What Landlords Need to Know About the CARES Act

May 19, 2020

The COVID-19 pandemic has brought the global economy to an abrupt stop; the stock market is down, oil prices have bottomed out, and tens of millions of Americans became unemployed almost overnight. Many of the jobless are having trouble paying rent, with tenants in some cities even calling for a rent holiday.

The federal government has given tenants a little help. The recently-passed CARES Act included an eviction moratorium for properties with federally-backed mortgages. (Tenants renting in properties without federally-backed mortgages aren’t covered by the act, though many cities and states have their own eviction moratoriums in place.) But there’s been very limited help offered to landlords, many of whom depend on a steady flow of rent to pay their own mortgages. However, they do have some options—though they might have to get creative in how they apply for them.

Let’s briefly cover why tenants are having trouble paying rent, how many tenants we can expect to fall behind on their rent, and what relief options are available to landlords.

Tenants Were Struggling Even Before the Pandemic

A recent study by Clever Real Estate examining the effects of the pandemic looked at the spending and saving habits of renters, and uncovered some interesting—and mildly disturbing—facts.

The large majority of renters haven’t been saving nearly enough money to carry them through unforeseen adversity. Financial experts suggest having at least three months of your normal expenses put away as savings; data from the Bureau of Labor Statistics shows that the average renter spends about $3,650 a month, which means they should have at least $11,000 saved in case of an emergency.

In reality, only 13% of renters have $10,000 or more saved up. Worse yet, 46% of renters had less than $500 in savings, and 49% overall had already burned through their entire savings. And as many cities prepare to enter their third month of lockdown, consider that 70% of tenants said they couldn’t survive more than two months on savings alone.

This lack of cash on hand is already making itself felt. According to the Clever survey, only 73% of renters paid their rent on time in April. Only 11% have made arrangements with their landlord to pay later; 13% simply didn’t pay rent, and 3% had already moved out of their units. Numbers from Apartment List, Avail, and the National Multifamily Housing Council indicates that 25-31% of tenants may have been unable to pay rent. As high as those numbers are, the scary part is that as more renters exhaust their very limited savings, those numbers could get a lot worse.

Relief Should Be Coming—But for Who?

Tenants around the country have been calling for a rent freeze or a rent holiday. In New York City, one of the hotspots of the pandemic, many tenants decided to withhold May rent to force the government to intercede on their behalf, by offering some kind of universal relief to both tenants and landlords. In Denver, the city council called on the governor to institute a full rent freeze. It’s unclear if these actions will produce results; New York’s governor has consistently refused to consider the idea, and the Colorado governor claims he doesn’t even have the necessary legal authority to put a rent freeze in place.

So where does that leave landlords? Stuck between mortgage and employee obligations, and a rent stream that’s already begun to dry up. Your lease agreement will not hold up against rent freezes that are mandated by the state. 

Landlords do have some limited options, though. Fannie Mae and Freddie Mac now allow holders of federally-backed loans to stop paying their loans for up to a year, with no fees or interest. The only condition is that these landlords can’t evict their tenants, and must allow them to pay their back rent over a term up to a year.

In the meantime, landlords could apply for an SBA Economic Injury Disaster Loan, a program that was recently enhanced in the CARES Act. The program offers loans of up to $2 million, with interest rates of up to 3.75%, for up to 30 years. On top of that, applicants can get an instant $10,000 advance just for applying—and that advance doesn’t need to be paid back. It’s not much, but for landlords who’ve burned through their cash reserves, it can help stave off bankruptcy.

An indirect way that landlords can get relief is to help their commercial tenants apply for a Paycheck Protection Program loan. Since these loans can be used to pay rent, landlords would benefit immediately if their tenant won a loan. And if the landlords have employees themselves, they might even be eligible for their own PPP loan.

And finally, another indirect relief option for landlords is through a potential tax refund. The CARES Act made a retroactive amendment to the bonus depreciation rules, which was changed to allow taxpayers to claim 100% bonus depreciation for “qualified improvement property.” Owners who originally qualified for 50% depreciation could now be eligible for double that, meaning they could receive potentially sizable tax refunds for 2018 expenditures. Just keep in mind that depreciation can’t be used on the rental properties themselves, but can be used on improvements to those properties. So if you replaced the roof of your rental property, or spent $15,000 on landscaping, you can now claim that entire expense. 

Landlords May Want to Consider Selling

With non-payment of rent and vacancy rates set to skyrocket, many landlords may face some tough choices. If they run the numbers and the profits just aren’t there, we could see a wave of rental properties hitting the market. 

