According to the National Multifamily Housing Council, the percentage of renters who couldn’t pay April rent increased 12 percent year-over-year from 19 percent to 31 percent — a reflection of the country’s booming unemployment rates due to the coronavirus.
Although the focus has been on renters, NMHC said, property owners and managers also have much to lose.
“The COVID-19 outbreak has resulted in significant health and financial challenges for apartment residents and multifamily owners, operators, and employees in communities across the country,” NMHC President Doug Bibby said in a statement. He also told NPR: “If the rent payments drop off significantly, they won’t be able to pay their staff, they won’t be able to pay their mortgages, they won’t be able to pay their utilities. They won’t be able to pay managers who manage their properties for them.”
Larger property management companies may be able to weather the storm due to the sheer number of tenants they have (the largest company, Greystar, has over 500,000 units). But smaller independent landlords who count on a handful of tenants to help make ends meet are left to decide who survives — their tenants or them.
“I’m in a fortunate situation where I do have enough saved up to take care of my immediate needs,” Wisconsin-based investor Hamad Hamad told Inman. “But if my tenants stopped paying their rent, I would be in a very bad situation.”
Hamad has five properties in the Atlanta metro area, with one property being a four-unit apartment complex in DeKalb County. All of his tenants are working class, he said, with some relying on Social Security benefits or Section 8 assistance to pay for housing.
“Most of my tenants are very diligent about paying rent although they’re not very wealthy and are just working-class people,” he explained. “They try hard to pay their rent.”
Before Atlanta enacted a shelter-in-place law, Hamad flew to Atlanta to drop off disinfectants and cleaning supplies to all of his tenants and provided groceries to his Section 8 renter who has five children.
“One thing I’m grateful for is that I’ve always tried to know my tenants personally,” he said. “It’s not, ‘Hey, this is a random tenant,’ and ‘Hey, this is the landlord that just cares about the rent.'”
“I dropped off disinfectant to my tenants and told them to use that disinfectant to clean the entrance and the railways in the building, and they could consider that payment for the amount they were short [in rent],” he added. “For anyone who paid their rent in full, I’ve been sending $50 Amazon gift cards as a thank you.”
Hamad said all of his renters paid April’s rent, but he’s created a contingency plan in case the pandemic continues into the summer months. The plan, he said, will allow his tenants to stay in place while generating some, albeit potentially less, income for him.
“I don’t want to evict anyone,” he said. “I’ve been dealing with everyone on a case-by-case basis.”
More than 1,400 miles away in Denver, Darja Pishorn is facing a similar reality with a tenant who works as a physical therapist in a nursing home.
“The basement of my current home is being rented by a physical therapist that’s been here since October,” she said. “He works in nursing homes, and he told me that he had been limited to working in one facility to limit the spread [of coronavirus].”
“He said if they started laying people off, he was the second at the bottom of the totem pole seniority wise and could be one of the first to go.”
Pishorn said she wouldn’t evict the tenant if he gets fired because she can cover the mortgages for her downtown condo and two duplexes with her full-time income.
“My full-time job can cover the mortgages on all of the places that I own,” she explained. “If they’re vacant, it would be tight and obviously not ideal.”
“Worst-case scenario, if I had to pay all the mortgages on my own, I would be OK right now,” she added. “The probability of having all of my rental properties vacant for more than a month is very low.”
Pishorn said she still has high interest in her fully furnished downtown condo, which is exclusively for one- to three-month leases. Although a renter canceled their March stay, she still has a law student and “Hamilton” orchestra member who plan to keep their reservations in May and July. Right now, she’s allowing an ER doctor to stay in the condo free of charge.
“I’ve never had issues with finding [renters] in Denver because it’s such a hot market, especially for the niche of furnished, one- to three-month rentals,” she said.
As for her duplex, Pishorn is a little less confident. (She recently bought the second half and lives on the top floor.)
“I’ve gotten a lot of inquiries from people who list their employment as unemployed, so I’m hoping I can find someone with a stable income,” she said of both listings on both sides of the duplex. “But, right now, I’m not sure how this is going to play out. It’s kind of scary to rent to someone who is unemployed and may not be able to pay rent.”
“There are going to be a lot of people struggling financially, so are rental prices going to have to be lower than what they were?” she added.
Meanwhile, in Knoxville, Brenda Mize hasn’t been negatively affected by the virus. All three tenants of the full-time teacher’s single-family units have paid rent and remain employed. Despite a sunny outlook, Mize has filled out and filed the paperwork for a mortgage forbearance in case things change.
“I’ve talked to my bank, and they’ve agreed to, if I need it, to go into forbearance for up to six months on my mortgage notes,” she said. “I have not opted for forbearance, but I’ve filled out all the paperwork and am ready to do that in the event my tenants don’t or can’t pay.”
Unlike Hamad and Pishorn, who have placed any plans to expand their portfolio on hold, Mize is actively looking for single-family homes to snap up.
“I’m not going to sell [my properties] in a downturn unless I’m forced to do so,” she said. “As a matter of fact, I’m looking for more [properties] and different ways to purchase them.”
“So, [the coronavirus] hasn’t slowed me down in any way,” she added. “Right now, I’m looking for properties that are non-owner occupied, and I send letters to these people who own homes, but don’t live in them and would like to sell them.”
Mize, who is a student of Inman contributor Whitney Nicely, said she has shifted from using mortgages to purchase properties to seller financing. As explained in a previous article, seller financing requires zero down, and the seller deeds the property to the investor, and the investor pays back the purchase price over time using revenue generated from rent.
“We’re fresh into this [pandemic], but so far, people are very willing to talk to you and entertain offers,” Mize told Inman. “What I would’ve offered three months ago is not what I would offer today, but I think [owners] are more willing to be creative to sell their properties now because they want to be in a better financial position themselves.”
All three investors told Inman they expect the rental market to grow, similar to the Great Recession, when homeowners were pushed back into the rental market. However, their focus is on making it from day to day, hopefully with more adequate assistance from state and federal government.
“I’m most disappointed in the politicians,” Hamad said. “The government is not necessarily fair to landlords, especially small landlords”
“The government is technically saying you have to give free rent, so why can’t the government step in and guarantee the rent?” he added as a reference to how the Department of Housing and Urban Development’s Section 8 program operates.
“Forcing landlords to act as lenders isn’t a good relationship for anybody involved,” he concluded. “How is someone going to go from not having a job and then being able to pay two or three months of rent at one time [when the eviction moratorium ends]? Who could come up with three months’ worth of rent in one month? Most people don’t live like that.”