Falling behind on rent is an age-old problem that’s been exacerbated by the coronavirus pandemic. Some entrepreneurs are taking things into their own hands, as evidenced by the growing number of platforms designed to give renters more flexibly throughout the month and thus avoid delinquencies and, what’s worse, evictions.
Platforms such as those provided by Chicago-based NestEgg and Washington D.C.-based Till, attempt to help renters that are going through a rough patch, while affording landlords the opportunity to collect funds they might otherwise forgo.
The platforms show some signs of working—helping avoid late payments with the goal of curbing eventual evictions—even as tens of millions of Americans continue to struggle with rent. It’s a step in the right direction, though more may be needed through a combination of national, state and local efforts, to help defray the looming threat of eviction, experts say. Indeed, the delinquency problem is expected to worsen, with an estimated 30 to 40 million people in America at risk of eviction, according to an August report authored by a conglomerate of academics, researchers and housing experts.
“Any measures we can put in place that allow tenants and property owners the space and time to work together to avoid eviction will be valuable to protecting housing stability during Covid. If those measures are tech-based, the tech needs to be usable and accessible,” says Stacy Butler, director of the Innovation for Justice Program at the University of Arizona James E. Rogers College of Law, who co-wrote the report.
That’s where these platforms seek to help. They recognize the larger problem and know they won’t be able to help everyone. But they’re aiming to focus on those they can help—otherwise ideal tenants who need some flexibility in how they pay their rent.
Each platform works somewhat differently, but the basic concept is the same—helping renters and landlords meet their respective burdens. Many Americans receive paychecks that don’t align with the start of the month when rent is typically due, and others struggle to make payments due to unexpected costs that can crop up. These issues have always been present, but coronavirus has made the problems even more acute.
Many landlords want to help their renters, but they, too, are in a bind. If they don’t receive payment, they can’t afford to meet their obligations, so it’s a vicious cycle. That’s where these platforms come in. “If you can give tenants flexibility, then you have the highest possibility of making it work,” says Eachan Fletcher, chief executive and co-founder of NestEgg, who as a landlord himself experienced payment and collection issues first-hand.
Having the ability to make flexible payments is a valuable innovation for renters and landlords alike. Here’s why. Say a renter’s payment is due on the first of the month. Under normal conditions, the person may be able to pay by the fifth, without incurring late fees. But say the renter, who’s already living to paycheck to paycheck, has an unexpected expense that makes on-time payment difficult. The renter could then be on the hook for late fees, which could be a minimum of 10% of her rental payment. Then, if the renter doesn’t pay by the 15th, she could be subject to eviction proceedings, which could mean a fee of at least $200.
“This can quickly snowball for someone who is living paycheck to paycheck,” says Melanie Gersper, chief operating officer of ACRE, a New York based real estate investment company that owns about 25 properties consisting of about 8,000 units, primarily in Florida, Georgia, Ohio, the Carolinas and Texas, and is a pilot partner on Till’s Flexible Rent platform.
The coronavirus crisis has intensified the problem, making this type of resource especially important for people who need that added flexibility. “The goal is to make sure that this tool and resource is available to all of our residents in an attempt to prevent them from getting so far behind that they can’t get caught up,” she says.
The Flexible Rent platform leverages technology and data analytics to develop personalized payment schedules for renters that use the platform. ACRE has made the Flexible Rent platform available at a minimal cost to its renters—no more than $9.99 a month, which is far less than what they would pay in late fees and eviction-related fees, Gersper says. About 20% of their renters are currently enrolled, and the company is also adding the ability for residents who are already behind on their rent to enroll as well.
More broadly, Till, which is VC-backed by Route 66 Ventures, MetaProp and NextGen Venture Partners, works with 14 landlords who control about 500,000 units across the country. At present, about 30,000 have access to the program, which is still in the early rollout stages and requires renters to opt-in, says Till Founder and chief executive David Sullivan. As a landlord himself, Sullivan says he became a tech entrepreneur because he was frustrated by the lack of tools that allowed renters to work with landlords. In his experience, the more you work with the renter, the better the relationship will be.
So far, so good. Since the platform launched in April, the company, which has 18 employees, has seen a high percentage of renters paying according to their schedules. Broadly speaking, delinquencies are getting worse and as various forms of government assistance dry up, a continued surge in delinquency is likely. However, there are some signs of improvement for renters using the company’s platform.
Renters using Flexible Rent pay on time 98% of the time, compared with traditional rent payments which have about 80% on-time pay rates, according to Sullivan. What’s more, the majority of renters on the platform start as delinquent and face eviction risk. “We have been able to stabilize approximately 90% of those renters so that they don’t face eviction — and, further, we have been able to move about 45% of those renters from being delinquent to paying rent on-time within three months. These outcomes mean meaningful reductions in evictions, which is great for the renter and the landlord,” he says.
For its part, NestEgg, which has 15 full-time employees, is a complete property operating system for landlords, which includes property maintenance, rent collection and upkeep services. It also offers tenants who need it the flexibility to pay throughout the month in installments that are aligned with their ability to pay, at no additional cost to them. NestEgg offers a paid version of its platform in which landlords pay a per-month fee of $9 per unit per month for the use of its services. With the paid version, NestEgg advances the rent to the landlords so they have the money in hand.
NestEgg, which has raised $2.785 million from investors including Bonfire Ventures, BAM Ventures, Dreamit Ventures and Financial Venture Studio, also offers a free version of the platform, where landlords get paid three to five days after the tenant pays. Landlords are ultimately still responsible for unpaid rent; however, NestEgg offers optional income insurance so that landlords get to keep advanced rent payments and get three more months of rental income covered even if the worst happens, Fletcher says. Any evictions would be handled directly by the landlord, not NestEgg.
There are currently around 3,500 units on the platform, and it’s been widely successful during the pandemic, he says. Altogether, 98% of its landlords are receiving rent on time during pandemic. In the broader residential rental market, landlords generally have a 70% and 80% success rate, he says.
“No matter how bad it gets for everyone, people will always have a better chance if they have the option to pay over the course of the month and with more flexibility,” Fletcher says.
The obvious question is what happens to when people completely deplete their resources. If people have no income whatsoever they’ll be in a bigger bind.
“Renters who lost jobs and wages due to COVID-19 are stretched threadbare,” says Emily Benfer,
Visiting Professor of Law at Wake Forest University School of Law, who co-authored the report on the troubles renters are facing. “With the expiration of federal unemployment insurance, they are taking on financial risk, paying with credit cards, borrowing, shifting their budget away from other necessities, and depleting the limited resources they have. Without rental assistance or employment opportunities, we could see nonpayment of rent and the accrual of rental debt increase,” she says.
This story and others on New Builders Dispatch are made possible by a sponsorship from the Ewing Marion Kauffman Foundation. The Ewing Marion Kauffman Foundation is a private, nonpartisan foundation that provides access to opportunities that help people achieve financial stability, upward mobility, and economic prosperity – regardless of race, gender, or geography. The Kansas City, Mo.-based foundation uses its grantmaking, research, programs, and initiatives to support the start and growth of new businesses, a more prepared workforce, and stronger communities. For more information, visit www.kauffman.org and connect with www.twitter.com/kauffmanfdn and www.facebook.com/kauffmanfdn.