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The big problem for those who rent property in times of Covid-19 and how they can help them

May 20, 2020

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The big problem for those who rent property in times of Covid-19 and how they can help them
The big problem for those who rent property in times of Covid-19 and how they can help them

By; Julio Sánchez Co-CEO of Bancompara.mx

The title of this article is deliberately ambiguous: Today both have a problem, both landlords and tenants, that is, everyone who benefits in some way from the income system.

Covid has already taken over 500,000 jobs in Mexico, and the prospects are not very encouraging. We have no choice but to adapt to the new reality and give the best of each of us to improve it.

What’s next?

Housing issues will therefore not stagnate. Those who cannot afford their current income will look for new, cheaper options depending on their budget. Many landlords will see their properties empty or lower their prices to accommodate them. Others will speed up the purchase of their home they are planning, either because prices are falling or because it is not time to continue paying the rent if they have another option.

The right option will only show the time and it depends a lot on everyone, but the reality is that everyone cuts costs and cares about their money. Every market has to adapt to this. The bizarre times are suddenly over and we don’t know when it will be practical or moral time to pamper and waste.

What can you do if you pay a mortgage on a property you rent?

The first and most accurate thing I have to tell you is that you are looking for an option to refinance or improve your current mortgage. Find the best conditions. Bancompara monitors the fluctuations in mortgage interest rates: all interest rates have dropped this month and some banks are offering special offers, such as: B. to pay from November.

Try to refinance yourself even if the property is still occupied and your tenants continue to pay on time as we do not know what the future panorama will look like. What if your tenants suddenly become unemployed? When your income drops and you are asked to pay less? If you are a foreigner and decide to return to your country or migrate to another? How long will this situation last? Nobody knows, but keep going, because savings always help.

To better understand refinancing a mortgage, I’ll give you a few examples of how it can help you:

  • Additional monthly liquidity. At this point, the most important thing for all sectors, both micro and macro systems, is to maintain an acceptable level of liquidity and make low-risk investments. Refinancing would help you both since you could have money in your pocket every month and will also keep your investment in something relatively safe like real estate. At Bancompara we have helped many people save up to 30% on their monthly payment.

  • To compensate for your income when your tenants cannot pay in full or when they leave.

  • To increase your chances of economic balance in this uncertain time.

Photo: Depositphotos

Don’t think about sales yet. Consider other options.

1. As I said, you can refinance your debt and cut your monthly expenses.

2 .. You can keep your tenants and negotiate an acceptable price with both. Keep in mind that letting them go may be more expensive because, as I said, many people are looking for cheaper rents or want to live directly with family or friends. In the midst of all of this, it is also very difficult to visit apartments, and not all brokers will be available. Calculate what it would cost you to rent the apartment again and make appropriate decisions.

3 ... Real estate is generally valued, and with population growth 20 years ago, its value is expected to continue to increase. What you have to do is wait. +

The things that no one is sure of

one. Financial institutions are currently doing their bit by simplifying monthly payments and creating promotions to make getting a mortgage cheaper. Fintech companies also support this work, but are not fortune tellers. We do not know exactly when the crisis will end or how big it will really be. Everything we say today is purely speculative, so no one can tell you when the rental price of your apartment will rise to a level before Covid.

Some economists predict losses greater than those caused by the 2008 crisis in the United States, the effects of which have been felt worldwide. Current mortgage behavior in the US and China can also give us an indication of what will be seen in our country, and the forecasts do not predict a rapid recovery in people’s purchasing power.

The best thing you can do is to quickly adjust to this sudden drop in your income. Predict a three-year crisis for sure and try to sign a permanent contract with your tenants. Offer them a competitive price or tolerate a month or two (many do). This way you can rely on a steady income and stop living in uncertainty.

2nd Since you’re not in the minds of all of your neighbors, you won’t be able to quickly adjust your rental price if everyone suddenly decides to cut prices. Brokers, for example, are the fastest to assess market trends, which are now changing from week to week. Ask for their help; If you find that the neighbor has reduced his department by 15%, take action. Every month if you go without a rent, your wealth suffers. The crises are ongoing and I don’t think you’ll be able to hold out six months until you find a new tenant.

Be curious about real estate prices in the same place as you. Internet property seekers are bursting with deals. The best thing you can do is quickly adjust to the new prices.

3rd If you think your property is in an unbeatable area and it is worth what you ask for, even if it has been vacated for three months, think again. Is it near public transportation? I have to tell you that nobody is going to the office right now, and it seems so Home office it will be common practice from now on. Re-formulate all ideas about the location and adapt. Find and promote the good in your property.

The best thing you can do is examine the benefits of your property’s location for Covid, where people are looking for space for their home office, gardens where children can quarantine, and nearby families. People have been thinking all their lives and are looking for comfort and security rather than luxury.

Photo: Depositphotos

Four. Nobody can assure you how or when new customers will arrive for your property. It’s not about giving it away, it’s about you doing the math. If you receive 10,000 monthly rent from your apartment and pay 7,000 mortgage, but receive an offer for 8,000 monthly; You should take it

I can’t tell you for sure, but maybe math can shed some light on you.

If you accept this offer today in a one-year contract, you’re relatively guaranteed to have 8,000 pesos a month, which will keep your mortgage paid. But you’ve given up 24,000 pesos a year.