Whether or not selling right now is a good idea depends on a lot of factors—some of them fundamental, and some of them specific to the pandemic. With the market essentially in hibernation, both supply and demand are in short supply. But there is demand; the Clever survey found that some buyers are aggressively looking for properties, but are expecting a big price cut. Owners willing to give them a discount—especially if those owners believe things are going to get a lot worse—might want to explore a quick sale.

There are other big picture factors to consider, too. The pandemic has already caused a migration out of cities and into the suburbs, as many families flee the density that enabled many urban outbreaks. Landlords who own properties in the urban core—especially luxury properties, which have already seen rents drop as more inventory comes online—might want to consider selling before prices drop. On the other hand, landlords with suburban properties might regret it if they get out now; those properties could be primed for a significant increase in value.

The bottom line is this: landlords are going to have to make things up as they go, just like society is. But if they make informed decisions, they can come out of this whole. Times are tough now and might get tougher, but there’s a near-consensus among experts that things are going to turn around, probably sooner than most of us think.

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  1. Jackie L Torres

    My name jackie lee Torres I’m try to get help for my rent due to unemployment,pediemic, hurricane,,I’m getting evicted July 29 for 50$ fifty dollars that I can the next day . I’ve been doing my study on where the mentor ship is coming from I had an idea what the landlord was up to ass soon as the lease agreement changed and all .for me the one that is having a hard time due to epademic and and love ones dieing…I can’t believe you all can’t offer any guidance for the ones that pay rent only in how to get rich and stay rich while people are in the time of need …

    • Linda McFarland

      Not every Landlord is rich. For some like me, I own 1 rent house, I have to pay the taxes and insurance on that house and my tenant is living there for free! This rent house is My Only Income! All of the Care Acts are in the Renters Favor, Not the Landlords! I’m living on money I have saved All year to pay my taxes on that house, come December. Why and how can the government Force me to Allow freeloaders to live in My House !?!?! There’s Nothing Far About It! It’s My House. I have children that live in apartments and have a hard time paying rent but they Make it work! My house is not a Government Subsidized Housing! No Section 8 housing. So Why and How am I Forced to take care of you people!?!?!

      • Tanya Krolicki

        Exactly. I’ve been called a “greedy landlord” from a tenant that owes 4 months back rent. I have 4 duplexes and with crazy water bills, insurance, taxes, and mortgage payments, I still have to pay my bills too. This is a business. I will not apologize to have been smart with my money during my life. I chose to always make sure that I DO NOT live in a box on the corner. Others prefer to spend what priceless money they do have on “wants” not “needs”. Pay your rent and bills BEFORE you have a shopping spree at the dollar store for things you/your kids will throw out in a week. Reconsider birth control and consequences from your sexual activities. More babies mean more bedrooms, food, etc needed=money you may not have. Sure more than 1 job sucks, begging friends/family to watch kids sucks, but so does being homeless and knowing you can’t provide for yourself muchless your family. So buck up people, just like the rest of us have – eat at home, make a budget AND stick to it, do what it takes to get the bills paid! Are we complaining? No because we did the work and the time….and still are.

  2. Malkit S. Sappal

    My tenant applied for Rent Money under Cares Act Assistance Program and she received five months worth of Rent Money in the amount of $3510.00 to be paid to the Landlord. She took the money and SHE DOES NOT WANT TO PAY HER RENT MONEY TO THE LANLORD. That means she collected money on FALSE PRETENSE. I have been paying for her Electric and Water and now an eviction will cost more money. Government should have done better to write Check to the Landlord direct instead of giving the rent money to the tenant. This is case of Fraud and Government should make an arrangement to pay Landlord as well.. Thanks.

  3. Hairstyles Women

    It’s my opinion that a home foreclosure can have a major effect on the applicant’s life. Property foreclosures can have a Several to several years negative effect on a debtor’s credit report. The borrower who has applied for a mortgage or almost any loans even, knows that your worse credit rating is usually, the more hard it is to secure a decent bank loan. In addition, it can affect any borrower’s chance to find a quality place to let or rent, if that will become the alternative real estate solution. Good blog post.

  4. Kathy Horsky

    What can be done for a landlord with a dangerous tenant? The landlord lives on the premise and her mother lives in another unit. Her tenant is doing and dealing drugs. There was recently an overdose death on the property. There have been broken windows and people coming through the night (One yelled out, “Hurry and open the door before the police see me!”)
    The landlord went through the eviction process (State of Colorado) and when she got to court, the judge said that he couldn’t do anything about it due to the CARES Act. I told her to call her local sheriff but she already has and he said that he can’t do anything unless the tenant is caught in the act of a crime. Is there any recourse whatsoever?


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