Do you remember when you purchased your first investment property? Maybe you took a huge risk on a fixer upper. Maybe you rented out the home you lived in for a decade when you upgraded homes as your family grew. No matter how you first got into investing one thing is true among all investors – you have invested a lot of money and you will turn the keys over to someone else. Every investor wants to make sure that the person they hand those keys to is a great resident.
As an investor, you want someone who will take great care of the property. You want to rent to someone responsible who will pay rent on time and maybe even mow the lawn (don’t get your hopes up on that one). So, what level of choice do you have to pick your resident? How much control do you have over who lives in your Chico or Redding rental property?
Fair Housing Act
The answer to that question is: It’s complicated. There are federal and state laws that govern the control you have over who you rent your investment property to. This is all covered under the Federal Fair Housing Act which was enacted as Title VIII of the Civil Rights Act of 1968. This piece of legislation is intended to protect any person in a protected class from discrimination when it comes to selling or renting your property.
You cannot screen your prospective residents when it comes to race, color, religion, sex, familial status, or national origin. Now many of you at this point are thinking to yourself, no problem, I would never do that! I totally believe you, but being in the property management business there are many times these laws can subtly be broken, often by accident if you aren’t careful. Let me share with you the most common fair housing accidents investors make, and then I will follow up by showing you how to implement a strategy that will help you screen effectively and stay out of fair housing trouble.
Screening Prospective Residents
Our property management company has many rental units in a college town of Chico, CA, and I get so many property owners telling me they don’t want their rental unit to be used for college student housing. Typically, what they mean is they don’t want a bunch of 18 to 25-year-old friends renting out their house. Hmmm, does anyone see anything wrong with this? Sometimes owners are surprised when I inform them that according to fair housing laws we cannot screen prospective residents based on age.
As an example, I will tell them “if four well-qualified 20-year-olds apply to rent your home we will not discriminate them simply because they are 20 years old.” We have had investors leave our company because we moved in well-qualified younger college students (who met all the rental requirements) into their four-plex. They said they would take their business to another company who would let them choose their residents. Yikes.
Many investors just want “a nice quiet family” to rent their Chico rental property. Again, I must inform them that we can’t discriminate based on familial status. These investors are typically harmless and as soon as I share with them the Fair Housing Act parameters, they understand – but I don’t think they know the risks they take when they are thinking through screening prospective residents.
Criteria for Screening Residents
Here’s the method we use for screening residents and getting well-qualified residents most times without ever violating any Fair Housing Laws.
- Credit History – We set a minimum credit rating that we abide buy. If an applicant has that score or above, then they qualify. If not, then they don’t. Plain and simple. We never make any exceptions or hear any stories. It’s black and white – you qualify or you don’t, end of story.
- Income – We have an income to rent ratio that we always abide by. If a perspective resident has a certain income to rent ratio, then they qualify. If they don’t meet our income requirements then we’ll show them a less expensive property, but they will not be accepted to rent any unit they don’t meet the qualifications for. Again, we won’t make exceptions.
- Rental History – On the application we ask them to put down past places where they have rented. We call on their rental references. If they have good history and those references would rent to them again, then they’re in. If they have bad rental history, then they’re out. That’s it, plain and simple.
It’s very important to not make exceptions when screening residents. For instance, if one prospect is turned down for not meeting your standards, and then another prospect is accepted even though they also don’t meet the standards (but you gave them an exception), you could be hit with a fair housing lawsuit. The reason is that everyone is part of a protected class. If you made an exception for a single person and denied a married couple the married couple could say you are discriminating. So, you just never want to make exceptions and you always want a pre-planned, well thought out screening process that’s totally blind to any protected class.
At Hignell Property Management, we feel strongly about our screening process. If you would like help renting out your Chico or Redding rental property and doing it right, give us a call!