Joseph is CEO of TenantCloud, a cloud-based property management solution that helps landlords maximize revenue from rental properties.
As the pandemic continues, so too does economic hardship. One year after the national stay-at-home orders that left the entire country bunkered in their homes, our nation is in a housing crisis as many Americans are in danger of losing their homes. The pandemic led to some of the highest unemployment rates this country has ever seen. When people lose their jobs and must rely on savings, rent is often the first bill to be paid. We all need a roof over our heads. When the topic of eviction is raised, it’s clear that tenants have been pushed to their financial limits.
With rent debt estimated to be near $70 billion as of December, the federal government has stepped in to protect renters by extending moratoriums, as well as several rounds of stimulus payments, with funds sent directly to households, totaling over $50 billion in rent assistance and unemployment payment increases.
Renters have also been offered aid on the state level. An eviction clearly doesn’t look very good on a rental résumé when a tenant is looking for new housing, so California has made it so landlords can’t discriminate against tenants who have accrued rent debt during the pandemic. And the state of Oregon is considering a bill that would extend the moratorium on evictions until February 2022.
However, when it comes to landlords, many states that have received the minimum $200 million in funding for rent assistance are requiring landlords to forgive portions of the rent prior to receiving any funding from rent assistance programs. The landlord community has pushed to allow for rent agreements instead of forgiveness for these portions not covered by federal funds, but states looking to ensure program funds go further and curtail evictions are pushing back.
Landlords Are Struggling, Too
While the voice of struggling renters has been quite loud this last year, the voice of the landlord has not really been heard. Headlines about hardworking Americans trying to maintain roofs over their heads while simultaneously saving and planning for retirement have been at the forefront of the media for months now. The desperate pleas of a group of working Americans who are saving and aggressively planning for their retirements make for much more compelling headlines than the concerns of “greedy landlords” seeking to evict.
However, the truth is that independent landlords are carrying an unfair burden for the U.S. right now. The majority of DIY landlords own a single rental. According to one report, 30% are low-to-moderate income households themselves and for landlords who make less than $50,000 a year, their rental income makes up 20% of their income. Due to their diversified interests, landlords who have multiple units are less financially impacted when renters do not pay. For landlords with thousands of units, 20% of tenants not paying rent is bad but manageable. But for a landlord with only one property, having no rent coming in could be devastating.
Many landlords use rental properties to grow their retirement through either a pure rental strategy or even a self-directed IRA. This allows the landlord to have an appreciating asset while also paying down a mortgage, simultaneously creating a double benefit. However, this benefit only works if the rental has a tenant paying an amount above the total of the mortgage, taxes, insurance and maintenance costs. When taking depreciation into account, many rental properties operate at an annual loss, even in years when all rents are paid in full.
Take tenants’ rent away, and what was once a great investment for a working family’s retirement can become financially disastrous, as 100% of the property taxes, insurance and mortgage for the landlord’s property is still owed. Many landlords are living on tight budgets themselves and can’t afford to subsidize tenants protected by eviction moratoriums. The federal government has offered some loan forbearance on federal landlord loans, but these types of loans are almost exclusively given to large landlord companies owning multi-family rentals which, by definition, provide the diversification that smaller landlords don’t have.
Some banks have offered forbearance, which many see as a saving grace to protect those landlords, but forbearance is far from equitable. Briefly, forbearance is when a bank agrees not to foreclose on the borrower in exchange for a change in the terms. Often this change involves taking all unpaid interest and adding it to the existing balance or extending the life of the loan. This also has an impact on a landlord’s credit, which can impact other borrowing options. This means the landlord ends up paying more over a longer period of time.
What Landlords Can Do
Landlords have pushed back on rent forgiveness and have instead asked for rental agreements that would require tenants to be on the hook for back rent in the future. However, many state and city programs still require some rent forgiveness in order to receive any federal funding.
Landlords who can’t evict unpaying tenants still have a mortgage to pay and are at risk of losing their rental properties entirely. Thus, they are forced to forgive some of the rent debt in order to receive any type of payment. These landlords don’t have an alternative, so they accept forbearance by the bank. Landlords are carrying a great deal of the financial burden of the pandemic crisis and will do so well into the future.
The silver lining is that the federal program does allow for landlords to be fully reimbursed for rent in arrears and into the future for up to 15 months in total. City and state programs that aren’t allowing it can make changes. Landlords should work with the tenant(s) to put together a rent-in-arrears contract that covers all the back rent, which will help make the case to city programs to make the changes needed to support our landlord community.