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In the wake of the ongoing current public health crisis, officials across the nation have implemented or are considering measures designed to protect renters who are suddenly on shaky financial ground, including halting evictions, delaying rent increases and waiving late fees during these uncertain times. But what happens to the landlords who are smaller residential real estate investors — not big financial institutions — who depend on that income? During global pandemics, natural disasters and other crises, how does the loss of rent for a potentially extended period of time impact those individuals and small businesses, and have a ripple effect across other industries as well?
Mom and pop landlords — investors who own 10 or fewer properties — own almost half of all rental units nationwide, and smaller investors were responsible for 60% of all real estate transactions in 2018. This means many individual investors are at great risk due to a lack of cash reserves or available credit to weather the storm of unpaid rent. According to an Avail study reported on by CNBC, 58% of small landlords “said they did not have access to any lines of credit that might help them in an emergency.”
This means that loss of rent could affect landlords’ ability to pay their mortgages, although currently some financial lenders have reduced or delayed mortgage payments for up to three months in an attempt to help smaller investors who might be struggling financially. But a bigger concern can be property taxes, which can cost the same as or more than a mortgage payment, depending on where the property is located. City and county governments rely on property taxes to provide public services, and during times of crisis, local budgets are stretched thin — and that could worsen if landlords are also unable to pay for essential services and utilities like water and sewer, garbage and recycling collection, and gas and electricity, Brookings points out.
And speaking of essential services, rental properties still require upkeep, and in many parts of the country, apartment staff have been designated essential workers, meaning landlords must still pay those salaries. But without rental income coming in, financially stressed landlords could delay some maintenance needs, leading to poorer-quality housing for tenants — and loss of income for both maintenance workers who have been let go and local contractors who could have had work outsourced to them.
As of right now, no nationwide property-tax relief effort has been enacted, but 11 national real estate organizations have urged Congress to consider offering aid to mom and pop landlords “to mitigate the loss of rental income from any gaps in the coverage of rental assistance,” which the joint letter points out could lead to defaults on the underlying mortgages, tax liens or other negative legal actions that put properties and their residents at great risk.
These concerns are echoed by the owners I represent as well. Without clear federal or state support, we are focused on ensuring that rents are still being paid. That comes in form of working with tenants who are impacted to make sure they are aware of their options for support. We have an online system that helps determine if the tenant has submitted unemployment and if they are expecting a stimulus check. Of those who have used that system, all but a couple of tenants are due to receive some sort of support. But since that support is to come in the future, we cannot tell yet if they will actually be able to pay, not to mention the question of what the owner does until then.
Mortgage forbearance is a good place to start. Just like a moratorium has been issued on evictions for renters who can’t pay during this time, so too should mom and pop landlords receive relief on their obligations. Federally owned or backed mortgages are eligible for protections under the CARES Act, such as mortgage forbearance and a suspension of foreclosures; however, these protections don’t extend to mortgages that aren’t federally backed or owned. Until that oversight is rectified in the next federal relief bill, small real estate investors must go through the process of contacting their lenders or checking with their states, some of which are implementing mortgage relief options in addition to the federal initiatives.
In addition, I believe the federal Paycheck Protection Program should be extended to small real estate investors who have few employees. Currently, small businesses only qualify for PPP funds if they spend 75% of the loan on payroll, but many mom and pop landlords only have a handful of staff, if they have any at all, making it impossible to even apply. Hopefully, this issue can also be corrected in future federal relief measures.
While I do agree that the support given to tenants is great for April and potentially May, the impact to these tenants will extend longer than just the next month. Without action to help mom and pop landlords in addition to renters, small investors’ financial struggles could negatively affect everyone from lenders and insurance companies to individual self-supporting workers — now and in the future, whenever the next disaster occurs.