HELP! Minneapolis proposal eliminates credit score for screening!
Minneapolis, MN · Member since 2018 · 13 posts · 7 votes
HELP! Minneapolis proposal eliminates credit score for screening!
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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
7yIf you don't already own rentals in a major city, don't buy them. The larger cities are all headed towards restricting owner rights and making it easier for bad tenants to get into rentals. The best method of protection is to invest in smaller cities in conservative states.
The DIY Landlord Book4.7248 Reviews
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- Bayport, MN · Member since 2018 · 92 posts · 52 votes7y
I just posted about this a few minutes after you. I didn't see the startribune article, but did on the KSTP TV site.
My opinion, stay out of Minneapolis. I won't buy in Minneapolis or Saint Paul.
This, as currently written, ordinance does not surprise me at all coming from Minneapolis. I would expect something similar to follow in Saint Paul.
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes7y
If you don't already own rentals in a major city, don't buy them. The larger cities are all headed towards restricting owner rights and making it easier for bad tenants to get into rentals. The best method of protection is to invest in smaller cities in conservative states.
The DIY Landlord Book4.7248 Reviews - Rental Property Investor · The Vampire State · Member since 2013 · 2k+ posts · 2k+ votes7y
Originally posted by @Jacob Hanson:
It's only a proposal thus far, but Minneapolis might become the least landlord friendly city in America!
I understand your concern, and @Nathan Gesner gives sound advice - but Minneapolis has a ways to go before topping Seattle as the least landlord-friendly city in America.
- Seattle, WA · Member since 2017 · 275 posts · 223 votes7y
FWIW I'm a seattle landlord (for now, I'm on a ~5y plan to trade up and out). Seattle won't let you use ANY criminal background, with exception of sexual abuse as an adult, and even then you have to have a 'business justification' if you deny based on it. There aren't any rules limiting use of eviction history other than the rules around credit reporting limiting that information to 7 years back afaik and they don't limit use of credit score, though our lefty leadership and all the rental advocacy/SJ groups have all indicated interest in such things. They also effectively limit use of security deposit and last months rent by requiring landlords to offer interest and penalty free payment plans for those costs if they exceed 25% of one months rent.
BEFORE they limited use of criminal history and passed some of this other stuff my standard screening process was to verify income 2.5x rent, verify prior rental history or acceptable co-signer, verify payment history of recurring bills (cell, utility, etc) and verify no evictions or serious/recurring criminal history. Based on the results of that if things were excellent I offered movein with first and deposit up front, if they were slightly marginal I'd offer first+last+deposit to move in.
After all of this I am now using a property manager, and they look mainly at credit score, income 3x rent, and eviction history. My rents are running 25-30% higher under the PM as well, which also acts as a filter.
I suppose since credit score is an amagamation of other discoverable information, all that would need to happen is the individual attributes of the credit history (bill payment history, judgments, all that other stuff) could still be reported, they just can't stamp a number on it. that of course means all the smaller guys who used to use credit score will now eyeball the information and make a qualitative judgement, and all the bigger organizations will dump that information into an algorithm of their choice and generate their own number internally.
- Minneapolis, MN · Member since 2018 · 13 posts · 7 votes7y
@Brian Hughes
That is a good point. I suppose you could get around not being able to use credit score by using analogous metrics if they are publicly available. Similarly past landlord interviews and evictions can show similar tenant tendencies.
But it does sound like you are fairly successful in navigating a tenant friendly city. Would you still advise most people to avoid tenant-friendly cities or just major cities?
- Seattle, WA · Member since 2017 · 275 posts · 223 votes7y
Tenant friendly areas are typically also urban areas with good economies, high property values and people wanting to live there.
the problem with overly tenant friendly laws is they are generally in response to a related but orthogonal problem - shortage of housing. As we all know piling more rules, regulations, risk, process, taxes/fees onto housing providers will ultimately reduce availability, starting with mom and pops and smaller investors who don't have a legal department and decide to sell out either proactively or in response to a bad experience. This causes yet more housing shortage, and a classic negative feedback loop. There is a house for sale about a block from mine, fully renovated. I toured it and the agent said that this was its SECOND full renovation in a year. I asked what happened the first time; It was completely trashed by a bad tenant. So that small landlord is getting out of the business. I don't know the whole story of course but this is one less rental unit on the market in seattle most likely; there is no way that house will rent for an amount that would cover the mortgage at the given asking price, so it will probably sell to an owner occ.
