Dr. Paul Keller's Financial Master Series Blog: Is there a housing nightmare looming on the horizon?

On September 4th, 2020, the CDC enacted a temporary eviction moratorium that is valid through December 31st, 2020.[1] This is in response to an executive order from President Trump, which reacts to the expiration of the Corona virus Aid, Relief, and Economic Security (CARES) Act.[2] If a tenant is unable to pay rent and faces the possibility of eviction, then they can take advantage of the moratorium by signing a declaration stating that they meet the eligibility requirements for eviction relief.[3]

The order shows compassion for the tenant who is having trouble meeting rent obligations. It is necessary due to the record unemployment the country is experiencing. If we don’t do this then there will be a lot of people who will end up homeless. It would be a mess.

However, compassion is excellent, but what about the laws of finance? You know those laws that state that if an investor has 20 rental properties and doesn’t receive the positive cash flow of a few hundred bucks on each house to pay the mortgages, he or she will default on the mortgages and end up in foreclosure?

This sounds like a ticking time bomb waiting to happen but is it?

Landlords have several options to seek relief, as well.

One option may be to refinance and bring down the payments lower since interest rates are at record lows.

Another option is landlords may be allowed to fall behind on their mortgage payments amid the corona virus outbreak in return for not kicking renters out of their apartments for federally backed loans.[4]

Additionally, a lot of states have specific programs to help the tenants and the landlords. Multiple states have imposed a temporary foreclosure moratorium, and courts have shut down to halt the spread of the virus and are postponing foreclosure hearings as part of the process.[5] Jury trials in my area were not allowed until August 31^st.

There are a few more resources to consider if you are a landlord and are facing foreclosure. The FDIC has help on this.[6] Additionally, the HUD website has information as well, including a program if you become unemployed[7]

Unfortunately, the small business administration Paycheck Protection Program (PPP) isn’t geared to help landlords. But the TheRealDeal website reports there is a loophole that enabled big-name landlords to get relief from the program.[8]

After learning about the new CDC law, I am glad that I did not purchase the rental property I had an offer on two weeks ago. After all, there is a greater risk that the tenant doesn’t have pay and a risk that a landlord won’t be able to get assistance. Also, I have recently quit my job, so that “dependable” good income is a goner. To learn about why I quit my job sooner than I had planned, check out the link below:

https://drpaulkeller.com/financial-freedom/

Currently, I have one rental property, a primary residence, and a loan. I’m in an excellent financial position to handle this loan since I am not overextended and over-leveraged. Even if my bank calls the loan, I will be OK and be able to pay it. But this is not the case for many real estate investors. Check out Dave Ramsey’s story when the banks called his loans.[9]

It is nice not to have to worry because I was conservative in my taking on of risk when it comes to leverage. Luckily, I also have a great tenant that has a job, and they are paying their bills.

The reality is, though, that there may be homeowners who may fall through the cracks where the programs cannot help them. Many financial experts are suggesting a housing collapse or price drop in a year. Nobody knows if this is a certainty, but the pressures of a downturn in the real estate market seem to be mounting. The unemployment number and how it recovers is a crucial factor in how the real estate cycle will play out. I will be monitoring the unemployment number, will you?

Well, that’s all for now.

To learn more about rental property investing, check out my book, The Beginner’s Guide To Rental Property Investing

Good luck and keep safe,

Dr. Paul Keller.

[1] https://www.whitehouse.gov/presidential-actions/executive-order-fighting-spread-covid-19-providing-assistance-renters-homeowners/

[2] https://www.whitehouse.gov/presidential-actions/executive-order-fighting-spread-covid-19-providing-assistance-renters-homeowners/

[3] https://www.cdc.gov/coronavirus/2019-ncov/downloads/declaration-form.pdf

[4] https://www.bloomberg.com/news/articles/2020-03-23/landlords-granted-mortgage-relief-if-they-hold-off-on-evictions

[5] https://www.nolo.com/legal-encyclopedia/coronavirus-foreclosure-relief.html

[6] https://www.fdic.gov/consumers/assistance/protection/mortgages/fc-prevention/consumer.html

[7] https://www.hud.gov/topics/avoiding_foreclosure

[8] https://therealdeal.com/2020/05/26/loophole-allowed-big-name-landlords-to-get-bailout-funds/