Founder, CEO of Blue Lake Capital LLC. Helps passive investors grow wealth through real estate. Podcast Host: Ready2Scale. Mentor.
In August 2020, President Trump issued four executive orders after the Congress, and the White House couldn’t come to terms on an unemployment relief package to follow the CARES Act that expired at the end of July. Until that time, unemployed Americans were receiving an additional $600 per week in federal unemployment aid in addition to their state unemployment, which many Republican lawmakers were concerned was an incentive to not return to work. Democrats in Congress still wanted to maintain the $600 figure on top of state aid for the millions of Americans out of work due to the pandemic.
Ultimately, one executive order was issued by President Trump, along with three memorandums. The executive order that Trump signed extends unemployment aid by $300 per week to the unemployed living in states that sign up for the new program. Originally it was set at $400, with the states picking up 25% of the cost, but it was revised to $300. Only a few states have joined in, and according to an FAQ published by The Washington Post, many are still deciding whether to sign on or not.
Included in these orders are a number of impacts on renting households.
Payroll Tax Cuts
For individuals making under $104,000 per year, Trump is asking the U.S. Treasury to defer collecting payroll taxes through December 31. It will provide workers with a “tax cut” because they will have larger paychecks temporarily. The taxes will still be owed and due at a later date, unless they are made permanent by Congress. Because those taxes fund Social Security and Medicare, it’s pretty unlikely this will be permanent.
Evictions Are Now Allowed
For approximately 110 million renters in the United States, Trump’s executive order called for Treasury Secretary Steven Mnuchin and Housing and Urban Development Secretary Ben Carson to try to find funds that will help renters. It doesn’t provide any more money, nor does it extend the federal moratorium on evictions that expired on July 25. The moratorium only applied to renters who were living in properties that had a federally owned mortgage. Some states kept eviction moratorium for a few more months, while other states have not renewed it.
So, how does this affect landlords? Prior to the pandemic, evictions averaged 3.6 million per year, according to The Washington Post‘s FAQ. Housing advocates and researchers reportedly say there are currently 30 to 40 million renters who are at risk of being evicted over the coming months. With no outright eviction ban, landlords are free to start the eviction process and force nonpaying tenants to move out. On one hand, more empty units that don’t generate income might seem like a negative impact on investors and landlords; however, if tenants are not willing or can’t pay their rents, every month that passes by is another month their apartment is not generating cash. Landlords could bring in a new paying tenant and start collecting rent.
As a landlord, I see how this is a positive move: I can turn a losing unit into a profitable unit. But tenants are not doors, nor are they another item in my property’s bottom line. They are humans. And this is a tough decision to make. I tend to work with nonpaying tenants who show a history of paying on time prior to the pandemic by implementing a payment program. But I am less inclined to do the same with tenants who have been avoiding my staff or who were not paying even before the crisis hit. Some owners are covering nonpaying tenants’ moving expenses and waiving rights to collect so they can bring in paying tenants.
A Break For Students
Another memorandum addressed student loans held by the government, asking for a deferral until December 31. This temporarily helps provide some relief to renters who have student debt, but principal payments on the loans are still due on December 31.
This deferral may help a group of renters who juggle student loan payments, rent, living expenses and more, as they are the ones who often work in low-paying jobs. Grocery prices have spiked in recent months and are predicted to continue rising, so any additional take-home pay would be welcomed. As an investor I try to avoid assets with a large concentration of students, since they tend to leave more frequently and don’t always have a steady job. However, alleviating the burden off of students’ shoulders, even for a few months, can make a direct impact on their ability to pay rents.
So Where Do We Go from Here?
Many are hoping that Congress can work out a deal so that those who remain unemployed will have enough money to live on. An additional stimulus check would certainly help tenants pay their rents on time. Unfortunately, it could take time to reach an agreement, and there are currently no negotiations going on.
In addition, because there are expected to be legal challenges to Trump’s August orders, there will not be a quick solution to the problem. Plus, many states have not signed onto the program, and some, like South Dakota, already said they won’t participate.
I definitely expect that the executive order along with the memoranda that President Trump passed recently will help to strengthen the multifamily industry, as it provides relief to tenants by expending unemployment benefits, deferring student loan payments and allowing landlords to evict nonpaying tenants. Whether the next round of relief comes soon is still left to be seen, and my hope is that landlords will use caution before deciding whether to evict their tenants. This recession is here to stay for a little bit longer, and if both sides can make a sacrifice, we will be able to maintain some normality in these unprecedented times.