Eviction Moratorium | Real Estate Investor

If you’ve been investing in real estate over the past year, the word “Moratorium” has taken on a whole new context. What was put in place by the government to provide some much needed relief to an economy stricken by a pandemic, has now morphed into a nightmarish monster bent on giving many a landlord or investor a sleepless night.

On this topic, I can’t help but think of the movie quote from the original Star Wars movie, A New Hope. You know the classic line “That’s no moon. It’s a space station!” , as Luke and Hans pilot their aircraft towards a supposed moon in the galaxy, which is instead "The Deathstar” of the Emperial Army bearing guns down on them. To be sure, what was once thought of as a small issue is now a growing concern for many a business or property owner.

If you are not yet a landlord or even a real estate investor, perhaps the “Eviction Moratorium” is not that familiar. Fear not! Let’s dive into what this policy does, updates on the current state of affairs and finally what this means for real estate going forward.

The Eviction Moratorium - What is It?

The eviction moratorium was put in place by the CDC, Centers for Disease Control and Prevention, to help stem the spread of COVID-19. The eviction moratorium prohibits any action by a landlord, owner, or other person to remove or cause the removal of a covered tenant from the residential property for non-payment of rent.

The idea is that by prohibiting evictions, tenants are not moving around spreading the virus and are also given relief on rent payments due to to possible loss of income from the pandemic. It was put in place originally March 27th 2020 and set to expire July 24th 2020.

So Is it Over?

This is “the question” asked by many a landlord over the past year and a half. At the time of writing, the eviction moratorium is still not over at a national level. It was recently set to expire at the new date of July 31 2021 however, yet again, the CDC has issued an extension of this moratorium until October 3rd, 2021.

Some states have fought back against this ruling to include Tennessee, Kentucky, Ohio and Michigan which through an internal federal court system were able to rule that the CDC has no authority to pause evictions in such states. For the rest of the states, the moratorium is “in place” until the date above unless the state chooses not to uphold this policy, which is another matter entirely.

With evictions suspended, landlords must turn to alternative methods of ensuring payments are made by tenants who can not or choose to not pay rent.

There are many programs out there who are providing rental assistance to combat non-payment situations, 492 in fact at present day. It is up to the landlord however to either help tenants file for these programs or file these programs for the tenants. Interested landlords can browse the available rental assistance programs here.

Additionally, resources are available for renters as provided by HUD, Housing and Urban Development, regarding this subject and offering information on how to get help here.

What does it All Mean and Why does it Matter?

So what’s the big deal with the moratorium anyway? It’s helping tenants during a time of hardship and providing relief to those who need it, right?

Whether you are a landlord worried about non-payment or an investor in real estate property or even non of the above, the moratorium is a concern. Even forgetting the millions of people who depend on the real estate industry or rental industry as a business or means to survive, the moratorium has introduced far larger implications going forward. So what are they?

Well, for one of the first times in United States history, the government has de-privatized real estate. De-privatization is when a product price or supply and demand is no longer controlled by private enterprise(consumers), what’s commonly called “free trade” by economists.

When a product price is manipulated or influenced by a government or institution, this is called “fair trade” by economists. Without going to deep into macro economics, free trade allows the price to be dictated by demand and supply while fair trade allows the price to be controlled by the government.

With this one policy, government has done the following :

Decreased incentive for tenants to pay rent for housing or move to new housing (demand)
Decreased incentive for landlords to own rental property (supply)
Decreased incentive for investors to invest into rental property (supply)
Decreased incentive for buyers to buy rental property (supply)
- Ultimately leading to less renovated properties on acquisitions
  - Ultimately leading to less of a quality product (housing).
Decreased incentive for sellers to sell rental property due to poorly performing rent rolls, leading to lower prices or profits from a sale (supply)
Decreased incentive for banks to attractively fund such rental property due to poorly performing rent rolls demonstrating lack of positive income (supply)

Although, the purpose behind the policy is well-placed, the long term results are quite serious for the economy and real estate industry of the United States. One must only look at the privatization of real estate by Russian from 1917 on to see how it worked out for the quality and supply of housing. Spoiler alert, it didn’t and was abandoned in the 1970s due to corruption, decay and poor living conditions.

In any case, what history has taught is that when supply and demand is controlled on any product, it inevitably always fails. By forgoing evictions, some tenants have been able to avoid rent payments for over a year and half! This is the ultimate result to this policy and one which will almost assuredly have an effect on the real estate industry and our economy for years due to the reasons bulleted above.

In Final

Any business owner or investor must always learn to pivot and adapt their strategy. Indeed if evictions being suspended is causing late or non-payments for you, perhaps it is time to find better tenants, higher property asset classes or more lucrative markets. We did and it has been the best move for our investors, our business and the future.

Remember, policies will come and go, but it is investor or entrepreneurs strength of will and steadfastness towards goals that will win the day. Stay strong, invest smart and see you in October 2021 for the end of the moratorium…(fingers crossed).