End Of Eviction Moratorium Doesn’t Mean Salvation For Minor Landlords

Date: 08/26/2021
Author: Mr. X


In a 6-3 decision announced late Thursday night, the Supreme Court blocked President Joe Biden’s eviction moratorium. Originally scheduled to expire in early October, the president’s order was an extension of a previous moratorium imposed by the CDC.

What is surprising is not the Court’s decision, but that 3 justices dissented. Even the Biden Administration essentially admitted that what it had initially done was unconstitutional. “The bulk of the constitutional scholarship says that it’s not likely to pass constitutional muster,” President Biden said. “But there are several key scholars who think that it may and it’s worth the effort.”

I suppose this is the “do whatever you want” school of jurisprudence. As useful as this might be for politicians, it was catastrophic for many property-owners. Those who bore the largest cost were small property owners, so-called “mom and pop” landlords who rely on one or a few properties for their income.

Stripped of the ability to evict tenants who don’t pay, small landlords face ruin because they must continue to maintain their properties and pay taxes. The group of landlords who filed the successful lawsuit said that America’s landlords were losing about $19 billion a month.

However, just because the eviction order is over doesn’t mean that small landlords will finally get some relief. About 6 million households were behind on rent as of June this year. There are programs that provide relief for some tenants who can’t pay, but there’s nothing mandating that renters take advantage of them. As a result, individual investors, who comprise the vast majority of American property owners, still face staggering debts with no promise of repayment.

They will now have the power to evict nonpaying tenants, but even this may be a costly process. In June of this year, the Urban Institute estimated that it would cost landlords nationwide somewhere between $2.6 to $4.6 billion to evict tenants – and that’s on top of far greater amounts of lost rent and property repair expenses.

Yet small landlords are in a weak political position. They are wealthy enough that many people find them completely unsympathetic, even if they are financially drowning. “End rent” is a popular political slogan.

On the other hand, they don’t have the vast financial resources and connections necessary for lobbying and political protection in Washington DC. For example, billionaire financiers are not especially popular, but there’s little risk that Congress is going to crush the people they depend on to fill campaign coffers.

Even anger against the extremely wealthy, the very class that has gained the most from the pandemic, is something abstract. You can be vaguely mad about “billionaires” or something, but it doesn’t mean very much. However, you might hate the person you have to cut a check to each month. It’s not something small landlords enjoy dealing with. For that reason, start expecting them to sell out.

Small landlords won’t be saved by the end of the eviction moratorium. They will now have to deal with the costs of court procedures, repairs, and personal troubles with tenants who can’t or won’t pay.

However, small landlords can now sell their properties to larger property management companies who do have the resources and connections to quickly kick out nonpaying tenants and find replacements in a booming real estate market. The housing shortage will not end anytime soon.  Whatever short-term expenses companies suffer from expanding their holdings are nothing compared to the potential gains.

For that reason, now’s the time to be looking at the major real estate interests who could use this as an opportunity to get even bigger.

One major company to look at is Blackstone [BX], a massive conglomerate that is one of the largest players in American real estate. However, you might also want to consider companies that specialize in running single family homes as rental properties.

Candidates here include Invitation Homes [INVH], American Homes 4 Rent [AMH], and New Residential Investment [NRZ].

Also look at the companies buying up housing and land in your own neighborhood. Taking personal interest in an investment choice and seeing what they are buying will improve your odds of success. It gives you a better feel for how the company operates, the capabilities of their staff, and the extent of their ambitions. It’s information that you can’t get just from crunching numbers.

Yesterday was a victory for property owners – but it will only be a lasting victory for major property owners. Barring policy changes, the days of the small-time landlords are coming to an end. We can cheer or mourn this. But as investors, you should side with the class that is winning the battle.

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