Podcast 365: Renting to Traveling Nurses

In this week’s episode, Podcast Host, Andrew Schultz, explores the ins and out of renting out your property to traveling professionals, such as nurses.

If your rental is near a college, sometimes students put down a loan as a source of income. But, can student loans be used for housing? Find out the pros and cons of this specific scenario.

Last, but not least, your tenant loses their job, now what? Discover how to go about the process of working with your now unemployed tenant.

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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 365, and I’m your host, Andrew Schultz. On today’s episode, we’re going to be talking about what to do when a tenant loses their job, renting to traveling professionals and accepting, an applicant’s financial aid as income. We’ll get to all that right after this.

Voice Over: (00:22)
Welcome to the Rent Prep for Landlords podcast. Now your host, Andrew Schultz.

Andrew Schultz: (00:27)
Before we jump into today’s episode, don’t forget to check out the Rent Prep for Landlords Facebook group. It’s a great free resource for you to network with housing providers from around the country. And if you have a question or a situation that you’ve never dealt with over 12,500 members, chances are someone in the group has been there before and can lend a helping hand if you haven’t checked it out yet, do it today. Over at facebook.com/groups/rentprep. Don’t forget to mention the podcast when answering the questions. So we know how you found us

Voice Over: (01:00)
Forum quorum, where we scour the internet for ridiculous posts from landlords and tenants.

Andrew Schultz: (01:08)
We’ve got a really great episode for you today. We’ve got three really interesting topics that we’re going to be talking about. Starting with this one, our first forum quorum. This one comes to us via the landlord subreddit. And it’s actually a pretty interesting one on renting to traveling professionals. Let’s go ahead and jump right in here. I have a unit that I’m looking to rent out and someone has approached me about having him lease the apartment and use it for short-term rentals. For traveling nurses, he would get renters insurance managed to find the nurses clean the apartment in between stays et cetera. He would be responsible for the rent, regardless of whether he can keep it occupied. My main concern is who is liable. If someone gets injured in the apartment, would it be him if he has rentals insurance? My other concern is the wear and tear on the apartment.

Andrew Schultz: (01:51)
Should I expect it to be higher because of the risk of a couple of bad people out of all the renters messing the place up, or should I think of Eve lower? Because nurses from out of town will come alone and we’ll probably spend a little time in the unit. Any advice on whether this is worth it, how to assess the opportunity, and how to draft inappropriate lease document would be helpful. Thank you in advance. And again, this one comes to us via the landlord subreddit. So this is an interesting one and there’s a lot of different directions. You can go and talking about it. This is very similar to an Airbnb arbitrage where someone rents and furnishes an apartment and then puts the apartment up on Airbnb. The difference between their expenses and the income from the rentals is obviously the arbitrage. In this instance, it’s very similar to retail arbitrage, where you would go and buy something for $5 at Walmart and sell it for $10 on Amazon.

Andrew Schultz: (02:41)
The same basic concept at play here, essentially that’s their profit margin for being willing to do all of the work that goes into a short-term rental. There could be good profits to be made in this type of arbitrage, but it certainly is not without risk. I think everybody can remember what happened just a short time ago with Airbnb at the beginning of the pandemic, uh, people who were running this type of arbitrage games started losing their minds because travel shut down, which meant a ton of loss bookings like Airbnb was doing so little revenue. It was scary how quickly it all fell off. It took several months for that to come back around and it’s really, it hasn’t fully recovered yet, but traveling nurses were one of the first use cases after the pandemic struck where Airbnb came in, incredibly handy, essentially traveling nurses were looking to find places where they could stay.

Andrew Schultz: (03:31)
And it really not just limited to nurses, any sort of traveling, uh, medical staff at this point where they were looking for places where they could stay, or even some people were looking for places where they could stay locally just to be away from their families because they didn’t want to expose them to whatever they were exposed to when they were at work. So this was one of the first use cases after the pandemic kicked off, where Airbnb, uh, or this style of arbitrage really became popular and accepted and more widely used, I guess, is probably the best way to put it. The concept of traveling nurses is not anything new, but like I said, it took several months for this to start happening. So there was a time period there where everybody who was running this type of arbitrage was literally in panic mode because they weren’t sure if they were going to be able to keep things moving forward.

