6 Strategies to help with Mortgage Payments during the 2020 Recession!

30 Mar    Uncategorized
Mar 30

6 Strategies to help with Mortgage Payments during the 2020 Recession!

With the economy looking all rosy and unemployment at all-time lows just a month ago, no one expected COVID-19 to be the trigger to end this bull run.  It shouldn’t be a surprise that a downturn was around the corner, after we had a decade of strong growth.  Even though, we aren’t officially in a recession (defined by 2 consecutive quarters of negative GDP growth), the recent spike in volatility and the pummeling of the stock market certainly seems like a recession occurring this year is inevitable. 

This black swan event, triggered by an exogenous event, caught a lot of people off guard.  The world just stopped spinning overnight, as cities went into full lock-down mode, and factories and small businesses closed-up shop.  These events are unexpected but we shouldn’t be unprepared for it.  That’s why it’s prudent to always follow a set of rules when it comes to investing.  We follow these rules during good times so it doesn’t bite us in the ass when the tide turns. 

Since, I started writing this blog, I’ve always stressed the importance of CASHFLOW and not just investing for appreciation.  A lot of people who “invest” in real-estate have cash-flow negative properties which cost them money every month.  They’re only interested in the appreciation of their properties, which is nice, but that’s speculating that real estate always goes up.  Positive CASHFLOW is our number 1 rule that provides us with income during good times and acts as a buffer to carry us through during bad times. 

Another rule that we must not neglect during good and bad times is our tenant selection.  Because we have been very careful and meticulous in screening our tenants, we will still be receiving our monthly rental cheques allowing us to ride out this coronavirus epidemic. 

Maybe you selected a great tenant but they just happened to get laid off and have no savings.  Are you worried about your rent cheque coming in on April 1?  Here are some tips we can offer as this is the number one burning question we are getting from real estate investors these days.

1. Open communication is important.  Ask your tenant how they’re doing.  Be pro-active and offer them a list of government benefits available to them should they be undergoing financial hardships.  Here is a list we compiled that you can send to your tenants:

The following benefits are by application only:
• Emergency EI Care Benefit for people who don’t qualify for EI sickness benefits
• Employees/self-employed who are quarantined or sick with COVID-19
• Workers who have stopped working to take care of elderly parents or their own children
• Can apply through CRA MyAccount or My Service Canada Account April 1• EI Sickness Benefits – apply through My Service Canada – no more wait time and no medical certificate required

The following benefits are automatic BUT require you to file your taxes ON TIME April 1
• Increased GST credit is available
• Increased annual Canada Child Benefit Payment
• They must file their tax returns on time to continue to receive these payments
• Filing taxes do not mean they have to pay the balance, they can defer them until August 31 to pay

If your tenant is upfront and tells you they won’t be able to pay their monthly rent, try to work out a solution with them.  See if they can borrow money from family and friends.  If not, accept whatever rent they can pay and work out a repayment plan on how the balance is to be paid at a later date or in installments. 

N4’s are a sensitive issue during this time and whether or not you issue one is dependent on your situation and your relationship with your tenant.  If they have a track record of being on-time with their rent payments and they have pro-actively reached out to you regarding their financial hardships, you may want to delay issuing an N4 to them.  However, if you run your business by the book or this is a tenant who’s been giving you problems, you can issue an N4 on April 2nd explaining to them that they aren’t being evicted but this is only to be kept on their file as proof of non-payment of rent.  This will protect your right to collect what’s owed to you should rent still be in arrears after COVID-19 has passed.

2. The Government of Canada has also introduced a program called Canada Emergency Response Benefit (CERB).  Work with your tenant to see if they qualify for this program which could potentially support them through this period.  The program provides $2,000 per month up to four months.

3. Residential landlords provide a vital service to society, especially in Ontario, where we supply 97% of the housing stock.  We also have bills to pay every month.  Hopefully you have some contingency funds or some lines of credits to pull from, but if not, your mortgage contract has a clause that allows you to skip a payment. 

As an aside, any credit lines should be drawn and put into a separate bank account as they can reduce, freeze, or cancel credit lines should things turn for the worse.

4. You may have also heard of mortgage deferrals for longer periods of times, specifically up to 6 months.  The criteria are not clear cut, but it seems to be on a case-by-case basis.  Some factors they consider are your financial situation and whether or not there was job loss.  It seems like only A-lenders (your typical big banks) are offering this option.  Good luck if you try this route as I’ve heard some people being put on hold for the whole day.  In both these cases (3) and (4), the interest will be added onto your total outstanding balance.  This means your monthly payments will be higher in the future and you may rack up significantly more interest over the life of your mortgage.

5. Other bills such as utility bills and property tax bills can also be deferred.  This is dependent on your city’s rules.  There are options to defer payment on property tax bills and water bills.  Some cities are also waiving late and NSF fees.  For private utility companies, contact Enbridge and Alectra and they can work out flexible payment terms dependent on your situation.  Utility companies will not shut off service during this time.

6. If you have some equity in your rental property via mortgage paydown over the years, appreciation, or forced appreciation from the BRRRR strategy, then you can refinance your property for extra cash while there is still liquidity in the system.  I have a refinance cheque of $120,000 arriving next week for a duplex conversion I did over the winter.  That’s why I love the BRRRR strategy so much and is one of our core investing strategies.  This refinance cheque could be your saving grace or you could use it to grow your wealth as this is a great opportunity to invest while everyone else is fearful.

I hope the above tips can help you get through this unprecedented time in history.  This will be a temporary event.  If we can ride out this storm and hold onto our assets, we will come out far ahead.  The amount of fiscal and monetary policy enacted in the past few weeks will cause asset prices to skyrocket after the dust settles.  HODL, hold on for dear life!

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