RentPrep Podcast #309

How do we break from this “class warfare” during a difficult time? We discuss expectations vs agreements and how a personal story might give you a better understanding…


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Show Transcription:

Eric Worral: (00:00)
Hey everybody. Welcome back to another episode of RentPrep for Landlords. This is episode #309 and I’m your host, Eric Worral, and today we’re going to be talking about David versus Goliath. Yeah, that’s the story that a lot of us know from biblical times, but we’re going to be talking about this in terms of landlords versus tenants and why it always feels like a David versus Goliath scenario and maybe where some of the misconceptions are coming from and why that’s creating such an issue right now. We’re going to get to that right after this.

Voice Over: (00:33)
Welcome to the RentPrep for Landlords podcast and now your host, Eric Worral. So I’ll be honest, I feel like I’m breaking a lot of rules here today because I’ve already had a religious reference and now we’re going to get into some political talk. But it’s hard not to get around the political talk these days with what’s going on with COVID-19 and especially as it pertains to landlords and real estate investors. So I came across an interesting article, a title was Landlords on the pandemic: ‘Everyone has an impression of us as rich and greedy’ This came from the Guardian.com was posted on Monday, April 20th by Poppy Noor. And the article I thought was pretty interesting and it kind of reminded me of a conversation that comes up routinely on the podcast, which is essentially this kind of David versus Goliath.

Eric Worral: (01:19)
It’s talking about it in the same way where it’s saying that there’s this rich and greedy kind of impression of landlords. And what I’ve always said is that the landlord-tenant relationship is really interesting because, you know, you may have a relationship between a boss and an employee, but it’s not quite as impactful in my opinion, as the relationship between a landlord and a tenant. Typically, you know, you might have something that comes up at work and there’s disagreements or there’s frustrations or there’s things that you know, might drive you up the wall, but it’s not to the level of things that can happen at your home. So let’s say the heart fails and the landlord is trying to do their best to get it fixed, but you know, they can’t get their normal a guy to come out their HVAC guy to look at it and having issues or whatever it may be.

Eric Worral: (02:06)
But that is a really serious problem for the tenant. Like if they don’t have heat and it’s cold or you know, depending on where you are in the country if you don’t have AC and it’s, you know, sweltering hot these are things that feel like life or death type things, right? You know that the amygdala brain, they call it the lizard brain by the back of your neck, the stomach, your neck there. The stem of the brain is, should say, I kind of kicks in and you stop kind of a, you know, having the ability to have rational thought and everything just becomes emotional reaction. So one of the things though that is a common theme that we always talk about is David versus Goliath, right? A Goliath is a landlord. David is the tenant and these landlords are rich and greedy and they’re just kind of a, you know, just out there to do what’s best for them and not take care of their tenants. While this article I thought kind of talks about this pretty well, I wanted to read something to you and kind of give some thoughts.

Eric Worral: (03:00)
So it opens up and it says, the coronavirus pandemic has brought mass unemployment to prevent a spate of homelessness. Governors across the US have promised moratoriums on evictions and mortgage forgiveness for those who can’t keep up with their payments. But many renters say the protections do not go far enough and some are threader threatening run strikes. I’ve read that in New York City. That’s one of the most prevalent areas obviously, cause it’s been hit so hard with the virus, but that there’s a major movement for rent strikes on May 1st. It’ll be interesting to see what happens with that. But, Ricardo Reis who owned 16 properties in Michigan, so not a small landlord. He says there is a stigma against landlords, which means people are less empathetic about their needs during such time.

Eric Worral: (03:40)
Everyone has an impression of us being rich and greedy and a lot of tenants will be thinking, how can they ask us to pay rent during this time? But in reality, there are costs involved. So if you’re listening to this year, well aware, right? Maybe this is just more cathartic to hear from somebody else, but he’s talking about those costs including property taxes, insurance, maintenance, and mortgage payments. And although homeowners will be provided with mortgage relief during the pandemic, many renters are wondering why they should still pay rent, but plenty aren’t aware that the commercial property owners, landlords, in other words, are not entitled to this benefit. Furthermore, forbearance programs only defer mortgage payments rather than completely forgiving the cost.

