Podcast 335: Selling Rental Property During COVID-19

Podcast Host and Property Manager, Andrew Schultz, goes into detail about tenants who refuse to sign a release form to show and sell your rental property.

Plus, the best tips on how to handle tenants with little to no credit history, and a heartwarming story of a tenant who painted a mural for a landlord as a thank you.

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Show Transcription:

Andrew Schultz: (00:00)
Hey everyone. Welcome back to another episode of the Rent Prep for Landlords podcast. This is episode number three 35 and I’m your host, Andrew Schultz. On today’s episode, we’re going to be talking about renting to tenants with a low credit history. A tenant paints, a mural for a landlord and tenant issues when selling during COVID we’ll get to all that right after this.

Voice Over: (00:21)
Welcome to the Rent Prep for Landlords podcast. Now your host Andrew Schultz.

Andrew Schultz: (00:26)
Before we jump into today’s episode, don’t forget to check out the Rent Prep for Landlords Facebook group. Over at facebook.com/groups/rentprep. We’re coming up on almost 12,000 members in that group right now. And that’s a great free resource that you can tie into to ask questions of landlords and housing providers around the country on any number of topics. Don’t forget to check that out today. Over at facebook.com/groups/rentprep

Voice Over: (00:54)
Forum quorum, where we scour the internet for ridiculous posts from landlords and tenants

Andrew Schultz: (01:02)
Today in forum quorum, we’re going to talk a little bit about what it means to properly screen a tenant and why that’s such an important factor when it comes to your rental property. We’re going to jump right in here. This was pulled from the landlord subreddit pretty straightforward topic here. Three men ages 22 to 25 are looking to rent my house. They work in the same restaurant and have 100% cash income from tips. I’d estimate that their gross income to be about $3,000 a month. Each they’ve known each other for about two to three years. Tenant one is 22 years old, five 60 credit score. First-time renter tenant two is 23 years old, five 50 credit score currently leasing an apartment tenant three is 25 years old, a seven 40 credit score. First-time renter. I don’t think any of them have any credit delinquencies, just high credit balances and or low credit history.

Andrew Schultz: (01:49)
I believe they all have clean criminal records, but if they do have anything on their records, it wouldn’t be anything more than a traffic ticket. My questions regarding the scenario is would you rent to these tenants? And if not, what is your reasoning? My first concern in reading this is that you were making a ton of assumptions that you should not be making when screening tenants, I’m going to preface this one by saying that just based on the information you’ve provided here, I would not rent to these tenants unless they could provide me with a lot more information before I would make it a decision. So I’ll kind of break this out. Step-By-Step here as to where I’m at on this. And the first thing that I’m going to mention is that you need to have a written set of criteria that you’re operating off of.

Andrew Schultz: (02:29)
It doesn’t matter to me. If you have one single-family rental, or if you have a thousand doors, you need to have a written set of rental criteria that you’re operating off of. And you need to be comparing every application that comes in for your building to that set of written criteria, to make sure that you are making uniform decisions. So I’ll start by saying that as for the criteria, we’ve talked about that numerous times on the, on the show, it’s also available all over the place on rent prep.com, but we’re going to jump in here and just start talking about all of the, the assumptions that are made here and why I have, you know, a real cause for concern here. So you’ve got three men ages, 22 to 25. I don’t care about that. They work in the same restaurant and have 100% cash income from tips.

Andrew Schultz: (03:11)
So what you’re saying here is you have no idea what their actual monthly income is. You say that you’d estimate their gross income to be about $3,000 a month. Each that’s worth absolutely nothing. So if somebody is not providing us with some sort of verifiable proof of income, we’re not going to use that income. When it comes time to factor in for the rental application, I’m looking for verifiable sources of income, which is the requirement here in our state here in New York. But even still, you know, people who are working cash jobs off the book, jobs, working for tips, cash tips, things like that. It’s very difficult to actually verify any of that information unless they’re running it through the company that they work for. And it’s being claimed on a pay stub, which is what a lot of waiters and waitresses tend to do.

