Landlording & Rental Properties

What Are the Risks & Rewards of Renting to Undocumented Immigrants?

Expertise: Landlording & Rental Properties, Real Estate News & Commentary, Personal Finance, Real Estate Investing Basics
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Ready for a pragmatic look at the pros and cons of leasing to undocumented immigrants? Dollars and cents, risks and benefits, not rhetoric or opinion-mongering?

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Now that there are only a third of us still in the room, let’s talk about a few practical realities. There are 11-11.5 million undocumented immigrants in the United States, and they aren't homeowners. Let's face it, it's hard enough to qualify for a mortgage even when your documents are in order!

So they rent, which raises all manner of questions. Who's renting to these undocumented immigrants? What kinds of tenants are they? Are landlords even allowed to knowingly sign leases with them? What risks do they pose, and why would landlords lease to them?

Because of the undocumented nature of these renters, some of the evidence is, necessarily, anecdotal. But where government statistics are scarce, we’ll apply single-step logic, anecdotal evidence and common sense. What we won’t apply is politics, so check them at the door and read on.

First of all, is it even legal to rent to undocumented immigrants?

That, dear readers, depends entirely on where your property is.

State laws range from emphatically pro-immigrant to aggressively anti-immigrant. Consider California and New York, where it’s not legal to even ask a rental applicant about their residency status.

On the opposite end of the legal spectrum, it’s a felony in Oklahoma for landlords and property managers to provide housing to undocumented immigrants. The law is pretty explicit: “It shall be unlawful for any person to conceal, harbor, or shelter from detection any alien in any place within the State of Oklahoma, including any building.”

Double check your state’s laws because a wrong move in either direction could land you in court depending on your state’s leanings.

owner-occupied-financing

Fair Housing laws get tricky when immigrants are involved.

The Department of Housing and Urban Development (HUD) does not have a sense of humor or leniency when it comes to Fair Housing laws.

Quite the opposite: They’ve been aggressively pursuing Fair Housing lawsuits in recent years, trying to make examples of landlords around the country.

As a refresher, landlords and property managers cannot discriminate on the basis of race, national origin, or ethnicity (among other factors less relevant to immigration). But it turns out that “discrimination” is not so easy to define. For example, earlier this year HUD issued a ruling that landlords cannot have a blanket policy barring all applicants with a criminal record. The logic? That it violates Fair Housing laws based on race.

Related: The 5 Areas Where People Violate the Fair Housing Act The Most (And How to Avoid Them!)

Gray areas in HUD’s interpretation of the laws abound. If you only post rental ads in English on a community board frequented by white Americans, but the city has a large Hispanic population, is that discrimination? If you require all rental applicants to pass an identity verification, is that discrimination?

But here are a few rules that are crystal clear, black and white: If you require certain documentation of one rental applicant, you must require it of all applicants. If you run certain background checks on one applicant, you must run the same checks on all applicants. There is no room for different requests, documents, or screening actions.

Have a comprehensive tenant screening procedure, and stick to it for every applicant. No exceptions.

What are the challenges in screening & leasing to undocumented immigrants?

Captain Obvious here: Undocumented immigrants are not documented on paper.

That means no credit report, no criminal background, no eviction history — at least theoretically. Sometimes there is a paper trail, using a false identity and Social Security Number.

So how can you know as a landlord or property manager if the applicant will make a good tenant or not? In many ways, it's like leasing to a recent graduate, with no credit history or track record. One option is requiring a co-signer if you have an applicant who seems promising based on income, employment and housing history, but has little or no credit.

The language barrier can pose another challenge. Many undocumented immigrants have limited or no English, which means you’ll need a translator if you don’t speak their native language.

And what of the lease agreement? In some states (e.g. California), landlords are legally required to provide a copy of the lease in whatever language was used to negotiate lease terms. Do you know where to get a California lease in Lithuanian? I don’t. That means hiring a translator to draft a copy of your lease in your tenant’s language.

Lastly, there are plenty of anecdotal accounts of undocumented immigrants packing many occupants into one rental unit. It makes intuitive sense, for several reasons. First, it is more difficult for undocumented immigrants to find housing, with no papers and no background on paper. Second, undocumented immigrants earn less income than legal residents, given the fewer job options available with no papers.

More occupants mean more wear and tear on the property — and higher repair and replacement costs for landlords.

botched-eviction

What are the challenges in evicting & collecting if undocumented immigrant tenants don’t perform?

Here’s a conundrum: If you leased to an undocumented immigrant in a state where it is a crime to do so, what happens if you need to evict that tenant? How readily would you file in court for eviction?

Or, in states where it’s not a crime to lease to undocumented immigrants, how do you collect unpaid rent or damages from someone who doesn’t exist on paper?

Brian Pendergraft, lead attorney and landlord-tenant specialist at The Pendergraft Firm, explains further: “If I get a judgment against an American citizen for unpaid rent, then I can find where they work and garnish their paycheck, find where they bank and garnish their account, and use every tool in the toolbox to go after their assets. And it is hard enough to collect a judgment from an American citizen.”

But undocumented immigrants? “The problem with renting to undocumented immigrants is that if they do not pay rent, chances are they are ‘judgment proof.’”

What are the benefits to renting to undocumented immigrants?

With all these challenges, why would any landlord take the risk on undocumented immigrants?

It turns out there are some compelling reasons.

First, undocumented immigrants don’t want to rock the boat. The last place they want to end up is a courtroom, which means they’re more likely to pay the rent. And because there tend to be more occupants in the rental unit, there are more income earners to cover rent payments if one occupant loses their job.

