Should You Rent To Friends? (Podcast #327)

When a close friend tells you how much of a great tenant they would be, would you consider renting to them? Listen in to hear what Property Manager & Podcast Host, Andrew Schultz, has to say about renting to friends.

Also in this episode, we’ll discuss the end of The Cares Act and tenants who ask for their security deposit back 30 days too early.

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Show Transcription:

Andrew Schultz: (00:00)

Hi, everyone. Welcome back to another episode of the Rent Prep for Landlords podcast. This is episode three 27 and I’m your host, Andrew Schultz. On today’s episode, we’re going to be talking about what’s going on in the news, how to properly return a security deposit, and what to do when you need to rent to a friend. We’ll get to all of 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)

All right, let’s jump right into today’s episode within the news today’s article was published by CNET originally on August 20th with an update on August 24th. And it looks like this article is actually getting some regular updates as well. The title of the article is Last eviction protection for renters ends today with September rent, just days away. This was written by Dale Smith and Shelby Brown. I will preface this by saying that this article is very much geared toward the tenants and not so much towards the landlord, but there is quite a bit of good information in here that’s worth conveying. So I’m kind of cherry-picking some pieces of this article to, uh, to read to you the stuff that’s more relevant to the landlord side of things. Um, if you’re interested in getting a good feel for what’s being reported to tenants right now, definitely go read this article in its entirety, because it does a good job of explaining to tenants what their rights and obligations are in the current situation that we find ourselves in with this, with this global pandemic. 

Andrew Schultz: (01:22)

So we’re going to get into this a little bit here. As I mentioned, I’m kind of cherry-picking some certain sections out, the more landlord relevant things, and then we’ll discuss it just a bit. A national housing crisis could soon begin in earnest as the last remaining eviction protection established by the cares act vanishes today with no replacement in sight. As of August 24th, tens of millions of renters who were protected from eviction will no longer be shielded against losing their homes for being late on rent payments. That includes over 28 million Americans claiming unemployment benefits as of August who recently lost the $600 per week federal enhancement without new or renewed protections or financial safeguards like expanded unemployment or the second round of stimulus checks. As many as 40 million people could be displaced from their homes over the next year. According to the Aspen Institute, all during the worst economic recession, since the great depression, that’s 12% of the US population and equivalent to the entire population of California. 

Andrew Schultz: (02:21)

Some States still offer temporary emergency eviction protections, but many States like California is eviction stay and soon confusing. The issue is Trump’s August 11th executive order, which promised to look into the evictions but stop short of outright preventing them. The order is not a renewal of eviction protections as the text makes clear. It isn’t known exactly when or in what form a new eviction moratorium might occur without the assurance of a future stimulus package. The situation could worsen. So now we’re jumping ahead. We’re now talking about president Trump’s executive order in this portion of the article, the wording of the executive order only promises to look into the matter emphasis hours and does not haul evictions today. The secretary of health and human services, and the director of CDC shall consider whether any measures temporarily halting residential evictions of any tenants for failure to pay rent are reasonably necessary to prevent the further spread of COVID-19 from one state or possession and to any other state or possession the order stipulates four steps of government action, none of which would stop evictions immediately. 

 Andrew Schultz: (03:26)

Number one, investigate whether it’s necessary to stop evictions as a way to keep the coronavirus from spreading, presumably from people crossing state lines, looking for new housing, sharing housing with others, or moving into shelters. Number two, identify ways to give renters and landlords financial assistance. Number three, provide assistance to various organizations or individuals to help guard against evictions and foreclosures though. It isn’t clear if this includes financial help and number four review existing authorities and resources, which could include government programs. Although the order encourages the secretary of the treasury and the secretary of housing and urban development to explore ways to fund financial assistance to tenants who are behind on rent, the executive orders stopped short of setting up such a fund or banning evictions. In other words, without further action from the Trump administration or from Congress, nothing has really changed yet to help you find out the status of eviction protection in your state legal services site, nolo.com N O L o.com maintains an updated list of state eviction provisions. 

 Andrew Schultz: (04:31)

I actually just checked that list to look and see if it was accurate here for the state of New York. And it is completely accurate for New York as it sits right now today. So it seems to me as though that list is getting regular updates as well. Finally, we’re going to move into the section of the article about what a tenant can do. If they’re faced with this situation, what are their options? Uh, the title of this section is ask your landlord for a reduction or extension in almost all instances. It’s probably best to work out an arrangement with your landlord or leasing agency, if at all possible. Although some landlords have reportedly reacted to the pandemic by putting even more pressure on tenants to pay up. Other landlords have risen to the occasion, some going so far as to stop collecting rent payments for a period of time, it may be worth approaching your landlord to see if you can pay less rent in the coming months or spread payments for the next couple of months, rent out over the next year. 

