Evicting Tenants - My Thoughts

What's up, guys? It's Graham here.

So I want to take a moment to talk about something serious. Whether or not this affects you, I think this is something worth knowing about and discussing further. That would be the upcoming wave of evictions and mortgage defaults that we're inevitably going to have to deal with at some point in the future.

Before you click off on this video because you think to yourself, "I've paid my rent on time. I have paid my mortgage on time. All of my tenants have paid on time. This doesn't apply to me," or even like, "I'm 17 years old! Why am I watching this? This definitely doesn't apply to me." I highly recommend you stick around because this one will have a far-reaching impact, no matter who you are.

So here's what we have to go over today, and I'll do my best to break everything down and how it's going to apply to you. First, we have the rental eviction freeze soon expiring, and that could mean a wave of tenants facing eviction all at the exact same time. Second, we have almost 5 million homeowners who have missed their mortgage payment last month, which represents nearly one out of every 10 mortgages. Third, a survey found that nearly half of all homeowners considered selling their home, and that comes at a time where home sales are down almost 10 percent year-over-year.

Needless to say, there's a lot going on, and that has the impact to have a massive ripple effect throughout our entire economy. After all, if people are losing their jobs, if they're getting evicted, if landlords are unable to make their mortgage payments, and foreclosures start going up, and the stock market begins going down, that means that the Fed is going to have to start printing way more money to keep this gravy train flowing. Just kidding! But in all seriousness, as a real estate agent, a real estate investor, and as a landlord with seven properties, here's what's going on, my thoughts on the situation, and what this means for you watching.

But as usual, if you guys appreciate all of this information being condensed down into an easy-to-watch YouTube video, just make sure to mortgage the like button until it permanently becomes blue. It greatly helps up the YouTube algorithm, helps me out a lot, and all it takes to mortgage the like button is just got to click it once. You never have to pay it back! Just mortgage it once; it's blue! There we go! Thank you so much, and let's begin the video.

And that would be this article from CNN warning about a wave of evictions coming soon as renter protections are about to expire. For anyone who is unaware of what's going on or the severity of the situation, here is everything you need to know.

During the illness, businesses were forced to temporarily shut down. People were advised to stay at home, and because of that, nearly 40 million people claimed unemployment. That also meant that if people did not have the money in the savings to weather the storm, they would be unable to pay their bills, and that also includes the rent and their mortgage.

When that happens, that has a cascading effect throughout everything. After all, if the tenant can't pay the rent, that means the owner has to pay all of their expenses out of pocket. If they're unable to pay the bank, whose services that loan is not going to be getting paid, which means they need to pay their investors out of pocket who own those loans. So they're going to have to foreclose on landlords who can't make their payments so that they can retake the property back and resell it back on the market.

Then the market could get flooded with all of these properties, and that's just a mess for everybody. But what ended up happening to prevent the situation from getting worse was that a regulation was passed that would temporarily freeze evictions, meaning a landlord cannot evict a tenant for non-payment of rent. Homeowners who are impacted by the illness could request what's called mortgage forbearance where they could essentially just pause their mortgage payments and then work out a payment plan later on in the future.

However, this is really more like putting a Band-Aid on a much bigger wound because it didn't really help the cause of the situation in the first place. A lot of people were left wondering what happens when the eviction freeze goes away and tenants still don't have money to pay their back rent. Doesn't that mean that every landlord is going to be evicting their tenants who can't pay up?

And that's where we are now. Across the United States, eviction freezes are slowly beginning to expire, which means that landlords can now begin evicting tenants for non-payment of rent. Over the last few months, now, on the one hand, missed rental payments like this are not forgiven, and just because the landlord cannot evict a tenant doesn't mean the tenant doesn't owe the rent.

But on the other hand, if tenants don't have the money to pay the rent, what has to happen when the eviction freeze is lifted and they still don't have the money to pay the rent? As of right now, it appears as though roughly 23 million Americans would be at risk of eviction by the end of September, although some cities could be much earlier or later than this depending on where you live.

And that is pretty concerning, especially if this all begins happening at the exact same time. Unfortunately, though, there's no solution where everyone wins, and it's going to be difficult for everybody involved. From a landlord's perspective, even though you have mortgage forbearance available to you, you still have to pay for the property taxes, insurance, and repairs on the home. So you're going to be out of pocket even though you're not receiving any rent.