If the tenants did default on the rent, they aren't likely to stick around for the eviction process. The last thing they want is appearances on court dockets, sheriffs showing up at the door, etc. This means they’re likely to “skip” and simply move out without forcing you to go through the entire expensive, time-consuming eviction process.

Related: 7 Advanced Tenant Screening Tips (So You’re Not Fooled by Wolves in Sheep’s Clothing)

They’re also far less likely to sue you, for the same reasons. There’s nothing worse for landlords’ returns than a lawsuit.

And you know those tenants who are constantly calling you to complain and demand property upgrades and improvements? Undocumented immigrants aren’t exactly keen to have a bunch of contractors and strangers tromping through the property all the time. Anecdotal evidence is that undocumented immigrant tenants minimize their contact with the landlord and will even make minor repairs themselves when something breaks.

Finally, some landlords report that undocumented immigrants will stay in the property longer than typical tenants because of the difficulty posed by finding new housing without papers. Longer tenancies mean lower turnover rates — great news, because turnovers are deadly to landlords’ returns.

Should you rent to undocumented immigrants? Maybe. Understand your state’s laws, explore your market’s demographics, decide what your priorities are as a landlord. There are risks that come with renting to undocumented immigrants, but there can also be benefits, especially for hands-off landlords looking to create rental income that’s more passive.

[Editor’s Note: We are republishing this article to help out our newer readers.]

Have you ever rented to undocumented immigrants? Why or why not?

Share your experience with other landlords, so they can benefit!

G. Brian Davis is a landlord, personal finance expert, and financial independence/retire early (FIRE) enthusiast whose mission is to help everyday people create enough rental income to cover their ...
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    Ihe O. Investor from Laurel, Maryland
    Replied almost 3 years ago
    1. The immigration status of a tenant is none of your business. 2. The operative word in the Oklahoma statute you cited is knowingly. It does not state that you are required to enquire on an applicants immigration status. so guess what……. 3. In the 9 years since it came to force nobody has ever been prosecuted under that statute http://kgou.org/post/9-years-later-oklahoma-immigration-law-has-little-lasting-impact
    Bob
    Replied almost 3 years ago
    “Illegal” immigrants, bed bugs, and sex offenders… may I suggest that your next “educational” blog be about “self-awareness”? bob reyna
    G. Brian Davis from Baltimore, MD
    Replied almost 3 years ago
    Bob, we’re here to talk about ideas. Not to try to shame people into silence simply because they brought up a topic you find uncomfortable. By all means, disagree with a point I’ve made, make a case for your opinions, etc. But we’re about debating ideas here, not simply taking pot shots or hiding behind political correctness.
    Ihe O. Investor from Laurel, Maryland
    Replied almost 3 years ago
    Mr Davis. There is no law requiring you to inquire on the immigration status of an applicant – even in Oklahoma. There is no debate to be had, you just wrote a nasty minded article.
    Michael Woodward Real Estate Investor from Greenback, Tennessee
    Replied almost 3 years ago
    Sorry Brian…. If you push a political hot-button, you have to expect fireworks to follow. It’s interesting to me that words like “undocumented immigrant” have entered our vernacular for the purpose of being less offensive to the people that are breaking the law. So… if this is the trend we all want then I think we need to start using words like “inventory reduction expert” instead of shoplifter…….”vehicular acquisition technician” instead of carjacker and “life deprivation specialist” instead of murderer. Wouldn’t that make those criminals….. sorry….. “legally challenged persons” feel better? For those in the room that are in the US illegally, I have a question….. If someone steals your purse or wallet with all your money in it, do you want help from the police and our legal system to get your stuff back? In other words, do you want a law to be in place to make it illegal for someone to steal from you? You probably do, right? If I ask the same question to the person that’s doing the stealing then I’m sure they will say that they don’t want stealing to be illegal so they can continue hurting other people for their personal gain. Who wants to live somewhere that laws are treated like an a la carte menu where you get to pick the laws you want to follow? Not me!! If you want to change a law, petition the lawmakers and work your way through the system. On a parting note, it’s discouraging to see a conversation about how to enable illegal activity for monetary gain. In the legal field this is called being an accessory to the crime.
    Sam White Rental Property Investor from Dallas, TX
    Replied almost 3 years ago
    Thank you, Michael. I wonder how these politically correct landlords would handle a squatter… They just never went thru the leasing process… they just moved on into the landlords house. An undocumented tenant, I guess. Oh, and I leased to an illegal immigrant family in Texas for a year. They were great. :] And I have bought houses from illegal immigrants before. The fact that they are here illegally, doesn’t change the way I interact with someone… But regardless of what someone in California thinks is just to offensive to say, they are, illegal. No need to edit your speech for someone trying to politically reeducate you.
    Corina Tello Residential Real Estate Broker from Chicago, IL
    Replied almost 3 years ago
    Great Information, however, many undocumented in migrants are home owners and landlords, thanks to itin financing, lenders do recognize the tax I’d and there are many ways to create credit with utility accounts, cellphones payment history, etc. I have worked with this nitch and ironically in Tulsa; Oklahoma. I am now in Chicago. Glad someone addressed this subject. Thanks,
    Jody Sperling from Omaha, NE
    Replied 6 days ago
    I had a potential tenant that was undocumented, and liked the family but worried about renting for many of the reasons you reviewed in your post. I struggled to find information on this topic until I found this. Thanks for putting it together. Good information.