Andrew Schultz: (03:54)
Especially if they’re in a position where they’re looking to buy a home or something like that, you know, they can claim those tips through the restaurant that they work at. Yes, there’s taxes that are going to be taken out of it. But that’s kind of, you know, the whole point is, you know, you pay the taxes on the income that you’re bringing in. And then obviously it’s recorded in such a fashion that you can show proof of the income. So the reason they’re not claiming it obviously is cash goes a lot farther when it’s not taxed. So that’s a, that’s a pretty straightforward one there. The other thing I suppose you could do is ask to see copies of tax returns. Previous year’s tax returns. If they’ve worked in the restaurant for more than a year to see if they’re actually claiming any income on their taxes, but if they’re making straight cash income from tips, I’m guessing that they’re probably not claiming a whole lot here.

Andrew Schultz: (04:37)
So you have no verifiable source of income was basically the long and short of that there. Tenant one is 22 years old, five 60 credit score. That’s a very low credit score. A first-time renter tenant. Two’s 23-year-old another five 50 credit score. Again, that’s a very low credit score. Currently leasing an apartment. At least you have a landlord reference that you can verify their tenant three is 25 years old, seven 40 credit score. First-time renter, that’s a good credit score. So our credit threshold is 600. We’re looking for credit scores in the re in the 600 range. You know, 600 is not a terribly high credit score. I don’t think when you get people under 600, you really have to look at their credit history, the different line items and see, okay, what exactly is holding their credit down?

Andrew Schultz: (05:22)
Did they default on some student loans? Did they have some medical debt? Are they just not paying cell phones and utility bills? Do they have outstanding debt to a landlord, something along those lines, you really have to look at the credit profile deeper than just a credit score to find out what’s going on there. It doesn’t sound like you’ve done that because in the second section here, you mentioned that you don’t think that any of them have credit credit, delinquencies, just high credit balances or low credit history. It doesn’t sound like you’ve actually got a full profile there to see all of the ins and outs of their credit, whether they’re making payments on time and whatnot. The next thing I would look at would be their criminal background check. And you mentioned that you believe they all have clean criminal records, but if they do have anything on their records, it wouldn’t be anything more than a traffic ticket.

Andrew Schultz: (06:03)
You don’t know that I have literally shown apartments to people, had them apply, you know, two days later and found out that I was standing in the same room as someone with like a major violent felony criminal past. You can’t tell just by looking at somebody, Oh yeah, this is somebody who has or does not have a criminal record. You have to run those checks and you have to run them on everyone over the age of 18 that you’re going to be renting to. So getting back to the root question here would you rent to these tenants? If not, what is your reasoning? No, I would not rent to these tenants. They haven’t provided enough proof of anything. Realistically speaking. And honestly, as the landlord, you haven’t done your due diligence on the tenants to know whether or not these tenants are going to be placeable or not.

Andrew Schultz: (06:44)
I think that there’s more work that needs to be done on both sides here. I think the tenants need to provide some more information maybe on their income or things of that nature. And I think that the landlord needs to do some more due diligence in the, in the form of really actually looking at all of the information that’s being presented to them, rather than just kind of glossing over everything. It might sound like I’m being a little bit hard on this particular housing provider and the truth is I am. And the reason for that is that an ounce of prevention is worth a pound of cure, especially when comes to tenant screening. And I say this over and over and over, over again, this is the Hill I will die on. This is the drum that I will beat until the day that I die.

Andrew Schultz: (07:20)
Good tenant screening prevents so many headaches on the back end. The most example I can give you is literally happening right now inside of our management company, we obviously manage for several different clients, okay. And the clients that we’ve done, the tenant screening on and the tenants have met our standards more often than not are making sure that their rent payments are in on time, even through coronavirus situation and everything else that’s going on. Our delinquency rate is very, very low when it comes to the tenants that we’ve screened. When you look at the tenants that we’ve inherited through either clients purchasing properties or through us taking over management contracts from other property management companies, you can see the quality of tenant drops there because the delinquency is much higher. So I don’t know if it’s just that other people aren’t screening in the same capacity that we are, but I can tell you that the delinquency rates on the tenants that we haven’t screened are much higher than the delinquency rates on the tenants that we’ve screened using our process.