In seattle over the last 3-5 years when most of these new ordinance passed what has been going on is a couple of our council members who have very active renter / advocacy organizations backing them have been creating very one sided rule changes. So basically that "Side" has been getting pretty much everything it wants, and any attempts by local landlord organizations like RHAWA to mitigate or offer practical alternate approaches result in at best token concessions or the usually "greedy rich exploitative priveleged landlord lobby" narrative or some subset thereof. Some of the rules are pretty clearly designed as much to be punitive to landlords as they are to actually benefit tenants.
Some tenant friendly changes I'm OK with, because any landlord that plans ahead and is conscientious and responsive won't be affected - 60 day notice for rent increases instead of 30 is not an issue since its easy enough to plan a little further ahead for example. Source of income as a protected class I am mostly OK with - so long as I can screen effectively and verify receipt of income, not just entitlement to. (I do have a few detail issues with that, but overall its a fair thing).
I've responded to rule changes that limit my ability to screen and collect up front deposit and last months rent by hiring a property management service. Supposedly they are experts and keep trained on all the changing rules and best practices. They are of course bound by the same rules I would be, but they have access to full credit reports (I was never certified for that) and can advertise to a greater pool of customers than myself, and the presence of a professional manager will deter some "professional bad tenants" who try to take advantage of smaller self-managing landlords. I had a few of that type apply when I self managed, but at the time I had more leeway to say no without risking fair housing complaints, so I dodged those bullets (mostly). Rents also went up about 30% under the PM, which offsets the cost thereof and weeds out more "bad" applicants based on cost.
I am working on moving to the "next level" :P with my investments. I am in the process of selling a seattle duplex I own and the proceeds from that will be used to reinvest in a larger multifamily property in a secondary market in the greater puget sound area; I want to get out of seattle market in the long term, but I'm pretty established now with negligible debt and market-ish rates so I can weather some more bureaucracy and occasional losses from having to comply with some of this stuff if I have to.
Even though we are seeing landlord/tenant "reform" at the state level now and I'm guessing will likely see a statewide rent control bill similar to oregons next session I would prefer to invest locally so I can visit my assets on a fairly regular basis, even if it takes a couple hours instead of 15 minutes to drive there thats way better than cross country for me. I have shifted my strategy though, I'm probably not going to aim for quite as large of a property as I otherwise could consider, to keep the debt ratio lower. I may also not go for as much of a rehab property, in case I'm in a situation where I cannot raise rents at the same rate to match improvements/repairs that are needed.
I guess it boils down to understand the rules, get a feel for how stable they are or if more changes are coming, and build your business model around it. Everybody else in that market also has to play be the same rules, so ultimately if tenant friendly laws make your rental more expensive to run, it did it for everybody else too so rents will reflect that over time. For the most part it seems the rent control bills being pushed these days (at least west coast) are somewhat less draconian than earlier designs, so maybe possible to do OK with it in place as long as you take most or all of the allowed increase annually and don't fall behind on capital maintenance. Even our local socialist councilmember who is the most extreme on this is pushing for rent control maximum increase of 5%+CPI per year. The most damaging part of her plan is no vacancy decontrol - meaning you can't raise rents to market on turnover. However that proposal is worst case. If it passes statewide it will probably look like Oregon's bill.
- Flipper/Rehabber · Minneapolis, MN · Member since 2016 · 1k+ posts · 1k+ votes7y
I wouldn't get too caught up in this yet. If it becomes law you may be able to adapt your rental criteria to get around it similar to when they tried mandating section 8.
- Rental Property Investor · MN · Member since 2015 · 186 posts · 149 votes7y
Correct. Tried mandating section 8 and failed after a bunch of landlords sued the City of won. Minnesota doesn't allow rent control, so if that policy gets approved (credit scores, background checks etc) many landlords I know will increase their rents significantly, to mitigate potential risks. As for credit score numbers - one very large (over 15,000 units) landlord I know stopped using credit score numbers long time ago, and relies on debt, payments, etc info located within the credit score report.
- Rental Property Investor · Los Angeles, CA · Member since 2017 · 2k+ posts · 5k+ votes7y
From the article: The ordinance would also disallow property owners from denying an application because of an insufficient credit history, credit scores lower than 500 and eviction judgments more than three years old.
So I can't deny you because your credit score is below 500, but can I deny you because it is over 500, but not high enough?
Who has a credit score below 500? A quick search indicates that if I have a history of credit problems and a very recent bankruptcy, my credit score should be a little over 500.