Eric Worral: (04:21)
So that’s interesting because maybe something that seems obvious to you that Hey, I am not getting mortgage relief. And these even if you were getting any kind of a relief, it’s still going to have to be paid up these deferred mortgage payments. It may not be obvious to your tenant, so they may just be thinking and you know what, to give you a little personal story, I’m dealing with this at daycare. For me at daycare, they’re still charging us a 50% fee for the to hold our kids spot even though we’re not using the service, which, you know, kinda stinks, right? It’s a thousand dollars a month to essentially not use this service. But one of the issues that I’m having with the daycare services, I don’t feel like I’m getting good communication from them and what they’re trying to do with different programs that are available.

Eric Worral: (05:08)
And frankly, I don’t know what programs are available to them as a non-for-profit. I don’t know if that’s different than a for profit business. You know, I’m not, you know, a business advisor who’s specialized on these loans. But I know there’s the PPP loan where I believe, and I’m trying to get you into the mind of a tenant by sharing this story because I feel like I’m playing the tenant in this particular case cause I’m the one paying for this service. So I believe that there’s an opportunity that they could get these, these small business loans and then have a certain amount of months, I don’t know if it’s three, four months where the salary of their employees will be covered and it’s based on not losing employees. And it’s also based on not having like dramatic changes to your payroll, right?

Eric Worral: (05:52)
Like you can’t just all of a sudden cut your employee’s payroll a 10% of what they used to make and then have these loans come in and not have to pay them back. So in my opinion, what’s happening from an outsider’s point of view, without having any idea what’s actually going on is they’re not taking advantage of these opportunities at the daycare like some other daycares are. And to make that worse, what they’re doing is they’re still charging people for a service they’re not using. And what I believe they could be doing is taking advantage of these loans, keeping their staff on, and then not charging people that are still gonna use their service in the future when this opens back up for not using it. So in an ideal scenario, to me that would be best right there. They’re clients, me, other parents aren’t being charged for a service, they’re not using a, their employees are getting paid their normal payroll amount and the business, it gets this kind of, you know, three, four month window to see if it can straighten back out and get things rolling.

Eric Worral: (06:47)
Well, all of this you know, there might be a really simple explanation for it. It might just be like, Hey, we’re a non-for-profit and we don’t qualify for that. Or you know what, there’s this thing and that’s the reason why we can’t, you know, take advantage of that. And that’s why you guys still need to pay 50% but when that’s not communicated, then I’m in a position where I just don’t understand. Then really where my brain goes is like, why are they charging us for this? This is crap. Right? So I think that sometimes your tenants might be in a similar position where they’re just thinking, Hey, like my landlord doesn’t have to pay his mortgage payments. Why do I have to pay rent payments? This is ridiculous. Like why is he getting, you know, a relief? And I’m not, well, it might just be as simple as your tenant doesn’t understand that you’re not getting a mortgage relief, right?

Eric Worral: (07:31)
You’re a commercial landlord, you’re not getting any kind of relief on maybe the mortgage that you have set up and being able to communicate that to them via letter or whatever it might be a really helpful way to get everybody on the same page. They may not like what you have to say, but it like, it might at least educate them a little bit further than they are right now. So I think that was worth mentioning. So we’ll get back to the article though here. So the article continues on. It says that they are seeing this as an opportunity as opposed to asking for help and relief to inflict damage on the landlord is some sort of class warfare says Jay Martin, the executive director of community housing improvement in New York. Many landlords say this class warfare view, the money landlord versus the renter is misguided Reis who also manages properties on behalf of a property management company.

Eric Worral: (08:18)
He says the renters are used to a faceless landlord and don’t realize that on the other side is a family looking to pay the mortgage. Tenants have misconceptions that landlords make a lot of money because they think that what they pay goes straight to the landlord’s pocket. Says Reis in his state, he says most make less than what is presumed. So I thought this was interesting, but he shares that in Michigan, landlords make around 200 to $300 per month for each property after expenses are accounted for. He adds that the risk landlords take on is high. They take on the loan risk foreclosure if they can’t pay the mortgage and could potentially lose everything. It’s an extremely risky proposition. And they say with risk comes a little bit of reward. And in this case, that’s dependent on their tenant making their payment on time. Now, you know, I don’t know if you could do the same thing I do when you read something or you hear somebody talk and you’re kind of like get an idea of the slant and the angle that they have.