 Andrew Schultz: (05:22)

Just be wary of landlords who are making excessive demands. For example, some have asked tenants to turn over their $1,200 stimulus check or any money received from charity as a condition for not filing an eviction order. Don’t agree to unreasonable terms and conditions. Uh, you won’t be able to meet, especially if your city or state has an actor protections against such arrangements jumping down further. Now, finally, if you can no longer afford to rent your current home relocation might be an option. Average rental prices have declined across the US since February, according to a report by Zillow in August. Apps like Zillow, Trulia, and Zumper can help you find something more affordable, just be aware that you may still be held responsible for any back rent you currently owe as well as any rent that accrues between now and the end of your lease. If you have one, whether or not you. 

Andrew Schultz: (06:17)

So again, This is a really interesting article because it’s written from the perspective of trying to assist tenants, uh, trying to help tenants remain in their homes, which I think ultimately is the goal for most landlords. I don’t think any of us want to sit around with empty apartments for any longer than we absolutely have to, but we also don’t necessarily want to be sitting on filled apartments where the occupying parties not paying any rent in that creates just as many problems as having a vacant apartment, if you think about it. So there are a couple of options out there for landlords who have a non-paying tenant that may give the tenant the opportunity to redeem themselves, remain in their home while still making sure that the landlord has made whole in one way shape, or form something that we’ve done here at own Buffalo is offer a variety of different payment plans to our, to our tenants who have been affected by COVID. 

Andrew Schultz: (07:06)

Um, one such payment plan is we’ll. Do you know if say it’s the current month’s rent, that’s doing an owed, we’ll split that half? They pay half in the current month. And then for the next two months, they’ll pay an extra quarter month. So w you know, half a month’s rent in August one in a quarter mints in September one in a quarter month in October, by the time November rolls around, they’re all caught up. They’re back to just one normal month of rent. That might be an option for somebody who’s got a little bit more temporary situation. Another option that we’ve had is with some of our tenants, we’ve offered to let them say skip the month of August. And then we take the month of August, divided out over however many months are remaining in their lease term, and add that amount onto every month for the remainder of their lease term. 

Andrew Schultz: (07:49)

That’s another option that we’ve offered to our tenants as well. We’ve also had some tenants who have approached us and asked about just getting out of their lease all together and separating ways and just going in opposite directions. Typically, what we’ll do for those tenants is we have a clause written into our lease. If a tenant needs to terminate their tenancy or something like that, they are still responsible for the rent until we place a new tenant. They’re also responsible for the placement fee for that new tenant. Since obviously, it shouldn’t be the property owner’s responsibility that the tenants trying to move. So what we’ll do is we’ll help the tenant find a new tenant to take over their lease. And then once that new tenant has been secured, the old tenant would obviously be done with their lease obligation and would just owe us whatever the balance and rent is. 

Andrew Schultz: (08:35)

Plus the cost of any damages that were done above and beyond their security deposits, um, as well as the new tenant placement fee. So that might be an option for somebody who just needs out, maybe, you know, they need to move for whatever reason, job-related or medical-related, something like that. They just want out that might be an option that works you. If you’re in a state where you still can’t evict, you might want to consider cash for keys scenarios. Uh, typically the way these would work would be if you have a tenant that is behind on rent, you would offer them some amount of money to just be gone and cleaned out of the property by a certain date so that you can retake possession of the property. And if they agree to those terms and they move out and they clean the place to make sure that it’s, doesn’t have a bunch of debris and stuff left in it, you know, broom clean, whatever the case may be. 

Andrew Schultz: (09:23)

We’ll pay them the agreed-upon sum, as long as both sides, sign an agreement saying that neither side has any further responsibility to the other. You know that is an option, especially in a situation where you can’t evict. That might be your only option for getting rid of a tenant. That’s less than willing and isn’t paying you rent. Uh, so that might be something that you consider as well. There are several different options out there that you could take advantage of. If you’re trying to find your way through this situation where you’ve got a non-paying tenant, you might be able to help that tenant stay in their unit and make some sort of a payment arrangement. You might be able to work out an agreement with the tenant where they just move out of the unit so that you can release it. Um, or you might find yourself in a situation where the tenants basically trying to stay there as long as possible, you might be able to offer them a cash for keys scenario that gets them out of the unit, puts the unit back in your possession so that you can find a paying tenant. 