Andrew Schultz: (04:17)
Um, it sounds like what’s being proposed here is pretty similar to a short-term rental Airbnb situation just with traveling medical staff. Honestly, my first thought when reading the question is that this is likely going to become an Airbnb arbitrage, which is probably why I’m talking about it so much. Uh, if this person can’t find traveling nurses or other traveling medical professionals to fill this apartment, they’re going to move to other platforms. Once they have possession, it’s a pretty good chance that this property is going to wind up on multiple platforms, whether you want it to or not. I think my first concern in this instance would be not knowing who’s actually going to be living in the unit. Obviously, you’re going to know who you have a lease with. You’re going to be able to screen that person, but anyone that they’re subletting to, there’s a good chance that you’re not going to be even, you’re not gonna have their contact information, let alone screen them.

Andrew Schultz: (05:04)
So if the person subletting doesn’t know what they’re doing, this could turn into a major mess for everybody involved. You included very, very quickly as for wear and tear. I could see this going either way, actually, like you had mentioned in the question, there are chances that it’s going to be one or two people coming to the unit, probably with a fairly heavy work schedule. So they may not be around much to cause much wear and tear. All of that said, when you stay in a hotel or an Airbnb, you probably don’t treat it the same as you would treat your own home. Do you really think that you know, somebody else coming into this property is going to do that? Or do you think that they’re going to treat it the same way that you would treat a hotel or an Airbnb? So I guess it’s hard to say if there’s going to be additional wear and tear, but I would lean on there being more wear and tear simply because you’re going to have more people in and out of the place.

Andrew Schultz: (05:50)
Honestly, I think it would depend a lot on the length of the stay. If these traveling nurses are coming in for, you know, a month, there’s probably going to be less wear and tear than somebody who’s coming in for a week or a couple of days or something like that, just to cover some shifts. But honestly, I think the timeframe would play into that one pretty, pretty heavily as to whether there’ll be more or less wear and tear, moving on to responsibility for injury. I’m going to preface this part by saying that I’m not an attorney or an insurance broker, and you should definitely consult yours on something like this. Don’t just take anything I’m saying here as verbatim. I’m not sure that renter’s insurance would cover injuries to a subtenant in this instance, especially because the tenant that you’re renting to is essentially running this as a business.

Andrew Schultz: (06:33)
They may need some sort of like a general liability insurance or something like that to get the kind of protection that they would need for people who take injuries while they’re at the property. And at least here in the state of New York, this would be the perfect application of what I call shotgun law. And what I mean by that is fire off lawsuits at everybody and see what sticks. So the chances are you as the property owner, the tenant, the insurance companies, anyone else that the subtenant can think of is going to get served in the event that they get injured at this property. Realistically, I don’t think this is much different than having a tenant that has a friend over who slips and falls. Yeah, it’s a risk, but everything in life has a risk to it. So this is one of those things that you can probably ensure against, or take the risk if you’re so inclined.

Andrew Schultz: (07:17)
But if I was looking to jump into something like this, honestly, I think I would hire a property manager that knows how to do short-term rentals and handle it that way. You don’t want to be the property owner that has the tenant that is trying to run this with limited knowledge of how to do it, what the laws are, et cetera, et cetera. If I was going to get in a situation where my property was going to be used for short-term rental or something like that, I would want to be the one in control of it. Even if I hired a property manager that was well-versed in short term, that still puts you in a much better position than having a tenant that may or may not know all of the ins and outs of this game, jumping into it, and causing you quite possibly some serious complications. So that’s how I would handle it. Um, your mileage may vary if you decide you want to do the short-term rental thing, my recommendation is just make sure you’re doing it right. So you don’t wind up in a ton of hot water,

Voice Over: (08:07)
Water, cooler wisdom, expert advice from real estate pros.