And from a tenant's perspective, even though you cannot be evicted temporarily, legally, you are responsible for paying back all the rent you missed, even if you can't afford it. So that just leaves us with a few options. One, if you're a tenant, try working out a deal with your landlord. I've been through one eviction before about eight years ago, and it was absolutely awful. My tenant lied about his job and residence history on his application, and he stopped paying rent after violating several aspects of the lease. The entire thing was really stressful. It was time-consuming and it was expensive.

I will tell every landlord the exact same thing: an eviction should only be a last resort. And even though there are certainly situations where an eviction is absolutely necessary, it should not be the main focus. Instead, as a landlord, it'll be so much cheaper to try to work out a deal with your tenant to continue living in the property or get on a payment plan instead of being evicted.

Logistically, whatever the eviction freeze is lifted, if there's a rush to try to evict a whole bunch of tenants at the exact same time, the process could take a while. Courts are probably going to be backed up, and unless they find a way to expedite all the evictions at the same time, it could take several more months to go through the eviction and finally get your place back.

Now, I also understand that owning a rental property is a business, and when you have a client that's not paying you for a service, it's up to you to demand payment or cut ties. But this is a really unique circumstance where the better outcome for everybody might just be to work out a payment plan and continue keeping the tenant in the property or potentially even working out a reduced rent to keep them in there. That's probably going to be way cheaper than going through an eviction, cleaning up the property, and then waiting to rent it out again.

And if that doesn't happen, then I also recommend another alternative to evictions, and that would be cash for keys. Now, this is a practice where the landlord will pay the tenant to vacate the property by a certain date. This does a few things: the landlord could get the tenant out faster, they could re-rent the property faster, there is less downtime, and some of those savings can be passed back onto the tenant.

Now, in either situation, whether it be a cash for keys or negotiating a payment plan, both sides can come together and work out a resolution where hopefully everyone is happy. Now, if that doesn't happen and there's this mass wave of foreclosures, then the real estate market could be headed towards serious trouble, not to mention all the people forced out of their homes.

Now realistically, though, I don't think it'll ever be as bad as what the media portrays, and many counties have begun putting together their own eviction assistance grants, which use some of the CARES Act stimulus money to help renters. The extra unemployment benefit of $600 a week has also greatly been helping with this, but with that set to expire on July 31st, everything after that is a bit up in the air.

There's also been a lot of hints about a new stimulus coming into effect next month that'll help boost the economy and help ease people into getting back to work. Call me optimistic, but I have a feeling there's going to be some type of renter or mortgage assistance programs in there to help prevent the landlord-tenant crisis from absolutely destroying the real estate market.

Or maybe there's going to be money for tenants that they could pay up to landlords that could pass up to mortgage servicers that could pass up to really rich hedge funds. But until then, it's really going to be up to us to work together and try to find a middle ground. I have a feeling that payment plans, cash for keys, or reduced rents are going to be a way less expensive and time-consuming option for anyone who wants to avoid an eviction.

Now, someone on the same line is this: we also have 4.3 million homeowners not paying their mortgage in the month of May. Or in other words, this also includes people under mortgage forbearance who have chosen to temporarily pause their payments. Now, when I first read this, I thought to myself, "Well, you know what? That's a lot of people, but it's not entirely surprising for a homeowner to claim mortgage forbearance." All they have to do is attest that they have been affected by the illness, and once they do that, their payments will be temporarily put on hold for a predetermined period of time.

Then when that time is up, the homeowner can negotiate a payment plan with the lender, they could apply those payments to the end of the loan, or they could just pay what they owe and continue on as usual with very little downside. As a real estate investor myself, this would be an effective way to build up cash temporarily in case of an emergency. Then, if it's not needed, you could just resume your payments as usual whenever the forbearance period is up.

So for those people requesting forbearance, it would just be a good move. But it is unclear how many people requested forbearance just out of an abundance of caution or out of absolute necessity. But thankfully, it does appear as though more people have made their housing payment now in June, which means the peak of our mortgage forbearances could be behind us.

It's also shown that the total amount of mortgages in forbearance has even decreased this month ever so slightly, which is probably going to be a lot more common as people return back to work. So all in all, at the end of the day, even though 4.3 million homeowners have missed their mortgage payments, a large percentage of those people are in mortgage forbearance, which would have been a smart move to take for a lot of people.

