545: Landlording in a Covid Economy

SHOW NOTES FOR EPISODE 545: LANDLORDING IN A COVID ECONOMY

The pandemic impacted almost every aspect of our lives and, if you’re a landlord, there’s no exception!  In today’s podcast, RentPrep CEO Stephen White shares some of the ways landlording has changed post-Covid and how you can be better work with these changes to succeed.

What You Will Learn

• New challenges for landlords as a result of the pandemic
• Post-Covid major changes at the Credit Bureaus
• Eviction moratoriums and other regulation changes affecting evictions
• Federal vs. state vs. municipalities regulation changes affecting real estate investors
• Why there are 49 different FICO scores
• How to find and keep good tenants

About Our Guest

Stephen White

Stephen M. White is the Founder and CEO of RentPrep, the leading tenant screening solution for busy landlords.  Stephen brings 20 years of experience in the credit industry and entrepreneurship to his role leading a growing team of executives determined to make renting easier for all.  Before founding RentPrep, Stephen honed and tested his leadership skills while serving as a Non-Commissioned Officer in the United States Marines Corps, where he received two Certificates of Commendation for exceptional demonstration of duty.  Stephen is a sought-after expert, prolific author, and frequent keynote speaker and presenter at industry events around the country.

Here’s a link to his previous appearance on the Old Dawg’s REI Network Podcast:  129: Finding and Keeping Great Tenants August 21, 2017

More About Stephen

• His business survived the pandemic
• They shut down like everyone else
• But they didn’t take as big of hit as they thought
• They did not make the goals they set earlier in the year but they finished the year positive
• The rental market remained stable
• In 2020, they were recognized as Inc 5000’s fastest growing tenant screening company
• Moved into a new “high tech” office
• March 16th of 2020 they became remote
• Steve luckily bought enough laptops just three days before for the whole team
• A few days later, he was dropping off duel monitors
• He was shocked at how well they were able to function and operate remotely
• When it was time for everyone to come back, they all wanted to come back – which speaks a lot for the culture they created over the years

Landlording Challenges

• Because of lay-offs and unemployment support, many potential tenants were not meeting landlords work history requirements
• It tool away stability that landlords like to see
• Landlords, as a result, loosened their screening criteria where it made sense

Credit Reporting Agencies Adapted

• What took him by surprise was the credit reporting agencies (TransUnion, Experian, Equifax, etc.) to comply with the new regulations set forth in the Cares Act
• The agencies couldn’t report adverse information such as delinquencies, or things that affect your credit score negatively, or things that don’t affect your score like evictions or a judgement
• The credit bureaus went to great lengths to create a “black out” period where things just disappeared out of people’s credit reports
• The government sent timelines when all of these things needed to be in place, so there was also a race so companies could meet compliance deadlines
• If landlords found negative information that occurred during the pandemic, they couldn’t use that data in making their decision to rent to a person
• And evictions and other derogatory items were not being reported by the credit agencies
• Steve saw this as a challenge
  • Not all evictions are because of the lack of ability to pay rent
  • Sometimes a tenant is doing bad or illegal things to warrant their eviction
  • Sometimes you have to evict a tenant for the safety of the other tenants
  • Some states were more harsh than others
    • In New York, for example (where Steve is located), ALL evictions were eliminated, regardless of the reason for the eviction
  • Evictions are one of or the most important data showing the risk of a potential tenant
    • If a person is evicted once, statistically, they are 3 TIMES more likely to be evicted again

 State and County Regulations

• There are federal guidelines that everyone had to meet
• But there are also state guidelines too
• Some states put their own spin on regulations, sometimes going a step further
  • New York was the most aggressive in that front
• And some counties and municipalities went even further
  • Cook County, in Illinois, and Maryland, as a state adopted an ordinance that states, “You cannot deny someone from renting from you because of their criminal history, if you don’t, first, consider all other things.”
    • In other words, you have to run credit, evictions, judgements, liens, etc. first, and then, after they’ve been approved or gotten cleared, then you can run their criminal record check – you can’t do the checks at the same time
  • In California and Louisiana, they are pushing for a change in reportable time periods
    • Currently, misdemeanors are reported for 7 years  and felonies are reportable forever
      • California is proposing that any criminal activity only be on a person’s record for 2 years
• There are, however, some states that are not so difficult to work with or track:
  • Texas
    • Not any states think that passing a bad check is a criminal offence, but Texas does
  • Midwest States
    • Not much change in Fair Housing laws
• Some states have changed laws to meet their own specific needs
  • North Carolina will not release criminal records to other states for free – there is a charge