Eric Worral: (09:05)
There’s a little bit of a slant here. Obviously, you know, he’s talking about how this is super high risk and there’s little reward. A little bit of reward is the phrasing use and you know, I just don’t like, it’s like this isn’t like high. If it’s high risk with a little bit of reward and for all the pain in the body aspects of being a landlord, it’s not worth it. Right? I don’t think it’s just a little bit of a reward. I think there’s a, there’s a lot of longterm reward to being a landlord. Right. but of course, you know, this is a heated time, so just like tenants are heated landlords can be heated too. But Reis believes that most tenants won’t pay their rent if they don’t have to. And so criticizes the government for leaving landlords with that risk by offering eviction moratoriums.

Eric Worral: (09:46)
So forgive me, I don’t recall off the top of my head. I forget if it’s 90 days. I feel like everything’s changing so fast, but there’s essentially a freeze on evictions. And I do agree with this that there is a certain subset of tenants that when they hear that are like, Oh, like my landlord, that one piece of leverage that they had on me being a good tenant and paying on time was just removed so I can do whatever I want for the next two, three months. And I’m sure there are cases where that’s happening. Hopefully, it’s not as widespread as some believe. But you know, if you do have, you know, that small minority that are looking for, you know, leverage you gave a lot of leverage to a tenant when that was imposed. And I get why they did it.

Eric Worral: (10:27)
You know, you want the basis covered when you have a crisis like this happen. You don’t want people worried about am I going to be able to afford to live? I would do. I’m going to have a place to live. Am I going to be able to afford groceries? And those kinds of things. And that’s why these you know, governmental moratoriums have been put in place. But it definitely changes the power dynamic between the landlord and tenant by taking away that leverage that the landlord has and maybe an unscrupulous tenant might take advantage of that. So he’s saying furthermore that the state is trying to put in the landlords to house individuals for free. And he said that the government should instead bolster social housing if they believe that people should live rent-free. I think the tough thing about that is like this could be a very temporary thing.

Eric Worral: (11:12)
Maybe you’re looking three months, six months, a year, whatever it may be, but to all of a sudden bolster social housing and six months is difficult. But from my understanding, a lot of these contractors that I’ve talked to over the past month a lot of them cannot work on commercial projects. So one of them being, we got a new office at RentPrep and that has been put on hold. Our contractors can not work on that. But they did say that they had a HUD project that they were working on that they’re allowed to work on so they can work on that. I also have a friend who paints for commercially, and he said that they can, they’re only allowed to paint on these commercial properties. So for Mr. Reis from Michigan, he says that he understands, people might look at 16 homes a lot as a lot, but he says for a true real estate investor, it’s not a lot.

Eric Worral: (11:55)
He says that his wife is a school teacher. And yeah, if you’re like in the point where you know, you still have a lot, a lot of mortgage payments left ahead. He 16, you know, properties might sound like a lot, but it’s a lot that you’re responsible for right now. So completely agree with that. And I think sometimes it’s easy. You have your, your narrative, your story in your head of what you want to believe. So if it’s a tenant and you’re like, these are rich and greedy people and be like, this guy owns 16 properties, it’s like, well no, he doesn’t like the bank owns like 80, 75% of them still, you know, and he’s still paying for that. So, that is definitely something to consider. So they, it says that the only band together for a very short time until the first eviction paper comes through, then I think it’ll hit home, says Margulies.

Eric Worral: (12:38)
He owns four properties in LA and still has a mortgage on each of them. And he says his property taxes cost in between $500,000 per property. So this is Greg Margulies. A landlord in LA is not worried about the rent strikes because he does think that eventually, this will all work its way out. But he does empathize with the fact that there are currently millions out of work and he stresses that most landlords want to work with tenants to keep them in their properties, not to work against them. He has made arrangements with one tenant who could only pay partial rent and another who had to defer payment. But that sympathy can only go so far. He says at the same time, they still have to get a stay in the unit. You have a safe place to sleep. You’re away from the virus.

Eric Worral: (13:15)
It’s unfortunate you’re not working, but you should have to have nothing to do with paying for what you’re used to or what you used. You still had to pay for gas. You still have to pay for groceries. Ask what message he would give renters. Thinking of striking. He advises them to keep in contact with their landlord. We are not blind to what’s going on in the world. We see that the world has been turned upside down. We’re willing to work with tenants, but if you ignore the landlord thinking it’s going to go away. It’s not. So that’s, you know, two-way street, right? You don’t want to just ignore the tenant and hope they do the right thing and pay, pay the rent. I think one of the, one of the things that I’ve learned over the last year is on expectations and the difference between an expectation and an agreement.

