Rent Affordability is a Big Challenge for Rental Industry
High rising home prices, costs of living, and rent prices are making life uncomfortable for tens of millions of Americans.
Unaffordability and homelessness are issues that touch all communities, landlords and residents. Rents aren’t falling yet wages and employment are questionable.
With no real lasting solutions in sight from governments, and more regulations likely ahead, landlords once again will be left to manage this social issue.
When tenants can’t afford to pay their rent, it sets forth a set of cascading financial problems and workloads. This represents one of the more unpleasant aspects of owning and managing rental properties. If not managed professionally, it might generate significant issues for your business.
We’re a renter nation, and hundreds of thousands of landlords will be impacted in 2023 with rent payment challenges. A sound strategy with some good options will you handle it professionally.
Are Rents Affordable?
HUDs rent affordability index clearly shows the situation is going south as they say. It’s not landlord’s fault there is insufficient housing, nor that properties costs so much and the cost of living is out of control. It’s not the tenant’s fault either.
Additionally, Americans have spent most of the savings built up during the pandemic. According the NY Fed, in the 3rd quarter, the delinquency transition rate for credit cards and auto loans increased by about half a percentage point. As credit card bills come due, we might see more panic about rent payments.
13.4% of all U.S. renters are at least one month behind on their rent payments
Average rent prices rose above $24,000 per year during summer of 2022
Clearly, and since layoffs are already beginning, you’re wise to prepare and manage this proactively.
If you have a strategy developed, you might avoid the stress and cost of this social phenomena. It won’t be enough to just lay it all back to the governments who generated this housing crisis. The ball will always be put back in your court.
Perhaps the key is communicating to tenants beforehand that proactively managing this situation can save them from big financial debts and ending up homeless. The owner/tenant communications app within ManageCasa can be key to good relations and moving this process forward.
6 Options to Deal with the Likely Scenario Ahead
When some of your tenants lose their job or must move for affordability reasons, you’ve got collections and churn issues to deal with. On the bright side, you may be able to renovate and raise your rent price.
It’s important to indicate your willingness to work with them on this, because many will clam up and wait silently for the inevitable. Your first signal is a late payment and evidence they’re not paying other bills. Don’t deceive yourself, because renters are on the edge even with a good job.
You can make them take the situation seriously, and you recognize it and want to help them. The fact you’re aware of the matter means pride is taken out of the situation, and clear, real action is going to happen.
First Remind Them of Their Responsibilities
You want to have your lease requirements stated up front so they’re aware of their responsibilities. If they refuse to cooperate and default on rent, and won’t leave, it will result in eviction. Remind them of the consequences of rent owed and being evicted. They must be concerned with their credit rating and ability to rent again.
If they’re aware of their responsibilities, then they may be open to you helping them. Don’t mention the move out inspection or any lease-break fees as it will reduce cooperation.
1. Prepare them to Get out of their Lease Liability Now
Casually, via your tenant portal in your property management software platform, you can remind them of early exit options that could be negotiated. If they can show they’ve lost their job, you might allow them to exit the lease in 3 months time.
That’s plenty of time for you or your property management company to find another renter in a low vacancy market. This might be your best route to be rid of a problem which could become much more costly. If you have a strong marketing and leasing ability, then this could be an easy transition to make happen.
2. Allow Tenants to Take in Other Co-Tenants
If the tenant has unemployment insurance, then taking in a roommate/co-tenant who is well employed might work out. Of course, this scenario might have negative endings down the road, if your tenant can’t find employment. The Co-tenant would be liable for the whole rent too. Given that rent prices are very high, a unit needs multiple renters to afford it.
Roomgo and Roomster are two firms that might be able to locate co-tenants. Your syndicated marketing service in ManageCasa might also be used to attract high quality renters.
3. Assist Tenants Who Know they Must Move On
In many cases, you won’t be able to save the situation. The tenant simply can’t afford the unit they’re in. You could help them in a quest to find an additional renter to solve the situation. Or you could discuss the possibility with them casually, or in a message via their tenant portal. For them, it’s smart life management.
Your best option is to charge a fee to help them find a new apartment, together with moving services, and landlord reference to aid them in their relocation. The last thing you need is a tenant who refuses to leave and won’t pay their rent. Make moving on seem an inexpensive, responsible option. You might event pay their moving expenses if they agree to vacate.
4. Offer to participate in Section 8 Voucher Program.
This could help the tenant however, the program comes with rigorous inspections which means big costs to bring the unit/house to up exacting standards. Landlords are participating less in this program because they’re getting minimal revenue with a risky renter, and are forced to make it a brand new unit.
You’ll explore options and realize they’re dead ends.
5. Tenant Lease Transfers
This option can help the renter get out of their rent liability which may encourage them to leave and move on. That’s a good end result for you since the tenant will run into delinquency issues which could mean eviction costs. Tenant lease transfers could be a good tactic.
6. Lowering the Rent Price
Likely the last option option for landlords with profitability or solvency in mind. However, if it appears you’ll lost money via vacancy, eviction and turnover costs, lowering the rent could keep the tenant in place. Great tenants might be worth it.
Regardless of which route these tenants take with their payment woes, it’s wise to establish good communications with all your tenants. By suggesting solutions and help beforehand, you might avoid the worst outcomes.
Given the low vacancy rates, you can help tenants break leases and move on, and still have new tenants ready to move in on time.
This is just only more way ManageCasa’s property management platform can make a big difference in the success of your business. The road’s not always smooth, but it’s always better with ManageCasa.
See how affordable ManageCasa is.
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