Government Intervention — and We Landlords are The Targets!

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I love reading the various articles here on the BiggerPockets Blog, and when I am moved by a topic I always try to add constructive comments.

In May of last year Florence Foote wrote a great article regarding Rent Controls and their negative impact on both the quantity and quality of rental units where ever rent controls have been implemented.  You can read that article here: The Impact of Rent Control on Landlords: A Commentary

There were some great comments on the article, and of course I added my two bits.  As is always the case when I participate in these discussions I click the box that notifies me when new comments have been added.

So, imagine my surprise when I got a notification this week that a new one had been added to this article — an article that was over 15 month old.  I headed over to the original article only to find a very lengthy comment which appears to have been provided by a person who clearly has never been a landlord.  Here is but one statement that got my attention and this is a direct copy:

“If the landlord doesn’t like rent control, he can sell his rental properties and move out to the country where he can feel free to set the rent as high as he wants.”

After reading that opening sentence and the remainder of the comment, plus the follow-up to my response I was struck by the following…

With increasing certainty our business as real estate investors, especially for those of us who are landlords, is going to come under ever greater attacks as the economy continues to decline, fewer buyers are able to get credit for home purchases, and more and more families will have to rent.

You don’t need a crystal ball to figure this out!  All you have to do is read the many articles that discuss how this or that politician or advocate wants for our economy to be more FAIR… which usually means if you have figured out how to generate positive cash-flow or amass wealth through your real estate portfolio, the politician or advocate believes you are the one who needs to be more fair — and they think nothing of taking what you have earned and giving it through taxation, controls, favorable tenant laws, etc to others.

I know getting into a discussion regarding politics is a dangerous place to go, but as a real estate investor I firmly believe this is not a discussion regarding politics, but a discussion about protecting your business — especially in the face of individuals, similar to the individual commenting on the referenced article, who harbors strong opinions about landlords and the returns they earn from their rental portfolios. 

WE ARE THE TARGET!  WHAT ARE WE GOING TO DO ABOUT IT!

We are very fortunate to be in a business that has the opportunity to provide one of the basic needs on Maslow’s hierarchy of needs.  Safe, clean shelter.  And, if we are good enough at what we do – buy right, select good tenants, and properly train and manage those tenants – we can make a great living.  And, WE SHOULD!

But we won’t be if we don’t start standing up and defending our business and our profits.

Here are few thoughts I have on how we can advance our cause and protect our business.  Some of these items will surprise you.

1.  Don’t be a slumlord.  If you are going to be in this business and you don’t want the “do-gooders” or politicians putting you in the spotlight, make sure your properties are in the best condition possible.  Safe and clean is always a great standard to strive for.

2.  Select great tenants.  Easy to say I know.  But if you select a crappy tenant or heaven forbid a professional tenant you will most likely find yourself in court defending yourself and your business at every turn.  And, in the process, you as a real estate investor will be made out to be a slumlord, even when you are not one.

3.  Don’t purchase rental properties that are marginal deals.  There is nothing worse then trying to make a deal cash flow when the price you paid for it makes that effort impossible.  And, what do you think happens in situations like this? You find that you are less and less able to respond to legitimate maintenance issues and most likely you will accept the first tenant to submit an application because you need the rent.

4.  Have cash reserves.  This is one area where many wanna-be landlords fall way short.  Consider the situation in item 3 above.  You paid too much.  You are bleeding cash.  You accept the first person to submit an application and they stop paying rent in the second month.  OUCH!  How do you survive while you are getting the tenant out (in some places this could take months) and still make the mortgage payments while keeping the property in a safe and clean condition?  You do it with reserves, and having them will help you be a responsible landlord and not easily tagged as a slumlord.

5.  Seek out, join and actively participate in your local property owners association.  This is one place where everyone involved understands the constant pressures you as a landlord are under.  As a group, greater influence can be exerted to counter the constant drum of activists or politicians.

6.  Actively participate in local and state politics.  I have to admit, this suggestion is as repugnant to me as an afternoon having a root canal.  Yet, as our current economic situation continues to struggle, and there is a constant drumbeat increasing in volume every day regarding those that have (that would be you) and those that don’t, if we don’t start participating NOW we could very well be regulated out of business.

There you have it. We will never be able to change the perceptions of everyone regarding our business, but if we don’t get started now working on the perceptions of at least one person, we may not have a business to support our goals and dreams.

