11,000,000 Americans Are Behind On Their Rent.

What happens on June 30^th?

The eviction moratorium keeping landlords from evicting tenants not paying their rent expires. The Center on Budget and Policy Priorities estimated that 11 million Americans are currently behind on their rent; this is 15% of the total adult renter population. A portion of these tenants will be able to work out terms with their landlords to get caught up but a meaningful percentage will likely face eviction.

June 30^th also represents the end of the mortgage forbearance program for home owners who have fallen behind on their mortgages. According to CNBC over 2 million Americans still remain in this program with over 70% of them not making any payments.

Keep in mind that both of these programs have been extended several times now and it looks like they’ve come to an end. Low supply (resale AND new build) combined with high demand has pushed housing prices to all time highs in many major US markets. There's no doubt in my mind that the government programs (based on good intentions no doubt) have distorted the markets and have only further fueled the 2020-2021 house buying mania.

Economic consequences (like foreclosure and eviction) are mechanisms that allow a market to “self regulate” and regardless of where someone stands politically on the matter the fact is that these economic consequences have been delayed, continue to compound silently and will need to be dealt with.

Anyone I talk to who specializes in foreclosures has told me categorically that volumes are DOWN drastically in their market… meaning that there is a massive backlog of homes that should have already been foreclosed on.

These properties will begin to flood the markets within a few months. Combine that with the millions of tenants who will likely end up displaced due to the eviction moratorium and you’ve got two seriously strong headwinds for anyone investing because they think property prices will continue to increase.

Personally as a cash flow driven investor I’m paying close attention in the coming months as potential long term buying opportunities.

Here’s what I know:

• Clean and affordable properties are in huge demand and are in limited supply across the US.
• New inventory is expensive to build.
• This drives up rental rates that builders need to charge to make the development viable.
• These rental rates price a large portion of potential tenants out of the market.
• This is why we’re focused on buying properties for far less than they cost to build new.
• This allows us to offer more affordable housing, maintain high tenant screening standards, and create long term cash flow potential.
• If the property appreciates (even modestly) over the holding period that is a bonus as the cash flow and mortgage pay down provides ample reason to be invested.

Regardless “how” everything shakes out with the renters and home owners who will end up loosing their homes, millions will eventually be displaced.

The abrupt closing of the US economy placed millions in tough financial positions but many people are now back at work doing everything they can to move forward. I don’t think we’ve seen the worst of it yet however; to the contrary I think the government programs have kicked this can down the road and now we’ll begin to see pain similar to 2008 when millions lost their homes and seek out rental housing options.

One way or another we’re moving to a renters nation where millions of people will need clean, safe and affordable rental housing options. Now (more than ever) is the time to focus on investing in real estate that produces positive cash flow.

Marcin Drozdz

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