can guide our behavior.

This is perhaps the biggest challenge right now. We have no proper models on which to base our decisions.

 

Mindful Landlording Right Now

If there’s a lot of uncertainty around, let’s look at some of the things we do know. Perhaps if we focus on concrete, local and immediate problems (where is my cheese today), we can navigate our way, and make sure that at least we remain poised for the next few months.

That’s what I tried to do in this interview with the Real Estate Investor’s Club last week. My goal was to offer some concrete and practical ways of addressing the current situation with respect to issue that face landlords, property managers and investors right now.

 

Concrete Problems, Concrete Solutions: Covid-19 for Landlords

So, what are some of the issues landlords and Real Estate Investors are facing right now?

Rent Payment

Lay-offs, confinement, and business closures have posed serious financial problems for many residential tenants, many of who live paycheck-to-paycheck. In April, around 25% of the residential- and commercial tenants managed by my agency reached out to discuss some kind of rent relief.

Our approach was the following:

• First, to sympathize (in the case where the tenant has always been responsible with payment in the past) and to turn things around. Many tenants called in asking: “What is your policy for rent this month?” To this, we answered : “How would you like to pay your rent this month…?” What resulted, in all but 5% of cases, were payment plans. Many tenants are now receiving government assistance. If a large lump-sum up front is difficult, we allowed them to design their own payment plans (paying by the week for example, instead of monthly), with the proviso that the total rent due needs to be in before the 21st (the magical Regie non-payment date). With this strategy, we’ve reduced out default rate to about 8%, when pre-crisis we were at 5%.

Help ! The Regie du Logement is Closed

Closure of the Regie and a halt to evictions, while understandable, has been trumpeted from the rooftops very loudly by both our provincial and federal politicians (thanks Justin and Francois!). This is a serious problem, because effectively there is no more stick with which to create consequences for non-payments, even as we may have doubts about whether tenants are using the crisis as an excuse.

What to do?

•  For those tenants who have not reached out to make payment plans, we’re on a “business as usual” policy. The rental board might have halted hearings and evictions, but the Regie’s online services to open non-payment files are working. So are the bailiffs, so is Canada Post, and so are the email services that allow you to serve official notices. (Ever hear of Pronotif ? It’s an online service that allows you to serve notice by email). In effect, we’ve explained to our defaulting tenants that they’re just delaying the inevitable. When the rental board does reopen, judges (I predict) will not look kindly on those who simply stopped paying their rent with no explanations, and who refused to open a dialogue with their landlords.
• Consequences, I predict, will be delayed rather than erased. Unless banks and the federal and provincials governments begin talking about mortgage forgiveness instead of delays, I don’t see how missing rent will simply be “forgiven” as we return to whatever the new normal becomes.

What About July 1st?

In Quebec, we have a fairly serious up-coming issue. The Guardian estimates that about 10% of Montrealers move every July 1st. (The rate is still high, but probably not quite as high in the rest of the province). In April, landlords and property managers in the province are usually renting their soon-to-be-vacant units, just as tenants are out visiting looking for their new homes. The covid crisis has thrown a serious wrench into things. Tenants (rightly) are leary of allowing strangers into their homes. The Real Estate Board (OACIQ) has officially ordered brokers to halt visits. Do rental visits constitute an essential service? Francois Legault has decided for the moment that no, they don’t.

What to do?

• First, we contacted our non-renewing tenants to propose they extend their leases until September 1st. Basically, this takes the pressure off. We don’t have to show units and they don’t have to visit. Problem displaced if not solved.
• Some landlords have begun renting with virtual visits. Personally I don’t like doing this. I’ve had problems with a high percentage (over 50%) of units rented this way in the past. Our agency has rented to international students and arriving immigrants based on Skype visits before. Very often, something about the unit displeases them very quickly and they agitate to break their leases.
• Wait. For now, there may not be a need to panic. As our politicians eye re-opening segments of the economy in the coming weeks, we will have to see what edicts will come down for the 10% of Quebeccers who usually move in July. My guess is that Legault and co. are waiting to see if we can all go back to business as usual in the next month, which would moot the issue of freezing all moves in July.

Imperfect Action is Better than Perfect Inaction

So said Harry Truman. I’m inclined to agree. As time moves on, those who will weather this storm best are those who will act.  Better to be pro-active about where the cheese is now, rather than sitting around like a doe in the headlights watching the news.

My advice: read about past financial crises. Understand the dynamics of pandemics (click the link to see my favorite book on the topic, Spillover). Learn about past Real Estate- and stock cycles. Plan your actions carefully as a function of the data you have now. No one will make 100% perfect decisions at the moment. There is still too much we don’t know, and our mental- and economic models need to catch up. This will take time and more data.

A crisis is no time for perfectionism. It is time for considered action.

It is time to be our best selves right now, on a dark and uncertain day, because the day is dark and uncertain.