Washington – According to the US Treasury, the remaining rental aid budget for struggling US renters is expected to be exhausted by the summer of 2022.
Rental Aid Funds Running Out, US Treasury to Implement Next Steps
The United States Department of the Treasury’s $46.6-billion Emergency Rental Assistance (ERA) program intended to help struggling renters and prevent evictions during the pandemic has already disbursed $30 billion since the project started in January 2021. By the end of February 2022, renters and landlords have already benefited from a huge chunk of the budget. At the time of this writing, the US Treasury anticipates that it will have depleted a “vast majority” of its funding by mid-2022.
The program didn’t get off to a good start as a lot of communities did not have the right infrastructure in place to prevent local evictions and provide counsel to workers who suffered a pandemic-induced job loss.
Deputy US Treasury Secretary Wally Adeyemo said that the rental assistance program has helped prevent evictions and keep the eviction rate at historical lows during COVID-19. The Department enacted the program in two tranches, the first one was in December 2020 with the follow-up taking place in March 2021.
As the funds start to run out, Adeyemo also expressed that “now is the time for state and local governments to leverage this infrastructure to provide services like right-to-counsel programs and housing counselors that will help families avoid economic scarring long after COVID-19 is in the rear-view mirror.“
In just one year since the ERA started, it has already helped renters numbering millions by giving them direct access to rental aid. ERA has also created new programs and partnerships with nonprofits and courts at both the local and state levels to ease the housing crisis brought about by the pandemic. The program has successfully administered eviction diversion and given suddenly jobless folks access to counsel and housing stability services.
The US Treasury estimates that it will have disbursed most of the funds from its rental aid program by mid-2022. The department has announced its next steps.
How the US Treasury Is Expanding the ERA Program
To prevent an abrupt disruption that the depletion of rental aid funds will cause, the US Treasury said that several state, local, and tribal governments have set aside and allocated some $3.75 billion from State and Local Fiscal Recovery Funds (SLFRF). They will allocate the said amount to rent, utilities, and mortgage assistance as well as other eviction prevention services.
The Treasury is also rolling out the next phase of its American Rescue plan, which they dubbed ERA2, in anticipation of the fund’s depletion. The Treasury’s approach with the ERA2 makes sure that as many low-income renters as possible have access to this rental aid while we’re still in a pandemic.
On Mar. 30, 2022, the Treasury announced its reallocation guidance for the ERA2 funds. The main intention of the guidance is to prioritize reallocating funds to renters within the same state whenever possible and direct any excess funds to areas with significant demonstrated needs.
The latest guidance also comes with new incentives for local and state governments to consider making long-term investments to prevent evictions as well as supplementing their rental assistance programs. A lot of states are already tapping into their SLFRFs and making eviction prevention investments. The reallocation of ERA2 funds will see to it that grantees that have already made use of other funding sources (including the SLFRFs) can deliver more rental and utility assistance.
The provision also includes the preservation of grantees’ ability to obligate a max of 10% of their ERA2 funds. This obligation will cover housing stability services, right-to-counsel programs, eviction diversion programs, and other equally important infrastructure that can be used as leverage for long-term eviction prevention.
Implications for Rental Property Investors
To say that COVID-19 has adversely affected the real estate industry on so many levels is a huge understatement. Since businesses and companies ceased operations, countless people found themselves on the brink of homelessness due to job loss.
Property sales went down. Owners of vacation rental services, such as Airbnb, had to pivot just to stay afloat. And numerous traditional rental property owners had to face the reality that they might not get their rent money on time—or at all, in plenty of cases. A lot of them even devised several ways to help renters out for a short period of time.
Earlier on in the pandemic, the Center for Disease Control and Prevention announced a moratorium on evictions in September 2021. What this simply means is that anyone financially affected by the pandemic can live in a property rent-free and not get evicted. This has caused landlords all across the country a great deal of stress and anxiety. After all, they didn’t put their money on investment properties to have people use them for free. Any unpaid rent by a tenant already counts as a loss to an investor, regardless of whether we’re in a pandemic or not.
The issue is not just about showing compassion to those facing unemployment. The issue also covers a landlord or investor who also depends on the income generated by the rental property investment—money that can be used to meet their family’s needs.
When the US Treasury made the decision to roll out the ERA, it was a win-win situation for both landlords and renters. The landlords still get paid amid a financial crisis and the renters get roofs over their heads at the government’s expense.
But with the anticipated exhaustion of the rental aid, traditional property owners will once again feel the pressure of having to face the possibility of not getting paid on time. Even with the ERA2, there is still a sense of instability in the rental business, especially with long-term rental properties. Real estate investors considering buying income properties for sale for the purpose of renting them out long-term are putting themselves at risk of unstable payments at this time.
Investors should give serious thought to the idea of buying properties for traditional rentals at this time. Perhaps they should consider other investment strategies if they are keen on making investments in real estate properties. With the ease of COVID-19 travel restrictions, getting an Airbnb rental property might be a better option at this time.
They could check out some real estate markets on a website like Mashvisor to see which locations and neighborhoods show much promise for Airbnb rentals. The website gives its users access to a massive database of almost all US markets with highly-accurate data for both traditional and Airbnb properties. They are also given certain investing tools that they can use to perform Airbnb market research, estimate Airbnb income, and find investment properties that will help them generate positive cash flows at this time.
To learn more about how Mashvisor can help you find profitable investment properties, schedule a demo.
The Bottom Line
While renting a property out as a traditional rental can help address the national housing crisis temporarily, investors are faced with certain situational risks brought about by the pandemic. But don’t just take our word for it. Investors should perform extensive due diligence, especially now. Investing in real estate is a very big decision to make regardless of whether you plan to get into the rental market or the fix-and-flip business or whatever investment strategy you choose. As an investor, your goal should be to get a good return on your investment and eventually generate a good cash flow to earn a decent profit.
The Treasury’s rental aid program is meant to assist low-to-no-income renters temporarily, but what will happen when the funding runs out? Surely the government has prepared contingency plans, but investors should take all of that into account before making a final decision.
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