The State of the Rental Property Market
Dave Spooner from Innago joins The Property Management Show to talk about rent payments, whether delinquencies are as bad as we expected them to be in a time of COVID, and what the pandemic has meant for the rental property market and accelerating the embrace of property management technology.
- The number of delinquent rent payments during the pandemic isn’t as high as expected.
- Occupancy is down in most major cities.
- Worst case scenario is a spike in COVID-19 cases and another shut down of the economy coupled with no relief package from the government.
- Best case scenario is existing trends continue and digital property management tech integration accelerates.
- There are fewer barriers to setting up an online rent payment system & now is the time for property managers to implement it.
The Rental Property Market: Rent Payments and COVID-19
To gain insight on the current rental property market, we invited Dave Spooner to join us on the show. Dave is with Innago, a property management software company that helps with the automation of functions like communication and rental payments so property managers can focus on the more complex parts of their business.
Despite what nearly everyone in the property management field predicted, the data coming from Innago and other sources show that nationwide, the number of delinquent rent payments isn’t as high as expected.
For the most part, rent is getting paid, and it’s getting paid on time.
People are suffering economically from the pandemic and the shutdowns, so what’s happening to allow for this?
Two things, according to Dave: owner concessions and government help.
Why The Rent Delinquency Rate Isn’t As High As Expected
Owner Concessions: First, landlords and property managers have chosen to make a lot of concessions. It has become important to collect whatever rent they can. There’s an eviction moratorium in place nationwide through the CDC, which views evictions as a public health crisis.
Landlords know they don’t have a lot of recourse, so they’re collecting whatever they can and working with tenants to avoid larger problems.
Some owners have reduced the total rent that tenants are paying or spreading out the missed payments over the next several months or offering credits. Landlords and property managers are working together with tenants to get some rent coming in.
Net rent may be down, which means the total amount that’s collected is likely lower than it was last year. But, it’s not as bad as everyone feared. The delinquencies are not up in any meaningful way. The market has adapted rapidly to this.
Property managers have largely initiated the concessions that are necessary to keep rent coming in. Good managers have been able to successfully navigate their owners through these unchartered waters. If you caught our podcast with Anna Myers on using data to navigate delinquency and economic uncertainty, her tips are an excellent resource.
Government Help: Second, government aid has contributed to helping people pay their rent. Payments are still coming in because those programs have worked.
Most renters received a $1,200 stimulus. Those who lost their jobs were eligible for unemployment and received a bonus. Those programs did assist with living costs and rent payments. Those landlords who took action to try and offset the economic challenges of their tenants and had renters receiving those supports are in good shape.
Geographic Nuances with COVID and Rent Payments
Real estate is a local business and each market is unique. Some areas in the rental property market are more impacted by COVID-19 than others. Large cities have traditionally been magnets for people seeking employment, but cities were the hardest hit. Their COVID numbers have been much higher than other markets.
Occupancy is down about five percent, which is significant in a market like San Jose, San Francisco, Boston or New York. Why spend money on an expensive apartment in the city if there’s no demand to go into the city-based office? The shift to working from home has driven renters to seek less expensive housing outside of larger cities.
Younger people who don’t have partners or children may be moving in with parents or friends, which is also contributing to a lower occupancy rate. Renters may break leases or not renew their leases during the pandemic.
From an occupancy standpoint, the larger and more expensive markets are seeing decreases. Renters are finding other places to live for six to 12 months.
For a thorough look at property management market trends, check out our conversation with Jeff Hacker.
Tenant Retention While Occupancy Falls
Ongoing concessions are necessary to avoid vacancies in the rental property market right now.
Not a lot of renters are trying to move into a new place during the pandemic. Of the folks that are moving, very few of them want to attend multiple showings or hire movers to come into their homes. There’s a trend towards avoiding that exposure. There’s less transition right now, and most people are staying put.
Data from a recent Transunion conference shows that there’s a sharp reduction in the number of showings that are going on, but a higher percentage in lease signings after a showing.
