As a landlord who did a pandemic post-mortem, I noticed that renters also benefited greatly once the lockdown began.
I’m not talking about tenants who decided to stop paying rent even though they were earning and still employed. Many single-mother landlords were harmed by these non-paying renters, as the landlord’s expenses still need to be paid.
And I’m not talking about renters who were able to get their rent reduced or find a cheaper place during the pandemic. Clearly, these renters also benefited from the lower prices.
Rather, I’m talking about the majority of renters who continued to pay the same rent, including the usual scheduled increases, from March 2020, when the pandemic was officially declared over, to May 2023.
If you missed the pandemic real estate boom, this post should make you feel better. The renter was able to make 14% to 50% more profit on the rent he paid in 3 years.
Higher occupancy rate with the same rent
One thing landlords worry about is wear and tear. The more tenants in a rental property, the bigger the damage. The higher the occupancy rate, defined as the time a tenant spends within a rental, the higher the wear and tear.
Some of the most common wear problems include:
- damaged wall
- damaged appliances
- chipped counter top
- Floor dents and carpet damage
- plumbing failure
- scratch on the door
- faded paint
- HVAC failure
Not only does it add wear and tear, but liability issues can often arise as well. For example, residents who spend more time at home are more likely to cook and smoke, which increases the potential for harmful fires. Tenants who stay longer in their homes are also likely to have more people coming to their homes.
Before the pandemic started, most people were up by 8am, at work by 9am, and home by 6pm.almost 14 hours I spent 10 hours at home and 10 hours outdoors. So pre-pandemic uptime was around 58% (14h / 24h).
In other words, the rent paid by tenants provided about 14 hours of shelter per day before the pandemic. After the pandemic, the average resident spent more time at home on average each day. As a result, the average tenant was able to get greater shelter value for the rent paid.
Conversely, the average landlord made less money on the rent they received due to higher wear and tear. The only way landlords could have maintained their profit margins was if they were raising rents regularly to cover the increased costs.
Rapid increase in tenant occupancy rate
As the pandemic began, occupancy rates for most tenants jumped to over 87.5% (21 out of 24 hours at home) for the entirety of 2020. The lockdown left me with nowhere to go for at least three months. Some never leave their homes.
A full year later, in the spring of 2021, a COVID-19 vaccine became available. But even though there was a vaccine, most people couldn’t get it. But still, most companies that enacted work-from-home policies in 2020 will continue to do so in 2021. The occupancy rate for tenants that allow telecommuting is likely to continue to hover around 83% (20 out of 24 hours).
With the introduction of boosters in late 2021, more and more people are gradually feeling more confident about returning to work. However, to this day, many companies still have work-from-home or hybrid policies. Therefore, the tenant’s occupancy rate is likely to remain above 65% (8.4 hours out of the house per day) in 2021.
In other words, tenants were getting more value for the same amount of rent they paid. How much more value are you looking for? You can do some simple math below.
Estimated rental property occupancy rate by year
Of course, the amount of time spent at home varies from person to person. However, in general, more people spent more time at home in 2020, 2021, 2022 and 2023 than they did before 2020.
These rental property occupancy rate assumptions are based on people who can work from home. For those who had to work in an office, the utilization rate would have been even higher, but not by much.
2020: Average utilization may have spiked from about 14 hours pre-pandemic to over 21 hours per day. So a common renter could get more than his 50% value of the rent paid in 2020.
2021: Average utilization may remain elevated at about 20 hours per day compared to 14 hours pre-pandemic. Are you really spending more than 4 hours a day outside your home? So the renter could get him 43% more value for the rent he paid in 2021.
2022: Average utilization may have dropped to an average of around 18 hours per day compared to 14 hours per day pre-pandemic. So the renter got 28% more value for his 2022 rent.
2023: Average utilization probably continued to decline until it averaged about 16 hours per day. Therefore, the renter gets 14.2% more value than the rent he is paying in 2023.
In other words, over three years, renters were getting between 14.2% and 50% more value for the rent they paid. A rise of 14.2% to 50% corresponds to the range of national house price gains over this period.
What is your housing occupancy rate?
To get more concrete data, estimate your estimated utilization for 2020/2021 and 2023. Think about it, please. I think you will be amazed by the results. It will be interesting to see how the utilization has changed.
In 2020, the author, who has two children, had an occupancy rate of about 83% (20 hours a day at home). I took the kids to the playground for two hours and I went to play tennis or softball for another two hours. 2020 and her 2021 100% of the time she cooked herself or ordered delivery.
2023 occupancy is close to 75% (18 hours at home), so no dramatic difference. I don’t have a full-time job, so I still write and record podcasts mainly from home. San Francisco’s climate is mild, so outdoor exercise is the same year-round.
But I now spend up to two hours a day driving my kids to and from school, seeing the doctor, going out to play, and doing extracurricular activities. Part of that time is just sitting around doing nothing with my wife at my side. But now, I’m making more trips to social events and shopping malls. On weekends, I often go out for 3-4 hours at a time.
Before 2020, due to more meetups and conferences, my occupancy rate was closer to 71% (17 hours at home). We expect to return to pre-pandemic occupancy rates by 2024.
Loading…The lessor saved and invested the difference
In addition to getting more value for shelters that tenants pay for over three years, financially savvy tenants regularly invest their cash flows in the stock market, real estate stocks, private real estate funds, and alternative investments. would have been
Had tenants invested regularly during the pandemic, they would have also benefited from rising risk asset prices. Despite the 2022 bear market, risk assets have been mostly up since early 2020.
Data show that most Americans only save about 5% of their household income, which makes their investment percentage even lower, but the typical Financial Samurai renter saves much more. I believe they do.
All the anti-housing renters told me they were saving and investing the difference. Despite the data showing that the average homeowner is 40-44 times wealthier than the average renter, I have no reason not to believe them. In the long run, everyone makes rational decisions to improve their situation.
Both homeowners and renters emerge victorious during the pandemic
Situations where both homeowners and renters win are rare, but that’s what happened most of the time during the pandemic.
Of course, some renters faced evictions and above-average rent increases. Some homeowners have lost their homes or suffered costly damage. But for the millions who were able to keep renting the same place for the same price, it was a big boon.
Renting is not throwing money away. The money will be used for shelter costs. There is no economic benefit compared to renting. Once owned, potential You can make money yourself, but there are no guarantees. Please identify the difference.
With higher occupancy rates, the value renters get in exchange for rent has increased significantly over the years. And for the millions of employees who can continue to work from home or have hybrid environments, rental will continue to offer better value, at least temporarily.
In the long run, rents are likely to rise to cover additional wear and tear costs. However, it can take years for market forces to take effect, especially if you are renting from single-mother landlords. If you’re a renter, rest easy knowing you’ve had great deals over the years!
For homeowners, demand for housing is likely to increase permanently given telecommuting and hybrid work take hold. Homeowners should therefore continue to benefit from higher house prices over the long term.
Reader Questions and Suggestions
Are any renters happy with getting more housing for the rent they pay? Have any landlords noticed a significant increase in wear and tear during the pandemic? How do you plan to cover the additional costs of
As a landlord, one way to keep your property value in check is to invest in real estate. As an alternative to purchasing a primary home, you can invest in a personal real estate fund through Fundrise. Fundrise primarily invests in Sunbelt residential properties with low valuations and high rental yields.
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