Government Shutdown And The Effect on Rental Income

The story is plastered all over the news: TV, papers, online news websites, and basically everywhere you look. The government has shut down.

As the owner of rental property you are asking yourself: How does this affect me?

The reality is that it may and it may not. You may both benefit from it, or you could struggle to get rent. Let me explain.

The Shutdown Slows Down Mortgage Lending

According to CNN, the government shutdown could make it impossible to close on your mortgage. Fannie Mae and Freddie Mac backed mortgages require verification of the borrower’s income with the IRS. Unfortunately to the home buyer, the IRS operations have been cut back. And that means no verification.

According to the article this may not stop all banks. But it will still slow things down.

That means people trying to buy houses now could have their mortgages delayed. And when you consider most loan approvals have time limits this could mean the borrower may have to reapply for a new loan. The process is already really slow with most banks, and meeting that time limit is a tough put.

This means that people could be stuck. If they already closed on selling their old home, they need a place to stay. If they just moved to a new area, they have nowhere to stay and living in that hotel is getting old fast. Or someone already ready renting may give up and stay renting for a while.

And since the holidays and winter is coming this is good news to the rental property owner. Nobody wants to move during Thanksgiving, Christmas, or when it is wet, snowy, or generally cold outside.

This creates a temporary surge in renters on the market.

And if interest rates and housing continue to climb during the winter those people may be priced out of a new home.

The Shutdown Also Affects Jobs

This affected me and my finance. We have a couple living in one of our rentals who work for the IRS… and now they are scraping by to pay the rent. Luckily I *trained* our tenants well and we are getting amazing late fees, but still this will put the tenant in a tenuous situation for a while.

For those who don’t implement firm training for their tenant like we do… you will probably be hearing from those tenants now that they are out of work that they can’t pay the October rent… or more likely not hearing from them at all as they dodge your phone calls.

I have always approached these types of situations with a firm hand. I firmly told the tenants that the rent is due and the late fees are now accruing. In this case the tenant has been very good at paying their late fees (they are perpetually late by a few days so we always get great late fee rental income) so we made a ONE TIME ONLY agreement with them. They had to pay most of the rent now and the rest in two weeks. They agreed in writing that late fees will continue to accrue until they are caught up.

You will have to assess your tenants on a case-by-case basis if this happens to you. Do you give them some leeway, or do you use this as an opportunity to evict a troublesome tenant? Either way I strongly suggest you give them notice as soon as your local laws and lease allow making sure you are covered if they do not pay. At least until you have a supplemental agreement in writing.

And So We Now Wait

So sit back with some popcorn and watch the comedy show in Washington. At least you now have some ideas of what to expect, and you can potentially profit from their failure to act.

Other Articles by Mike Marko (Guest Contributor):

• What to Ask When Screening Prospective Tenants for Your Rental Property