Key Highlights

  • Landlords and tenants wrangling about rent as avalanche of evictions might bury them both
  • Without national rental-market bailout economic pain may flow upward to landlords, lenders and cities losing property tax revenue

Individual investors own approximately 50% of the 43M rental units in this country. Emily Benfer, a visiting law professor at Columbia University, said that unless relief aid doesn’t come to the rental market from the federal government, “…both renters and property owners will slide down the socio-economic scale together.” Renters being unable to pay their monthly rent payment “…will have a ripple effect. Rent doesn’t just go to property owners, it pays for property taxes, mortgages, and salaries for the people who maintain buildings.”

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According to Paula Munger, vice president of research at the National Apartment Association (NAA), cited a Federal Reserve study that indicated defaults in the last recession hit 5% BUT could hit 10% during this much deeper downturn.

The NAA reported that many landlords operate on a margin of $.09 for every $1.00. Only about one third of these landlords would qualify for federal mortgage forbearance. Even if landlords don’t have a monthly mortgage payment, most already know they will not be able to pay their property taxes, which will, in turn, have a cascading effect of bad credit and huge debt.

According to Avail, an online tool that helps landlords find and screen tenants, the total number of incomplete rent payments jumped 93% between March and May.. The shorts hit approximately 60% of all landlords. Of all the landlords who own just one unit, 26% indicated they did not receive full rent in May. 86% of the landlords owning more than 50 units indicated they didn’t receive full rent in May.

If one were to blend missed payments by renters AND mortgage holders, Apartment List found that 22% have yet to make a housing payment for May and that 9% have made a partial payment. Interestingly enough, the ability to pay rent or mortgage payments strongly relates to where one works. In May, just 20% of remote workers were unable to cover their housing payments, the lowest delinquency rate among all groups surveyed.

The result? Small investors may be forced to sell or abandon their properties and those properties may then wind up in the hands of Wall Street firms, some of which have built up large portfolios of rental properties. And then? We all know what happens if that scenario were to play out.

For the time being, renters and owners have a symbiotic relationship. Renters are hard pressed to make their rental payments and, in turn, rental property owners are hard pressed to make their mortgage payments.

Thanks to Bloomberg Businessweek, Apartment List and Housingwire.

Also read: Podcast: Real Estate Market Crash Here? What You Must Do NOW! (Part 2), Help Your Clients Become Real Estate Literate with These Financial Terms, Podcast: Breaking News, SBA PPP Program | 12 Mortgage Forbearance