COVID-19 Drives Collection of Rent Down, but Landlords Carrying the Burden May Have Another Option

By Margaret Jackson Friday, December 4, 2020

As the pandemic rages on and people lose their jobs, landlords across the country are in a tough position when it comes to collecting rent.

A nationwide ban on evictions lasts through December 31 for tenants who are behind on their rent, giving landlords little recourse for nonpayment. Landlords can only evict tenants who in some way violate the lease or cause damage to the property, said Nathan Miller, president of the Oregon-based property management software provider Rentec Direct.

“Most landlords are hunkering down and waiting for this to end,” Miller said. “One of the worries among landlords and the banks that are financing all of these properties is that tenants are accruing big debt. On January 1, rent will come due and they have three months to make it up. But if they’re not paying rent right now, they’re probably also not putting the money in the bank. If tenants are choosing not to pay rent, less than 1 in 1,000 are putting that rent in the bank.”

Tenants could find themselves faced with a hefty debt. If rental payments were $1,200 a month, for example, a tenant would owe the landlord $14,000 by January 1, Miller said.

“When they made these moratoriums, they envisioned these cases going down,” said Miller, adding that he anticipates the ban on evictions will be extended for another six months.

Even if banks are willing to defer mortgage payments, there’s no guarantee that property owners will be able to make them up if they lose tenants or tenants don’t pay. That, Miller said, will result in foreclosures.

“There’s no question there will be a large rise in foreclosures,” Miller said. “It will probably be next summer when we start seeing that.”

Blame Job Loss

In a recent report, Rentec examined the impact of the COVID-19 pandemic on rent payment behavior during the month of November. It found rent payments received by landlords and property managers in November were 27% lower than rent payments received in March prior to the onset of the pandemic in the United States.

The main reason people aren’t paying their rent is that they’ve lost their jobs or they’re in the service industry and their income is unreliable, Miller said. But even if they haven’t lost a job or income, many tenants are still not paying because they don’t have to — there are no guidelines around how much impact COVID-19 has had on someone in order to qualify for the moratorium, Miller said.

“The only thing a landlord can do is contact their bank and say they’re not receiving rental income,” he said. “They still have property taxes and maintenance and utilities,” There hasn’t been anything to require those expenses to be easier on landlords.”

It's not surprising that landlords and property managers are having trouble collecting rent, said Denver-based economist Ryan McMaken. The US Department of Labor recently reported that more than 8 million Americans are collecting Pandemic Unemployment Assistance in addition to the 6 million people collecting ordinary unemployment insurance payments.

“The employment situation is not great,” McMaken said. “While these payments are no doubt helpful to the household budget, in many cases, the payments may not be enough to keep rent payments coming in at the usual levels."

The Rentec report also found that rent payments received online are up 1.8% from March, leading to the conclusion that online rent payment options increase the likelihood of people paying rent. According to the report, landlords and property managers’ interest in collecting rent online has grown 4% since February.

“Tenants don’t want to drive to the landlord’s house and hand them cash or a check,” Miller said. “Being able to do it from their phone or computer has really taken off this year. Less than 20% of renters are unwilling to pay online these days.”

Online payments also help landlords because tenants prioritize where they spend what income they have, McMaken said.

“If rent payments can be made easily online, a tenant is probably more likely to make that payment before heading to the grocery store where there may be more flexibility in reducing total spending by switching to, say, chicken instead of beef,” he said.

About the Author

Headshot for author Margaret Jackson

Margaret is an award-winning journalist who spent nearly 25 years in the newspaper industry. She has covered a variety of business topics, including residential and commercial real estate, technology, telecommunications, and cannabis.

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