Best of luck! 

About Author

Peter is an active and successful real estate investor in the Baltimore Maryland region for the past 8 years and is one of the founders of The Club Mastermind a real estate investing coaching program focused on local coaches helping investors to perfect their game.

15 Comments

  1. some excellent suggestions Peter. I think #1 is why buy and hold investors get a bad name, even though it doesn’t have to be that way.
    What do you think about implementing lease-options (obviously that are setup correctly and are reasonable) as part of the solution?

  2. Maslow’s hierarchy of needs? I think we can do better than that. I think we can go above and beyond the call of duty to ensure a great experience. Simply providing the basics is one thing, but I aim to ensure my investors have satisfied consumers.

    • Drew… great point! We can aim much higher… my point was just to identify that our business supplies one of the basic needs… that does not and should not mean that we as investors should be supporting those needs with just the bare minimum.

      Pete

  3. Until investors work together with one voice like the NAR, it will continue to be the same. Investors simply don’t have the influence with rules like they could. There are literally millions of landlords in this country. It wouldn’t take many to have a huge impact.

    Jason

    • Jason… I absolutely agree. There is an organization already in place that could take the lead… the National Real Estate Investors Association. However, I am not aware of any initiatives on their part to fulfill the role for investors in the same manner that NAR does for agents.

      Pete

  4. Hey Pete,
    I didn’t realize it was your post ’til I got to the end.

    # 6 Is vital – “Actively participate in local and state politics.”
    Most people have no idea how many bad and disruptive laws are proposed (and often passed) each year. It’s not right. It’s not fair but we (investors) are perceived as the bad guys. Images of slumlords and Snydley Whiplash demanding the rent make a fun caricature, but too many people take it as reality.

    We are an easy target for politicians. No one has sympathy for the landlord. Here is an example of a law proposed recently in Maryland. – If you are a landlord and have a parking lot, you are responsible for damages if a tenant’s car gets hit.

    One way individual investors can get involved is support local and national organizations that are lobbying for investors. In Maryland there is the Property Owners Association. Mareia and the Baltimore REIA have both recently gotten involved in lobbying for investors. Support the groups that are supporting investors.

    • Ned,

      Great hearing from you. I hope all is well.

      Your points are well taken and in the Baltimore area there are active organizations who realize the importance of joining forces to protect our industry from politicians and do-gooders.

      As for the parking lot law… does that mean that retail stores are going to be held to the same standard… or large apartment complexes? I doubt…as the politicians will be overly influenced by the amount of donations coming to them from these large organizations… just like the rental registration law in Baltimore County that only applies to 6 units or less.

      Again… great hearing from you.

      Pete

      • Fortunately the parking lot law got shot down. It was just for landlords and apartment buildings. I mention it just to show how outrageous some of the stuff that gets proposed is.

        I love Steven’s approach below 🙂

  5. Steven Lundin on

    RE: If you are a landlord and have a parking lot, you are responsible for damages if a tenant’s car gets hit. WTF?
    I guess in this case I would turn the parking lot into a garden and courtyard and make the tenants park on the street. And then i would go straight down to city hall and apply for a wildlife preserve for the courtyard and have the Government pay for the upkeep. Just a thought.

  6. All are excellent points. I agree with everything you have said. We believe that our tenants are our greatest assets. If we screen well (without violating any federal,state or local Fair Housing laws) our tenants take on the role of resident manager for the houses they occupy and help to keep down our operating expenses. I believe that to survive long term in this business adherence to your first 4 points is critical.

    • David,

      Your approach is exactly the perspective successful landlords need. If you look at your tenants as anything but an important part of your business you may soon fit into that slumlord category.

      That doesn’t mean they get to run the show… but well screened and trained tenants are a great asset.

      Thanx for the feedback.

      Pete

  7. Besides lease option agreements, seller financing is a another consideration when tenants want to become homeowners and cannot qualify for a mortgage. This group of people is much larger than it used to be, and it includes a high percentage of responsible people whose financial circumstances disqualify them, not their irresponsible behavior. I believe that private financing is going to become more common in the next few years, simply out of necessity.

  8. Leo,

    Just make sure that you comply with the “Safe Act” (Secure and Fair Enforcement for Mortgage Licensing Act) in the process. It is difficult to comply if you are not selling your personal residence. Our government has taken away many of our rights to contract with others. Amazing!

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