Would you discount rent for the less fortunate?

38 Replies

Hello All, Just sat in on a presentation given by a lady that runs a non profit that sets up homeless veterans with a myriad of resources to help get them off the street. One thing that struck me was the request for "landlords to lower their rent" and "give them a shot". She explained this as, the homeless veteran pool does not commonly meet most landlord's tenant standards (credit, income of 3x rent, and no felonies), and here in Seattle the rent is so high that the HUD VASH (section 8 for veterans vouchers) does not come close to the cost to rent. What is your take?

As an Acitve Duty Sailor and businessman, I cringed as I couldn't help but think I would love to help. But at what risk can I help a veteran when I have to pay my own bills.

Hi @Joel W.

As a veteran myself who is active in the veteran community in my area I fully understand your point. There are resources to help vets and I would be (and am) happy to be part of that. You are running a business though, so you still need to keep things solid on that front. As veterans though we don't have to do it alone.

On a small scale I think we make the biggest differences, if the lady you spoke of came with a prospect, there is nothing to say you can't go with them to the local VFW or American Legion and see what they can do to help you help the specific vet. Maybe with discussion they will run a Chicken BBQ and the proceeds help to get him in, or a Pancake breakfast etc (you show up that day and help). I know we run events for returning soldiers, health related issues that have hit older vets, it is what those clubs do, it is why they are there.

 Many of the vets at my local club own companies that could offer employment or even mentors/sponsors to help them stay on the right track. This way you are truly bringing them into the community and have a support system for them. Just giving cheap rent or things will not help, giving them the tools to make it work and people to help motivate and guide them would make a much bigger difference.

Standard Disclaimer: Just my 2 cents

@Joel W.  It has been my experience when providing breaks for people it doesn't work in my favor. It usually results in a large loss of income, and in most cases damage to my property. 

That said, I have a structure for payment that is favorable for both parties that I offer for properties I have held in lower income areas. First, it is important that the tenant understand ALL of the help that is available to them. For this, I have a short list of local agencies that help various tenant circumstances. The structure is simple, if the tenant pays early or on time I deduct a certain amount from the last month of rent. While it doesn't help the tenant in the now, it does provide a reward for paying on time. Depending on the payment history, I may also decide to offer up to the tenant to take the discount in December. 

The problem with this, is that you are getting involved in the life of your tenants. This rarely ends well. 

-Todd

Personally, I hope to one day be able to dedicate a certain percent of my portfolio to assist in situations and organizations such as this.  But like others have said, I have to have the means to be able to do it first. 

We financed 5 so far into their own homes, only had one after 4 years hand back the keys DILO (he did time for felony DWI). One of them is now on his 3rd investment property also financed through us & his new wife is also a Vet. One couple then took in another disabled Vet because the home we got them had a unique in-law setup. Those we have helped are all hard working & none have missed a payment. Their payments are usually cheaper than current market rents & they are building equity as we try & keep the terms 15-20 years max.

@Joel W.

Hi Joel

We should all try to show compassion to those less fortunate than ourselves.  I find that if I give a discount or show favoritism to one type of tenant, then the others have a right to be angry and even feel discriminated.  I have partners in my real estate holdings and have to be held accountable and even though this would be a noble gesture, my partners are looking at the bottom line.  I am not an attorney, but I would ask one if it was allowable to discount rent to one type of tenant.

If your business has the means to do this, then it would be a noble cause

Gino

Simple answer.  No.   For two reasons:  1.  What happens when the vet fails to pay down the road.  Do you forgive that as well?  and 2.  Business is to complicated to start working deals based on good feelings.  Donate and help all you want through other channels and you can do that better and more confidently if your financial house is in order.

Nothing against vets, I'm one but like everyone else being a vet doesn't necessarily make you a good tenant.

Good luck!

Thanks everyone for chiming in. Like I said I was a bit taken aback by her comments. I just cannot fathom making those type of decisions and still running a profitable business. However at some point I hope to be in a position where I could take a percentage of my profit and give it away to a cause such as this. 

@Pat L. it is great that you were able to make it work. Were these prior homeless Vets? or veterans. This lady was advocating her initiative to get homeless vets off the street.

