Founder and CEO of Rentec Direct, property management software for real estate professionals.
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The extent of the fallout from the global pandemic is yet to be realized, but repercussions are affecting all industries and sectors. Industries have been forced to adapt, and the rental space is no exception. Widespread layoffs and economic turmoil have resulted in many Americans struggling to keep up with cost-of-living expenses, and some tenants may be relying on temporary regulations designed to protect them in the face of heightened unemployment and income loss across the country. This means fewer renters are paying rent.
Unfortunately, landlords still need to make an income in order to profit on their investment and fulfill their own monetary obligations. As Covid-19 continues to impact the real estate industry as a whole, what can we reasonably expect to come next, and how can landlords prepare for what’s ahead?
Prediction: As unemployment benefits change and stimulus packages disappear, tenants will continue to struggle to pay rent.
Data aggregated by my company shows that the number of rent payments received nationwide by landlords and property managers has been steadily declining since the onset of the pandemic, dropping by more than 12% in the last five months alone. As numbers decrease, it becomes clear that renters are more financially burdened now than when the pandemic first hit — unsurprising when you consider the fact that 16% of Americans have no emergency savings. The pandemic is worsening the financial hardship for many, thanks to elevated unemployment rates, reduced income opportunities and increased debt.
With unemployment benefits being reduced and stimulus packages timing out, renters will likely continue to struggle financially. If additional financial assistance doesn’t come for renters, landlords could be left on the hook for bills that their tenants are unable to afford.
Advice For Landlords
• Consider flexible payment schedules. If you have the means to do so, set up a payment plan with your tenants that allows them to pay as they are able. For example, one of my tenants is paid biweekly, so I’ve allowed them to pay half of the rent with their first paycheck and the rest when they receive their second paycheck. Some money coming in is better than none.
• Offer an online rental payment platform. Generally speaking, online rent payment options can increase the chances of rent being paid.
• Most landlords are using rental income to pay their mortgages; look into financial assistance programs that help with this end of the transaction. There may be federal funds available to provide temporary financial assistance to homeowners who are struggling to meet mortgage obligations as a direct result of the pandemic. Mortgage companies may be willing to modify agreements and restructure loans as well.
Prediction: Expiring eviction moratoriums will cause a new spike in eviction cases.
The expiration dates set on federal and state eviction moratoriums are quickly approaching; some states still have legislation in place to protect renters, but the federal eviction moratorium expired last month. This means more than 12 million households across the country — nearly 30% of all renters — will be at risk of losing their homes if they have experienced recent financial hardship.
This puts landlords in a tough position. Idaho has seen more than 50 eviction hearings scheduled in one week since the federal moratorium expired. In Wisconsin, a statewide eviction moratorium ended in May, leading to nearly 1,500 eviction filings during the month of June. Landlords need to be prepared.
Advice For Landlords
• Understand the eviction process. If you’ve never been through an eviction before, educate yourself on the process and what it means for you and your tenant. Evictions are one of the most expensive and stressful parts of being a landlord; save them as a last resort.
• During these turbulent times, the best step you can take is to encourage open communication. Advise tenants to let you know if they’ve lost their job, are struggling financially or have any questions or concerns. Reach out frequently. Offer multiple contact methods so you can come up with a plan now for tough situations instead of dealing with the consequences later.
Prediction: The changing real estate market will inevitably impact the rental market.
If you’ve been keeping tabs on the national real estate market, you will see that it is a bright spot in an otherwise bleak economy. Experts are seeing homebuyers leaving bigger cities and relocating to popular suburbs or smaller towns — especially with more people working remotely. In turn, home prices are rising to record highs due to high demand and low inventory in certain areas.
It remains to be seen if this trend will continue, but as with every fluctuation in the real estate market, the rental space will be impacted.
Advice for Landlords
• Keep a close eye on national, regional and local markets. Landlords need to watch the rest of the country closely and monitor their own areas in order to make smart predictions about the impact on their own properties. Will a mass exodus of people from a high-density area cause rent prices to fall? Are high numbers of people likely to migrate to your area, driving high demand and low supply of rental properties?
It’s challenging to predict the future during an uncertain time, but the nationwide continuation of new Covid-19 cases certainly poses a threat to America’s economic future. Despite the unemployment rate decreasing slightly in recent months, this is still the highest unemployment rate our nation has seen since the Great Depression. Several states are implementing re-closures, layoffs are continuing and unemployment benefits are expiring. All of these changes will absolutely impact renters across the country, potentially burdening their financial situation further. The coming months will help us further understand the impact of the pandemic and reveal how renters will handle their cost-of-living expenses.
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