[REN #884] COVID-19: Rent Defaults & Collection Success

COVID-19: Rent Defaults & Collection Success, Real Estate News for Investors Podcast Episode #884

Rent default reports are coming in and they are not as bad as some headlines might lead you to believe. You may have seen reports that 30% of renters were unable to pay their rent in April because of pandemic-related lay-offs and furloughs. But that’s somewhat misleading. There has been an increase in defaults, but it’s not 30% above normal. In this podcast, we’re going to take a look who’s paying, who isn’t, and what landlords can do to increase rent collection while they also help tenants survive this crisis.

NMHC Rent Collection Report

One report that we’ve seen recently comes from the National Multifamily Housing Council. (1) It tracks rent payments for about 13.4 million multifamily rental units. It doesn’t include data for subsidized housing, public housing, or single-family rentals, however, and they account for another 34 million or more units in the U.S.

This multifamily report shows that 69% of the tenants paid their April rent by the 5th of the month, which is considered “on time.” That’s a 12% decrease from the previous month. The headlines would lead you to believe that rent defaults skyrocketed from 0 to 30%, but they didn’t. They went from 81% in March to 69% in April. That’s still not a desirable outcome, and the numbers could get worse.

NMHC President, Doug Bibby, said in a statement, “It is important to note that a large number of residents met their obligations despite unparalleled circumstances, and we will see that figure increase over the coming weeks.” But there are ways to improve the outcome. Bibby attributes more successful rent collection to proactive measures taken by landlords and property managers to communicate with tenants and set up payment plans.

Survey on Rent, Mortgage Payments

Apartment List also conducted a survey that pertains to all renters and homeowners with a mortgage. (2) It found that 1 in 4 Americans who pay rent or home loans were not able to fully meet their obligations in April. The survey shows that 13% of renters paid only part of their monthly rent, while 12% paid nothing at all. The numbers are about the same for homeowners: 11% made a partial mortgage payment while 12% did not pay anything.

Apartment List says, during a normal month, the numbers are much lower. For renters, about 3.9% are delinquent. Mortgage defaults have been even lower than that. Population density appears to be a factor in the current situation. Renters and homeowners who live in dense urban areas where social distancing is more difficult are having a harder time.

What’s Happening in Indianapolis

At RealWealth, we have been interviewing property managers within our network who focus primarily on single family homes and some two-to-four-unit buildings. Rent collection appears to be going well so far. The Indianapolis Property Management Team manages 751 single-family homes, and by the end of the day April 5th, they had collected rent from 70.2% of the tenants. But the 5th was a Sunday, so by Monday, the percentage jumped to 77%. And by April 13th, it was up to 86% which is just a bit lower than normal. Those numbers also include some partial payments from tenants reporting a hardship. There were 31 total hardship cases by April 13th.

The Indianapolis team says, most tenants are paying on time or will pay at a later date with a late fee. They are not advertising the elimination of a late fee because the imposition of a late fee motivates tenants to pay on time. But, in true hardship cases, that late fee may be waived. They are trying to keep ahead of defaults by asking tenants to contact them immediately if there’s a problem so they can work out a payment plan. They want to help tenants as much as they can but they also have an obligation to collect rent for the owners. As for the month of May, they think it will be about the same as April.

What’s Happening in Houston

The property management company from Houston said 84.5% of tenants paid their rent by the April 5th deadline. That’s down about 10 percent from the norm of 95%. By April 13th, property managers had collected 90% of all rents. They say that most of the impacted tenants have reduced hours but are still working so they are offering payment plans in which tenants can pay half by the 10th and the other half by the 25th. Tenants were apparently happy about that because they could pay the rent out of two paychecks.

The Houston team manages approximately 1,300 tenants and just four have requested a rent deferral. Tenants who ask to postpone their rent must also provide documentation showing why they are experiencing a hardship. So far, none of those four have supplied those documents so it’s not clear if they are true hardship cases. Property managers also have another incentive program in place for the months of May and June. Tenants who pay by the 20th of April will get a 10% discount for May. The same discount will be applied to June if tenants pay by May 20th.

What’s Happening in Jacksonville

The Jacksonville property management team is also doing well with rent collection. They manage more than 2,000 doors. Rent collection hit 70.4% on April 5th and rose to 85.4% a week later, by April 13th. Property managers say this is not uncommon. They normally see 97% to 98% of the rents paid by the end of the month. This month, they expect to see 96% to 97%.

They have also been reaching out to tenants in a variety of ways, including a monthly newsletter, messages in an online portal, and additional correspondence related to the pandemic. They make daily collection calls and will provide payment pickups for tenants who need that kind of assistance.

Impact of Extended Pandemic

If the stay-at-home orders continue, it may become harder for people who can’t work to pay rent in the coming months, so that could be an issue. Affordable housing advocate, Priscilla Almodovar of Enterprise Community Partners told CNN, “People were working in March. April rent may have come from their savings. The rent check is probably the first thing they pay. Now they may be unemployed, and we don’t know what resources will get to them in time for May.”

The Apartment List survey does show that 79% of renters believe they can pay the rent in May despite being unemployed. That percentage drops to 55% if renters don’t get a paycheck for two months in a row. Only 28% said they can pay rent without three months of income. It doesn’t appear that those responses take into account any unemployment or stimulus checks which will help improve the outcome. Tenants may also be able to pay partial rent. The association will update rent collection data for each week with results posted on Wednesdays.

Rent Collection Help for Landlords

If you are worried about collecting rent in these uncertain times, checkout 8 Tips for Collecting Rent During the Coronavirus (COVID-19) Pandemic. It was put together with advice from a landlord/attorney who manages five multi-family buildings and restaurant space in the Los Angeles area. He’s someone who wants to do the right thing for his family business as well as his tenants. It’s a position that many landlords and property managers are faced with — how to do the right thing for both tenants and landlords.

Links:

(1) National Multifamily Housing Council

(2) Apartment List Survey

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