Why Tenant Rent Delinquencies Will Increase In 2023
Key Points:
Rental assistance funds for tenants have closed
Inflation rates are causing rents to increase
Legislation designed to protect tenants is impacting landlords ability to enforce rent collection
If you are a real estate investor in Colorado, you should be ready for a challenging year managing properties and tenants in 2023. In addition to many new laws we expect to see passed, we also expect to see tenant delinquencies increase in 2023. At Grace Property Management we manage all types of properties; from Class A and high rents to low-income properties; in different zip codes, counties, single-family homes, and multi-family properties. No matter the type or class of property, we expect delinquent rates to increase for the following reasons:
Government rental assistance funds are largely closed.
In Colorado alone, the government estimates that 36,000 households received $466 Million in rental assistance aid during the past two years. This money was funded by the federal government and given to tenants who struggled to pay rent because of COVID. This was not only beneficial for tenants but also helped landlords collect rent that was due.
Savings rate is down.
The average U.S. personal savings rate has declined to an all-time low. The current savings rate is currently at 3.4% and is expected to drop to 2.2%. This means that people do not have a lot of money saved for times of emergency.
Inflation is up.
The price of everything has risen, from gas to groceries - life costs more. This results in most people needing more money to spend on things like rent.
Impacts of legislation.
Over the past 4 years, the federal government and the Colorado legislature have passed multiple laws that make it easier for tenants to pay their rent over time. These well-intentioned laws may have short-term benefits for tenants who can’t pay rent. But the long-term results and unintended consequences WILL cause delinquency rates to increase. Over the past several years, the time it takes to evict a non-paying tenant has increased from 30 days to 120 days.
Grace Property Management has tracked our internal tenant delinquency rate for over 40 years. We are proud that our delinquency rate has averaged less than 1%. This is due to the high quality of our residents, and our internal processes that are both fair to tenants when they find themselves in difficult times and to landlords who usually have property mortgage bills to pay each month. The past few months we have seen this delinquency rate push just over 1% and we expect to see it continue to increase in 2023.
The Good News:
Rental rates are flattening or declining and rental inventory is increasing. As the sales market slows down, some property owners are not able to sell their properties for the price they need. Because of this, some property owners have no choice but to convert their property to a rental. Basic economics is still true: More rental supply of homes for rent = lower rental rates for tenants.
Grace Property Management believes that when property management is done fairly, both tenants and real estate investors benefit.
Grace Property Management & Real Estate
Serving real estate investors & residents since 1978
303-255-1990
