You can argue that 2021 is both the worst and best possible time to be a landlord. Due to COVID-19, tenants are out of jobs and unable to pay rent while local governments have put eviction freezes into place. At the same time, that loss of rental income means declining property values and more landlords eager to sell rental properties at a discount. If you want to become a landlord, you need to weigh the risks and rewards carefully.
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What are the pros and cons of becoming a landlord right now?
The biggest issue facing landlords right now is the inability to evict tenants who can’t pay rent because of various state and federal eviction moratoriums. Landlords have always faced the risk of a tenant not being able to pay rent, but the potential losses were limited by the landlord’s ability to file for an eviction. Current eviction freezes leave landlords unable to evict for a potentially indefinite period, even in states where landlords can typically evict very quickly. This greatly increases the risk a landlord takes on.
In a normal economy, you can mitigate the risk of financial loss by increasing prices, but that is also difficult right now. Rents were down about 1.4% nationwide for 2020, but several large cities have seen double-digit drops. The good news if you’re looking to buy is that lower rents generally mean lower purchase prices, so you may find a good opportunity to buy low if you’re making a long-term investment.
What are the best rental property markets for 2021?
Big city landlords were hit hard by COVID-19 for two reasons. First, the experience of quarantining in a small apartment and the risk of getting sick on public transportation and in other tight spaces led many people to give up on city life. Second, with jobs switching to work-from-home, many of those workers are moving to areas with lower rents.
If you see this as a long-term trend, you may want to look to buy in those smaller markets with great climates and amenities that telecommuters are flocking to. If you think that employers will want to come back to the office and big city life will regain its appeal after everything passes, you may want to take this as a once-in-a-lifetime opportunity to buy low in a big market that may normally be inaccessible.
Are there specific lease provisions that provide the best protections for a landlord during the pandemic?
One of the challenges that landlords face when trying to write their leases to reduce their risk during the pandemic is that the law can override a Lease Agreement. You can’t enforce your eviction provisions if your area has a blanket eviction ban. However, your area may have eviction limitations rather than a total ban. These might include requiring that tenants document they were impacted by COVID-19 or that they’ve sought all possible forms of government assistance. You can document these requirements and define reasonable procedures within your lease agreement.
Some landlords and tenants may wish to reduce their risk by using a Month-to-Month Agreement rather than a long-term lease. Make sure you’re aware of local laws and restrictions on your right to end a Month-to-Month agreement.
Finally, if you do decide to work with a tenant who falls behind on rent, you may wish to have them sign a Late Rent Payment Agreement. This document clarifies how they will catch up on rent while helping to preserve your right to evict or pursue other remedies in case of future non-payment. Both federal and state limits on eviction due to the pandemic will likely require that tenants pay some or all of the back-rent owed once the eviction freeze is over. You may want to find out the end date of your local eviction moratorium and the requirements for paying back-rent to landlords before making your Late Rent Payment Agreement.
What are the best practices for tenant screening during COVID-19?
With so many people out of work, finding a good tenant is even harder than normal. One possible approach is to assume that most of the layoffs have already happened and that someone who can provide proof of current employment is unlikely to be laid off. If you wish to look at what job a tenant has as a way of determining their risk of getting laid off, you should check whether your area has any legal restrictions on screening by type of job.
Some landlords may also want to ask for proof of a certain amount of savings to cover a potential temporary job loss. Many people laid off from traditionally stable jobs during COVID-19 had no savings to continue paying their bills even for a month. You also have the option to waive income requirements and qualify a tenant based on assets alone if they are temporarily unemployed but can demonstrate a strong prior work history.
To learn more about how to legally screen tenants in your area or to update your documents to cover COVID-19 issues, ask a Rocket Lawyer On Call® attorney for fast and affordable advice.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.