The aftermath... Tenants Stopped Paying Rent

What's big, eyes? It's Graham here.

So last month, I addressed a highly publicized article which found that nearly 1/3 of Americans were unable to pay their rent for the month of April. At the time, that was a very alarming statistic. For someone who has pretty much all of their money invested in rental properties and real estate, a headline like that is not taken lightly. So I had to do my own research to figure out what was going on.

After all, for anyone who is not aware, I currently own seven rental properties here in Southern California, which works out to be ten units with a total of ten separate tenants. If a third of them were unable to pay, not only is that a worrisome trend for myself, but also for every other landlord out there and the tenants who are in such a dire position that they can't pay the rent. Because I get it; my entire life my parents have been renters, and I've seen the pressures that they've been faced with anytime finances get tight, or the anxiety that they go through to try to find some way to get the rent paid. It's not something anyone voluntarily wants to go through, unless you're a squatter, in which case you probably shouldn't be squatting.

Anyway, the article was so alarming that I had to look into it further. Because if it were true, and we have a society where people are no longer able to afford the basic necessities of even housing, it's a signal that bad times are to come. We should really brace for the worst, and we got to figure out how to address this. But now, a month later, we have all the answers. We could see what happens when one-third of American tenants are unable to pay the rent.

This is something that no one on YouTube has been covering. Because even though it's really easy to cite an article that makes you feel like the entire world is falling apart, very few people come back to those topics to tell you what actually happened. And that's exactly what you're gonna get here. We're gonna be going over what happened to the third of Americans who didn't pay their rent, my own experience right now as a landlord, and what this means for everyone watching, whether you're a landlord or a tenant. This applies to you.

Although really quick, I want to share an even more troubling statistic that CNN just released hours ago: they found that only 1/3 of YouTube viewers have smashed the like button in the month of May. Just to start things off, I'm going to lead by example by liking my own video to get the ball rolling. So if you wouldn't mind destroying a like button for YouTube's algorithm, it helps me out tremendously.

With that said, let's begin the video. But first, let's just back up for a second. Because a little bit over a month ago, almost down to the day, articles were flooding the interwebs with a big bold giant claim: nearly 1/3 of US apartment renters didn't pay April rent. This occurred smack dab in the middle of our peak fear-mongering article days, right after the giant stock market collapse, right at the very beginning of these stimulus escapades.

It's so easy to see an article like this and just assume, based on the title, it must be true. Of course, I'm skeptical anytime I see multiple news outlets all parroting the exact same information. So I did my own detective work to see how this data was calculated, and of course, there were several very important holes and flaws with these stories.

So really quick, let's just debunk them first. Almost every single article failed to mention that the vice president of the National Multi-Family Housing Council, where the ones who conducted the survey to begin with, said that the new data for April with historical data is not a true representation of how rent payments are progressing. The issue is that in their analysis, the cutoff for paid rent ends on the fifth of the month. Since April 4th was a Saturday and April 5th is a Sunday, payments made during those days would not be counted until Monday, April 6, after the data was already analyzed. So obviously, that would skew the numbers.

The second issue is that this only counts tenants who paid on time and ignores everyone else who just so happens to pay a little bit late. During times like this, I think it's understandable if tenants need a few extra days to pay the rent. Honestly, I think any reasonable landlord would be accommodating if their tenants wind up needing a little bit more flexibility, given everything going on.

So most of these articles just chose not to mention that and instead pulled the figures out of context and then warped them to fit a negative narrative. Third, we never saw a follow-up to this because it would take another month to see how all of this data plays out. But now that time is gone, here's what we got straight from the National Multi-Family Housing Council.

Here's what they found: even though nearly one-third of renters did not pay their rent by April 5th, once you count in April 6, that Monday, just like I predicted, the number of tenants who paid their rent in full spikes up dramatically. All the way up to 78%. Within a week after that, 85% of tenants paid their rent, and by the very end of the month, 94.6% of tenants paid their rent.

Now, of course, when we compared that number to last April of 2019, it was found that 97.7% of tenants paid their rent. So based on the last month of data, we've only seen a drop-off of 3.1%. Unable to pay the rent, which, let's be real, is far, far less than the number that was previously reported. After all, it wouldn't be such a catchy headline if they just came out and said 3.1% fewer tenants paid their rent in April.