Even more interesting is that it was found that active foreclosure filings—so the bank is going through the court to take back the property—are still at the lowest levels on record since 2000. Yes, I'm sure that some of that has to do with courts being closed right now, but overall I have a feeling that a lot of these mortgages are going to stay current with some of these missed payments just being applied to the end of the loan.

So for example, if you owe five months of missed mortgage payments, you still owe the money, except now you're going to be making your mortgage payments for five months longer to make up for that. That is definitely going to prevent a lot of these mass foreclosures, like some of these articles I've mentioned.

And lastly, let's talk about this: it was found that 47 percent of homeowners considered selling their homes due to the illness, and because they weren't sure if they could continue making the payments. When I read this, I actually thought that that seemed pretty reasonable because I remember when all of this first started, it was a really scary experience.

I was glued to my computer just watching the stock market tank, reading all of the spooky headlines, and just thinking like, "What next could happen?" So this doesn't surprise me at all that half of homeowners considered selling, especially when their investments probably tanked 40% or they got laid off from their job. I'm sure just as many renters also considered moving, too—maybe relocating for work or maybe getting something less expensive.

However, I do question who exactly they polled on the study because this same survey found that 35% of homeowners either skipped or missed their mortgage payments between March and June. And for reference, out of all of the mortgages currently outstanding, less than 10% of them have not paid or requested forbearance.

So this survey disproportionately represents people who have experienced more financial hardship than on average. I also wouldn't be surprised if people considered selling because they were stuck at home and maybe realized they need some more space, or maybe they wanted to relocate because they could work remotely and didn't need to be in the middle of the city.

But also, this poses another problem in that if they sell, where do they end up buying? With inventory at such low lows, finding a replacement to move into is going to be pretty difficult, and that's probably preventing a lot of people from listing their homes right now. After all, home sales hit a nine-and-a-half-year low, which sounds really worrisome when you read this until you realize that's only because there's simply not enough homes to be sold on the market.

And that is good news if you happen to own real estate because that just means prices are going up because there are fewer homes on the market to sell. So all in all, I really don't think there's anything to worry about with either of these articles.

I remember I did some research back a while ago that I actually found that 63% of millennials had regret about buying their home, which I got to say is absolutely absurd! But with everything going on, I think that 47% of homeowners considering selling their home is actually kind of reasonable.

And for anyone who thinks that it's too late to be a real estate agent now, well, you might want to reconsider because with everyone thinking of selling their home or buying something else, it might be a good time. You might want to reconsider that.

So all in all, there's a lot of complexities to this, but here are the main takeaways: one, we really have to keep a close eye on what happens with tenants because a lot of this begins here. If tenants cannot pay their rent, that trickles up to the landlords, which then goes up to banks, which then goes up to hedge funds that own those loans and demand payment.

So obviously, the eviction freeze and mortgage forbearance will help temporarily, but that could only be seen as a pause until a better solution is offered, of which there is no one-size-fits-all approach to handle this. Objectively, I think it's best that landlords and tenants work something out among themselves.

But beyond that, I think it'll likely be up to a new stimulus to help bring relief and money to landlords and tenants who qualify, and then ideally that money will trickle back up to help everybody. There's probably going to have to be something done to help ease the influx of a wave of evictions coming up, and many landlords won't want to bear the cost of homeownership without being allowed to evict the tenant and reclaim back their property.

Now in terms of homeownership, I think the most likely scenario from this is that the missed payments are added on to the end of the loan and people just take a little bit longer to pay it off. Now in terms of the situations where the homeowner cannot afford to make the same payments anymore, I have a feeling there's going to be options to either refinance the loan or extend it out a little bit longer to lower the payments or potentially selling the home and getting rid of the mortgage altogether. Homeowners are going to have a lot of options when it comes to this.

I have a feeling I don't see housing dropping too much because of it. And now finally, in terms of actually buying a home, now is an absolutely crazy market. Right now, I'm on the lookout to maybe buy another property, and I cannot believe how competitive it is! A lot of the properties that I've inquired about have all had multiple offers within days of being listed, way over asking price.

A lot of that has to do with a lack of inventory on the market and historically low interest rates. Now I have a feeling they are going to continue to go up like this until people feel comfortable listing their homes again and having people walk through them. Then maybe at that point, things will begin to cool down again.

But until then, we could be looking at a really competitive next few months for housing as long as interest rates continue to stay low—and they will! And as long as you smash the like button for the YouTube algorithm!

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