Does a rooster crow? Does a zebra have stripes? Just as those questions warrant a "yes" answer, here's another one: Were smaller landlords at a disadvantage during the pandemic? The answer: a resounding "yes."
A familiar story
What happened to smaller landlords financially during the pandemic is the same story of what happened to small restaurants versus the big chains like Chipotle, Olive Garden, and Applebees. It's also the story of local stores versus the big boxes like Walmart, Amazon, and Costco. Big companies that were allowed to stay open during the pandemic fared well, some even making billions of dollars during this crisis. Walmart, for example, made $15.6 billion in the first three quarters of 2020, up 45% from the prior year at that time.
Regarding landlords, the little guys, who make up about half of all rental units in the United States, struggled or went out of business altogether because of lockdowns combined with eviction moratoriums.
Smaller landlords disadvantaged during pandemic
Owners of large multifamily buildings and institutional investors like Invitation Homes typically have reserves that small-business owners often don't. The aftermath of the pandemic, therefore, put lots of mom-and-pop landlords out of business if their tenants stopped paying rent and continued to occupy the space.
Landlords still needed to pay the bills on those properties, whether they were collecting rent or not. Landlords without reserves often lost or sold their rental properties. Of the landlords who remained in business, most lost money this year -- including me.
The Urban Institute, a research organization founded by President Lyndon Johnson to fight what he termed "The War on Poverty," tracked how much mom-and-pop landlords were negatively affected by the response to the pandemic -- a response that put many marginal employees out of work.
Unemployment caused by lockdowns made it difficult if not impossible for many renters to pay rent without government aid, of which only a small percentage (about 11%) was doled out during the time of need. This lose-lose situation greatly affected lower-income people and smaller landlords.
The Urban Institute partnered with Avail, a rental management company, and found that renters living in mom-and-pop-owned dwellings of one to four units were up to 9% more likely to stop paying rent than tenants of large multifamily buildings were. The group most likely to default on rent payments are renters in lower-income properties by up to 4%.
Rental payments started declining in April 2020, the start of the pandemic lockdowns. Stimulus checks and unemployment benefits helped, but renters living in lower-rent units "experienced a noticeable drop in their ability to make on-time rental payments since April 2021, showing that this group needs additional attention."
Most owners (77%) of buildings with two to four rental units are mom-and-pop landlords. These landlords earn less than landlords of single-family homes and large-building owners. This group was also the most vulnerable to losing money during the pandemic and is the group most at risk of defaulting on their mortgage. Urban Wire, the blog of the Urban Institute, points out that if this group loses their property, the new owner might convert it into a building that's no longer affordable.
The Millionacres bottom line
The lockdowns of small businesses during the pandemic caused many lower-income workers to lose their jobs. With little to no income, these workers couldn't pay their bills, including rent, leaving landlords holding the bag. Survey results show that smaller landlords, the ones least able to weather a storm, were more likely to weather this storm, and many didn't make it.