Next, as far as this month, now in May, it was shown that 80.2% of tenants paid rent on time, as calculated by the 6th of the month, compared with 82.9% who had paid the rent during the same time in 2019. Of course, we'll have to wait until the end of the month to see how this plays out in relation to last year but, to be honest, this seems like such a small blip that I'm not too concerned based on last month's data.

Now, in terms of what the National Multi-Family Housing Council has to say about this: they said, despite the fact that over 20 million people lost their jobs in April, for the second month in a row, we are seeing evidence that apartment renters who can pay the rent are stepping up and doing so. We expect May to largely mirror April when the payment rate increased throughout the month as financial assistance worked its way to people's bank accounts.

As far as whether or not this trend continues, is still up in the air. Although to me, it's not too surprising why so many tenants ended up paying their rent, for two reasons. One is how rental payments are structured. Because, as it stands now, missed rental payments are not forgiven. Meaning if you don't pay your rent, you're still gonna owe it back in full at some point in the future.

Even though many counties have enacted an eviction freeze, which would prevent landlords from filing an eviction based on non-payment of rent, it doesn't stop the landlord from being able to collect that rent at a later date. So from my perspective, it makes sense that tenants would want to prevent this situation from happening in the first place, just like how many landlords would want to prevent an eviction. So paying the rent as normal seems like the most cordial outcome.

I have no doubt that the stimulus and increased unemployment benefits have helped to a certain degree. I think initially, one of the biggest concerns of landlords was the scorching high unemployment of 30 million people because that number is stupid high. We have 209 million people in the United States over the age of 18 years old. When almost 15% of that population is unemployed, inevitably, a big portion of that is going to be reflected in the rental market.

It's not like most people have the finances to keep themselves afloat either, especially when 63% of Americans can't afford a $500 emergency. I think it's pretty safe to say a lot of times, if you lose your job, that's going to be much worse than an unexpected $500 expense. But in this case, if people are able to collect an extra $600 a week on top of their normal unemployment benefits, then I think it's no wonder that the amount of tenants who are unable to pay the rent is as low as it is.

To be honest, I really believe if it were not for the increased unemployment benefits, we should, in theory, see way more tenants being unable to pay the rent. So, in a way, I do think the increased benefits are doing their job, at least for the time being, and keeping all the cogs working as planned: the tenants can receive money, the landlords can receive the rent, the landlords can make their mortgage payments, those mortgage-backed securities can continue paying their investors, and then some rich hedge fund billionaires somewhere who owns all of those mortgage-backed securities can get some of that sweet, sweet passive income.

However, as a landlord and real estate investor myself, I don't think we're out of the woods quite yet. There's a possibility we could see things slowly deteriorate further. Because here's the thing: I think the biggest elephant in the room here is that the increased unemployment benefit is going to expire on July 31st. After that, we have no idea what else is going to continue.

As it stands now, there are nonstop talks and proposals that are being discussed non-stop that garner millions of views on YouTube. Let's be real, with a very slim chance of passing: like $2,000 a month tax-free, minting two trillion dollar coins, giving people $10,000 a month tax-free for a family of five. It all sounds nice, but it's yet to be seen if something like that is actually going to happen or if another stimulus is going to be passed.

We'll be able to look back at this a few months from now and see how this all plays out. But I would not be surprised if they just continually delay negotiations and drag this out as long as they can, and then slowly start to reopen the economy. Then once the economy is open again, they'll argue that no additional stimulus is needed. But maybe then at that time, they'll settle for another one-time $2,000 stimulus to be released and call it a day.

We'll see if that happens, but if no new stimulus comes, it's really going to be up to the health of the economy that determines whether or not more tenants will continue to pay the rent. If businesses are able to reopen by July, then I have a feeling that maybe missed rent payments will be held to a minimum by the time the unemployment benefits expire.

However, if there's no new stimulus and the economy is not opened back up, and people are still out of work, then I would absolutely expect these rental numbers to start looking a lot different, with a lot of people being unable to pay the rent in August and September.

