Owning commercial or residential rental properties is a great investment idea, but it does come with some risks, such as unexpected repairs, natural disasters, vacancies, and so on. In today’s economic climate, it’s not surprising that some tenants might be struggling to keep up with their rent. In fact, Datex found that only 58.6 percent of retail rents were paid in May, which was up a little from April but nowhere near the 90 percent-plus levels of 2019.
On the residential side, a survey by the American Apartment Owners Association indicated that nearly 60 percent of landlords have tenants who can’t keep up with their rent. If you rely on rental income to pay your mortgages or cover your own personal expenses, this is a significant issue. Fortunately, you can use the equity in your properties to help fill the gap.
Options If You Have Nonpaying Tenants
Historically, when a tenant stopped paying rent, the owner had some recourse, including legal action, eviction, or finding a new tenant. However, some municipalities now have protections for tenants, limiting your options. Depending on where you own property, you might be subject to eviction bans, payment plans, or lease renegotiation requirements. These days, there’s no guarantee that you’ll be able to find a new tenant, so you might not want to risk having a vacant unit.
You could ask your lender for flexibility, but depending on the type of loan you have and who the lender is, this could be challenging. If you do pursue this route, be prepared to show your rental income losses and other recent financial information.
Working out a payment plan with your tenants can help you cover some costs, such as taxes and insurance, but what about the rest? If you have historically good tenants who hope to stay, a hard-money loan could help you cover the gap between now and when they are able to start paying again.
If you have nonpaying tenants or have agreed to a payment plan that leaves you with a shortfall in the near term and your mortgage holder is not willing to be flexible with your payments, consider a hard-money loan. Hard-money lenders typically base their lending criteria on the equity in the property, not on the borrower’s credit history or other personal financial factors.
If your property has value and you have a certain amount of equity, you could get a cash-out refinance loan. The new financing amount would be for more than your current loan, and you would keep the difference in cash, which can be used to pay the mortgage and cover other related expenses. Hard-money loans are available for a range of investment properties, including residential, multifamily, and office buildings; warehouses; retail spaces; restaurants; and hotels.
Bridge loans are also a possibility. Like a cash-out refinance loan, this type of loan is backed by equity in your property, and not based on your personal financial history. This type of loan is best viewed as a temporary source of capital that can help you get through a challenging economic time, with terms ranging from six months to 20 years. Given the unpredictability around the pandemic, longer terms might be wise these days, even if the overall cost is higher with the interest. Remember that you can always pay the loan off early if the funds are there.
Socotra Capital Has Your Back
Even the most compassionate landlords have bills to pay. When tenants can’t keep up with their rent because of economic hardship and the usual options are not available, a hard-money loan could be the answer. Socotra Capital provides fast approval for hard-money loans, and once approved, you get the cash quickly. The process is easy to start; just fill out our short online form today.