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Many Small-Scale Landlords Risk Defaulting on Mortgage Loans

While federal and regional eviction moratoria have been lifesaving for millions of renters and homeowners during a national health crisis and related recession, the same does not necessarily hold true for small-scale landlords who own 10 or fewer single-family rental properties.

SFR property owners in 48% of all American counties are at above-average risk of default, according to the latest RealtyTrac Rental Property Risk Report, which measures the relative default risk of single-family rental homes.

While the face of the SFR market is changing these days, RealtyTrac points out in its summary that almost 90% of SFR homes remain owned by mom-and-pop investors.

It makes sense that when renters are not making payments on time, the landlord might become unable to make loan payments—it's especially difficult, though, because many of these small-scale investors are highly leveraged based on loan-to-value (LTV) ratio data, according to the RealtyTrac staff.

According to their research, the average risk score among the country’s 3,143 counties is 50.2, with 1,514, or 48%, at above-average risk.

“The job losses in a handful of severely impacted industries due to the COVID-19 recession have disproportionately affected renters,” said Rick Sharga, RealtyTrac EVP. “Federal, state, and local governments have responded by enacting eviction bans to protect tenants, but in doing so have inadvertently put many landlords at risk. And the longer the eviction bans are in place, the higher the likelihood that these landlords are going to default on their mortgages, declare bankruptcy, or be forced to sell off properties at distressed pricing, which could have a negative impact on local housing markets.”

Sharga added that, while it’s completely appropriate that the government has taken steps to protect tenants from eviction during a global pandemic, it’s also completely unrealistic to assume that landlords can bear 100% of the financial burden of missed rent payments.

He said that there is a common misperception that most landlords are corporations or institutional investors, while, in fact, most single-family rental landlords "simply don’t have the financial strength to weather this storm."

He adds that "financial failure by these investors has implications for both their tenants and the communities where their rental properties are located.”


SFR stakeholders won't want to miss this year's Five Star Single-Family Rental Summit, scheduled for May 12, 2021, at the Four Seasons Las Colinas in Dallas. Click here or on the banner below for more info.


About Author: Christina Hughes Babb

Christina Hughes Babb is a reporter for DS News and MReport. A graduate of Southern Methodist University, she has been a reporter, editor, and publisher in the Dallas area for more than 15 years. During her 10 years at Advocate Media/Dallas Magazine, she published thousands of articles covering local politics, real estate, development, crime, the arts, entertainment, and human interest, among other topics. She has won two national Mayborn School of Journalism Ten Spurs awards for nonfiction, and has penned pieces for Texas Monthly, Salon.com, Dallas Observer, Edible, and the Dallas Morning news, among others. Contact Christina at christina.hughesbabb@thefivestar.com.

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