This tells us people are seeing fewer apartments and signing a lease as soon as they see something they like. Tenants only want to see one or two homes and they’ll take what they like. They’re not going to shop around as much and they’ve reduced the amount of searching they’re willing to do.
Showing software has become more popular and more necessary than ever before. More property managers are beginning to invest in technology that allows for digital showings and 3-D tours. There’s less physical interaction, and the landscape has shifted dramatically in this way.
One of the main takeaways from the pandemic is that shocks like the COVID-19 pandemic will accelerate trends. Things have to happen faster in order to keep up with the running of your business. Digital showing software always existed, but now it’s being sought by landlords and property managers who may have hesitated before the pandemic.
Predictions for the 2020/2021 Rental Property Market
Worst case is that COVID rears up in a significant way and the economy shuts down and people get hurt economically all over again, even before they’ve fully recovered. That, coupled with no relief package from the government will make things very difficult for renters and the people who own their properties. We weathered this storm because of the relief package and if there isn’t more help but there is more virus, a sharp increase in delinquencies is certainly possible and eventually – evictions. That’s the worst case scenario.
Best case scenario is that the positive trends continue to accelerate. Digital showings and digital software for lease signings and online rental payments and tenant screenings can help. There’s an upward trend in that direction, which is exciting. If we can get the market back to normal in terms of dollars and cents and then accelerate the digital revolution, we’ll be in good shape.
Unfortunately, aggressive concessions may be the only way to keep rent coming in right now. Landlords and real estate investors didn’t get a lot of direct assistance with the CARES Act. They received indirect help because their tenants were able to pay all or some of their rent. What owners are likely figuring out now is how low they can go before they start to feel real cash flow problems.
Property Management Lessons Learned
Property managers have a lot to learn from the COVID experience and smart managers are taking this opportunity to grow their businesses more intelligently in the future.
Here are the takeaways as we see them:
- Know your bottom line.
- Don’t take on a door just because it’s a door. You don’t want to work with owners who are over-leveraged and unwilling to make concessions when necessary. Embrace that ideal client – the one who earns you the most money for the least amount of stress.
- This will protect you when huge events like a pandemic occur.
- Move everything online.
Moving everything online is ideal, especially when you’re trying to make your entire process as contact-free as possible.
We know a lot of property managers worry about the cost of upgrading all their technology to meet these demands.
But Dave has some good news: there are fewer barriers to entry now.
Removing Barriers to Online Rental Payment Tech
The market is shifting, and adopting automated technology for your property management business doesn’t require the same investment that it once did. Giants like Appfolio and Yardi are great programs that work really well, and in the past they were very expensive. Not only did you have to dedicate a lot of dollars – you had to dedicate a lot of time integrating those systems with your own.
Now, the digital revolution in rental management software has made it less difficult. You don’t have to worry about the resources and the barriers to entry that were once real hindrances to upgrading technology. A very small investment is required to see a pretty huge return.
You can also think about passing some costs onto tenants. Charging them a $5 fee to pay rent online, for example, will offset what you have to pay as a property manager. It can easily be rolled into the rent you charge when you have a new tenant signing a lease. With existing tenants, this might be a concession you make. You can offer the online payment and tell them you’ll be covering the $5 monthly fee for the first six months. After those six months, they’ll see the value in online rental payments, and they’ll be willing to absorb that $5 fee for the convenience of paying online.
We covered a lot in this podcast, and hopefully you’re taking away the importance of staying diligent about your business. Stay focused and creative during these strange times and remember the people on the other side of your business decisions. Tenants are stressed. Your empathy will help you get through this pandemic and whatever comes next.
Property managers were typically hired by landlords to be the “bad guy.” You don’t have to be the “bad guy.” Be warm and empathetic while remaining consistent and on your path towards better business.
If you have any questions about what we’ve discussed with Dave, or about the state of the rental property market, please contact us at Fourandhalf.