Landlords look for an exit amid federal eviction moratorium

NEW YORK (AP) – When Ryan David bought three rental properties in 2017, he expected the $ 1,000 a month he pocketed after spending money to continue to be a regular source of income well into his retirement.

He also counted on rental income from the Dupont, Pennsylvania real estate to support the cash flow of his business on buying and selling distressed real estate, which opened early last year.

But then the pandemic struck and federal and state authorities imposed moratoriums on evictions. The unpaid rent began to rise. Then, just as he thought the worst was over, the Centers for Disease Control and Prevention announced a new moratorium that lasted until October 3rd. A federal judge dismissed a legal challenge to the order last week.

David, the father of a 2 1/2 year old expecting another child, fears that the $ 2,000 he has in subsequent rent will quickly rise to thousands.

The latest moratorium “was the last blow to the stomach,” said the 39-year-old, adding that he now plans to sell the apartments. “I had this inner struggle that went back and forth. I didn’t sleep at night and have now made the decision to sell and go away. “

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Most unpaid rent evictions have been suspended since the early days of the pandemic, and according to the Aspen Institute, more than 15 million people now live in households owed up to $ 20 billion in back rent payments.

A majority of single-family home owners are affected, and 50% say they have tenants who missed out on rent during the pandemic, according to a survey by the National Rental Home Council.

Smaller landlords with fewer than four units, who often do not have the financing of larger property owners, were particularly hard hit. According to the National Association of Realtors, up to 58% of tenants are behind schedule. Smaller landlords account for more than half of the subsequent rents.

Landlords, large and small, fret the most about the moratoriums, which they consider illegal. Many believe that without the moratorium, some tenants could have paid the rent. And the $ 47 billion federal rental subsidy that was supposed to heal landlords has been slow to materialize. Of the first $ 25 billion tranche, only $ 3 billion had been paid out by July.

David points out two renters who received paychecks during the pandemic but did not pay rent or bothered to apply for rental support. Others selected defaulting tenants who they claimed could still manage to drive a luxury car, get grocery deliveries, or go on vacation.

“Without rent we are out of business,” says Gary Zaremba, who has sold 40 of his properties in Ohio due to the moratorium and a quarter of his tenants are still fighting for rent in the remaining 100 buildings. He said he helped some apply for rent allowances.

“It’s like a restaurant that has no guests,” he said. “I don’t get the rent. I can’t pay my maintenance staff. I have to take them off. I cannot repair the buildings and keep them in good shape. So that means they will be even worse off. I can’t pay my taxes. “

Zaremba, who also owns a handful of New York City properties, sold some of his single-family homes to homebuyers and some commercial apartment blocks to small investors.

Many landlords face tens of thousands of dollars in lost rent – money meant for retirement, college funds, or their investors looking for a safe place to invest themselves. They draw from credit cards or access savings to pay property taxes, salaries, insurance, water bills, and maintenance.

“I keep thinking to myself, when will my family get paid?” Said Matthew Haines, who and his wife own 253 units in the Dallas / Fort Worth area and owe more than $ 300,000 in re-leases. Of this, he donated $ 250,000 to collections.

The couple invested $ 50,000 of their own money to avoid laying off their seven full-time and three part-time employees. Haines also does repairs like fixing an air conditioner or changing pool lights itself to save money. Your investors, retirees, who usually get an annual return of 7 to 9%, got nothing from two apartment buildings last year and 3% from a third because of unpaid rent.

“We jumped through hoops to help our residents who were struggling. We haven’t evicted a single person who tried to work with us, even though we have people who owe us seven, eight, nine months of rent, ”he said. “We’re trying to do the right thing, but it becomes impossible.”

In New York State, Michael Reid sold three of his homes to contain losses after paying thousands of dollars to some defaulting tenants to leave. Reid had already paid more than $ 100,000 in re-leases on 13 of its 31 units and more than $ 20,000 in unpaid water bills. He finally received $ 9,000 in federal rental subsidies on Tuesday, a fraction of what he owes.

“I lost an incredible amount of money on top of my rent owed,” said Reid, who also works as a mortgage loan officer, referring to his defaulting tenants in Binghamton and Endicott, New York. “Thank god my job is paying off pretty well.”

Some owners are taking advantage of a red-hot housing market to sell their units to well-funded investors willing to wait out the moratorium or to families planning on living in it. Buyers are increasingly foreign investors or equity funds, who critics fear that they will renovate the properties and market them at significantly higher prices.

“Many landlords are outraged. You are selling at a loss. They’re getting out, ”Reid said of the dozen investors he speaks to.

Even those sticking to the real estate business say the moratorium forced them to change their business.

Some leave apartments empty for months, either because they don’t have the money to renovate or they fear being stuck with non-paying tenants. Some don’t buy new property while the moratorium is in place; others only buy in more affluent neighborhoods.

Still others are stepping up their screening process and checking someone who has been unemployed for a long time during the pandemic or who has charged their previous landlord with months of back rent payments.

“If someone has withdrawn their 12, 15 or 18 month rent from their previous landlord, I don’t want to rent to them,” Reid said.

This could mean that if the moratorium is lifted, fewer living spaces for low-income tenants will be evicted.

“That makes it worse for everyone. It’s worse for renters in particular because we’re going to lose affordable housing, ”said Stacey Johnson-Cosby, who owns 21 units in Kansas City, Missouri, with her husband.

“The investors will come. They will buy the property, put money into it, renovate it and rent it for a higher amount. “

Rick Martin tortured himself about it before selling two of his five buildings in the Dorchester neighborhood of Boston. Previously, the 62-year-old left most of them empty because of the moratorium, which withheld thousands of dollars in rent.

“The moment they passed the moratorium, that triggered my decision to sell the property,” said Martin. “I didn’t want someone to move in that I could never get rid of if they didn’t pay rent. That would worsen the financial situation. “

Martin said he was torn from the decision to sell to investors. One turned a building into condominiums. Another has already doubled the rent for a three-family house.

“To be honest, it’s a very difficult decision,” he said. “I want the small property owners to thrive and grow. But because of this moratorium, everything will be cut away from under our feet. “

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