- Rental Property Investor · MN · Member since 2015 · 186 posts · 149 votes7y
@Brian Hughes what are the "work arounds" if any, choosing the best tenants when you "can't" be looking at the background checks and such? Or that law is not implemented in Seattle yet? I heard end of July?
- Seattle, WA · Member since 2017 · 275 posts · 223 votes7y
@Account Closed Not really Minneapolis I suppose but if I' ve got everything straight right now in seattle you CAN look at:
Credit report
Credit score
Prior rental history
Civil history (evictions or other housing related judgements)
Employer reference (unless income is from a non-employer legal source, e.g. social security, alimony)
Income to rent ratio (must subtract any voucher income from rent when calculating it)
History of commiting a sex crime as an adult (must have "business justification" if using this to deny)
You CANNOT look at any criminal history except above
You CANNOT consider any credit or civil history more than 7 years old
You cannot consider source of income (any legal, verifiable source must be accepted, including short term vouchers)
You CANNOT require up front payment of security deposit and last month's rent (must offer six month payment plan if applicant requests it unless total of fees is less than 25% of one months rent)
The "First in time" ordinance that Seattle passed was struck down by a judge, and is currently on appeal to the state supreme court. If that were in place, it would not affect the screening criteria, except that you would have to track the order that applicants filed (following a complex bureaucratic process of course) and process them in order, including granting appeals, accomodations (for example for non-english speakers) and re-evaluations that could take days.
I'm sure there are more details I'm missing, but thats the broad strokes. There are still enough angles that for the most part a reasonably thorough screening can be done. The exceptions are criminal history of course, and alternate tests, for example allowing somebody with no or weak credit to instead pay last months rent and/or an increased deposit. I used to do that all the time before that rules passed. The source of income restrictions are only a problem as I see it in two ways - 1) short term vouchers must be accepted, but still required to offer same lease I would for another applicant, so I can't do something like say OK you have a 3 month voucher, so I'll write a 3 month closed end lease and reevaluate your income at that point and renew if you have it. The other income problem is with things like judgments and alimony/child support, where the source of income could be a less-than-reliable individual instead of a government benefit or something that could be expected to be reliable.
- Rental Property Investor · Wayzata · Member since 2019 · 80 posts · 24 votes7y
Insanity. Terrible idea. What are they thinking? Oh wait, I can't say on here but look who is behind the bill. {insert eyeroll} and I thought California was bad! And I am sort of pro rent-control in certain places like Los Angeles because I lived through the condo conversion craze. This is insanity.
On a side note, I'm like 100% certain the photo of the apartment on MinnPost is my old apartment at the U!
@Jacob Hanson
- Bayport, MN · Member since 2018 · 92 posts · 52 votes7y
Too add onto the Sega in Minneapolis, a judge ruled that the Minneapolis ordinance requiring landlords to accept section 8 vouchers is legal. The lead plaintiff in the case said he will probably appeal to the state supreme court.
http://www.startribune.com/court-minneapolis-can-e...
It does mention a fund for landlords to pay for damage caused from section 8 tenants set up by the city, as well as a streamlined inspection process.
- Real Estate Broker · Hugo, MN · Member since 2016 · 688 posts · 596 votes7y
This is why we have been advising clients to really look closely at deals in Mpls for a while. If it is really good deal go for it, but there are many deals in the suburbs that we would recommend instead. You never know what they will do next.
- 7yJordan MoorheadBusiness MemberReal Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
@Jacob Hanson I have a good buddy who's connected in MPLS politics and says this won't pass, mayor won't allow it
The Moorhead Team5140 Reviews - Rental Property Investor · MN · Member since 2015 · 186 posts · 149 votes7y
@Jordan Moorhead I doubt it... Frey and Lisa are generally on the same page with all of this. Including Section 8 that just passed. Look at both of their twitter accounts.
- Rental Property Investor · MN · Member since 2015 · 186 posts · 149 votes7y
@Jordan Moorhead they voted to pass it...
- 7yJordan MoorheadBusiness MemberReal Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
@Account Closed I was there... Should have been more landlords there to voice their opinions. There was less than 10. If these are issues we care about we really need to show up. The tenant protection movement had 50+ people there and dozens speakers.
The Moorhead Team5140 Reviews - Bayport, MN · Member since 2018 · 92 posts · 52 votes7y
The full ordinance was passed today. They passed an amendment that if you own less than 15 units, it doesn't go into effect until December of 2020, everyone else in June 2020.
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