As much as we talk about our changing world's new realities, let's face it: the real estate industry has always been slow to adapt. As we look at the challenges landlords and property managers face going into Q1 of 2021, the new normal is accepting and adapting to change. What challenges ahead do property managers and landlords see on their Q1 radar?
Here are the four significant challenges landlords and property managers face.
In March 2020, the federal government introduced an eviction moratorium to help tenants keep their housing as job losses mounted and many parts of the economy cratered. Initially set to expire at the end of 2020, this moratorium now extends through the end of January 2021. How have property managers and landlords responded to this business shock?
As we've seen in areas like San Francisco, market rents have plummeted since March of 2020. According to the City of San Francisco, this will continue. In a rent board post on 1/13/21, they said, "At the local level, the Mayor of San Francisco has issued several Orders enacting a temporary "Eviction Moratorium" due to the COVID-19 pandemic.”
“In short, the Mayor's Eviction Moratorium provides an extension on rent payments for tenants who have been financially impacted by COVID-19 and temporarily bans most residential evictions. The San Francisco Mayor's Office of Housing and Community Development (MOHCD) has developed binding "Rules and Regulations for Tenants and Landlords" that implements the local Eviction Moratorium.”
“The San Francisco Board of Supervisors also passed an ordinance (Ordinance No. 93-20) that permanently protects tenants from eviction for non-payment of rent that was unpaid due to COVID-19 if the rent became due between March 16, 2020, and September 30, 2020.”
“On August 31, 2020, after the local COVID-19 eviction protections went into effect, Governor Gavin Newsom signed AB-3088, also known as the "COVID-19 Tenant Relief Act of 2020". AB-3088 is a statewide law, which provides in part that residential tenants who are unable to pay rent due to COVID-19 cannot be evicted (now or in the future) for unpaid rent that became due between March 1, 2020, and January 31, 2021, if specific requirements are met. However, the landlord may seek collection of the unpaid rent in small claims court beginning on March 1, 2021.”
With reduced operating income from rent, property managers and landlords have compensated for rental losses by supplementing payments for mortgages, utilities, insurance, and other operating costs with funds reserved for major expenditures or from other out-of-pocket sources. This rent shortfall hits self-managing landlords particularly hard as many live off the money along with operational costs. Unless they had reserves to pay the mortgage, they could be in danger of foreclosure.
Tenants unable to pay rent can still apply for assistance if their hardship is due to the pandemic. They need to complete the tenant declaration form on the CDC website and submit it to their landlord. But starting in February, landlords and property managers will be able to start collecting back rent. And unless there's a local or state moratorium in place (as in California, Delaware, Washington D.C., Hawaii, Mary-land, Minnesota, Nevada, New Jersey, New Mexico, New York, Ore-gon, Vermont, and Washington ), landlords can resume evictions.
Self-managing landlords who have mortgages through the FHA will also have to hold on a little longer before they can seek eviction for non-paying tenants. The FHA has extended eviction bans for any property secured by FHA-insured single-family mortgages through February 28, 2021.
Increasing Repair Costs
With new business policies and quarantines keeping tenants stuck at home – or working from home indefinitely – they are taking note of small inconveniences or repair needs they may have disregarded in the past.
Landlords and property managers report more calls about wear-and-tear maintenance requests that tenants are no longer willing to overlook. This has caused many landlords and property managers to spend more time face-to-face with tenants, which is extra time they are one the job. It has also caused repair costs to go up as people are de-manding repairs now.
New Safety Concerns
Early on in the pandemic, landlords and property managers struggled to meet needs for tenant and staff safety. Ensuring safe buildings and living environments were also a concern. Managers had to rush to find protective equipment, safety signage, and install hand sanitizer stations. Tenants are now often in the buildings around the clock. Landlords and property managers have incurred considerable costs to put extensive processes to keep everyone safe and keep buildings clean.
Property managers and landlords have created checklists for better maintenance. One example from the Ohio Department of Health recommends:
- More frequent cleanings in high traffic areas and for points of contact like door handles and elevator buttons.
- Installing touch-less bathroom fixtures like automatic faucets, auto-flush toilets, and hand dryers.
- Smart technology for automatic doors with key fobs or smartphone access.
- Limitations for gatherings in common ar-eas and cancelation of most events and meetings.
- Cleaning HVAC systems and adding improved air purification systems.
While no one can argue with improved sanitation and safety measures, these new procedures come with a cost. These additional expenses come into play at the same time rent collections are low. This necessity is likely to continue creating a cash crunch for landlords and property managers.
The National Landlord Association ran a survey of more than 40,000 landlords who reported that most tenants paid rent on time or within the grace period in 2020. Other information from the National Multifamily Housing Council (NMHC) indicated an increase in outstanding rent from 1.9% to 4.5% for the year.
According to the survey, tenants who used an online portal were much more likely to make timely rent payments; 92% of online payments came in on time, vs. only 55% of other payments. Landlords and property managers who implemented online payment systems saw minimal losses.
Property managers and landlords also adopted new communication tools to stay in touch with tenants and communicate important safety procedures. They have used texts, emails, and even social media to keep in touch with their tenants.
Overall, landlords found tools available through their property management software. The software has helped tenants pay on time and keep up with communication.
Property managers and landlords implemented another significant technology in the form of virtual tour platforms for showing properties. Most tenants expect to tour a property before they rent. Videos for virtual tours have helped meet these needs safely, without contact.
What do these operational shifts mean for 2021?
The NLA survey asked landlords about their expectations for 2021. While 2020 has been hard on everyone, the survey group expressed optimism about the rental market in the year ahead. 66.1% see stable demand for rental property, and 60% plan to look for additional rental properties to purchase in 2021.
Rentometer data shows lower year-over-year rents in 4 major U.S. rental markets, while rates have held steady others. We tracked the markets in Chicago, San Francisco, Washington D.C., and Los Angeles through all of 2020; you can visit that article here.
To help landlords and property managers set accurate, market-based rental rates, including challenges caused by the virus due to regulations and new operational procedures; we've started a new article and guide series called "Your Rent Setting Pricing Guide."
This article was written by the Rentometer Content Team. The Rentometer Blog features fresh takes and insights on rental housing topics, services, and technology. If you liked this article, subscribe to Rentometer's email newsletter to stay up-to-date on the latest trends in rental housing.