Podcast Host, Andrew Schultz, discusses how to break up with your difficult tenants, including a discussion around strategies like cash for keys and evictions.
Also in this episode, Andrew chats about owning a rental property with HOA management. Is it a good idea?
Last, but not least, the latest on California’s pledge to cover 80% of unpaid rent to landlords. Is there a catch and will other states follow their footsteps? Find out in our latest podcast.
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Andrew Schultz: (00:00)
Hey everyone. Welcome back to another episode of the Rent Prep for Landlords podcast. This is episode number 345, and I’m your host, Andrew Schultz. On today’s episode, we’re going to be talking about California’s bill to pay 80% of unpaid rent to landlords, HOA management, and rental properties, and breaking up with difficult tenants. We’ll get to all that right after this.
Voice Over: (00:23)
Welcome to the Rent Prep for Landlords podcast. Now your host, Andrew Schultz.
Andrew Schultz: (00:28)
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, chances are someone in the group has been there before and can lend a helping hand. As of this recording. We’re at over 11,925 members, and we need your help in the push to 12,000. Check it out 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 this week in the news, we have a pretty substantial rent release bill coming to us from California. This article titled Governor Newsom signs, bill providing rent relief for California. Californians impacted by the pandemic is dated January 29th, 2021. So by the time you guys are hearing this, this one might be a couple of weeks old.
Andrew Schultz: (01:14)
Um, but it definitely warrants highlighting. As I think this is the kind of thing that we’re going to start to see happening more and more across the country. Let’s go ahead and jump right in this article comes to us via ABC seven news out of San Francisco. Governor Gavin Newsom has signed a bill Friday providing rent relief for thousands of struggling Californians impacted by the COVID-19 pandemic. It will also extend the state’s eviction moratorium for an additional six months, but some tenant rights advocates fear that it could leave. Some runners out in the cold governor Newsome says California will freeze evictions for struggling tenants impacted by COVID-19 for another five months, more than 2 billion in federal stimulus funds will help with rental assistance. We’re looking to leverage that 2.6 billion focusing on low-income renters said Newsom, the federal money can only be spent on households whose income is 80% or less of the area, median income.
Andrew Schultz: (02:04)
It prioritizes relief for households at 50% or less of the median income and those unemployed for at least three months under the new bill, the state will cover 80% of the rent that you missed between April 2020 and March 2021. As long as the landlord forgives the remaining 20% and does not pursue evictions, we need to make sure that folks are stably housed and folks aren’t being evicted and going to into long-term debt based on a pandemic that they have no control over said San Francisco, assemblyman, David Chu, Oakland renter, and housing advocate. Tara Thomas lost her job last year to the pandemic. She says landlords have the right to decline. The rent relief program. Tenants could still apply for assistance under the bill, but many families could still suffer leaving the rent relief program in that landlord’s hands can lead to the most marginalized people being left out in the cold said, Thomas, we’re going to monitor this aggressively, said, choo choo did not want any families left out. He says the legislator may extending the moratorium again this summer.
Andrew Schultz: (03:09)
So I want to spend a minute talking about what this bill is offering to landlords and what are the potential pitfalls that landlords could face if they were to take advantage of this program. So I’m going to go back and read this line from the article under the new bill, the state will cover 80% of the rent that you missed between April 2020 and March 2021. As long as the landlord forgives the remaining 20% and does not pursue evictions. So essentially what’s there. What they’re offering here is an 80% of the rent, the unpaid rent, they’re going to cover 80% of that. Unpaid rent you as the landlord have to forgive that remaining 20%, which means that you’ll never see those funds. And you have to agree to not pursue evictions though. It doesn’t necessarily say how long that particular piece of the puzzle is in place.
Andrew Schultz: (03:51)
In my opinion, I don’t think that the bill goes far enough to get assistance in the hands of landlords. In this instance, I’m looking at this from the perspective of, if you have a tenant that has not paid rent for several months now, and they’ve not made any sort of a rent payment at all. So you’re dealing with a hundred percent of the rent being delinquent. If the state’s going to come in and give you 80% of that rent, but you have to forgive that remaining 20% and you cannot pursue an eviction against the tenant. That’s still living in your property. There doesn’t really seem to be anything that stops that tenant from just continuing to not pay. Once they collect that 80% and you have to forgive the 20% and then not pursue them for an eviction. So that’s actually one of my primary concerns with this is that it leaves landlords exposed in the event that attendant continues to not pay once this, once this assistance has been received.
