April Rent Delinquency Analysis & Managing Renters During COVID-19

Posted by: TheGuarantors on April 30, 2020

How TheGuarantors and their partners are analyzing and managing renter behavior during a period of economic uncertainty

 

From March 14th to April 29th, the number of COVID-19 cases in the US ballooned from 2,200 to over 1 million. Midway through March, Seattle and San Francisco had already taken measures to shelter in place, while New York was evaluating its options and impact to the public. For landlords, this was two weeks before the April rent was due, and it was uncertain how the virus would impact that month’s rent roll, much less future months.

45 days into the crisis, our Risk Management team at TheGuarantors analyzed data from some of the biggest landlords across the country to better understand delinquency rates in rent payments, and what changes we had seen. The 10,000-renter sample represented would be thought of as a more risky portfolio, made up of a higher proportion of US renters with lower credit scores and international renters with thin credit. Our findings are below.

 

Renter Delinquency Has Doubled, Though Still Remains Below 20%

RenterDeliquency1

 

  • Renter delinquency has doubled. Usually 5-6% of renters are one month late paying rent, but in April, 12% are delinquent. This is also outside of the typical 1-3% seasonal fluctuations
  • The National Multifamily Housing Corporation reported that 89% of renters paid rent in April, which is in line with this sample data
  • 3 month+ delinquency has not jumped up, since the health crisis started in the last 45-60 days

 

Reversing Delinquency with Renters

During any one period, we would expect 76% of delinquent renters to make good on their rent payments, and remedy the situation with their landlords. We surveyed the remaining renters to understand their potential reasons for permanent delinquency.

DeliquencyGraph

Within this subgroup of renters who may default, 62% are trying to get out of the lease, in the form of lease termination, surrender agreement or sublease, most often due to (health) concerns about the virus. 24% of the renters are experiencing financial difficulties, because they are furloughed or laid off from their jobs. And 14% of renters won’t pay because they are working out a dispute with their landlords or roommates.

Though landlords have always had processes to mitigate and manage delinquency, many have put in place additional measures during this time. To help bolster your existing mitigation practices, below are a few effective strategies tested by us and our top landlord partners:

 

Ramp up your remote property management team

  • It takes two weeks to train up a new property manager. If you are not sure about how much staff to add, consider assembling a team that can handle 2X to 3X the normal delinquency and lease break volumes

Develop clear rent relief and lease break policies

  • While it is natural to want to evaluate renters’ situations case by case, having a standard policy will greatly cut down the amount of communications and decision making
  • Our landlord partners have come up with rent relief programs and payment plans for renters who can demonstrate hardship
  • For renters who simply want to move out, consider taking a few months rent upfront as a termination fee to cover your re-rental costs

Automate outreach as much as possible

  • We utilize a Customer Relationship Management (CRM) software to automatically send over 10,000 emails and texts to our customers every month. You should leverage your CRM solutions too. You can even create a makeshift emailing tool with Excel and Outlook

 

As many in the real estate industry have noted, May could turn out to be the true test for rent rolls across the country. It appears that those who could make the rent this month, did. However, by April 23rd more than 26 million Americans had filed for unemployment, potentially foreshadowing greater impacts to landlords nationwide. We are continuing to monitor the data and will provide updates as we all navigate the changing situation together.

 

Questions? Fill out the form below and a member of our team will be in touch!