Under the cloud of the pandemic, as many as 40 million households are at risk of eviction in 2020. As of August 24th, the CARES (Coronavirus Aid, Relief, and Economic Security) Act, which protected unemployed workers from eviction, expired. Nearly half of all renters in the U.S. are now at risk of eviction.
The good news for renters though is that the expiration means that the eviction process is just beginning and, due to backlogs, losing a current home due to nonpayment could take weeks or even months. Today's tenants have access to more information than ever about their rights, and states (and even local governments) are enacting their policies for dealing with the threats of homelessness.
On top of the looming threat of evictions, a fifth of all adults moved during the pandemic. People are leaving cities, and young people are moving in with relatives.
All of these realities leave landlords and property owners with a significant drop in income. "Mom and Pop" landlords own an estimated 23 million units in 17 million properties and are now digging into savings to avoid late loan payments and even foreclosure. Larger property owners with multi-family buildings can likely weather the storm longer. They can take creative steps to cut operating expenses, invest in marketing to build a tenant pipeline and even offer rent concessions to attract new tenants.
How to Stem the Flow of Financial Woes
Smaller landlords are rightfully concerned that better-positioned, larger investors will gobble up their properties. A viable short-term solution, it will ultimately have an impact on both tenants and property owners. There are a few alternatives these landlords can pursue first, though.
- Work with tenants. While tenants are job-hunting and awaiting a new infusion of relief for unemployed Americans, property owners can attempt to work out rent concessions and payment plans to maintain cash flow.
- Consider a loan. An Economic Injury Disaster Loan (or EIDL) of up to $2 million may be an option for investors who are worried about defaulting on mortgage payment or taxes due to tenant nonpayment.
- Advocate for solutions. Forbes writer and personal finance expert Robert Farrington recommends that financial institutions consider mortgage forbearance programs explicitly geared to landlords. In the short term, these property owners and investors can work with their local governments and professional real estate associations to raise awareness of their plight and seek creative solutions to preserve their income streams.
The Next 30 Days Will Be Critical
September will be the first full month following the expiration of eviction relief. Some states such as California have legislation in play that would extend the eviction moratorium even further.
However, most of the focus is still on tenant rights without a look at the challenges landlords and investors are facing. Property owners need to stay informed, engaged and proactive in finding financial solutions.
The bright side is that new buyers and investors may be able to find opportunities for the future by picking up investment properties from cash-strapped landlords. By taking a long view of the current crisis, savvy investors may ultimately prosper. However, given market volatility and the unknown impact of the pandemic, investors in rental properties need to use the full range of data at their fingertips to stay more informed than ever in making investment decisions.