Andrew Schultz: (08:16)
Having a strong tenant screening process should be one of your top priorities as a property manager or as a housing provider because it’s the asset you’re protecting is either your clients who you have a fiduciary responsibility to, or it’s your own, who you certainly have a fiduciary responsibility to. So good tenant screening is critical. I don’t know how much more I can say about it. It’s so critical to make sure that you have good tenant screening practices in place. If you need help with that, check out the rent prep website, there’s a ton of information, a bunch of great articles on how to set up tenant selection criteria to hopefully help you avoid situations like this. As far as this particular housing provider, good luck to them. I hope that they hear this, and I hope that they take some steps to make sure that they are screening these tenants properly, but so that they can avoid a potentially very, very bad situation down the road

Speaker 3: (09:09)
Feet on the street, real stories from real property managers.

Andrew Schultz: (09:18)
You know, on the street features and awesome tenant story. And it’s certainly a little bit later than our last segment. Let’s jump right in. I had an awesome tenant for a period of about two years, an older well-known local artist. He kept quiet and kept the place very neat and tidy about twice a year. I’d stop in and chat over coffee and inspect the place and address any issues that he had. I was really sad to see him go. When he moved in with his new wife, he said, he left me a surprise when he left, but I couldn’t figure out what it was while doing some maintenance. I found that he painted an absolutely beautiful mural on the side of the barn. It made me even more sad to see them go over that. And we still keep in touch on Facebook. Our current tenants are also pretty awesome.

Andrew Schultz: (09:54)
I knew they’d be affected by the pandemic. So I went out and planted them a small garden since they have three teenage boys and fresh veggies are pretty awesome to have for a free snack. I got a picture later in the summer of a three-foot zucchini. I’m not going to lie when I first read this one, I panicked a little bit because I thought to myself, Oh God, I don’t know what I would do. If, if somebody painted a giant mural on the side of a barn at one of our properties, but it sounds like it worked out pretty well for this particular landlord. So that’s good news. You know, it’s kind of interesting. We’re seeing a lot more public art and murals growing in popularity here in the Buffalo region, even on like the sides of buildings in the city. I know there’s another property manager who her office.

Andrew Schultz: (10:31)
She actually just had a very large mural put on the, the brick side of her building and she’s got an office right there in the city. So it’s in a very prominent location and it looks beautiful. And I believe that there were actually some of her tenants that contributed to that as well, as well as it being part of a public art installation. So that was kind of neat. And then as a kid, I can remember, I grew up out in the country, and the only art that we ever saw on the side of a barn where the the giant advertisements for true mail house tobacco. And if you lived in New York or at least here in Western New York, and probably a lot of other areas in the country, I bet you can relate to seeing those those big, big advertisements on the sides of barns as a kid.

Andrew Schultz: (11:07)
It’s kind of funny because obviously nothing like that would ever fly nowadays, but it’s it’s just a unique memory from, from my childhood. Anyway, it’s nice though, to see good tenant stories every once in a while, it’s something that we don’t really get a chance to cover an autonomously. Something that doesn’t get posted a whole lot either. And any forum that I’m on when it comes to landlord-tenant issues and stuff like that, we really only seem to see the negative stuff. So if you have a positive tenant story that you’d like to share, maybe hear it on the podcast, head on over to own buffalo.com, and drop it in the contact form there on the front page. You can also head over to the rent prep for landlords’ Facebook group and post it up over there. I’d like to highlight a positive tenant story every once in a while, just so that we can remember that, you know, this industry is tough enough. It doesn’t always have to be adversarial between landlord and tenant and sometimes good things do happen. So it’s good to remind ourselves of that every once in a while. So if you’ve got that great tenant story, feel free to submit it and maybe you’ll hear it on an upcoming episode. So what do you do if you want to sell your home and your tenants, disallowing showings, as a result of the pandemic, that’s the exact scenario that one investor in California is facing right now, let’s jump right in to today’s water cooler wisdom.

Voice Over: (12:16)
Water cooler wisdom, expert advice from real estate pros.