Andrew Schultz: (04:40)
Another concern that I have with this is that 80% really is not covering the expenses that a landlord. And in most instances, I know that I had spoken about this on ASCA property manager, episode number 55. Um, but there was an infographic that was published by the Nia, the national apartment association that breaks down how every dollar of rent correlates to a property. I won’t sit and rehash everything that it broke out on the, uh, on the infographic. But I mean, it was everything that you would expect. You know, a certain number of pennies are going to taxes and so much is going to maintenance. And so much is going to mortgage and labor insurances and things like that. The bottom line conclusion of the infographic was that only about 10 cents out of every dollar end up being returned to the property owner. So what you’re talking about here is essential if the government’s going to come in and give you 80% and your profit margin is only that last 10%, essentially you as a housing provider would be in a situation where you wind up working for free.
Andrew Schultz: (05:38)
Actually, in this example, you would wind up still coming out of pocket or tapping into your reserves for 10 cents out of every dollar just to make this continue to work. So I don’t know, as though this deal is necessarily the greatest deal out there. And I understand that everybody operates on different margins. You may be above or below 10% margin on whatever property you’re operating, but in a state like California, where you do have high expenses, high taxes, things like that. I would like to think that you’re probably operating at around that 10% margin if that even so it’s definitely something to consider. It might be a situation that helps out some landlords. Um, but largely I think that this is one of those programs that doesn’t quite go far enough to address the underlying concerns of everyone involved. This legislation also comes with the caveat that you can not evict for some period of time.
Andrew Schultz: (06:24)
The article doesn’t mention, but you can’t evict for some period of time after you’ve accepted this assistance. So again, you might be in a situation where you have a tenant that’s been non-paying this entire time. You turn around, you get this assistance and then they just continue to not pay. But then you have absolutely no recourse because you’ve signed documents with the government indicating that you won’t process any sort of an eviction proceeding. So that’s one of the things that you really have to pay attention to. As you’re looking at any of this new legislation that’s coming out, legislation is passing at breakneck speeds right now, the us government passed a 5,500-page stimulus bill $900 billion stimulus bill in like no time. There was not enough time between the time that the actual legislation was introduced. And the time that the legislation was passed for anyone to sit and read 5,500 pages to understand everything that was going on in that legislation.
Andrew Schultz: (07:14)
Getting back to my original point, legislation is passing at breakneck speeds. You need to understand what it is that you were signing. You need to read and understand all the terms and conditions before you sign on the dotted line for any of these programs because what you’re committing yourself to might put you further behind than where you are currently. So just understand, I’m not saying you have to sit and read every page of every piece of legislation but be informed. This is your business, understand what it is that you’re doing and how you’re operating, and understand what it is that you’re agreeing to. When you sign off on some of these programs to take advantage of this rent relief, the asset you save could be your own
Voice Over: (07:53)
Water cooler, wisdom expert advice from real estate pros.
Andrew Schultz: (08:01)
This week’s water cooler wisdom comes to us via the Rent Prep for Landlords Facebook group. This one is all about buying a duplex in an HOA. Let’s jump right in. I’m thinking of buying a duplex in an HOA. The HOA is run by an HOA management company, which seems well-funded and reasonable still. I’ve never dealt with them. And I told myself that I wouldn’t, the HOA has no bylaws against rentals and the deal still seems pretty good. Have you had a rental in an HOA? Was it good or was it bad? So I guess I can preface this by saying, I don’t know of too many people that have had positive experiences with hos pretty much anytime you see a post on a forum, uh, talking about an HOA concern or something like that, it’s never something positive. Like, Oh, my HOA wants to reduce our monthly assessment.
Andrew Schultz: (08:45)
It’s never, that it’s always, uh, an issue with the HOA management company and issue with the HOA board, um, an issue with an assessment, something along those lines. It’s good news when you’re talking about dealing with an HOA. So I guess I’ll preface it by starting there. Um, typically speaking, if you’re not buying properties that are in an HOA, I will explain that typically an HOA will have a board of directors, which is usually comprised of residents of the community. Usually, some of those residents have an ax to grind, which is why they’re on the board, to begin with. It’s a very unique situation where people have control of your life, even when you don’t want them to. It’s not necessarily a real enjoyable situation dealing with an HOA board, especially if there are people on the board that are either against rentals altogether, or have an ax to grind or whatever the case may be.
Andrew Schultz: (09:33)
Then you have an HOA management company. Typically that management company is operating under the guidance of the HOA board. Uh, I shouldn’t say operating under the guidance of management companies know how to operate properties, but let’s say that they, they have to respond when the board asks them to issue a citation or something like that for grasping too long, whatever the case may be, again, not a real fun situation to find yourself in. So now that we kind of understand the two components of everything there, uh, at least a little bit, I want to talk about some of the reasons why I would look at an investment outside of an HOA run community. The first and foremost reason is while you mentioned right now that there is no bylaw against rentals and the deal seems pretty good. There’s nothing that says that the HOA couldn’t down the road, put some sort of a rule in place that would prevent you from renting your property.
