Lori Walsh: Thousands of unemployed South Dakotans are facing the prospect of having to pay rent or mortgage payments with greatly diminished income. How is the financial crisis impacting landlords? Who are the landlords in this state, anyway? Wealth advisor and financial therapist, Rick Kahler returns to In The Moment today for a look at the complicated financial arrangement between those who rent and those who own the property. Rick Kahler, welcome back. Thanks for being here.
Rick Kahler: Thank you, Lori. It's good to be back.
Lori Walsh: You have done so much to help us through this crisis from a personal finance and wealth management standpoint, especially as we look at some of our money scripts and things that we believed about money going in and I want to talk a little bit about a column that you wrote that looks at maybe some of our money scripts about landlords in the first place. But first, a question that came in from a listener since the last time we talked and that was about taxes on the stimulus check. What do we need to know before next year as far as whether or not those stimulus payments will impact our taxes.
Rick Kahler: Well, with the disclaimer that I'm not an accountant, the stimulus checks are not taxable, so a person doesn't need to worry about that. And the same is true of the PPP program, the payroll protection program, is if any small businesses received any funds from that, and if they go for the allowable expenses in the eight weeks after they receive the funds, those amounts are not repayable. They become a grant and they're not taxable.
Lori Walsh: Ah, good to know. If you donate your tax refund check, if you donate any money throughout this time to support nonprofits, that is tax deductible though, right? You need to keep track of what you do.
Rick Kahler: You're good. I hadn't even thought about that. Yeah. If you get a $1,200 check and then you donate it, the money is not taxable. The donation can be taxable depending on if you use the standard exemption or not, but it certainly could be deductible if you itemize.
Lori Walsh: Right. Generosity is usually rewarded in the US tax code overall.
Rick Kahler: that that has been the motivation that the crafters of the tax code have attempted to drive.
Lori Walsh: All right, let's talk about landlords because one of the things that you said the last time you were on this program and you've also written about it in your column, which I recommend people subscribe to. I get mine via email from your website. I think I entered my email on your website. It was pretty simple and then I get those updates. But you mentioned, you might donate some money if it's something that you don't necessarily need, that stimulus check, you might help somebody else pay their rent and you had this sentence in there that you struck out before you printed the article and then there was a reason why. Tell us a little bit about that sentence first.
Rick Kahler: Yeah. Actually that column runs today. You've been getting the scoop on my column.
Lori Walsh: Excellent. I feel so fortunate. Breaking news here, people.
Rick Kahler: Really breaking. Yeah, it just came out today and I had a sentence in there that said, if you don't know what to do with your stimulus paycheck, the $1,200, and don't need it, one thing you could think about doing is paying the rent for somebody that can't make the rent payment this month. And I had an additional line that said doing so will benefit both the renter and the landlord. And when I read that I had a flinch and I struck that sentence from the article. And my flinch was and my hunch was the majority of Americans would look at supporting a landlord as something ... why should I support them? They've got plenty of money.
Lori Walsh: Well do they? What do we know about landlords? It's a fair question. Who are we supporting right now and who are we not is something that's definitely being unpacked in various news organizations across, from the Shake Shack, PPE refund, they gave their money back from their $10 million PPE loan. So people have questions about who to help and who needs it. What do we, first of all, landlord sort of implies a certain kind of a status in the first place.
Rick Kahler: Yeah. Landlords historically back in time have been those with the power, with the wealth and oftentimes it was the king or the lords back in medieval time. It's also often associated negatively similar to Scrooge. When we think of Ebeneezer Scrooge, we typically think of a cold hearted, heartless, penny pinching miser. We forget at the end of the book, he was like the most generous guy in London, the guy you wanted as your friend. So landlords often suffer a negative persona often because they enforce the contract and the contract is, I will, as a renter, pay you a monthly obligation of rent and just like any loan or any obligation, if that obligation isn't paid, there's consequences. And the consequence with not paying your rent is eviction. And eviction is usually not framed from the vantage point of the landlord.
So I did a little research on this and I had a hunch, and actually my research bore out my hunch. There's a survey done in 2015 called the American Housing Survey that found there's 48 and a half million rental units in the US and of those, just about half, a little over 22 million are owned by 10 and a half million individual investors. And an individual investor's considered kind of like a mom and pop and they own on the average of two units per investor. So basically 50% of our rental stock in the US is owned by investors who have one or two houses. And I would say based on my experience on those houses with the hope someday of paying them off, paying off the loan and having some supplemental income for retirement.
Lori Walsh: Right. So they often have mortgages on those houses. They're not necessarily paid off yet.
Rick Kahler: Yeah, by and large, the vast majority of those houses are leveraged and oftentimes leveraged a little bit too high to get into a rental house. Oftentimes the person getting into it will take a second mortgage on their personal home to come up with the down payment. I know many investors that have done that, I have done that myself in the past. So sometimes those landlords take a little higher risk than what might be deemed to be a reasonable, and oftentimes they don't have much of an emergency reserve. So in that way they're not unlike the average American family that doesn't have an emergency reserve. So they really set them up with some risk and it's downtime. Like right now they can just turn around and bite them severely.