Andrew Schultz: (08:16)
We have two really good water cooler wisdoms for you this week as well. Um, this first one talks about an applicant who is trying to qualify for an apartment. Um, but it looks as though most of their income is coming from a non-traditional source. Let’s go ahead and hop right in here. This one comes to us via the Rent Prep for Landlords Facebook group. Let’s go ahead and take a look. I am looking at an applicant who works, but half the required qualifying income for the year is from student loans. I wouldn’t mind if it were all grants, but to me, income and debt are kind of opposites. Even if the student aid is expected to be used for living expenses, any advice for dealing with student financial aid as income. So it’s very common for students to be using loan money to fund their living expenses while they’re in college.

Andrew Schultz: (09:01)
This seems particularly common in master’s and doctorate level programs, maybe a little bit less common with undergrads, but really what it boils down to at the end of the day here is screening. And how do you go about screening someone whose income is based on student loans, essentially something that’s a non-traditional little bit more complicated to verify? You do have a couple of options here that come to mind. Uh, if the tenant wants to qualify on their own, it sounds like half their income is verifiable using pay stubs or something similar based on how this question was worded. So it sounds like you’re actually halfway there. That’s pretty easy to verify. We’ve talked about how to verify normal income, dozens of times. Uh, but what about the loans your applicant can likely provide you with their loan disbursement schedule. And that’s going to tell you when and how much they’re going to be receiving in loans for any given semester.

Andrew Schultz: (09:48)
Uh, it might even be for two semesters. I know, like when I was an undergrad, our loan packages would be set up for fall-spring. So we would have two semesters worth of knowledge as to what our loans and stuff like that were going to be. I would assume it’s pretty similar for graduate and doctorate level programs as well. So you may know for a couple of semesters, what this person’s income situation is going to look like based on that, you can do some income calculations, how many months, you know, a loan amount divided by however many months before the next loan comes in, et cetera, et cetera, et cetera. So based on that, you can do some pretty basic income calculations to try to see how much money is this person going to have on a monthly basis to live combined with their actual work income.

Andrew Schultz: (10:30)
Also for someone who has an unstable income, but has a large sum of cash on hand. We do have an option for screening there as well. So if they can provide one year of personal bank statements showing a minimum of a minimum average balance of at least one year of rent, we will consider that as verifiable income. I’m going to clarify that a little bit because it’s not necessarily the easiest thing to understand just with a quick listen. They have to show bank statements for a full year. So 12 statements and the monthly average on those statements, each statement must be at least one year of rent. So on a thousand dollars a month rent, that person needs to show $12,000 on deposit in their bank account every single month for a full year. So that may or may not work for some people in this instance, but really I think the best way to handle this situation would be get a co-signer in place.

Andrew Schultz: (11:19)
Uh, when we consider co-signers, they need to meet all of the same criteria as what our tenants do, but the income requirement is higher. We require an income on a co-signer of four and a half times, the rent net income. So after all taxes and deductions, all the other criteria remained the same. We’re still doing credit checks, we’re still doing background checks. We’re still doing reference checks. Every other criteria remains the same. The only thing that we’re changing is a higher income requirement on a co-signer because that co-signer has to be able to cover their expenses, as well as the possibility of having to cover this in the event that a tenant defaults. So that’s probably the best route to go, would be having a co-signer. When we were managing student rentals near one of the local college campuses, pretty much every single student had a parent as a guarantor, uh, regardless of if they were undergrad graduate or doctorate level programs, pretty much everybody had some sort of a guarantor attached to their, uh, rental application at the time we could do first, last and security.

Andrew Schultz: (12:18)
First month’s rent last month’s rent and security deposit. So we actually had essentially two months of rent in escrow in the event that something went wrong and we had to offset some of that risk. Obviously, we no longer have that as a viable option here in New York, that changed in 2019 when HSTA was passed. But if you do live in a state where you can collect additional rent or additional deposit, that may be a viable option to help you reduce your risk here as well. It also comes with its own conditions on how the funds have to be handled depending on your state. Um, so my recommendation here would just be understand the laws regarding prepaid rent before you accept a big block of dough and make sure that you’re handling it appropriately. But realistically speaking here, I think that most college students who are applying for apartments are probably going to wind up with a co-signer.