Andrew Schultz: (10:14)

So there are options out there for housing providers to consider such that you’re not completely stuck. You do have options. You know, everybody’s financial, situation’s a little bit different. You’re going to have to figure out what works best for your financial situation. And also your tenant’s going to have to decide what works for their financial situation as well, uh, in order to get you through this. So you’re better off being in a position where you’re working with your tenant than working against your tenant here. That would be my main piece of advice work with not against your tenant, if at all possible because I think that you’ll be able to find a resolution in one way, shape or form. If you go that route.

Voice Over: (10:54)

Feet on the street, real stories from real property managers, 

Andrew Schultz: (11:02)

This week’s feet on the street comes to us from the landlord subreddit. The title of the thread is what’s the weirdest text, email, Facebook message, phone call, et cetera, that you’ve received from a tenant. And the best response on this thread comes from a landlord who says the following. I got a slew of angry texts wanting the return of the security deposit prior to move out. And Georgia law allows 30 days. Post-termination for the return of the deposit. The former tenant was from New York City and wanted me to be accountable to New York city laws. So I find this interesting because to the best of my knowledge downstate New York, New York city specifically does not have a law in place that says that you have to return the security deposit before someone moves out. As a matter of fact, the law in the state of New York as of June 20 19th. 

Andrew Schultz: (11:48)

And I’m pretty sure this is consistent across the entire state is that landlords have 14 days to return the security deposit after the tenant moves out. There’s a couple of other little bits and pieces that you have to follow in there. There’s a pre move out inspection, and you have to provide, obviously the detailed letter indicating what the security deposit was used for if you made any deductions, but to the best of my knowledge, yeah, that’s definitely not the law in the state of New York. And it doesn’t sound like it’s the law in Georgia either. So you definitely did the right thing by waiting until after they were out of the unit to process their security deposit refund. Something else that I think definitely warrants mentioning here is make sure you understand your state security deposit laws. Well, before you get to the end of a tenancy, as a matter of fact, you should have a really good handle on your state security deposit laws. 

Andrew Schultz: (12:34)

Before you even start listing the apartment for rent, you may need to have a separate account that you have to hold the security deposit in. There may be restrictions as to what you can charge, whether it’s first, last, and security, um, or just first and security or whatever the case may be. You should have a good understanding of what it is that you’re allowed to charge by the law in your state when it comes to security deposits and understand what you need to do when it comes to disposing of that security deposit as well in New York state, for instance, like I had mentioned, you have to do a pre-inspection before the tenant moves out. They have an opportunity to, in theory, correct anything that’s not correct in the apartment. And then obviously you move out and then you’ll have the ability to charge the security deposit for anything that’s not correct, or whatever the case may be after the tenant moves out. 

Andrew Schultz: (13:21)

But you have a limited timeframe in which to do that. Most states do have some kind of a limit as to how long you have to return a security deposit. You know, in the state of New York, it was a little bit vague up until they clarified the laws in 2019. Um, and some States you may still find that there’s not like a specific number of days given, which was the case here in the state of New York. Uh, it just said a reasonable amount of time, which we all pretty much took to mean 30 days. Um, but now that’s been codified in the law and it’s it’s 14 days. So that obviously puts a little bit more pressure on security deposit refunds, making sure that you get them out and processed in time so that you don’t wind up in a sticky situation. It’s definitely worth noting that the penalty for mishandling a security deposit can get very, very strict, and very, very severe in some States. 

Andrew Schultz: (14:10)

I want to say, California is one of them, but obviously, you know, I’m not an attorney. Uh, maybe it’s Washington. I can’t remember the the penalty for mishandling a security deposit is essentially you have to give the tenant back three times their deposit. So there are pretty stiff penalties in place for mishandling a security deposit, make sure that you’re doing what you need to do properly so that you don’t wind up in trouble on the backend in a situation like this. So there was an honorable mention in this threat as well. Keep in mind that this is what’s the weirdest text, email Facebook message, whatever this landlord got a phone call from a tenant, uh, in the middle of the night saying that a car just driven into the house and she responded with a loud sigh and said that she was on her way. 

Andrew Schultz: (14:52)

So if what’s the craziest thing that’s ever happened to you guys in your time as landlords, uh, hop on over to our Facebook group, facebook.com/groups/rentprep, go ahead and join that group. That’s a free resource, almost 12,000 members and share your experience with us. We’d be super interested in hearing what’s happened to you guys over your time as landlords. It’s great to get other people’s opinions as to how to handle situations that maybe you’ve never experienced before. And that group is a great resource to plug into in order to access all those people and all of that knowledge, 

Voice Over: (15:29)

Water cooler wisdom, expert advice from real estate pros. 