Lori Walsh: Yeah. And some of them are, are not retired yet. They're working their own jobs and trying to figure out their own future. They might be out of work as well.
Rick Kahler: Yeah. I think that's the important thing to understand where we do have this societal money script that landlords are wealthy and landlords are bigger businesses, which the other half of that housing stock is owned by 1 million investors that own on the average of 20 units a piece. But you've, you've hit the conundrum is that the average owner, the average landlord is somewhat your neighbor and they could have very well lost their job in this pandemic and without much of a reserve, which most of them don't, going one, two, three months without any rent and potentially having lost their job or had their hours scale back will probably spell economic disaster for many of them. And that's what often isn't seen with our money script that, well, landlords are rich.
Lori Walsh: Right. It occurs to me too that the organizations that own multiple properties or large apartment complexes are currently dealing with trying to keep those apartment complexes clean so they don't have an outbreak in some of these communal, shared elevators or stairways or whatnot. Also, who would have planned for all of your people to stop paying rent at the same time? I mean they must have some kind of plan for what percentage of renters run into trouble and had to sort of deal with that and cover that. But who would have said at some point, we need a financial plan so that if everybody simultaneously stops paying their rent for six months. So how do you plan for that sort of thing? Do we know, Rick, if there's any kind of, in the federal relief that we've seen so far, is there any sort of effort to shore up people who own rental property in some way?
Rick Kahler: Yeah, that's a real unfortunate thing because, and I'm making this up, Lori, that the crafters of the bill have the same money scripts that most other folks do. And the idea of giving relief to landlords was probably an asthma. We've seen already a real backlash toward companies getting the PPP loans and promises on the behalf of some actual reporters to track down any company that appeared to be rich or not need the money that would have taken those funds. So in similar fashion, there's nothing in the emergency loans, the IDL or the PPP that I have seen that are for landlords. The PPP, you have to have a payroll. Well, landlords don't have a payroll associated with their business or with a real estate business. And to add insult to injury, there's been talk of a national moratorium on rent for 90 days.
I'm not sure I'm thinking some municipalities have done that and also a moratorium potentially on evictions. And you know what a conundrum for a small landlord that isn't getting paid, even if they can't evict, how many are going to want to evict? I mean, most landlords have a heart and what a terrible time to tell a family that they have to move. And yet they're forced with digging into their pocket and in some fashion, taking food off their table to make that mortgage payment and pay the rent for their landlords. And there is no relief in any of these bills I've seen.
Lori Walsh: One of the lessons here as we talk about money scripts and in policymakers might have their own money script, protestors have their own moneys script. All of us are kind of carrying around these thoughts on money. And it occurs to me recently, Governor Christie Gnomon at a press conference, talked to, she was asked to designate an isolation center in Sioux Falls and said, no. And she mentioned something about people should be isolated in a hotel room or someplace other than in a group area and was immediately blasted by people who assumed that she meant, and I don't know what she meant by that, but assumed that she meant that people had money for a hotel room to isolate in for two weeks. So you could just see the assumptions about money flying back and forth in these tense times. It's time for us all to take a breath and think deeply about what we're making our accusations and our policies based on what we think about money. It's worth reflecting I guess is the main takeaway here.
Rick Kahler: Yeah, that is really good advice. As I watched the Sunday shows yesterday, I mean when a person becomes aware of money scripts, it is just one money script after another and so much projection, so much assumption on the behalf of everyone that it's hard to unpack. I mean a politician can say three sentences and you've got about six money scripts to unpack.
Lori Walsh: Yeah. It makes me want to at the next debate sort of ask some of those quick ... because people who run for office often tell the story of Dusty Johnson growing up with us some kind of assistance and knowing what that feels like or other presidential candidates who say, I was raised poor and I moved on and did this. Lawmakers are always, politicians are always telling us a little bit of their history and that also contributes to their money script just like it does to all of us who vote or don't vote for them.
Rick Kahler: Yeah, it absolutely impacts ... money scripts, as we talked about before, impact our financial decisions 24/7. They don't rest. And I think, wouldn't it be insightful to have someone asking politicians in a debate about their money script and their relationship with money? That would be phenomenal.
Lori Walsh: All right. I want to talk a little more about something we started talking about last week, but we didn't get fully into, and that is this bigger picture about how we behave during a pandemic and what happens with fear and resentment and division in this time. We are seeing this more than ever in America as protesters take to the streets and nurses block the crosswalk. And there is division and isolation and who's going to get sick and who are we okay with getting sick and wealthy people flying to underground bunkers in New Zealand for their doomsday spaces to lock themselves away and take care of themselves until this is over. All kinds of division and hurtfulness, not a surprise. Let's talk a little bit, Rick, about what you wrote about the history of pandemics and what we already know is kind of predictable about how we're going to respond to this as a nation, as a people.