Andrew Schultz: (13:04)
And a lot of instances, there will be some instances where they’re going to be able to show the ability to support themselves. Like I said, generally, it’s going to be more in the graduate and doctorate level programs, usually undergrad, it’s a little bit different scenario. Um, but you do have some options there to help you screen somebody who is using loans as their primary source of income, uh, during the period while they’re being educated. Our third and final segment of the day also comes to us via the landlord, subreddit. This is another water-cooler wisdom, and this one is tied to what do you do when a tenant loses their job? Let’s go ahead and jump right in here. I received an email that the tenant lost his job a couple months back and is going through a child custody litigation case and can not afford the next month’s rent.

Andrew Schultz: (13:48)
Their lease ends in February of 2022. I’m a new landlord here, and I could really use your advice on next steps. So it’s unfortunate that your tenant is going through this, but we also understand that you have to operate your business like a business. Um, the tenants hit a real rough patch, no job family custody issues. And now he’s in a situation where he may lose his home. I’m going to go through and lay out what we do in this instance. This is kind of an updated policy to how we handled things, pre-pandemic. Uh, I think it’s a lot more human-centric policy than what we had in place before. Some people won’t like it, that’s fine because everybody runs the rental business a little bit different. And what works for us may not work for other people, but all of this starts with a conversation with the tenant, be empathetic, find out what their situation is.

Andrew Schultz: (14:37)
Are they just laid off and going back to work? Are they not going back to work? Are they actively searching? Is their employer just plain closed? And they’re not going back to that job. You know what we’re, what we’re looking for here is essentially how long before the tenant thinks that they’re going to be able to get back on track. There are a lot of reasons that someone can be unemployed and it’s not necessarily a reflection on that person as an employee or as an individual. I mean, everybody operates a little bit differently. So, um, we start off by offering the attendant, the ability to modify their lease in one of two ways, essentially, if they can split the current month’s payment over the next two months, we’ll draft up a lease with no rent in we’ll use November, cause we’re in November. Uh, and then one and a half rent in December and January.

Andrew Schultz: (15:24)
And then they would be back to normal rent in February and beyond in this instance, the tenant is done in February anyway. So, you know, it wouldn’t really matter there, but essentially what we do is we just take that month that they’re missing split over the next two months. If they think they’re going to be able to recover quickly and then they’re right back into a normal rental routine. The other option we offer is splitting the balance over the remaining months of the lease and writing a new lease with a stable, monthly rent for the remainder of the lease term. You can even extend the lease term. If that’s the option that you wanted to go, it just kind of depends on your situation. But what that does is if you have say eight or nine months left on a lease term and you have one month that you need to factor out across that eight or nine months, it makes it a lot more approachable for the tenant to get back on track and get their situation kind of straightened out either way.

Andrew Schultz: (16:12)
If the tenants in a short-term situation, this gives both the tenant and the housing provider, some sort of stability here. If the tenant doesn’t take us up on the lease modification offer, the next step we go through is asking them if they would prefer to just move out and the lease. If you think about it, if the tenants in this situation where they have no money, keeping them in the unit, isn’t really of a benefit to you. Sometimes it’s, they’re going to take you up on this just because it’s one less thing that they need to worry about. They may have a backup plan for housing, with friends or family members, or whatever the case may be, and dropping the rent obligation may be exactly what they need to do to get back on track. So offer it up, you know, it’s, you’re going to lose a tenant, but at least you get control of the asset again.

Andrew Schultz: (16:55)
Uh, and this last one is where things get a little bit stickier. If someone doesn’t take us up on the lease modification or the offer to move out and walk away, we will offer them cash for keys scenario. In a lot of instances, the amount varies depending on the situation and how badly we want possession of the unit back. And you’re going to have to figure out what makes the most sense for you in this situation. Some tenants are going to jump on this and for some, it’s meaningless because it doesn’t do anything to solve their problems. And I’ve seen it go both ways. I’ve seen some tenants that have that fallback plan for other housing, they’ll take the cash for keys and just walk away because that helps them deal with some of the other problems that they have going on. Other tenants, this doesn’t do anything.