Andrew Schultz: (10:25)
That’s in the HOA community. Sure. You might be grandfathered in and that’s all well and good, but you should definitely understand that the rules in an HOA can and do change. And it is going to be at least somewhat based on the people living in the community, the people running the board, things of that nature. So understand what it takes to get a rule changed and understand what the rules are before you decide whether or not you want to jump into that situation. So you don’t want to necessarily buy an investment and then find out six months down the road, they’re going to ban all rentals for whatever reason or something like that. Sure. You might be fine for the tenant that you have in place right now. But once that tenant moves in a new tenant moves in, you might lose your grandfathering. So it’s something to consider rules definitely can change inside of an HOA community, not always for the better and not always in the way that you would want them to.
Andrew Schultz: (11:13)
The other problem I have with hos is the fees, the assessments, et cetera, if you’re not actively involved in that management or that board, there may be some time, some sort of a situation where you wind up with an assessment that you don’t feel is fair because they decided that they wanted to, I don’t know, repave a parking lot or something that doesn’t necessarily need to be done, but because they’re the ones controlling the purse strings, they get to make those decisions. So you might wind up with an investment that seems like it’s really great, you know, on the front end, but two years down the road, you end up with a special assessment as a result of the HOA or something along those lines. And now your investment. Yeah. It’s not quite as, quite as quite as nice as it was when you basically took it at the onset.
Andrew Schultz: (11:56)
Um, my biggest concern is really the lack of asset control. Uh, from an operational standpoint, they get to decide how long your grass is. They get to decide what color your mailbox is. They get to decide, you know, how you decorate your yard, whether or not you can put a shed in the back, whatever the case may be. I don’t like to be in a situation where we don’t have full operational control of an asset. For that reason, I would not jump into an HOA type situation. It’s just not appealing to me as a property manager, as a property investor, a situation where I don’t have control of the asset that I’m trying to operate is not a situation that I’m particularly interested in being involved in. So your mileage may vary. It may be a decent situation for you. It might be the perfect situation for you if you want to own a rental, but don’t want to have to worry about lawn maintenance.
Andrew Schultz: (12:44)
And if you’re in a cold weather, climate, snow, um, things like that, taking care of the hedges or whatever the case may be, it may be a great situation if you’re trying to do a distance landlording thing and you understand that you’re not necessarily going to have as much control as you would. Otherwise, if you were buying, say a single-family asset or a small multi-family asset, you know, there are options and everybody’s investment criteria is different. Um, but if it was me, this is not the type of situation that I would want to find myself jumping into
Voice Over: (13:17)
Forum quorum, where we scour the internet for ridiculous posts from landlords and tenants.
Andrew Schultz: (13:25)
This week’s forum quorum comes to us via the landlording subreddit. I want to preface this by saying that this landlord’s entire goal is to get tenants out of his apartment. It’s not necessarily clear in the initial, uh, in the initial post here. And actually, I had to do some digging to find out really what the ultimate reason was that he was trying to get rid of these tenants. Um, but we’re go ahead and read through this, but keep in mind that this landlord’s goal is to actually get tenants out of a unit I’m currently only charging $1,950 for a four-bedroom apartment in Queens without utilities, but water is included. The problem is that I know that these people will squat and basically stock me in court for months. I’m a small landlord. So I can’t afford that kind of fight. I’m thinking of telling them that I’m raising rent to $2,500 a month and that someone is offering me 25, 50 per month.
Andrew Schultz: (14:11)
They would have to match it or leave since the lockdown, they have frozen evictions until October taking them to court may take up to a year due to the backlog of surge evictions. I’m considering paying them out, but I’d rather play it smart. So that’s the initial post. So then I dug a little bit deeper because I needed some more information here. Um, this was a follow-up post as to why he has concerns about these tenants. They blast their music, they leave trash in my front yard, they treat my front and backyard. Like they own it. They have guests just leave their bicycles in the front yard. They’re very disrespectful. We’ve had them for over a few years and our lease has expired. So it’s now a month to month. I haven’t been able to kick them out because I’m operating at a very low margin.
Andrew Schultz: (14:50)
They were paying almost every month, but have been more consistent lately. So I think you can kind of tell where the story is starting to form up here. Essentially, we have a landlord that has a couple of smaller issues with his tenants, and more than likely has just realized that he’s not getting enough money for the apartment. That’s really the ultimate reason that it looks like he’s trying to get these tenants out of the building if we’re, if we’re being honest about the situation here. So, so there are a few problems with this scenario. Um, the first being Queens, New York is one of the areas, one of the boroughs in New York City, which may mean that you have a rent control situation here. I’m going to assume that this apartment is not under rent control because there was no mention of it anywhere in the post or anything like that.
