Single-family rental property owners in 48% of all US counties are at above-average risk for default, according to a new study by RealtyTrac. Even worse: almost 90% of those properties are owned by mom-and-pop investors who own fewer than 10 rentals.
The RealtyTrac Rental Property Risk Report uses real estate and mortgage records from ATTOM Data Solutions to analyze data from 3,143 counties across the US against three criteria: the percentage of rental units; the unemployment rate in the county; and the loan-to-value ratio of rental properties there. The report then created a weighted average using those criteria, with 100 representing the highest potential risk.
The report found that taken together, COVID-19, job losses, and eviction moratoria have led to reduced on-time rental payments by tenants—and have led to an increased risk of default, especially among highly-leveraged smaller investors.
According to RealtyTrac, the average risk score among the country’s 3,143 counties is 50.2, with 1,514, or 48%, at above-average risk. The average risk score for the largest 100 counties in the US is 43.6, with 53% at above-average risk of default.
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Among those, counties in Florida, New York, and California accounted for 44% of the 25 most at-risk. In New York, Erie, Kings, Monroe, and New York counties led the way, while Collier, Lee, Polk, and Marion Counties led Florida. California had three (Kern, Riverside, and San Bernardino) in the list of the top 25 most at-risk counties.
Mohave County in Arizona ranked as the most at-risk among the 100 largest US counties, thanks to a high percentage of rental properties (79%) and a higher-than-average unemployment rate (8.7%). On the flip side, Salt Lake County in Utah had the lowest risk score at 17.2, due to a relatively low percentage of single-family rental homes, low LTV ratios and low unemployment rate.
“The job losses in a handful of severely impacted industries due to the COVID-19 recession have disproportionately affected renters,” said Rick Sharga, RealtyTrac executive vice president. “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.”
While the majority of single-family rentals are indeed owned by small investors, the space is becoming increasingly institutionalized, led by a handful of REITs and private equity companies. Meanwhile, new entrants are entering the space. Apartment builders, for example, are dipping their toes into the market at a fast clip, and institutional investors are partnering with home builders to produce SFR communities. Last month, Lennar Corp. announced it would raise $2 billion to develop thousands of SFRs, according to Bloomberg.
“The buzzword right now is build-for-rent,” says Michael Carey, senior director at Altus Group, told GlobeSt in a recent interview. “Companies are building out whole communities of build-for-rent [housing]. You’re seeing a lot of money pouring into that space.”