Andrew Schultz: (12:24)
I’m in California and trying to sell my rental property. Has anyone faced a tenant who will not sign the realtors, coronavirus release forms? She signed a lease two and a half months into the COVID shutdowns allowing for showings, but because she won’t sign the release forms my realtor, or rather no realtor will show the house. What advice can you provide? And thank you in advance. So of course I’ll preface this by reminding you that I’m not an attorney and that you should certainly speak to legal counsel before you make any decisions on something like this. Don’t just trust the random advice from somebody on a podcast on the internet. Please speak to your own legal team before you make any decisions when it comes to something like this. So I will mention, obviously I’m not a broker in the state of California, but I am a broker here in the state of New York.

Andrew Schultz: (13:05)
So I went ahead and pulled up our own MLS and grabbed our COVID disclosure. And I wanted to mention, there’s definitely a difference between the term disclosure and release. This person mentions in their post, the word release. I’m talking about a disclosure. And obviously having that seen the text of what they have out in California. I don’t know truly what is involved in it, but I would be willing to bet that the language is pretty similar to the disclosure that we have here in New York state. So the part of the one here in New York that I wanted to highlight, and this is reading directly off of the disclosure that’s provided to us by the New York state association of realtors. Nice, are it may become necessary for a real estate licensee, appraiser, inspector, buyer tenant, or other third party to access the property. Such access raises the potential for liability resulting from exposure to COVID-19 by agreeing to permit such parties, to enter the property, or by agreeing to enter the property.

Andrew Schultz: (13:56)
All parties acknowledged. There is an assumption of exposure to COVID-19 and any, and all consequences and or injury, which may result from such exposure included, but not limited to physical or psychological pain injuries, suffering loss illness, temporary, or permanent disability, death, or economic loss. This disclosure will help you to make informed choices about access to the property during the emergency. Now, obviously, I mentioned, I’m not an attorney, so I’m not going to sit here and get into what they mean by assumption of exposure, to COVID-19 and the assumption of exposure to any and all other consequences, et cetera, et cetera. But you can bet that if something was to pop up where someone got COVID-19 as a result of a real estate transaction, this would be the first thing that everybody would start asking for and pointing to. So understanding what exactly it is that you are asking your tenant to sign and what the rights are that you’re asking them to give up before you ask them to sign a disclosure or a release or a waiver or whatever the case may be.

Andrew Schultz: (14:52)
You know, that’s, that’s pretty critical. And obviously, it sounds to me as though your tenant’s not comfortable signing that document for whatever reason, probably because they’re not comfortable with what the document says. So while your tenant may be required to cooperate for showings as part of the lease, they’re probably not required to give up their rights to accommodate those showings. So just keep that in mind, as you’re moving through this process, I think this is probably something where you need to have a conversation with the tenant to truly understand what their concerns are and see what you can do to help remedy those concerns. If anything, you may find yourself in a situation where the tenants just not comfortable having people in and out of their apartment, you know, as a result of coronavirus, obviously, we are in the middle of a global pandemic.

Andrew Schultz: (15:31)
So there is some thought that has to go into things like that. But like I said earlier, this is one of those conversations that you probably are going to want to start with a tenant. And then you may have to have a conversation with your attorney to determine your next steps. So they’re pretty much wraps things up for this week’s episode of the Rent Prep for Landlords podcast. Thank you all so much for listening. We really do appreciate it. The best way that you can help us is by sharing this podcast with somebody who you think would benefit from the information. Maybe if you know somebody who’s just getting into the industry and could use some help. There’s a ton of free educational resources available through these podcasts, as well as over at the rent prep for landlords Facebook group, facebook.com/groups/rentprep, as well as over on the rent prep website at rentprep.com.

Andrew Schultz: (16:11)
Don’t forget. You can always find top tier tenant screening services, including proper credit and background checks over at rentprep.com as well. If you’re looking to get in contact with me, I can be reached over at ownbuffalo.com. Just fill out the contact form on the front page and that drops right to our inbox so that we can take a look and see what you have to say as always. We do appreciate you taking the time out of your week to listen. We’ll be back next week with an all-new episode until then I’m Andrew Schultz with owned buffalo.com for rentprep.com. And we’ll talk to you next week.