While unlikely to have a significant impact on the greater housing rebound, almost 1 million furloughed federal workers could bite into the cash flow of San Diego landlords. Accordingly, with many government workers potentially looking for work, more competition may be generated in the real estate industry.
San Diego landlords that may be worried should take the following into consideration:
Is the Government Shutdown a Cash Flow Killer for Landlords?
Will the government shutdown cause a cash flow crisis for San Diego landlords?
Even though the House has already approved back-pay for nearly 800,000 federal workers that have been recently furloughed , the standoff could definitely interrupt many people’s incomes. These 800k workers won’t get paid until they return to work and checks are cut. In the meantime, they are stuck. Furthermore, the businesses that rely on the spending of these government workers are also experiencing a tough time.
Some may have sufficient savings to pull through, but we are already entering the holiday shopping season. A lot are still recovering from the last seven years and many more have already had to live paycheck to paycheck.
Unfortunately, many will fall further behind on their mortgage payments, seller financing agreements and rent. In addition, credit scores will be significantly damaged.
Some rental property owners are already reporting that tenants in the military, and other affected workers, have notified them that they aren’t going to be making payments because of the government shutdown.
So how are San Diego landlords expected to pay their mortgages when they are not receiving rent checks? How can you sure up your own finances and prevent the pinch from pillaging your pocketbook?
The Playbook for San Diego Landlords
In reality, the fallout will probably impact a very small number of individuals. However, it is always prudent to prepare for the worst and be proactive.
San Diego landlords expecting the worst should familiarize themselves with the following:
Start by taking inventory of your current situation.
- How great are your reserves?
- How much of your cash flow is reliant on government workers or paychecks?
- What’s the worst case scenario?
- Should you be making additional acquisitions, or selling off inventory right now?
- What practices can you put in place to minimize risk, and maximize success?
For those San Diego investors that have already been alerted by tenants that they won’t be getting a payment – pause. Yes, it wasn’t in your plans. Yes, it can be infuriating and stressful. However, it isn’t their fault. How would you like your landlord or creditors to act if you were in their shoes?
Have a heart. This is business, but if you can wait, then be prepared to be patient.
This doesn’t mean that you have to stall the normal paperwork processes in a default. Nor does it mean that you should convey the message that it’s completely okay for them to take their sweet time to pay you. That could bite you back.
Try to work out a payment plan now and collect what you can. Consider adding alternative payment options like Paypal or taking credit cards if you aren’t already. Otherwise, it may ultimately be cheaper for them to leave and move elsewhere.
For those with a lot of military or government tenants, this is a wake-up call to diversify. For all San Diego landlords, now is also the time to negotiate lines of credit and terms with creditors and vendors. It’s a lot easier from a position of strength.
