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Anna Johansson
Anna Johansson
Articles (38) 

As Prices Fall, Small Landlords Face an Investment Conundrum

Buy or sell? Small landlords consider next steps under pandemic pressures

July 12, 2020

At the start of the Covid-19 pandemic, as cities entered lockdown to stop the virus’ spread, many mayors announced there would be an eviction freeze. It was a sensible step – with many people out of work or facing reduced hours, the risk that people would fall behind on their rent was unusually high. As the crisis continues to wear on, though, the problem has become more significant. Unemployment rates are still high, and eviction moratoriums are making it hard for small landlords to make ends meet. It raises the question: how long can this last? And how should small, independent landlords navigate this moment?

The wealth divide

One of the major reasons that cities chose to freeze evictions at the start of the pandemic is that independent landlords – people who have chosen to invest their money in real estate – aren’t a big part of the industry. Rather, the majority of rental properties are owned by big corporations who can afford to take the financial hit, but who are less likely than individual landlords to extend flexibility or kindness to their tenants. They’re also more likely to rent to low-income tenants at a time when our nation’s wealth divides are being laid bare.

Market troubles

Dealing with late payments and tenants who are in debt and at risk of eviction is a common problem for landlords, but under ordinary circumstances they have recourse. They can evict the tenant, go to court or negotiate a repayment plan. Now blocked from evicting those tenants who are behind on rent, they have two options: stick it out and go into debt themselves or try to sell their properties.

Many small landlords are considering this latter option. Having invested in rental properties to increase financial stability, the pandemic has left them in a financial hole. But the problem has magnified itself because it’s a buyer’s market right now. If investors try to sell, they’ll likely have to settle for a much lower price than they would ordinarily get for their investment. Meanwhile, their own bills are still coming due. For example, landlords still have to pay property taxes, even if their tenants can’t make rent. This may not be a problem for those big corporations that owns hundreds or thousands of units, but for small landlords renting out a few multi-family properties, the situation is untenable.

An investor’s market

The fact that we’re currently in a buyer’s market may not be good for current owners, but the pandemic may represent an opportunity for those who are interested in investing in single-family rentals. Mortgage rates are historically low, home prices are down because of the recession and new buyers are unlikely to see prices like this again any time soon. Unfortunately, a good time to buy is not a good time to rent, creating an unbalanced situation.

No good options?

Neither tenants nor landlords are in a good place right now, but the reality of the situation is that everyone needs help – and it needs to come from the top down. But while tenants are protected by eviction freezes, at least for now, small landlords are still being called on to pay mortgages and taxes, do repairs and otherwise front funds they don’t have.

Landlords do need to be prepared for difficult circumstances, but no one could have predicted the current crisis. As such, most don’t have the financial reserves to cope with a long-term eviction freeze or non-payment of rent. Meanwhile, any small investor considering getting into the housing market needs to take similar future crises into account. This is a moment of serious flux for the real estate industry, and everyone should be paying attention.

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About the author:

Anna Johansson
Anna is a freelance writer, researcher, and business consultant. A columnist for Entrepreneur.com, HuffingtonPost.com and more, Anna specializes in entrepreneurship, technology, and social media trends. Follow her on Twitter and LinkedIn.

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