Agent Landlordism – A Hidden Crisis

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Considering the advantages given to a real estate license, it makes perfect sense that for generations, realtors bought rental homes as their investments. In most cases, over the last several decades, these investment purchases were practical slam dunks.

The United States counts a total of 48.5 million rental units. Of that total, 22.7 million units are owned by “mom and pop” operators. Or, more likely stated, realtors. As a collective, realtors control a massive chunk of our economy. But, what kind of footing is this economy based on?

The Pandemic has devastated America in so many ways. The home rental market will never recover to what it once was. Not long ago, an agent could purchase a classic starter home in a working class neighborhood and be pretty much guaranteed a rent better than the mortgage. As long as the economy hummed along with jobs for the working class, this business model worked. If an agent’s tenant lost their job, the agent knew another tenant wouldn’t be hard to find.

To hit the sweet spot of finding homes with rent potential exceeding the mortgage, agents looked at the starter home and rehab markets. For the most part, people who rent these homes are hourly wage earners, service workers and tradespeople. Since WWII, this workforce has been more or less stable. But, not anymore.

Tens of millions of people have lost their job. Millions of jobs are NOT coming back. The Pandemic, out of necessity, has greatly accelerated automation. Automation will kill millions of more jobs. Outside of manual labor, it’s difficult to see what jobs will reliably fill all our rental homes. What was once a no-brainer for agents is now a fairly risky investment?

Some say; we are turning the corner. And we are; right into a head-on collision. Evictions coming! The problem with real estate agent landlords is they are NOT rich people. Rental homes are long term investments on thin margins. Agents don’t have a bottomless pit of cash to float their investments.

Having owned 4 rentals properties at one time, I can personally attest to the “house of cards” aspect of being an agent-landlord. Thankfully, during that time, I never experienced a market like we are about to enter.

Over the next several months we are going to be bombarded with, “rip-your-heart-out” stories of eviction and loss. Most, if not all, of these stories will be told from the tenant’s point of view. After all, who cares about the villainous landlord? But, in many cases, that landlord is you!

Realtors don’t have retirement plans with a matching 401K. For the thousands who built a retirement around rental homes, many will see decades of hard work, maintaining those homes for, “down-the-road”, washed away in a matter of months. It’s impossible to understate just how devastating our eviction problem will be for thousands of our fellow agent landlords.

Knowing many of our agents are landlords, Wynd Realty has set-up a Landlord support group on our SLACK network. To be honest, we don’t know exactly know how to help our fellow agent/landlords. But, providing a safe place for discussion and strategy among other landlords is a start. Some agent/landlords will survive this period better than others. Wynd Realty believes those outcomes may very well begin with open discussion.

As odd as it was, 2020 from a sales perspective wasn’t bad. Because of the pandemic, many left the industry leaving those who hung in there a little more breathing room. Sales were up. The strong market will most likely last throughout 2021. That’s all good news. But, starting in January, short of a governmental miracle, evictions will start. Everyone will lose.

This is the last blog of the year. And, like the year, it’s depressing. Sadly, for many agents, the dumpster fire that was 2020 will continue well into 2021. So, if you run into clients needing a rental this year, be sure to look for an agent/landlord FIRST. If we don’t help out our own community, who will?

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