The Impact of COVID-19 on Landlords in 2021

The COVID-19 pandemic left its mark on the U.S. economy in many ways. One impact that has gone unnoticed, however, is how it changed Americans’ attitudes about housing.

Much like the Great Recession in 2008, COVID-19 has forced households to rethink their financial positions and rendered them more cautious during times of economic turmoil.

This was no different for landlords, who were forced to alter their expectations for future rent payments as well as question long-held beliefs about owning rental properties.

As landlords, private investors, and government agencies continue to come up with solutions, strategies, options, programs, grants, and loans to help landlords handle the challenges of operating in a post–COVID-19 world, we need more insight into how the recession has affected landlords.

We need more data on how exactly it is affecting them, what specific challenges they are facing, what solutions or approaches have worked for them…the list goes on.

Below we dive into each.

Effects of COVID-19 on Landlords

According to The Joint Center For Housing Studies, the COVID-19 pandemic has made it harder for low- and moderate-income households to pay rent.

Most landlords and real estate investors have taken a big hit — residential and business tenants can’t pay rent — with many businesses unable to survive the effects of the pandemic.

The paper shows that by October last year, rent defaults had increased in minority and low-income communities but had slightly increased in wealthier communities.

For small landlords — those with three or fewer rentals — a common response for rent defaulters was to defer property maintenance or offer the tenants rent repayment plans.

Regardless, COVID-19 has proved to be a big blow to most mom-and-pop landlords, resulting in financial strain. Moreover, the failure of these properties means declined property tax to municipalities and loss of maintenance jobs.

As an investor looking into buying rental property, this might be the perfect chance to get that deal done, but it comes with a risk. It might take months or years before the tenants you inherit achieve financial stability.

If you’re an investor with an existing rental property, below are ways you can deal with late rent and evictions.

How Landlords Dealt with Rent Payment Post–COVID-19

Last year on March 18, former President Trump ordered the Department of Housing and Urban Development to suspend evictions and foreclosures. However, after a recent ruling on August 26, 2021, by the Supreme Court, the federal evictions and foreclosure moratorium is no longer in place in most states.

If a tenant can’t pay rent on time, the next challenge most landlords face is how to enable rent deferrals and payment plans before going through with eviction.

In a time of uncertainty, landlords have proposed the following.

Accept Partial Payments

If a tenant isn’t able to pay the full rent, some landlords may consider allowing them to pay what they can. Although accepting partial payments might be a risky move, it is the best option in some cases. Just make sure to specify the amount and the repayment conditions.

Use the Security Deposit

The amount of rent a tenant pays depends on your situation as a landlord, but some landlords suggest charging a tenant’s security deposit or last month’s rent in the place of a missed rent payment.

However, this only works when handling a single month’s unpaid rent.

Communicate with Your Tenants

The financial burden of dealing with the pandemic has prompted many landlords to rethink their business models. To help their tenants stay in place, landlords often offer them a reduction in rent or other options to keep their tenants from moving out.

Waive Late Rent Fees

Landlords are waiving late fees on all kinds of payments so tenants don’t become overburdened. Just make sure to communicate in detail your desired policy on late rent fees.

Set Up a Rent Deferral Program

A few landlords have created rent deferral programs for their tenants. Landlords need to come up with different solutions for tenants who are eligible for rent deferral.

Economic Pressures Piling on Small-Scale Landlords

According to research by The Housing Crisis Research Collaborative, it’s clear that mom-and-pop landlords have been hit the hardest by the COVID-19 pandemic. The report shows that owners who recorded missing at least one mortgage, property tax payment, or utility in 2020 rose by 15 percentage points this year.

Without revenue, most small-scale landlords are forced to use their savings to cover property taxes, repairs, and even mortgages. But this approach just isn’t sustainable.

As a result, the number of small-scale landlords who listed their property for sale also jumped by 10 percentage points. Given the current red-hot state of the real estate market, more landlords are giving in to the option of selling and cashing out of the rental business altogether.

However, the buyers are not typically other investors, and the tenants are being pushed out by the sales.

The market is seeing a rise in institutional corporate landlords, and this shift could signal fewer entry-level rental options for renters in the future.

Together, these findings illustrate the burden of the pandemic on mom-and-pop-owned rentals, which can have a negative long-term impact on the viability and affordability of these units.

The Bottom Line

If you’re struggling with debt on your investment properties and the lack of a stable rental income flow is making things harder, selling might be the easiest option. However, if possible, just hold on a little longer.

You can apply for Pandemic Unemployment Assistance (PUA) or the $25 billion relief on behalf of your tenants.

And despite having to navigate the ever-changing legislation and COVID-19 safety regulations, the rental market is still a hot prospect for those looking to invest. If you’re looking to start investing in real estate, the time is now. Mortgage interests are low — historically low, in fact!

Do keep in mind that with great opportunities come great challenges and risks. As a real estate investor, don’t pass out on great deals but make sure to manage the risks and come out of the other side richer than before.