Small landlords dip into savings as their tenants struggle to pay rent

 More renters are unable to make their monthly payments, and that is having an outsized impact on the nation’s “mom and pop” landlords.

Nearly a third of renters who live in single-family or small multifamily properties owned by individual landlords were unable to pay their August rent, according to a survey by Avail, a technology and marketing platform for small landlords. That is up from just under 25% in July. Avail received responses from 2,225 landlords and almost 3,000 renters.

The main reason for their inability to pay was loss of employment or reduced income. Additional unemployment benefits put in place when the coronavirus pandemic hit were helping tenants to keep up with their rent, but those recently expired, and a growing number of renters are now missing their payments during a standoff between D.C. Republicans and Democrats over a relief package.

On the other end of the equation, about a third of small landlords rely on that rent for the bulk of their income.

Individual landlords make up the majority of single-family rental owners. Nearly 23 million units in 17 million properties are owned by individual investors, according to the most recent count by the U.S. Census Bureau. Just under a third of these investors are retirees.

Nearly 54% of the income from a typical rental unit normally goes toward fixed costs associated with property ownership, according to an analysis by Zillow. These expenses include mortgage payments, property taxes, maintenance, insurance and capital improvements. Without the rent, landlords still have to cover shortfall.

“Our data show that 42% of renters and 35% of landlords are digging into their emergency funds and savings to cover everyday expenses,” said Ryan Coon, CEO of Avail. He noted that close to half of small landlords said they have offered to defer or forgive rent entirely.

“This collaboration is more important now than ever as we wait for policymakers in Washington to enact solutions to the crisis,” Coon said.

Incomplete rent payments increased by 93% between March and May.

“We have been very accommodating making payment plans with tenants since the pandemic began,” said Taylor Denchfield, who owns six small rental buildings in Maryland. “Most tenants who have been struggling to pay have truly fallen on hard times, and we are doing everything we can to work with them.”

As landlords struggle to meet their own costs, some are turning to the government’s mortgage bailout program. It allows borrowers with government-backed mortgages to defer their monthly payments for at least three months and potentially up to a year.

About 12% of landlords surveyed went into this mortgage forbearance program. They said not only were current missed payments pushing them to the bailout, but concerns over future renters not being able to pay also had them asking for help protectively.

As negotiations in Congress remain stalled over additional stimulus, small landlords and their tenants will fall deeper behind on their payments. This could lead  to more evictions for tenants and more mortgage defaults for landlords.

Large, multifamily landlords have more of a financial cushion to deal with rent shortfalls, but even they are starting to see tenants struggle further.

The latest reading this week from the National Multifamily Housing Council found 90% of apartment households made a full or partial rent payment by Aug. 20, a 2.1-percentage point, or 237,056 -household decrease from the share who paid rent through Aug. 20, 2019. It is also a drop from the 93% that had paid by July 20, 2020. The council surveys 11.4 million units of professionally managed apartment units across the country. 

“Lawmakers in Congress and the administration need to come back to the table and work together on comprehensive legislation that protects and supports tens of millions of American renters by extending unemployment benefits and providing desperately needed rental assistance,” said Doug Bibby, the council’s president. “The industry remains encouraged by the degree residents have prioritized their housing obligations so far, but each passing day means more distress for individuals and families, and greater risk for the nation’s housing sector.”