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The past year has been tough on everyone. You don't have to look much past real estate and housing to see these challenges on full display. While most of the focus has been on unemployment and how it's impacted renters and their ability to make payments, landlords have been affected, too. And thanks to changing laws in parts of the country, things could get a whole lot more challenging in the near future.

Landlords in Survival Mode

Beginning in spring 2020, the Federal Housing Finance Agency (FHFA) introduced rent forbearance programs to provide  relief for individual renters who had lost jobs due to COVID-19 and were no longer able to fulfill the financial obligations of their lease agreements. And in helping one group (tenants), they created an entirely new set of challenges for another (landlords). 

Though mortgage forbearance programs have provided some level of protection for landlords, there are still significant challenges that stem from a lack of rental income. And it's likely that these issues will get worse before they improve. You might even say some landlords are in survival mode at the moment.

"During forbearance, property owners can't evict tenants solely for non-payment of rent. Landlords also can't charge late fees or penalties for non-payment of rent. They must also give tenants flexibility to repay the rent over time, not necessarily in a lump sum," HousingWire.com explains. "If property owners do evict, they must give tenants at least a month's notice to leave."

It's estimated that more than 11 million Americans are currently behind on their rent. And without clear direction on when forbearance will be lifted, many landlords are stuck between the proverbial rock and a hard place.

In some markets, like New Jersey, things are about to become even more difficult for landlords. Governor Phil Murphy just passed brand new legislation that bars landlords from inquiring about a prospective tenant's criminal history. The new law is intended to make housing more equitable for people of color, but it also raises questions about how landlords are expected to vet tenants and make wise financial decisions.

Under this new law, landlords are only allowed to inquire about criminal history if the applicant has met very specific parameters, such as being registered as a sex offender or convicted for "making meth in federally-assisted housing."

Proponents of the bill say this law will make housing more accessible to minorities, while opponents argue it has nothing to do with race. Instead, it strips landlords of their ability to properly screen tenants - something that's vital to running a successful real estate business.

While this new law only applies in New Jersey, it's likely that we'll continue to see tenant-friendly legislation, such as this, expand into other markets soon. This will continue to push real estate investors to more favorable markets that support equal rights for both tenants and landlords.

In the coming months and years, keep an eye on rental property markets like Houston, where a number of strong economic indicators support a growing market that offers benefits to both renters and landlords. Meanwhile, New Jersey and other overly-legislated markets are likely to see a decline in independent real estate investors. 

Prioritizing Rigorous Tenant Screening

Nobody saw the COVID-19 pandemic coming. And even if we knew it was coming, there would have been no way to prepare for it. Having said that, there are plenty of ways for landlords to insulate against other foreseeable risks and challenges. Rigorous tenant screening is one of them.

While it's becoming more challenging to properly screen tenants in markets like New Jersey, most other states still have reasonable laws that allow landlords to vet applicants based on their employment, finances, and criminal history. Tapping into these freedoms will dramatically lower your chances of signing an agreement with a tenant who doesn't respect your property and/or who lacks the financial resources to fulfill their end of the lease agreement.

Now is the time to improve your approach and set your rental property business up for many more years of profitability, growth, and success.