Eric Worral: (13:52)
So an expectation is something that you place on somebody else and an agreement is something that you come together on. As two people, and I’ve experienced this on a lot of times where you know, you get into a new endeavor, you have an expectation of what it’s going to be and then you feel disappointment when that expectation isn’t fulfilled. But really you never communicated to that other person or entity what your expectation was. So I think that there’s going to be some of that happening right now with tenants and landlords where the tenant has this expectation of like, of course, I’m not going to pay rent. The landlord has an expectation of, of course, they’re going to pay rent and you can see how that’s going to cause some issues. So I think getting away from expectations and getting towards agreements is helpful.

Eric Worral: (14:33)
If you research, I think it’s Lencioni. I’ll look that up. Let me see here. Lencioni, kind of a business guru guy who’s a, Patrick Lencioni American writer. And if you look up Patrick Lencioni and Expectations vs. Agreements, I will put some content into the show notes today if you’re interested in that. I think it’s really helpful just for any relationship you have with anybody that’s critical. Just like, you know, you would with your spouse or your tenants or a coworker. Super helpful stuff. So I’ll put that in the show notes. So going forward Reis from Michigan was talking about that reform such as moratoriums or rent caps, which are intended to help. The tenant will always end up costing them as landlords cut corners to seek to make costs back. Moratorium sounds great right now, but come fall, we have to start changing how we screen tenants, he says.

Eric Worral: (15:22)
It opened up our eyes. We realized there’s just not enough security if the government can freeze rents or put a moratorium in place and just leave us stranded. Barton says it is the behavior of renters rather than landlords that should concern people at the moment. What could be more greedy than withholding rent that you had the ability to pay and then damage the entire housing market and push it towards collapse? To me, it’s incredibly shortsighted. All right. That’s an interesting take right there. But yeah, I, you know, if it happens on a global scale that that’s a certain possibility that if everyone decides to go on a rent strike, you’re going to have some major issues, which we’ve covered in previous episodes, but I wanted to talk about this one that they had that idea David versus Goliath, the rich greedy landlord versus the poor tenant.

Eric Worral: (16:06)
This class warfare thing that always seems to kind of be popping up between that dynamic, but think about how you can improve communications. Kind of looking back at that story I was sharing, I think of, you know, you look at other stories in your life maybe that kind of help you put yourself in the other person’s shoes by seeing like, have I ever had this situation where I was in their shoes? And for me that’s like I was just saying the daycare situation, I reached out to the daycare, said, Hey, here’s what I’ve got going on. What do you got going on? They’ve helped fill me in a little bit on that and they’ve worked with us. So I think that there’s an opportunity to kind of just think about how do you put yourself in their shoes and then how do you come to an agreement or at least something closer to an agreement rather than the tenant placing expectations on the landlord, the landlord placing expectations on the tenant.

Eric Worral: (16:50)
And granted there is an agreement and it’s called the lease, right? But when that lease was written, we weren’t in a global plan pandemic and nobody would have saw that coming or thought of that. So that lease, in my opinion, is from a very different time and age. So it’s worth kind of coming up with some sort of agreement and understanding and communication with your tenants at this time to know what’s going on and what your expectations are in the formative agreement and see if you can get to one. But hopefully, you guys found that helpful. I found this article helpful. I’ll link to that in the show notes as well. I hope you guys are doing well. I know it’s kind of an up and down kind of feeling day to day, at least for me. And a lot of the people I’ve been talking to and keeping in touch with you know, even sometimes during the course of one day, you know, everything’s fine.

Eric Worral: (17:36)
And then, you know, for me it’s little guys at home and my wife has a meeting, I have a meeting and then this one’s crying and this one needs to be changed. And the interesting thing is everybody has their own unique combination of what they’re dealing with. Right? And I think that’s good to remember that everybody’s got something else, some unique situation that they’re dealing with, that they’re, as they’re trying to process and navigate their new normal. And just kind of having some grace and some patients for each other, you know, and just trying to be kind and reach out and connect with people. And that’s why I like doing this podcast. You know, I think it’s an opportunity to at least, you know, just to have someone in your ear that’s in your corner. And I appreciate you guys listening and I hope you’re doing well. All right guys, until next week, have a great week and take care.

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