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The past few months have been an unprecedented time in American history. As businesses shut down and unemployment rates shot up, both tenants and landlords were left wondering: Will the rent get paid?
Most apartment communities were bracing for the first of May when the COVID-19 pandemic and resulting lockdown would have been in effect for over a month. At a federal level, some relief has come in the form of stimulus checks (that may or may not be enough to cover a month of rent) and improved unemployment benefits, but talk of rent strikes had landlords growing concerned about the coming months.
Emergency orders banning evictions have been passed in many states to protect tenants, and some institutions such as Freddie Mac and Fannie May are offering mortgage deferment for homeowners. However, both of these measures offer temporary relief. Payments are still due once the deferral period lifts, and there’s no guarantee that people will be drawing paychecks to cover them.
Beyond rent payments, landlords are also wondering about rental vacancies in the next few months. Historically, spring has been the busiest time in the industry — which means many leases will be ending or up for renewal. Many are worried that when that happens, tenants will move in with family members or others who are looking for roommates. At least so far, it seems like that’s not the case: According to a report by the National Landlord Association, vacancy rates have remained steady.
Over the coming months and year, it will become increasingly important for landlords to find and keep great tenants. Over 36 million people have filed for unemployment benefits. If we don’t think that will flow through the rental market, then we are fooling ourselves. The cost of losing a tenant now is too high because leasing requires so much more than just make-ready, cleaning and marketing. In the coming months, a vacancy could mean lower security deposit amounts, partial discounts in rent and more incentives just to get a tenant, as other landlords compete and offer better deals.
Predictions
Is it a recipe for a crashing rental market and an increase in displaced tenants? The rental market has already seen some indications of this. Google search results for rental in some top cities were down by 10%-35% by early April. But, like everything else, it’s complicated. That same report shows that short-term or month-to-month leases have skyrocketed. Nationally, people have more time to browse, want to move to cheaper apartments and are changing the way they think about virtually touring apartments.
While 63% of the over 4,000 tenants we surveyed were worried about paying rent, almost half of them planned to use their stimulus check for rent and bills. With such large numbers looming, landlords should be creating an emergency plan in case tenants can’t cover rent in the upcoming months.
Conversations with my tenants and looking at the data suggest that landlords should first offer a discount incentive to pay rent early. Then, for those tenants who are falling behind, give a couple of days increase in the grace period, and have a deferral plan ready if it is needed.
Another option available to landlords is to use a security deposit in order to get working capital immediately. Then, you can have tenants replenish the deposit amount over the next few months.
Landlords In Crisis
But what about aid for landlords? Both of those scenarios are scary for landlords who don’t know if their tenants will be able to pay back the deferred amounts. The National Apartment Association and others are also lobbying on behalf of landlords and tenants to provide more stimulus money and limit the eviction moratorium to only include those directly affected by COVID-19.
Some landlords want direct federal aid. One option for landlords who need assistance immediately is a small business loan. SBA Economic Injury Disaster Loans with low interest rates and 12 months of payment deferral were made available for rental property owners in many states. Many property management companies are also taking advantage of Paycheck Protection Plans that cover payroll, rent and mortgage interest for up to eight weeks.
Right now, the bottom line is that everyone is trying to avoid displacement. That’s going to take communication between landlords and tenants so that everyone can take advantage of the economic help being offered.