Some consider this drastic government intervention to be the greatest ‘taking’ of private property in the post-war era. Politics and pandemic talk aside, let’s go ahead and analyze this unprecedented government intervention from the perspective of a small-time landlord:
Let’s say you worked at a soulless corporate job and saved up for 10 years in order to be able to afford a rental property in NYC. You envisioned this purchase as being a source of consistent monthly retirement income in a few decades, once the mortgage was paid off.
After a decade of selling 80 hours a week of your time for money, you achieved your dream by buying a small, one-bedroom condo in the East Village at a price of $1 million. When you purchased the property, the total monthlies on the condo (mortgage, taxes and common charges) were $5,000. The rental income of $5,250 barely covered your expenses. However, you were still happy to make the purchase since the investment would become cash-flow positive in 30 years after the mortgage was paid down, which is when you anticipated retiring.
You utilized virtually all of your liquid savings in order to afford the 20% down payment of $200,000.
When the pandemic hit, your tenant heard about the eviction moratorium and then immediately ceased paying rent. Without the rental income, you were on the hook for $5,000 in expenses each month. This was unsustainable, because your income wasn’t high enough to absorb this expense while also paying for your primary residence and living expenses.
Moreover, you had little to no financial buffer since you utilized virtually all of your liquid savings in order to cover the down payment.
After 6 months, you are out $30,000. Your savings are long since depleted, and now you’re forced to take out a loan from your 401K. You’ve also been forced to cut back your living expenses, all while your tenant gets to live rent-free in a property you own because the State of New York has unilaterally decided to turn your private property into public housing without offering you any form of compensation or financial assistance.
After one year, you are out $60,000. After two years, your total unpaid rent amounts to $120,000. Now it gets even worse, because the courts are backlogged with cases and you have to start paying legal fees. The eviction process ends up taking 6 months.
When it’s all said and done, you’ve lost $150,000 in rent (30 months) and spent $25,000 in legal fees. And just because you’ve finally succeeded in having the tenant physically removed from your property, it doesn’t mean you’ve received hardly any of the unpaid rent balance.
Is this sort of absurd political risk what you anticipated when buying an investment property after diligently working hard, playing by the rules and saving money for a decade of your life? Did you ever think that your private property would effectively be seized by the government for two years without compensation in the supposed financial capital of the United States?