Furloughed or Laid Off? Try Approaching Your Landlord Sooner Than Later
According to the Bureau of Labor Statistics, just a couple of months ago, the US experienced its lowest unemployment rate in 50 years: 3.5% in 2019. Now in the last 5 weeks, over 26 million people have filed for unemployment, on top of the previous 7+ million previously unemployed, bringing the real rate of unemployment to 33%.
Yes, you read that correctly. The percentage of people in the labor force without jobs has increased almost 10x in a matter of months. By now you should be thinking, no matter what my financial situation, I am not alone.
The thing is, the unemployment rate is generally a lagging statistic that is not fully realized until long after a recession hits, and the trickle-down effects are felt throughout the economy. This tells me that there are still a lot of businesses that will continue to struggle. Some might not make it for various reasons including the inability to get federal funding, for which the demand may no longer be enough to stay afloat when we come out of this.
Just like any other company, real estate is a business. The nature of real estate is that you own a property and people pay you to occupy that space for an agreed-upon timeframe and price. That said, the amount of income and expenses for real estate companies is much greater per employee than for a restaurant or consumer product company.
Real estate owners have to make large mortgage payments to banks or other lenders on a monthly basis, just like you would if you own a home. But these businesses are not eligible for a proportionate share of federal funding to keep them afloat like a conventional business might be. Additionally, most banks are offering deferred payments to homeowners for an average of 3 months. This is also not widely offered to landlords which puts the real estate industry at a lot of risk.
What does all of this mean for the tenant who has to pay rent?
Well first, empathy is felt on all sides of the equation. The lessor and lessee both have obligations to pay which go far up the chain and support the entire economy; similar to the crash of 2008. What is different today is that everyone got locked down at the same time so there were no expectations or guidelines to follow. Everyone pretty much got punched in the stomach all at once and now we have to scramble to get back up.
If you are unable to pay rent or are at risk of having to choose between feeding yourself or your family and paying rent, you are not alone. That said, you need to contact your landlord as soon as possible. The better your landlord can predict their rent collections, the better they can negotiate with the bank so that the bank does not take legal action against the landlord causing them the pass that on to you, the tenant.
Now, most cities and states have very different eviction rules. In New York City for example, if you live in a federally subsidized or stabilized building, you likely have very safe rights as a tenant and it it would take a while for you to get evicted. That said, even starting this process can have very dangerous implications for your credit report so it is crucial to avoid any legal battles at all costs.
Reach out to your landlord immediately
First and foremost, you should reach out to your landlord and be as upfront as possible. If you can only pay half of your rent, it would be better to do so than just shy away and hope you don’t get an eviction notice for not paying rent on time. It is very easy for a landlord to open a legal suit against a tenant which will stay with you for the life of the dispute. As things are looking, this recession might persist for a while. Thus, your credit score could be negatively impacted long into the future, hurting your ability to rent another apartment after your current legal lease expires.
Most landlords also require at least one month of a security deposit to move in in the event that you might damage the apartment, or in this very real example, not be able to pay rent. Asking your landlord to pull your rent from your security deposit is also an option. This not only helps the landlord make their mortgage payments this month but also shows that you are thinking creatively about their needs.
Think about adding another month to your lease
Lastly, another option is to add another month to the end of your lease. By adding a rider or amendment to your current lease, you could postpone your current rent payments by one month and while you might have to pay double rent or get creative in the future, this will allow you to defer the potential of getting sued by your landlord today.
In the end, landlords have monthly payments just like we do. They likely have obligations much larger than the average tenant and if all of the tenants in a building stopped paying at once, the bank would be forced to take back ownership of the property and sell it to the next company. By contacting your landlord and being transparent about your situation, you likely can build a better relationship than the person living on either side or across from you who is possibly experiencing similar difficulty.
Honesty is always the best policy, especially when it comes to your finances.