At Spartan Invest, we believe that emotional decision making is at the root of many investment and business failures. We feel so strongly about this that one of our core values is to remain dispassionately objective. That means we base our investment decisions on numbers, not emotions or opinions. And the numbers may surprise you. Contrary to the doomsday messages we’ve been hearing in the news and online, we’ve found our property management numbers have held quite steady. Here’s what we’ve seen in terms of rent collected, areas impacted, and occupancy.
One of the biggest concerns of those who own rental properties is that high unemployment levels will mean less rent collected. In order to address this issue, Alabama Rental Properties (Spartan Invest’s rental company) offered $75 off rent for those who paid by April 5th, incentivizing tenants to prioritize rent. And we saw this strategy pay off. Over the last twelve months, at this point in the month, we’ve averaged rent collection of 85.8%. As of April 24th, we’ve received 82%. Though any dip in rent collection is less than ideal, three percentage points is well-within the range we see from month to month. In short, our rent collection numbers are far from the catastrophe many were expecting. Why is this? We believe it’s in large part due to different areas being impacted at different levels.
The entire country is feeling the effects of COVID-19, but certain areas are being impacted far more than others. The problem is that we’re often hearing the stories and numbers from the most impacted areas. From a reporting perspective, this makes perfect sense. Stories about healthy people with stable jobs rarely make the front page. But what this does is cause everyone to assume that what’s happening in the worst case areas is also happening where they live, which simply isn’t the case. For example, if you read a story about a landlord who only collected 25% of rent for the month, you may feel tempted to automatically assume the same numbers will apply to your rental properties. But before making these assumptions you should ask yourself some questions. Is this person investing in the same type of properties that you are? Is this person in the same area? What percentage of rent does this person collect on an average month? This is not to say that you should bury your head in the sand and ignore potential issues, but before you begin panicking consider that the impact of COVID-19 will not be the same across the board.
Besides rent collected, another area we’ve been pleasantly surprised by is our current occupancy, which as of April 17th is 98.3%. Furthermore, we have yet to see any drop in leases signed. In fact, in Q1 of 2020 we saw a 131% increase, from 71 leases in Q1 of 2019 to 164 leases in Q1 of 2020. Q2 is on track and trending to perform higher for 2020 also. As of April 1st, we have collected 74 lease signings, compared to 74 for the entire second quarter of 2019. As with rent collected, these numbers highlight the fact that Birmingham is not seeing the impact that other areas of the country may be.