How can tenants pay their regular monthly rent bills if they're out of job? As unemployment skyrocketed due to the COVID-19 pandemic, Congress enacted a series of laws designed to provide relief to renters and protection from potential eviction. But these relief measures often left owners of residential rental properties holding the bag.
However, for some landlords, the adverse effects of these measures haven't been as bad as they initially feared. And, fortunately, those who are being adversely affected can take steps to mitigate damages.
Financial Relief Measures
During the pandemic, many renters and homeowners have had difficulty making ends meet. The White House recently reported that one in five tenants is behind on rent, while more than 10 million owners were in arrears on mortgage payments.
Congress and various other government authorities have provided relief to tenants through the following:
- The CARES Act authorized 120 days of eviction relief for tenants in federally backed housing. During this eviction moratorium period, landlords couldn't impose late fees, penalties or comparable charges. But this wasn't a point-blank exclusion from the obligation to pay rent.
- The Federal Housing Finance Agency announced an extension of the eviction moratorium from Fannie Mae and Freddie Mac properties until December 31, 2020.
- The Consolidated Appropriations Act (CAA) extended the eviction moratorium to January 31, 2021. President Biden subsequently extended it to March 31, 2021.
- The Centers for Disease Control and Prevention (CDC) continued the eviction moratorium through June 30, 2021, for single renters earning $99,000 or less (or married couples making $198,000 or less) who couldn't pay rent due to COVID-19.
- The American Rescue Plan Act (ARPA) provided $21.55 billion in emergency rental assistance through September 30, 2027, including $5 billion in emergency housing vouchers through September 30, 2030.
These initiatives have been supplemented by others on the federal, state and local levels.
Important: On May 5, U.S. District Court Judge Dabney Friedrich threw out the CDC's nationwide moratorium on evictions, saying that the agency exceeded its authority with the moratorium. As of this writing, the U.S. Justice Department plans to appeal the ruling and will seek an emergency order to put the judge's decision on hold. However, there still may be relief available for many renters: At least 43 states and Washington, D.C., have also temporarily halted residential or business evictions, though the protections are far from uniform.
Mixed Bag of Financial Effects
Initially, you might think that owners of residential rental properties are bearing much of the burden of the financial fallout from COVID-19 in the housing sector. But not every landlord is struggling — especially not those with sufficient resources to cushion the blow. In fact, many landlords have stayed profitable during the pandemic — and some have even realized record profits, according to a recent report.
CBS MoneyWatch has also reported the following findings on the effects of COVID-19 in the housing sector:
- As of January 1, 2021, the delinquency rate for loans tied to apartment buildings was only 2.3%, compared to 13% for retail malls and 19% for hotel owners.
- In 2020, rents at Mid-America Apartment Communities increased by 2.5% on properties it owned before the pandemic. Operating profits jumped by 60%.
- The nation's largest landlord of single-family homes, Invitation Homes, reported its most profitable year ever in 2020.
Residential landlords have largely benefited from governmental relief measures, particularly the eviction moratorium, which cut down on tenant turnover. The reason is simple: It costs more to find new tenants than it does to retain existing ones, even if you make certain financial concessions to keep them.
Despite these relief measures, however, many other real estate owners — particularly small operators or those with low-income tenants — have felt considerable economic pain. If you're in this boat, you'll have to be flexible to stay afloat until the pandemic completely abates.
8 Ways to Reduce Damages
Here are eight strategies for struggling landlords to consider:
- Obtain your own relief. Landlords may benefit from foreclosure provisions, dating back to the CARES Act and extended thereafter. Notably, Biden extended the foreclosure moratorium for federally guaranteed mortgages through June 30, 2021. Similarly, the mortgage payment forbearance was extended through June 30, 2021, and borrowers who entered forbearance on or before June 30, 2020, can receive up to six months of additional mortgage payment forbearance. Relief may also be available through individual states.
- Apply for a loan. A landlord may be able to obtain a favorable line of credit or a low-interest disaster loan from the Small Business Administration (SBA). Currently, banks are increasing credit lines, waiving fees and offering deferrals to qualified landlords. The SBA has also instituted other programs, so check to see what is available for your situation.
- Work out partial payments. Although taking partial rental payments has traditionally been discouraged, it may be your best option right now. If you adopt this approach, update the loan agreement to specify, in writing, the amount and length of time this arrangement will remain in place.
- Rely on security payments. Substitute the security deposit for the next monthly payment (or longer, if feasible). This short-term solution can buy some time if a tenant suddenly can't come up with a payment or two. But you should consider this measure only for tenants who have been dependable payors in the past.
- Reward loyal tenants with a little give-and-take. Consider making certain concessions on a case-by-case basis to renters with a long history of timely payments. Be creative about finding alternatives. For example, you might revisit your expenses to help develop ways for tenants to continue payment, perhaps even temporarily lowering their rates.
- Establish a rent deferral program. A written rent deferral program can help address the issue of late payments head-on by spelling out the eligibility requirements and the term for deferral. Identify tenants who may participate and notify them of this option.
- Waive late payment penalties. Your existing lease agreements may stipulate that tenants owe various penalties or comparable late payment fees, depending on the infraction. When it's feasible, you might waive certain fees to engender loyalty among tenants — which, in turn, can help improve retention rates.
- Revise rules for moving out. Unfortunately, some tenants may be forced to vacate, despite the assistance being provided. Offer to waive any fees for breaking the lease as a gesture of goodwill. Tenants may be more inclined to stay if they know they can easily move out later.
There's some light at the end of the tunnel, but landlords can't relax just yet. It's important to continue taking proactive steps to minimize the pandemic's impact, while you hold onto sound investment properties. Your financial advisors can help you evaluate the big picture and avoid making any knee-jerk reactions.