Over 20 million of the 50 million rental units in the U.S. are owned by mom-and-pop landlords, also known as individual investor landlords.
While renters faced an affordability crisis during the pandemic — with rents rising nearly 26% nationally in 2021 — mom-and-pop landlords had their own challenges. Many rely on rent money to pay their mortgages, property taxes and other maintenance fees — but this income stream was threatened during the pandemic when the federal government temporarily banned evictions for non-payment of rent.
Affordability issues persisted beyond the pandemic as inflation pushed the cost of almost everything up for consumers across the country. The average national rent-to-income ratio is now 30% and it hasn't been that high for more than 20 years, according to the latest data from Moody's Analytics. For comparison, the average rent-to-income ratio in 1999 — the year Moody's started tracking this metric — was 22.5%.
“The rent-to-income ratio continued to climb up because income growth was not able to catch up with the rent growth,” Lu Chen, a senior economist at Moody’s Analytics, told the New York Times.
The eviction ban helped prevent more than 1.5 million households from becoming homeless, but that ruling, along with Biden’s newly proposed renter protections, are “at the expense of landlords,” according to the American Apartment Owners Association (AAOA).
By December 2022, 15% of U.S. renter households were behind on their rent, amassing an estimated $12 billion total rent debt, according to the National Equity Atlas, putting immense financial strain on individual investor landlords.
AAOA director Alexandra Alvarado said it’s “very frustrating” how mom-and-pop landlords are ignored by lawmakers.
“We’ve seen it for so many years … [mom-and-pop landlords] are not being treated differently, even though [housing policy] affects them much more than it would affect any large company with thousands of units,” Alvarado said on “The Big Money Show.”
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Rental markets vary widely across the country, which is why groups like the National Apartment Association and the AAOA advocate for local solutions.
The associations are widely against rent control — which is currently being debated by nine state legislatures — because they believe it exacerbates housing shortages, causes existing buildings to deteriorate and disproportionately benefits higher-income households.
Instead, they’ve urged lawmakers to pursue alternative solutions to better address critical affordable housing shortages.
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Florida, for example, is taking a pro-development approach to the problem. Under its newly proposed Live Local Act, the Sunshine State is seeking to boost funding for property owners and developers to designate more units as affordable housing, while also banning rent controls.
Regardless of where you stand in the tenant-landlord ecosystem, it’s clear that lawmakers are under pressure to update housing policy in favor of the roughly 35% of Americans who live in rental housing.
Understanding and complying with new rules is growing more challenging for mom-and-pop landlords. But there’s another way to get a piece of the real estate pie — without all of the hard work.
Easier ways to invest in real estate
Investing in a real estate investment trust (REIT) is a way to profit from the real estate market — without having to buy a house or worry about screening tenants, fixing damages or chasing down late payments.
REITs are publicly traded companies that own income-producing real estate like apartment buildings, shopping centers and office towers. They collect rent from tenants and pass that rent to shareholders in the form of regular dividend payments.
To qualify as a REIT, a company must pay out at least 90% of its taxable income to shareholders as dividends each year. In exchange, they pay little to no income tax at the corporate level.
Essentially, REITs are giant landlords. Some have seriously blue chip tenants, including the U.S. government, while others house e-commerce giants like Amazon and Walmart.
Of course, not all REITs are made equal. Many took hits during the pandemic, but generally, they’re described as total return investments that provide high dividends and the potential for moderate, long-term capital appreciation.
As REITs are publicly traded, you can buy or sell shares anytime and your investment can be as little or as large as you want — unlike buying a house, which usually requires a hefty down payment and then comes with a mortgage.
Not sure what to look for? Here are three strongly performing publicly listed REITs to get you started:
- VICI Properties, Inc. (NYSE:VICI): VICI Properties owns hundreds of gaming, hospitality and entertainment destinations across the U.S., including the iconic Caesars Palace, MGM Grand and Venetian Resort in Las Vegas. Its stock performance was up 18.8% year-over-year (YoY) on Jan. 31.
- Gaming and Leisure Properties, Inc. (NYSE:GLPI): Gaming and Leisure Properties, which owns 59 premier gaming and related facilities across 18 states, was up 19.13% YoY on Jan. 31.
- Getty Realty Corp. (NYSE:GTY): Getty Realty was up 22.58% YoY as of Jan. 31. This REIT owns, leases and finances 1,021 freestanding convenience and auto-related properties across 38 states and Washington, D.C.
While REITs offer shares in a broad portfolio, discerning investors can also buy into individual commercial properties. With the help of new platforms, these kinds of opportunities are now available to retail investors. Not just the ultra rich.
With a single investment, you can own institutional-quality properties leased by brands like CVS, Kroger and Walmart — and collect stable grocery store-anchored income on a quarterly basis.