If you wait two months, you’ve already lost 20,000 pesos if you wait three or 30,000. The average rent for a property (according to brokers) is between two and a half and three months, and the pandemic has extended those times. Do the math.

It works the same way if your tenants ask you to cut the rent by 2,000 pesos because they are in crisis. Ask yourself if losing good tenants who have never missed a payment is worth it. We need to remember that in economic matters this should be temporary and you can adjust your income once the economy justifies it.

In summary, it can be said that vacating a property for 6 months is more expensive than reducing the rent by 10%.

Here I can’t tell you what’s the best thing you can do, only your calculations can find the solution.

5. Take a look at the online income portals and the property offer. Some offer free months and others until moving in. Add them to construction companies that lower their prices and even offer rent with option to sell. How long will it take? We do not know. Every man is now on his side on the rental market because the offer is huge.

Take a look at the properties and decide how yours are compared. If necessary, carry out appropriate renovation work.

The best thing is to have a conscience, to accept and interpret market fluctuations correctly and to have the courage and boldness to make quick decisions. There are few things that are more expensive than making a good decision when it’s too late.

6. Think of the market as something alive. You cannot force him to do what you want. If the prices at which you wanted to rent have changed, nobody can tell you when they will be the same, even if they will ever be the same. Nobody has the truth about what you should get as an income margin as this is only defined by the market. In the end everything is a question of supply and demand.

The best thing you can do is keep your mortgage costs as low as possible to withstand the crisis and consider your investment long-term.

What’s the plan?

one. As I said, don’t sell yet unless your situation is extremely precarious. In economic crises, those who endure the longest and those who have maintained their liquidity win. There will be many people who take advantage of liquidity needs and make very low real estate deals that should be worth more.

If you’ve already decided what to expect, refinance with a bank that offers the best interest rate. Some banks have lowered the CAT (total annual cost) of their mortgage loans and created promotions to get a mortgage, e.g. B. a free valuation of the property or no opening fees. If you do this, you may have a few thousand free pesos to help relieve your tenant, maintain your apartment, or get a good cash flow.

For refinancing, you can contact your bank or find a consultant who will shorten your response time and take care of all the formalities for you.

2nd If you have received your tax refund or would like to receive your company’s profits and plan to give your department capital all or a large percentage, do not wait before looking for the option unless you can refinance all of the payments. Lower your costs first. In this economy, you never know when you need liquidity.

3rd Recalculate your rental price based on the new market prices. In the mortgage area, like in any other area, everything is regulated by supply and demand, and you can see that there is a lot of supply and demand has decreased. Look at the prices around you and set a new, cheaper price.

Also consider things you haven’t seen before, e.g. B. whether your property has amenities, whether it offers a view, whether it has a garden, a terrace or a balcony. If it were a plus to put a bathtub in the bathroom. Remember that Covid has changed people’s preferences.

Also take a look at the promotions other landlords offer, e.g. B. Free months or discounts.

Photo: Depositphotos

Four. When you sign a contract with a tenant, don’t look back. When prices rise again in December, you’ve already had six months of rent on the stock exchange, you’ve maintained your cash flow, and paid the monthly installments of the loan immediately. Remember that you can change everything in the rental business if you are patient. If it turns out that you want to do better business in a year, you can renegotiate the contract or not renew it.

5. Give them what they want. As I said, customs have changed and will continue to change radically. Staying at home means a change in life that many landlords who are already preparing do not hold back.

The house has changed its meaning; It is no longer the place to go to sleep, and that should be close to public transportation. Also keep in mind that many offices will go into the home office indefinitely (Twitter USA has just announced that it will offer the home office option forever). It may not be general, but it will be more common to create a home office for at least a few days a week.

What are people looking for? Gardens, terraces, views; Home offices, spacious washrooms, comfortable kitchens with storage space; TV or game room, defined and separate rooms; Gardens, jogging trails, amenities. In other words, a place where you can spend a lot of time without losing your mind. There are many of these things that get out of control, but not others.

Think about whether you can customize an office space (customizing the service room is fashionable), whether you can split a bedroom in two and build a TV room, add a small grill on the terrace, or build a garden on the balcony . The kitchen is also a great opportunity. Adding an electric dishwasher could be a successful idea. You can always add more storage space in each corner and hold it up to the ceiling if possible. The house is the new sanctuary in the world.

6. Be flexible. If your property has not been rented for months, ask your prospects what they want. It may not be for two bedrooms, but for three; or that the room is very large and the washroom is tiny. Think about how you can change these things and get to work if they make you a good offer. At the end of the day, you can always give him a little improvement that can make the difference so that he rents quickly. Building a Tablaroca department is cheaper than keeping the apartment or house without renting another two months.

The advantages that this brings us

There are very few, that’s the truth, but the key in business is always figuring out how to use the good or bad situations.

According to this line, there will always be tenants looking for a rental in the long run as they have to find new places or other economic options that give them the flexibility of renting. Some tenants may even be willing to pay more than one rent at a time or pay other costs if they’re happy with what they’re seeing.

If you find that refinancing your mortgage can help you maintain your good cash flow and still have money to invest in a property, I can tell you that there is no better time to do so as construction companies lower their prices and discounts from enter the hundreds of thousands; In addition, the real estate market is currently one of the safest investments.

I wish you the best of luck and an early agreement. If you still have doubts about your options, you can find more tips on our blog.