Andrew Schultz: (15:28)
But keep in mind that if you’re in an area with rent control, you may have restrictions that you don’t even know about. Um, when you go to make changes such as this to a, to a tenancy. So that would be my first thing is, is does this housing provider actually understand the laws in the state that they’re operating in? And honestly, I think the answer to that question is no. And the reason I say that is because we’re going to move into the raising the rent portion of his, of what he wants to do. Now. Uh, he’s talking about raising the rent from $1,950 a month to $2,500 a month. So in the state of New York, if you’re looking to raise rent by more than 5%, you need to give a 30, 60, or 90-day notice, depending on the length of tenancy. In this instance, he doesn’t say exactly how long the tenants had been living there, but he does say that the tenants have been living there for more than one year.
Andrew Schultz: (16:17)
I’m going to assume that they’ve been there for long enough, that they need to have a 90-day notice before you can raise the rent by anything more than 5%. So that’s something that you need to take into account here as well. You do mention that the tenants are now month to month. Obviously, when you go to raise the rent, you’re hoping that the tenants just decide, I don’t want to, I don’t want to pay that much. We’re going to leave. That’s really what you’re trying to do is force them out by raising the rent here. Really, it seems that the main concern is that the tenants could just stop paying rent altogether. If you do try to raise the rent to $2,500, uh, and which I guess that would be a potentially legitimate concern as you do indicate that they had paid late for several months.
Andrew Schultz: (16:53)
Um, but they were getting to be a little bit more consistent. The biggest issue I have here is that you’ve essentially operated at a very low margin, or you’re admitting that you’re operating at a very low margin. And that’s ultimately the reason that you’re trying to bump the rents up. I can certainly understand that everybody wants to be in a position where they’re generating positive cash flow, but I think that you’re going about the situation, the complete wrong way. I would agree that you do have some lease violations here when you’re talking about trash being left on the yard and things of that nature, though. I do wonder if maybe you’re, you’re being a little over-sensitive at this point, judging by the rest of the comments on the post. Um, obviously we have no proof of that one way or the other, but there are ways to handle lease violations, and there’s no indication that you’ve actually done anything to handle those lease violations in an inappropriate fashion.
Andrew Schultz: (17:38)
You’re just letting yourself get fired up more and more and more and not actually addressing the root issues. And now you’ve decided that these are horrible tenants. So ultimately I think your best option is to offer the tennis, a cash for keys scenario in the state of New York, right now, trying to terminate the lease is not going to happen because the eviction moratorium is basically going to take the teeth right out of that argument with the eviction moratorium currently in place until the, uh, at least the one in New York is here until May 1st, there is the talk of the federal one extending evictions until, uh, the end of September, which I think is what this gentleman was referencing. It doesn’t even know what the eviction laws are in the state that he’s operating in currently. You know, it’s just another concern to throw onto the pile there, but getting back to the point when you’re, when you’re talking about a situation like this, even if you do offer a lease termination or force a lease termination, you really don’t have any teeth to enforce it because the courts aren’t hearing hold over cases at the moment anyways.
Andrew Schultz: (18:31)
So he is right. He might find a situation where he winds up with squatters if he tries to raise the rent. And that’s obviously not the situation that he wants to find himself in. Realistically speaking, if you want these tenants out of your building, I think the best option for you is to offer them sort of some sort of a cash for keys scenario, just to get control of your asset back. And then you can do whatever you want with it. My recommendation would be get out of the industry because it doesn’t sound to me like you’re well-suited for it. Um, but that’s just my 2 cents. That’s how I would go about it. I would talk to these tenants, perhaps offer them some sort of a cash for keys scenario, where you get control of your asset back and you can do whatever you want with it.
Andrew Schultz: (19:06)
You get rid of these tenants that you feel are terrible and you can move on with your life. Love may be in the air with Valentine’s day coming up, but that doesn’t mean you love your renters. Rent prep has recently released their guide on how to deal with difficult tenants. This guide includes advice around strategies, such as cash for keys and evictions. Visit the rent frat blog at rentprep.com slash blog today to learn more, that pretty much wraps things up for this week’s episode of the red 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 real estate. And you can help us to reach that goal. If you heard anything in this week’s episode or any other episode that will help someone, you know, please do us a favor and share it with them.
Andrew Schultz: (19:49)
If you’re looking to get in contact with me, I can be reached over at what’s drew up to.com from there, you’ll find links to everything going on with me over at owned Buffalo, as well as other projects we’re currently working on. There’s also a contact form over-owned buffalo.com, where you can reach out to me directly. 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. We’ve been enterprise users of Rent Prep for years now, over at owned Buffalo. And it certainly has 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 that you won’t want to miss until then. I’m Andrew Schulz with owned buffalo.com for rentprep.com. And we’ll talk to you.