Rick Kahler: Yeah, unfortunately it's incredibly predictable. And I read on March 12th the column that David Brooks wrote in the New York Times that was just fascinating. And he took a look at every pandemic going back to, I think it was 1348 and came out with a set of things, here's what we can expect. And I think the line that really spoke to me is that you may not like who you are soon to become. And he talked about a number of things. One thing that we're really seeing play out that you've mentioned, is that it widens the division between the rich and the poor. I heard a commentator using the word rich haters on the way driving the other day. And you know, it's kind of understandable. If you have a second home and your second home is in a place that means more remote or more isolated self-preservation instincts may say, I think I'll go stay there.
Most of America doesn't have that option. And so there becomes that emotion of jealousy, anger, fear, that look what I have to deal with here. And you know, so many people have to show up at their jobs and risk being infected. I mean keeping America open is reliant on people that are involved in the food chain and producing PPE for our medical suppliers, where some of your more wealthy folks can really just isolate and wait till it's over. And they're oftentimes just is a lack of emotional understanding on both parts. You know, if somebody that is working would have the money to be able to do that, would they choose not to? I don't know.
Lori Walsh: And as in a pandemic, we are asked to, it is required of us or requested of us to isolate, to stay away from each other. So some of the people that are different from you that you normally would have looked at face to face in the grocery store, maybe now your groceries are delivered to your door and you don't really even see who is left in your local grocery store pulling things off the shelf for you. It's naturally isolating and we tend to isolate even a little bit more.
Rick Kahler: Yeah, it absolutely is. And I think that the term social distancing is unfortunate. I personally like the term physical distancing. I found myself walking into the grocery store or going someplace and it's like my system has told me I can't speak to anybody.
That I will be violating the social distancing laws by speaking and also I choose to wear a mask. And I had the thought the other day, I smiled at somebody walked by me, then I realized, oh, they couldn't see my smile. You know, it is problematic, isn't it? How much information we get from people's, a therapist called affect, the expressions on their faces and when half your face is covered, there's additional information, additional isolating that we're up against.
Lori Walsh: Let's talk a little bit about some hope in that because, the David Brooks article talks about the Decameron, which is 1348 and the 1665 Journal of the Plague Year by Daniel Defoe. The Decameron, by the way, my daughter just read in college so that 1348 text is still being read by first year college students and is incredibly relevant to this time. But you also point out in your work that we have a little more faith in how we've ... we know more. We're still human beings who act out of the same sort of biology and instincts. But we also are having conversations like this and there are plenty of healthcare workers who are incredibly compassionate in times of suffering as well as brave. And I think that's one of the things that we're not hearing as much of, Rick, is we're talking about how brave healthcare workers are.
But when my daughter went to the hospital in the emergency room in New York City early on during this crisis, the thing that struck me as I listened on the phone from a distance as she left her phone on was how compassionate they were and how kind and how calming they were with her, which gave me great comfort for the days ahead and we talk about are the people that we love being alone. And yes, they are because they're isolated and she didn't get a nurse sitting at her bedside holding your hand. But everyone who interacted with her was so kind and calming and encouraging. No matter how tired and stressed they were. There's a lot of compassion right now, especially among those care providers.
Rick Kahler: I've always been so impressed with the compassion of caregivers. And my daughter, London, is a caregiver at Monument Hospital here in Rapid and has been asked to go no other place in between our house and the hospital. And to think about this with this pandemic and COVID-19 if you are in the, well, if you're in the hospital, no family, no visitors, that, those nurses and caregivers are your touchstone to humanity and what an increased responsibility that they have in those moments of being with those people, many who who die without their loved ones around. So thank God for the caregivers and it's such a, something we're asking them to do is to be human and to walk into the face of this, it's a huge burden. And then of course we don't have the PPE. And I know my wife's been making masks for the hospital and they're using them five times before throwing them away and we're short of swabs at our hospital and we can't do the testing that we need. I mean, what an amazing burden for these people to be carrying.
Lori Walsh: Well, a little bit about compassion and let's end on the note that you will remember who you were during this time. So it's worth stepping back and reevaluating what you're doing with your money, what your money scripts are and how you're behaving in a way with compassion as there are so many people that are grieving right now as well as we lose loved ones. Several friends over the weekend posted on social media about losses in their lives. This is becoming very, very personal and we're all going to have an opportunity to be kind and compassionate and generous with one another. It's time to rethink some of our scripts.
Rick Kahler: Totally and I liked Queen Elizabeth's closing remarks when she addressed the UK for only the fourth time in her reign when she said, I hope in the years to come everyone will be able to take pride in how they responded to this challenge and I certainly hope I can count myself in with that challenge.
Lori Walsh: We appreciate that everything you're doing to help us talk about it on the radio and listeners can send their questions. You can send your questions to us at [email protected] and we'll ask Rick when he comes back on next time. He's the founder of Kahler Financial Group, which is a Rapid City, South Dakota based company, and he's one of the pioneers in financial therapy. Rick, thanks so much for being here. We'll see you next time.
Rick Kahler: Thank you, Lori. Take care. Be safe.