Small Landlords Are Hurting Financially Amid Pandemic

By Lindsay Frankel
Inside Subprime: September 18, 2020

More Americans are struggling to pay their rent after boosted unemployment benefits expired, and that’s impacting the finances of small landlords in the U.S. The unemployment rate continues to decline, falling to 8.4 percent in August, but that doesn’t mean Americans have recovered financially from the impact of coronavirus-related shutdowns. 

Back in April, 43 percent of U.S. adults reported a job loss or income change, according to Pew Social Trends. And low-income families were disproportionately affected. By August, 44 percent of households earning less than $50,000 annually reported that their emergency savings had dropped. That’s despite Americans’ attempts to save more and spend less

Without the continued boost to unemployment provided by the CARES Act, Americans who suffered an income cut or job loss aren’t able to make ends meet. According to a survey from Avail, an online platform for landlords, 31 percent of respondents couldn’t afford to pay their full rent in August. That’s up from about 25 percent in July.  

How Renters Are Struggling

Incomplete rent payments have become much more common in the wake of the coronavirus crisis, increasing 93 percent between March and May. Of the respondents that couldn’t pay their full rent in August, about 60 percent said it was due to unemployment or an income cut. Roughly 62 percent said they also struggled with paying for necessary expenses. That’s true even though most of the respondents were employed more than 30 hours per week at the time of the survey. 

Even a temporary drop in income or period of unemployment would be enough to push many respondents over the edge, however; 44 percent cited that they were spending between 31 and 50 percent of their pre-tax income on rent. That can be difficult even with steady employment and a robust economy. A dip in income puts an added strain on an already precarious financial footing. 

Most households are trying to pay their rent on time. 42 percent said they withdrew money from their emergency fund to cover rent payments, 38 percent borrowed money from family or friends, and 31 percent relied on government aid. 21 percent have even found new sources of income to help bridge the gap. However, not all respondents had something to fall back on. 15 percent reported that they started to make their rent payments with a credit card, which could lead to debt and credit score issues later on. 

How Landlords Are Struggling

Most owners of single-family rental units are individual landlords. Individual investors own almost 23 million units in 17 million properties, according to data from the U.S. Census Bureau. Only about 22 percent of properties with one to four units are managed professionally. 

These small landlords aren’t turning pure profit without expenses. The median monthly operating expense per unit is $325, while the median rent is $750, according to Census data. Zillow analysis revealed almost 54 percent of earnings from a rental unit go towards property ownership expenses, which include mortgage payments, maintenance, taxes and insurance, and capital improvements. Without rental income to rely on, small landlords need to cover the difference themselves. 

35 percent of landlords rely on their rental properties for at least half their income. Just as renters are depleting their savings accounts, 35 percent of landlords reported covering expenses with an emergency fund, the Avail survey found. Still, about half of landlords are working with renters who can’t afford to pay, either by offering deferment plans or generously providing rent forgiveness. 

About 12 percent of landlords have experienced hardship that required them to go into a government mortgage forbearance program, which lets owners with government-backed mortgage loans defer their payments between three months and a year. Of those who did accept the bailout, 19 percent said it was because they were struggling to meet their mortgage payments without income from current renters, and 25 percent said it was because they were worried about being able to collect rental income in the future. 

Waiting for an Agreement

As renters and landlords alike struggle to make their payments, Senate Republicans and House Democrats continue to argue over what the next coronavirus stimulus package should entail. House Speaker Nancy Pelosi wants Democrats to push for legislation with at least $2 trillion in aid, while Senate Republicans have introduced a much smaller package that even President Trump criticized as being insufficient. Many Democrats have growing concern over whether an agreement will be reached before their October 2nd recess. 

Meanwhile, the weekly report from the National Multifamily Housing Council shows a decline in the share of American renters that were able to make their payments; only 86.2 percent of apartment households made a full or even partial payment by September 13th. 

“While it remains clear that many apartment residents continue to prioritize their housing obligations and that apartment owners and operators remain committed to meeting them halfway with creative and nuanced approaches, the reality is that the second week of September figures shows ongoing deterioration of rent payment figures – representing hundreds of thousands of households who are increasingly at risk,” said Doug Bibby, NMHC President.

Bibby added that the figures aren’t surprising, since lawmakers have failed to extend the economic relief that so many Americans relied on. “Instead of being satisfied with a half-baked nationwide eviction moratorium which does nothing to deal with renters’ real underlying problem – financial distress – lawmakers should instead look to the successful model of the CARES Act and provide economic support to those who need it most – the tens-of-millions that call an apartment home, revitalizing the recovery at the same time,” he said. 

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