 Keeping up with the Changes

• In the past, Steve had one “compliance person” who kept up with federal, state and municipality regulation changes
• But today, because of the pace that things are changing in states all over the U.S., they have had to scale out to a “compliance department” – not person
  • It now takes a lot of people now to stay on top of the rapidly changing regulations

Credit Reporting Changes

• Steve started his company in 2007
• That’s when he started doing background checks
• Before he started his company, he worked at a bank and that’s when he saw the emergence of sub-prime market
• He saw construction loans issue tor $500,000 to people with credit scores of barely 500
• Then the Great Recession came
• One of the strategies implemented to aid the suffering economy was to create a bell curve on credit scores
• FICO (stands for Fair Isaac Corporation) and is a private accounting company that controls the algorithm used to calculate the FICO score
• FICO had always been the standard but it became reclassified as the “FICO Classic” (also called “04” score)
• Then came the FICO “08” model that inflates someone’s score because of the bell curve being applied
• The credit bureaus didn’t like the fact that they couldn’t control the FICO score so they came up with their own methodology called the “Vantage” score
  • The Vantage score is a collective of the three main credit bureaus and they know the algorithm
• A war, of sorts, developed between the credit bureaus and the FICO people
• As a result…
  • There are 49 different FICO scores
    • Each score is based on what “type” of credit you’re looking at:
      • auto loan
      • credit card
      • mortgage
      • apartment application
      • etc.
    • They’ve lost the standard
  • It’s creating a lot of confusion
    • For example, a tenant may be applying for an apartment and they check Credit Karma and see their score as 750
      • But when the landlord runs their credit, they get a 690 and they maybe fail
      • The tenant is rightfully upset – “I thought I had good credit!”
• To make things even worse, states like California now state that landlords have to accept credit reports that applicants hand them or not charge them for an additional credit search
• It’s always better to get credit scores from a third party as opposed to from an applicant

Dealing with Covid Eviction Moratoriums

• Some landlords were hit harder than others
• But, overall, the eviction moratorium, did not cause the impact many had thought would happen
• Those that were hit harder, had to get creative and implemented “Cash for Keys” scenarios whereby, they paid cash non-paying or troublesome eviction candidates just to get them out
  • It works more if it’s an amicable situation where they are not damaging the property or being hostile
  • Even if they are a threat, it may be the best solution to get them out quickly
  • It can help if you want to end their lease and don’t want to have to go through the eviction process and expense
  • More often than not, it can be the right move
  • Yes, there are those who will hate the idea of rewarding someone for doing something that clearly is not right
  • But, businesswise, it can make dollars and sense in the long run
  • It can also limit current or future damage by incentivizing them to get out

Advice for Landlords Who Want to Find and Keep Great Tenants

• Good tenants want good landlords
  • It sounds simple but it’s still important
    • Use professional looking forms
    • Make sure you’re getting everything you need from prospective tenanats before making a decision
      • Paycheck stubs
      • Social Security number
• Hold on to Good Tenants
  • Know what the cost of a turnover is
  • You’re usually not cash positive until the second year
  • What is that good tenant worth to you
  • Maybe reducing the rent increase
  • Fulfilling tenant requests
    • USB outlets
  • Do what you have to to keep the good ones

How to Reach Steve

• Website: RentPrep.com
• Look for RentPrep’s Facebook Community too
• Podcast: RentPrep for Landlords

THIS PODCAST EPISODE WAS BROUGHT TO YOU EQUITY & HELP

AND BY ROBERT AUGUST CUSTOM SHOES

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