Hi Joel,

This is a quick story about one of my experiences.  I had just began to market a beautiful, newly renovated 3 bedroom, 2 bathroom apartment and my first applicant was a women living in a homeless shelter.  She noted on her application that she had been evicted from her last apartment.  I explained to her that the I have a standard process for qualifying tenants and that her eviction would automatically disqualify her.  She then asked for 5 minutes to explain.  She proceeded to tell me she recently got divorced and her former husband skipped town and provides no support for their three young children and that she got stuck with all of their joint financial obligations.  And that she works and makes decent money but could not stay afloat even after cutting spending to bare necessities.  Because of her income she could not qualify for any public assistance unless she became homeless.  In order to become homeless she had to get evicted.  After being evicted she was moved to a homeless shelter and was then able to qualify for temporary housing assistance payments.  The homeless shelter was a bad environment for her kids.  They immediately started doing bad in school.  The lady basically begged me to GIVE HER A SHOT.

After hearing hear story, I wanted to help.  I gave her former landlord a call.  What I heard shocked me... he corroborated her story about the circumstances of her eviction.  More importantly, he said she paid him back every cent he was owed while living in the homeless shelter.  Long story, short... I took a chance on her and she turned out to be one of my best tenants ever - she paid rent on time, kept the apartment in immaculate condition, decorated tastefully on holidays, and went above and beyond to maintain common areas.  I did end up reducing the rent I usually charge to make the numbers work for her, but that was ok with me because I was still making a reasonable profit on the unit and was doing a good deed.  It warmed my heart to watch her put her life back together and get to a point where she no longer needed public assistance.  She was on the waiting list for a very nice mixed-income housing development so when her number came up (after 2 years of waiting) she moved.  I would like to think I played a small role in stabilizing the lady's family situation by providing clean, safe housing at a price that was affordable to her when her options were limited.  The moral of the story is listen to your head, but also listen to your heart, and then do what feels right.  If the numbers work for you, taking a chance on the right person, particularly a Veteran, may provide something more rewarding than money... the opportunity to make a difference in someone's life.

Bill

@Bill Thompson That is an amazing story. I am glad it worked out for you. And thank you for serving a single mom. 

At this point in my investing career I don't foresee being able to realistically take a risk like that. If it didn't work out it could not only put my future investing in jeopardy but actually affect my family's financial future. In the future hopefully instead of being a big risk, it is a smaller risk and I can do something like that.

If you can afford to be charitable sure. However, in my estimation you can afford to be charitable once your family's financial future is taken care of.  It's honorable to prioritize your family.  Financial charity should flow out of abundance.  Of course helping someone once is a different matter, I think all of us should be open to that anytime.  However committing to partially pay a monthly bill for someone (which is essentially what you would be doing) can come later when you have the means and can do it cheerfully and without worry.

@Joel W.

Bill Thompson Awesome. Not as great of a story, but I decided earlier this year to allocate one unit (a 350sqft studio - the smallest in our portfolio) as a "hand up" unit.

At the first vacancy, I rented it to a family of 3 whose daughter just went to college and needed to save a couple hundred bucks a month by downsizing - hard working recent immigrants fighting for their American dream. They qualified by my criteria, but were definitely not the best applicants of the bunch. I rented to them instead of a single male professional with a $60k/year job and sterling credit.

Yes, I'm taking on more risk of damage (and having three people has meant I had to deal with overloaded circuits I never had to before), but personally I feel it aligns my gifts with what others need. In our area, lack of available housing is a bigger problem than lack of funding. Not judging anyone else, but when I buy low rent property and fix it up to "market rent", I'm part of the housing problem. I want to be part of the solution as well, even if it's one family at a time.

Interesting topic... My take: the best thing you can do as a small landlord is to offer the very best product you can at the most competitive price. After much reflection, this has struck me as the best way to help society overall...

I would actually steer clear of the charitable angle with your business (but be a generous charitable personally by all means). The reason being is that you can't help anyone if you go out of business, a possible outcome of far below market rent or altering your proven tenant selection criteria.

There are many major problems across the board in society: homelessness, drugs, mental illness, poverty, veterans issues etc that all need major policy work, so perhaps get involved or give to non-profits or lobby for government action. 

The small landlord, in my opinion, does not have the resources to combat these in a major way and is not in the right position to handle them--lack the resources, program and training. 

But by being a landlord, you are housing people. This is one of the most important things anyone can do in society. Do what you do best... (and donate some of the profits to the best nonprofit in your area in causes close to your heart, so they can do what they do best)....

Originally posted by @Joel W. :

Thanks everyone for chiming in. Like I said I was a bit taken aback by her comments. I just cannot fathom making those type of decisions and still running a profitable business. However at some point I hope to be in a position where I could take a percentage of my profit and give it away to a cause such as this. 

