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Avoiding Rental Discrimination as a Real Estate Investor

by Chris Clothier on March 26, 2014 · 4 comments

  
Avoiding Discrimination in REI

The number one thing a real estate investor never wants to be accused of is rental discrimination.  Well, that may not be the number one thing a real estate investor never wants, but it is pretty high on the list!  In the United States, we’ve long had laws that seek to prevent discrimination and protect individuals from its harmful effects.  For the owner of a rental property, avoiding discrimination seems like it should be a relatively easy task.  You may tell yourself  that it’s as easy as treating everyone alike.

The truth of the matter, though, is that you can be discriminatory without even realizing it.  Knowledge is your best ally when it comes to steering clear of potentially devastating lawsuits and blows to your reputation as an investor.  If you know precisely what to do and not do, you should have no trouble avoiding rental discrimination.

What You Need to Know About Rental Discrimination

What is the definition of discrimination?  One definition, according to Merriam-Webster is, “the ability to understand that one thing is different from another thing.”  Discrimination in this regard is not necessarily bad.  Maybe you favor one color shirt or television show over another.  Discrimination regarding the inanimate is all personal preference.  It’s acceptable.

Another definition, however, is decidedly negative: “the practice of unfairly treating a person or group of people differently from other people or groups of people.”  For the real estate investor, the most dangerous times for discrimination are found in the tenant screening process or in the sales process of your property.  For today, we are going to focus on the rental screening issue.  While screening is a very necessary step to insure you’re getting good tenants, both overt and unconscious discrimination can happen along the way.  There are questions you can’t ask during the process, similar to in a job interview.  There are actions you cannot take and issues that you have to address immediately in order to avoid even being accused of discrimination.

In the rental industry, there is also a dangerous practice known as steering that can be both intentional and unintentional discrimination.  Steering is guiding an applicant to a location, property or place where you think they would be better suited based on their age, sex, gender, nationality, race, disability or familial status.  Sometimes these are based on good intentions, for instance, referring a family with children on the ground floor of an apartment complex nearest to the playground instead of offering all available units to them.  However, all potential tenants have the right to be informed of all available units and then make the decision themselves on which they want to see and consider.

You cannot advertise or imply preferences, either.

Related: Landlords Beware: Discrimination can cost you Millions!

Fair-Housing Act 101

The Fair-Housing Act is the federal law that protect tenants from discrimination by landlords and investors.  Seven classes and qualities of individuals are defined as being illegal to discriminate against. These factors are:

  • Race

  • Skin Color

  • Sex

  • National Origin

  • Religion

  • Disability

  • Familial Status

As a real estate investor, you cannot deny or choose to rent to people because they are or are not something in any of these categories. That is easy and most of us get it without having to be told.  That seems very natural for most people.  But, you also cannot ask questions regarding any of these classifications or categories and descriptions.  They have no basis for determining whether or not someone is qualified to rent from you.  That is where many get into trouble.  Whether they even consider these factors or not, you cannot even ask them for information purposes.

In some states, other classes are protected by local laws and may include:

  • Sexual Preference

  • Gender Identity

  • Occupation

  • Source of Income

  • Educational Status

  • Medical Status

  • Physical Body Size

Discrimination can be found in small places – for instance, asking for the name of a tenant’s spouse on the application rather than just having room to list all adults.  What is scary for many real estate investors is that we may very well be doing things with no intent of discrimination at all, and yet someone else can feel discriminated against and raise issues with the process.

Related: 3 Key Tips For Screening Tenants

Avoiding Discrimination Lawsuits

Number one: never ask about any of the classes protected by the Fair-Housing Act. Don’t ask if someone is married or where they are from.  When asked about a rental, provide the same information in the same manner to everyone. You can even make a script to help keep you on track.

Keep your application forms neutral and simple.   Even if you know a property is out of tenants’ price range (but remember you may not be able to ask about jobs and sources of income), you have to at least put it on the table for their consideration.   You may be trying to save everyone’s time by presenting what you consider to be affordable, but it could qualify as discrimination.  It may not qualify as discrimination and they may not even feel discriminated against.  This is all about keeping your processes as safe and as far from discrimination as possible.

Keep a list of criteria for people to meet in order to rent from you that don’t have anything to do with the protected classes under local and federal laws.  Write it down and keep it handy.  Use these in screening and cover your other worries in the rental agreement.  You also need to document everything you or your people do.  Keep close tabs on your team members who represent you and train, train, train on not being discriminatory.

At the end of the day, try to treat everyone with equal consideration and courtesy.  Keep records and be intentional with your neutrality.  It’ll be beneficial for you, your investments and your reputation.

What steps do you take to avoid rental discrimination?

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{ 4 comments… read them below or add one }

Eric March 26, 2014 at 4:51 pm

Do not forget. Have a set rental criteria, based on income, credit score, rental history and criminal record. Present it to incoming tenants. The criteria should be the same, whether you see/met the tenants are not.

Reply

Sharon Tzib March 27, 2014 at 10:40 am

I see this subject come up A LOT in the forums. It seems some people are using leases with very discriminatory clauses in them. Great and very timely review, Chris.

Reply

Tony Delisi March 28, 2014 at 12:29 pm

As a Realtor in Huntley IL, we have found that we need to treat rental applicants the same as buyers as far as Human Rights. This even includes menacing sure you have w rotten list of trades and services you recommend that has at least three choices of each service. Be sure you use the same list and use it for everyone so it will not appear that you are discriminating by using a separate list or no list for any protected class.

Reply

Abel Vazquez April 1, 2014 at 2:41 pm

Wow I never thought that screening can become so sensitive when it comes to choosing a possible tenant. I will be using this article as a guide when screening tenants. You can never be to careful. Great article Chris.

Reply

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