The federal eviction moratorium ran for approximately 18 months, from early 2020 to late August 2021. federal eviction moratorium has expiredMany cities and states continued to prevent landlords from enforcing their lease contracts.
some cities went so far as to use Federal tax dollars to give free legal aid to tenants To fight legal evictions long after the moratorium ends. And that too after taxpayers almost paid for it 10 million rent assistance paymentsHowever, months later it did good to many landlords.
But he’s after us, isn’t he? will never happen again?
I do not believe so. The precedent has been set, and an eviction moratorium is now in the government’s workbook. When it becomes politically expedient to do so – and it will, sooner or later – politicians will pay off that card again.
It even makes a kind of esoteric meaning. More than a third of the US population are renters, while a smaller fraction are landlords. And one of those groups is politically sympathetic, while the other is infuriated.
Five years ago, no real estate investor would have considered the eviction moratorium a risk. Today, you must factor this into your investment calculations as another risk and take steps to mitigate it.
As you invest going forward, keep in mind the following options to reduce your exposure to lease agreements that can only be enforced by tenants.
1. Invest in commercial real estate (though not office)
The pandemic-era eviction moratorium only applies to residential leases. Commercial investors can still enforce their leases.
And no, it’s not just office space, with all of its current problems, this also includes self-storage facilitiesindustrial real estate, retail spaces, hotels and hospitality, restaurants and bars, and beyond.
Of course, each of those subcategories comes with its own unique risks and rewards. But one risk they don’t have is an eviction moratorium or the government handing over money to tenants to fight legal evictions.
2. Buy Rent Default Insurance
A relatively new option in the US, landlords can now purchase rent default insurance, which kicks in if tenants default and pay rent, at least up to a point. Most policies impose a limit on the number of months rent can be paid while the landlord evicts the previous tenant and finds a replacement.
Some companies even structure these so that the tenant pays for the policy, not the landlord. The insurance company bundles it with damage insurance, which is designed at the tenant’s location. security deposit,
It helps you sleep at night knowing you’ll collect your rent even if the tenant stops paying.
As a final point, note that you need these policies before the storm hits. During the eviction moratorium, some insurers stopped underwriting these policies. Don’t just assume you can be evicted and buy a policy only if there is another eviction moratorium.
3. Report the rent to the credit bureaus
Even if landlords cannot enforce their lease contracts, they can at least ensure that future landlords and creditors are aware that tenants have defaulted and are a credit risk.
Reporting rent payments to credit bureaus creates both a carrot and stick, rewarding responsible tenants while punishing bad actors. This adds another layer of accountability for paying rent, another consequence of default beyond eviction.
4. Invest in a high-income neighborhood
there is relationship between income and credit, Even if no one likes to talk about it. The higher the socioeconomic class, the more people are involved in the banking and credit markets. In turn, consumers also take more care of themselves credit history,
Fewer high-income tenants defaulted during the pandemic eviction moratorium. You can offer lots of explanations for this, such as the easier transition of knowledge workers to remote work, but the fact remains that higher earners take better care of their credit in good times and bad.
5. Screen for government subsidized rent
You can also take advantage of renting to low-income tenants whose rent is paid for by the government.
i have my share bad experiences with section 8, But I’ll say this for them: They didn’t default on rent during the eviction moratorium. The same goes for other government agencies that subsidize rent for various niche recipients.
There are of course other risks with subsidized tenants, such as property damage, costly repairs from annual inspections, red tape, and difficulty removing bad tenants. But at least you don’t have to worry about rent defaults.
6. Avoid anti-landlord cities
I will never again invest in “renter friendly” cities.
I’m originally from Baltimore, and I cut my teeth there as a real estate investor. The laws are so anti-investor that I sold all my assets and never looked back.
For example, it once took me 11 months to evict a non-paying tenant. And that was years before the pandemic’s eviction moratorium. Other anti-landlord regulations include:
- Expensive rental registration and U&O inspection.
- Require that landlords renew lease agreements almost without exception.
- Laws requiring landlords to store tenants’ abandoned junk.
- Expensive state level lead paint inspection and registration.
Baltimore City doesn’t like landlords, that’s their prerogative. And they live with the result that seasoned mom-and-pop homeowners pull it off quite a bit. This leaves novice landlords who don’t know what they’re doing and corporate landlords with the resources to navigate the choppy waters of anti-landlord regulation.
tenant friendly state And cities were quick to enforce their own eviction moratoriums during the pandemic and slow to lift them long after the federal moratorium ended. If there were to be a deep recession tomorrow, I wouldn’t hold any of these cities or states to enforce an eviction moratorium.
7. Operate short term rentals
If you operate your rental property as a hospitality business, the eviction moratorium does not apply.
Consider investing in the high-yield vacation rental markets. Ideally, you want to buy properties such cash flow as well as a vacation rental or as a long-term rental, a strategy offered in case a contingency is weakened by regulation.
Of course, you’ll need to operate the property as a short-term rental before the eviction moratorium kicks in. Once an eviction moratorium is declared, you’re stuck with any long-term tenants living in your properties until they leave voluntarily.
final thoughts
In unaffordable cities without enough new housing construction—like, San Francisco—lawmakers have been quick to throw every regulatory solution behind reinforcing tenants other than actually fixing the problem by adding new housing supply. Rent controls, rent stabilization, restrictive security deposit rules, lease renewal requirements for landlords (but not tenants), and a dozen other regulations all create an anti-investor environment.
This regulation continues to increase along with affordability problems in these cities and states. with about half Millennials are giving up food to try to buy housingI don’t see any end to this cat-and-mouse game, with anti-landlord regulators using every trick in the book to pacify irate tenants.
You may choose to live in these cities yourself and there is nothing wrong with that. My brother loves living in Los Angeles, and it suits his politics. But that doesn’t mean he buys rental property there, and you, too, should think twice about protecting yourself against government interference in rental markets, both present and in the future.
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Note by BiggerPockets: These are the views expressed by the author and do not necessarily represent the views of BigPockets.
