Found this article by Tamar Hermes over at Bigger Pockets. I think Tamar does a good job at point to some of the factors investors ought to be keeping an eye on. Give it a read and see if you find it useful:

Whether you have one or 1,000 doors, every property owner has been watching rents like a hawk these past few months.

March through June 2020 did not show a dramatic change for rental payments. But according to Zillow, July had a dramatic increase in tenants who could not pay. Based on specific indicators, that increase in nonpayment will continue to grow.

“During the first week of July, 22.6% of U.S. apartment households did not pay any rent. That’s up from 19.2% from the first week of June and higher than in any month since at least March. By July 13, the share of renters that hadn’t yet paid fell to 12.4%, 2.5 percentage points higher than the same period last year,” said Zillow.

There are multiple factors to consider here.

Unemployment & Assistance Programs

While the U.S. Department of Labor reported that nonfarm payroll employment rose by 1.8 million in July, and the unemployment rate fell to 10.2%, unemployment numbers are still over 10% and many are still out of work since the world shut down in March. According to Pew Research Center, in the first three months of COVID-19, unemployment rose higher than it did in two years of the Great Recession.

One of the most significant factors in the increase of non-payments is that the government surplus that had provided an additional $600 a week for unemployment since March ended at the end of July.

The fact is two million people continue to apply for unemployment benefits weekly, and it’s estimated that half of all U.S. households have lost income during the pandemic. The numbers are staggering, and it will take time to rebound.

Related: My Tenant Lost Their Job – Now What?

Without the $600 surplus, unemployment will continue, and checks will not be enough to pay the bills. Unemployment benefits vary from state to state and depend upon income. For example, in Hawaii, the weekly benefit could be as high as $648 or as low as $5!

For the past few months, rent payments have been coming in steadily with only slight declines due to government assistance. For homeowners, banks offered mortgage deferrals.

An article by Spendmenot revealed some eye-opening statistics about the amount of money Americans have. Go BankingRates stated that 69% of adult Americans have less than $1,000 in a savings account. Furthermore, Spendmenot reports show that, “More than two-thirds of Americans have less than $1,000 saved up. Worryingly, the majority of those with less than $1,000 in savings have no savings at all. Around 45% of adult Americans were unable to save any money in 2019.”

If you are out of work, getting little unemployment without a surplus, and have no savings, you will likely not be able to pay your rent.

Many were desperately in need of that extra money. Single parents and low-income households were saved by the $600 bonus that ended at the end of July. According to an article by CNBC, “millions will fall off an income cliff,” when the $600 bonus ended.

Eviction Laws

In addition to the $600 addition to unemployment, the CARES Act surplus package added an inability to evict any tenant for lack of payment for an extended period. Some states may extend that time, but when the moratorium on evictions expires in several states, if rents aren’t current, tenants will have to leave their homes. The current deadline is Monday, August 24.

The extensions and policies regarding evictions granted vary by states and cities. California has been one of the most aggressive to protect tenants and extended the no-eviction moratorium until September 30. Whereas Texas has not extended the deadline evictions, the city of Austin has pushed to September as well.

A Florida Phoenix headline says, “With no moratorium in place for FL renters, ‘We expect a tsunami of evictions.’” Evictions for nonpaying tenants are going to create a flurry of people needing to find other places to live. Most tenants who have been served an eviction will not have an easy time finding another home as they will have a poor mark on their applications.

Related: 6 Unacceptable Landlord Behaviors (And How to Fix Them for Higher Returns)

Also, since states will receive a tremendous number of eviction requests, it will likely take longer to execute an eviction. The time spent waiting for the eviction means more time for landlords without a payment.

Additionally, once tenants leave, there will be an expense associated with getting the place ready to rent again, including cleaning and paint at a minimum. It takes more time to screen tenants now since, at any time, eviction rulings by the government can be enforced and make having a nonpaying tenant a significant liability.

On the bright side, according to Zumper National Rent Report, rent prices are still going strong in most areas. Because there are even more renters in need of housing than houses, it seems that landlords can find tenants, but they will have to rely on reserves to manage any unforeseen events with a nonpaying tenant.

Landlord Impact

While some full-time investors own several properties and units and can offset the dip in rents, many mom-and-pop landlords own just a few properties. These landlords are already starting to face financial hardship. Many landlords with a few properties rely on the income to pay their bills, and Zillow reports that, “An estimated 53.8% of rental income is typically spent just on fixed costs of property ownership that landlords are responsible for.” (Think mortgage payments, property taxes, maintenance, insurance, and capital improvements.)

Not receiving rents for an extended period will hurt these landlords to the point where they may default on their mortgages. Even if some have no mortgages on the properties, there are still unavoidable expenses. For example, home insurance is not optional, and as catastrophic natural disasters are on the rise, so are the rates.

Forbearance is not forgiveness, which means you need to pay your loan amounts regardless of whether your rents are received. A saving grace at this time is that refinances are at an all-time low, so it could be possible to change the terms of the loan to interest-only or get a lower rate using an adjustable-rate mortgage.

One of the reasons we have not seen many foreclosures is that the moratorium protecting homeowners in CARES “prohibits the initiation or enforcement of foreclosure of any residential or commercial mortgage for nonpayment of a mortgage where the property is owned by someone that is eligible for unemployment insurance or benefits under state or federal law or otherwise facing financial hardship due to the COVID-19 pandemic. Order is effective for a period of sixty days beginning on June 20, 2020.”

If a landlord falls too far behind in payments next month, they may need to end up selling at a discount or default on their loans without further protection from the government.

No one can predict how the future of the real estate market looks. Many investors have been waiting for years for this sort of shakeup, and the good news for them is that their payday will be coming soon. The bad news is that the fallout could further shrink the middle class and those struggling to make ends meet. As always, there is one solution that we all can do to avoid these struggles.

Keep saving your money and be ready to start buying the deals when they come around.