Andrew Schultz: (15:37)

This week’s water cooler wisdom is also coming to us from the landlord subreddit. The title of the thread is, is it a bad idea to rent to friends? I have a house that I’m trying to find a tenant for. And my friend just reached out after deciding to separate from her husband last night. I wouldn’t say that she’s a close friend and I live three hours away, but I know that she’s a pretty type a personality, and I don’t want to be dealing with constant texts from her. My ideal tenants only message me on the rent day with their payment, but I also feel for her, and I know she’s reliable and very clean I’m torn. Does anyone have experience with running to a friend? Is it always a terrible idea? I tend to be of the opinion that it is a terrible idea to rent to friends. 

Andrew Schultz: (16:17)

It creates a situation where you have a personal relationship with somebody that you’re now trying to mix a business relationship in with. And oftentimes it just doesn’t go well, the first time that you have to put your foot down because there’s a lease violation or the rent’s not paid on time or something like that, you’re basically compromising your friendship to try to save the business relationship. And no matter how much you can separate personal and business in your mind, your friend may not be able to do the same. So if you find yourself in a situation where, again, for instance, the rent doesn’t get paid and you have to go to your friend, uh, I’m not even gonna say, friend, you have to go to your tenant and say, Hey, the rent’s late. Is that person looking at you as their housing provider? Or is that person looking to you as their friend, who’s going to, you know, help them get through this tough time or something along those lines? 

Andrew Schultz: (17:13)

So I tend not to be a fan of renting to friends simply for that reason, it’s just too risky. I don’t like mixing friendship and business relationships. Um, it can get very, very sticky very, very quickly, especially when you’re talking about someone’s housing situation, I personally just would say no and walk away from it. So there was actually a really well thought out response in the comments of the thread written by another landlord who has been through this type of a situation before he actually came up with a series of questions that you have to ask yourself before you commit to a lease with this person in a residential unit, ask yourself these questions, be truthful with yourself, look at your answers and then decide if this is worth the risk. Are your friends going to be okay with you probing their credit employment and rental history? 

Andrew Schultz: (18:03)

If you deny their application, are they going to be a good sport about it? If your friend falls on hard times and asks you for a rent reduction, are you going to give it, can you tell a friend? No. If they ask to add a dog to the lease, can you refuse to make a request to improvement to the unit? If your friend asks for it, can you stay friends? If you decline to renew their lease at the end of the lease term, can you hold your friends accountable and make them pay for damages done to the apartment? Can you evict your friends? If they fail to pay rent the answer to each and every one of those questions is solely up to you. But at the end of the day, the cost of this business relationship maybe your friendship. So it’s definitely something to keep in mind. 

Andrew Schultz: (18:46)

Definitely, something to think about before you go down that path of renting to a friend, make sure that you go through those questions and understand the answers to them and be truthful. When you answer those questions to yourself, it’s not like you’re telling anybody else the answers. You’re the only one who’s going to know. You’re the only one who’s going to be able to decide if this is the type of business relationship that you want to pursue. I know when I look at that series of questions, which I’m super glad that I came across, there’s an answer to those questions and the answer to almost every single one of those questions would indicate to me that I should not rent to a friend when it comes to any of our apartments or something like that. So that’s definitely something to keep in mind. This is a good litmus test for you to determine whether or not you should move forward. 

Andrew Schultz: (19:32)

Thank you all so much for listening. We really do appreciate it. If you’re looking to get in contact with me, I can be reached over at ownbuffalo.com from there. You’ll find links to our Facebook page, as well as our YouTube page, which is where we post the bulk of our content. I also run a show every Wednesday morning at 10:00 AM Eastern on Facebook, nice little live show called ask a property manager. Be sure to check that out as well, replays for that are available on our Facebook page, and also the same day on our YouTube page as well. So you can always catch replays. We’ve been doing that since January of 2020. And I think that we’re are episode 35, which just posted 34 or 35 was just posted. So definitely check that out. If you’re looking for top-notch, tenant screening, head on over to rentprep.com and take a look at all the different tenant screening services that are available over there. You should also tie into the Rent Prep for Landlord’s Facebook group over at facebook.com/groups/rentprep. Again, that is a huge group of other landlords and property managers from all over the country. And everybody is always willing to share their experiences. So if you have a weird situation that you’ve never encountered before, your best move is to hop into that group, ask the question and see what kind of responses you get, because you will get a multitude of different perspectives. Thank you all so much for listening. We really do appreciate it until next week. I’m Andrew Schultz with owned buffalo.com for rent prep.com. And we’ll talk to you next week.