After myself, thankfully, from all my tenants, everyone has paid the rent in April without an issue. Now in May of this month, I had one tenant have a slight delay with his paycheck not being processed on time, unrelated to the illness. With situations like that, I have a lot of leniency to go and work out a win-win resolution. Within a week, the rent was paid.

Now, I will say my only difficulty so far as a landlord is trying to rent out one of my newly remodeled spots, and that process has been way slower than I've ever seen before. In the past, I would be able to rent out a comparable unit within days, with multiple applications over asking price. But now, I'm getting only a fraction of the showing requests, and even though I've received an application, it's still yet to be rented.

To me, it makes sense: in Los Angeles, the shelter-in-place order is still in effect, the stock market is still down from its all-time high, the economy is still on shaky ground, and really, the only people looking right now just absolutely have to move. In the past, it was quite common for people to be looking at homes who just wanted something a little bit nicer or they would just casually look on weekends until they found something that they wanted to move into.

But now, a lot of those people have put that home search on hold until things get better. From what I've seen, the people who are out looking right now are usually the ones who are relocating for work, or who need to find a bigger spot, or have not been affected at all by this illness and are using this as a time to try to find a better deal.

After all, I would probably do the same thing. If I didn't need to move right now, I wouldn’t, so I totally get it. But in terms of the difficulty in renting the units, all I have to say is that that's what I signed up for as the landlord. It's a part of the business and it's all about just being patient until the right tenant comes along.

And until then, that's a perfect example of why you always have to keep cash on the sidelines. Lastly, here's just my final thought when it comes to all of this: this is not an issue of tenants versus landlords. This is not a debate of who has it worse. I don't want to make any video that puts an invisible divide between landlords and tenants like oil and water.

Because really, we're all people, and we're all in this together. It's a troubling and unique time for sure, and I think a little understanding goes a long way for both sides. For tenants, I think it's really important to understand that not all landlords have money and can afford to pay their bills without receiving the rent. I've met so many landlords who barely break even or even lose money on their expenses.

Even though it's easy to point the finger at them and say that they should have calculated the cash flow, it's important to see the situation for what it is and that they planned around rents continuing to come in as agreed. And landlords, I understand that a rental property is a business, but it's also a people business.

It's so much better to work with your tenant than against them because your tenant doesn't want to be kicked out just as much as you don't want them to stop paying rent. Working out a payment plan is going to save both of you a lot of headaches later on down the line, or being able to cut your losses upfront if the situation just gets too bad.

We're all gonna be affected by this in one way or another, and that's why it's so important right now we could at least work together to get through it. Okay, I really believe part of the reason I've always received my rent for over seven, eight years now is because I really care about the homes that I own. I always do my best to take care of issues as they come up.

I offer a little flexibility as needed, and I always keep my rents below market value to incentivize the tenants to stay as long as they would like. There are some tenants that I have not raised rent on since 2011. And sure, even though I don't make as much money as I could, I have a great person living in there who takes care of it as it's their own. I don't have any issues, and everyone wins. They get a good deal, I get a good tenant, and that makes me very happy.

That is my landlord philosophy: less stress, less worry. I am confident my rent will be paid, and in return, they're gonna get an affordable place that's cheaper to live in than any other comparable spot that they would be looking at.

So moral of the story here: treat everybody like people, and don't believe all the headlines exactly as they are written. I think the stimulus and unemployment benefits are helping keep this number a little bit lower than it would have been otherwise. Only time will tell how this plays out after July, but hopefully it'll be safe to start returning back to work by then.

Once that happens, we could all begin getting back to normal and smashing the like button for the YouTube algorithm. So with that said, you guys, thank you so much for watching. I really appreciate it. As always, make sure to destroy the subscribe button and notification bell. Feel free to add me on Instagram; I post it pretty much daily.

So if you want to be a part of it there, feel free to add me there as well, on my second channel, the Graham Steffen Show. I post there every single day I'm not posting here. So if you want to see a brand new video from me every single day, make sure to add yourself to that. And lastly, if you guys want free stocks, use the link down below in the description. WeBull is going to be giving you 2 free stocks if you deposit $100 on the platform, with one of those stocks valued at for $1,400.

So if you want your two free stocks, use that link down below. Let me know which two free stocks you get. Thank you so much for watching.