Did you know? About one-third of all Americans, roughly 107 million people, are renters. Nearly 40 million have been protected by some form of an eviction moratorium since the onset of the COVID-19 pandemic. Throughout the pandemic, an eviction moratorium has been in place to assist renters that have been facing economic challenges due to the pandemic. Recently, the Biden administration extended the expiration of this program to March 31, 2021.
It is important to note that renters may still be evicted for reasons other than nonpayment. In addition, landlords may also choose not to renew a lease agreement. Lastly, renters are not automatically covered under the federal eviction moratorium. In order to avoid an eviction for nonpayment, a tenant is required to provide their landlord with a signed copy of a CDC declaration in advance. This declaration should be obtained as soon as financial hardships occur that prevent rent payments from being made.
What about landlords?
An often overlooked aspect of this program is the catastrophic impact on landlords. When most Americans think of landlords, they think of large corporations or institutional investors that own entire portfolios of rental apartment buildings and other housing units. The fact of the matter is that almost 90% of rental properties are owned by “mom-and-pop” investors who own fewer than 10 properties. These are everyday Americans that most likely worked hard to save enough money to purchase a rental property to supplement their income or fund a retirement. In many cases, there is a mortgage on the property that must be paid in large part from the rental proceeds. Needless to say, these Americans are being left holding the rope.
Landlord default
As a result, more and more landlords are defaulting on their mortgages. According to a recent RealtyTrac analysis, single-family rental property owners face an above-average risk of default in 48% of all U.S. counties. Counties in Florida, New York and California accounted for 44% of the 25 most at-risk counties. The increase in landlord defaults will create havoc not only for the rental market, but also for the real estate market as a whole.
Summary
While it’s completely appropriate that the government has taken steps to protect tenants from eviction during a global pandemic, it’s also completely unrealistic to assume that landlords can bear 100% of the financial burden of missed rent payments. Yet again, investors and home buyers in general must fully analyze local markets when considering a purchase. With certain sectors of the economy being more negatively impacted than others, it is important to know what is driving the local economy. Furthermore, what is the job outlook for prospective tenants in the area.
In South Florida, the rental market continues to remain strong. Of course, wage growth has not kept up with home price gains in recent years. Therefore, a thorough analysis of the local rental market is necessary prior to embarking on the purchase of an income property. At Live South Florida Realty, Inc. we have assisted many clients with building their income property portfolios. Contact us today for a free, no-obligation consultation.