@Pat L. it is great that you were able to make it work. Were these prior homeless Vets? or veterans. This lady was advocating her initiative to get homeless vets off the street.

No they were not homeless other than being forced to move often because of high rents &/or sub standard living. The majority simply had very poor credit & other 'issues' that rendered them poor candidates for any form of conventional financing per se. Most of the homes we provided did need a lot of work & in some cases we also financed the rehab materials only.  

I know it's a business but after 35 years it never hurts financially or otherwise to have faith in someone & give them a chance. We have another (who is also disabled) but was just incarcerated for 8 months & the wife is struggling to keep up the payments. But they put a lot of sweat equity into the home & increased its value significantly. When they took possession they had absolutely nothing. We gave them old furniture & appliances that others would throw to the curb.

So if is just a 'business' would you evict & take the profit???

Pretty amazing stuff. Thanks for everyone's input. Two things I take from this. Using good judgement and taking a risk on people can work out. How do you minimze risk? having an established rental portfolio and strong cash flow to back those risks. This is one of the benefits I would see of owning a property outright, it would allow you to use it as a charitable asset vs. an income generating one. Or another potential solution is syndicating with other investors that are interested in providing this type of service, not as a business but as a charitable initiative, acknowleding that they might never realize a profit.

The problem isn't that helping people or vets is bad, it's that freebies don't really help anyone.

If a guy is homeless, if you "give him a chance" how is he going to pay you, EVER? what this person is asking for isn't help, she wants you to subsidize your assets for those with none.

There are plenty of ways to help, this isn't one of them.

Keep in mind that many of the vets who qualify for this HUD VASH program are single folks (most of the ones who participate at the VA I work seem to fall in this category) and thus would qualify for just a one bedroom unit.

I only mention this because this might work out if you are a  landlord with one bedroom units available in the first place.


Gail

@Alexander Felice  agreed. It didn't help her cause to follow on her presentation at one point saying to a room full of Military Officers "you all are officers you make tons of money, right?." I admired her cause to help homeless Vets, but not the lack of business sense. As others on here have mentioned, they used good judgemnt to help others at singular moments, and it worked out. Although, I couldn't do that at this time.

@Gail K. This lady was discussing exactly that, as her discussion was talking about the Seattle Market which has a vacancy rate below 3% right now. Even for 1 bdr apartments it is difficult to find anything affordable.

I did that once and I eventually found out he was lying and had been taking advantage of me. He eventually owed me over $7K and I had to spend another thousand to evict him through legal process.  If you want to help, try the section 8 tenants.  That minimizes your risk exposure.  I have 3 section 8 tenants now that are doing just fine. 

I just one of my section 8 tenant as an example.  I have a 3 bedroom 1.5 bathroom unit leasing at $1400 a month.  The tenant is only paying me $150 and the county is paying me $1250.  The county staff will inspect unit and request you to fix anything that they feel it needs to be fixed before they approve it. It is OK though. I love it. Free inspection.

@Joel W. You are essentially running a business. Unless your rates are inflated and have room to come down to attract long term tenants I would NEVER negotiate rents. I understand it’s tough. I grew up very poor and my mother always had a hard time making the rent (and didn’t on multiple counts). While it is great to help people out, you cannot help them without first taking care of yourself. That doesn’t mean be greedy.

Giving back is always important and I believe everyone can and should whether it be monetarily or through time. If you foreclose because you lowered rents to help a veteran out, they will have to move eventually anyway. Maybe lowering the rent doesn’t allow you to take care of the property as well as you should and therefore attracts undesirable tenants while pushing away those you would like.

I believe capitalism always works and the market will dictate the rents. I would keep rent at or a little below market. Don’t inflate or deflate rates too much. My dad has a rental property and he has “helped out” those that couldn’t afford much and has been burned every time. That’s why this business is not for everyone. Sometimes you have to be stern and think about things in the longer terms. Hope this helps, good luck!

If quality low income housing is something you would like to provide, it may help to check with the city or county development office. Some cities get federal and/or state money to provide toward low income housing. That money is usually allotted in either the form of a grant or forgivable loan. I just read about a city a few hours from where I work that didn't grant all of the money they were allocated because there weren't enough applicants. There was more than $200k left in the pool of grant money. Now that I know about it, I'm applying for the next round. Things like this can allow you to make your investment, help people, earn a profit and provide jobs.