Should I pay my rent?

Apr 12, 2020 | Market News, Multifamily

Over the past 3 weeks, nearly 17 million people filed for unemployment. True unemployment at this moment is about 18%, compared with just 3.5% as of the first week of March.

Many of these individuals rent apartments, have little in the way of savings, and find themselves in a difficult position. Thankfully, the government has taken swift action. The recently enacted CARES Act puts money in the hands of individuals so they can keep paying their bills, but the timing of the stimulus remains uncertain.

The CARES Act also put a moratorium on evictions for any property financed with government-backed debt, providing additional comfort for all renters.

Over the next few months, many tenants will be faced with a difficult question; do I dip into my savings to pay rent knowing that I can’t be evicted? Everyone’s situation is different, but it’s important to understand where your rent goes and the general economics of apartment buildings.

First off, not all landlords are swimming in cash. Real estate is a get rich slow business in which most wealth is tied up in illiquid properties. Real estate is a great way to build wealth, but it’s also a great way to lose it all. With delinquency of 15%+, most levered properties are operating at a loss.  

Back to the question at hand, should I pay my rent? Let’s say your rent is $1,000, here’s a rough breakdown of where that $1,000 goes:

  • $100 goes to pay the onsite staff; management team, maintenance staff etc. who work onsite each day.  
  • $150 goes to taxes; local and school taxes go to pay for government, schools, police, firefighters, and hospitals.
  • $250 goes to the lender; local banks, credit unions, insurance companies etc.
  • $100 goes toward utilities; electric, water/sewer, gas, cable/internet.
  • $40 goes to the property management firm; they employ accountants, marketing staff, regional managers and others who support the property.
  • $40 goes toward insurance coverage; insurance brokers and carriers.   
  • $100 goes to R&M; plumbers, electricians, painters, contractors, and other vendors who perform work at the property.
  • $50 goes to various contracts; pest control, landscapers, cleaners who perform recurring work.
  • $25 goes toward marketing; website, online marketing, outreach marketing, locators etc.
  • $100 goes to investors; HNW individuals who use the funds to pay for retirement or philanthropic endeavors.   
  • Remaining (if there’s anything left) is profit which goes to the owner to pay rent, employee salaries etc.  

The economic system is a tangled web. Your rent payment doesn’t go straight into the pockets of landlords, it goes to pay for the people and services critical to running a business.

The single best thing anyone can do in this time of crisis is to uphold your obligations. Pay your bills, pay your mortgage, pay your rent, pay your employees, and if you can, support local businesses.

Here’s a video put together by NAA which explains the breakdown of $1 in rent.