Andrew Schultz: (17:35)
It doesn’t move the needle for them because if they take the cash for keys and move out, they may be faced with a homelessness situation or whatever the case may be. So for some tenants offering cash for keys, doesn’t really do anything to move the needle. I understand that the whole point of cash for keys is to help them get into another place. But that may be an option. May not be an option depending on where they’re at in the process. And are they screenable, can they find a place? Whatever the case may be. So cash for keys does have limited applications, limited uses, and limited ability to be successful, I would say, but when it is successful, it does get you back to a point where you’re in control of your asset. It’s an option that some tenants are going to take. I understand that it hurts to hand someone cash, especially when at that point they likely owe you money.

Andrew Schultz: (18:23)
This is a situation where you’ve got to swallow your pride and realize that offering that cash for keys, it gets you back in possession of your asset. So it can start generating revenue. Again, this is short-term pain long-term gain, and you have to think of it like that. Um, it sucks. I know I used to be against cash for keys, but I came around. The more you look at it, the more you realize, sometimes it makes sense just to make the problem go away. And sometimes you have to write a check to make the problem go away. Um, finally, if there’s no middle ground to be had, we can’t get through on a lease modification. We can’t get through on a, would you like to move out? We can’t get through on a cash for keys scenario. Yeah. We’re going to have to move forward with the eviction.

Andrew Schultz: (19:04)
Uh, of course, New York state obviously has, an eviction moratorium currently, which factors into all of this as well, tenants are going to weigh their options against the options that they know the property owner has. And many tenants are clued into the fact that courts are in a essentially useless deadlock currently, they’re not doing anything. So this option is likely going to take the longest. It’s also going to cost you the most money. It’s more of a last resort for us right now than anything else, simply because the evictions are not proceeding here in our state. But all of that said, there’s literally millions of dollars in assistance out there right now for tenants who are struggling, chances are, if your tenant starts seeking assistance, legitimately looking for help, they will find some, yes, there’s going to be paperwork and it’s going to suck. But if the alternative is an eviction, I think the tenant is going to find a way to figure it out, get themselves back on track.

Andrew Schultz: (19:54)
And don’t be afraid to offer some help, like print out a list of research. As a matter of fact, in New York, if you serve eviction papers, you have to provide a list of resources alongside it. So it’s not, you know, it’s not doing any harm to provide someone, a list of resources, where they might be able to get some help to get themselves back on track. Should you add a new renter to an existing lease? It depends learn about the best practices when adding new tenants to your rental, including how to handle the written agreement, visit rentprep.com/blog today. For more information that 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 truly do appreciate it. Our goal with the podcast is to help as many people as possible make educated decisions when it comes to rental real estate, and you can help us to reach our goal.

Andrew Schultz: (20:40)
If you heard anything in this week’s episode or any of our other episodes that will help someone, you know, please do us a favor and share it with them. If you’re looking to get in contact with me, I can be reached over at whatsdrewupto.com from there, you’ll find links to everything going on with me over at Own Buffalo, as well as other projects that we’re working on. We’ve just launched a free investment property deal analyzer, which is available over on that site at whatsdrewupto.com. It’s truly free. There’s no obligation whatsoever. There’s also a companion video to teach you how I analyze deals and how to use our tool. If you’re looking for top-tier tenant screening services, head on over to rentprep.com, there are multiple products to choose from including a tenant-paid option. And if you’re over 50 doors, ask about the enterprise-level programs and pricing. I’ve been an enterprise user of Rent Prep for years now, and it’s definitely changed the way that we screen our tenants. Check that out today, over at rentprep.com. Again, thank you all so much for listening. We’ll be back in two weeks with an all-new episode you won’t want to miss until then. I’m Andrew Schultz with ownedbuffalo.com for rentprep.com and we’ll talk to you soon.