Local policies require flexibility and creativity from landlords.
Screening tenants successfully is vital to your success in rental real estate. The best landlords and property managers have personal secrets to success that make it possible to choose the right client nearly every time. One of the things that makes this process so complicated is that it can vary not just from state to state, but also from city to city.
Case in point: In Seattle, Washington, tension between tenants and landlords has run high for several years thanks to aggressive and dynamic tenants’ rights policies enacted on a citywide level. In fact, some of the headlines might convince you to turn and run if you do not own rentals in the area already. For example, “Smug Seattle to Mom and Pop Landlords: Criminals are Welcome!” ran on a national news channel just two months ago.
It’s true: Seattle-area laws have changed, and landlords are now banned from running criminal background checks. The city is also making headlines for its “rent strikes.” However, the area still represents incredible opportunity to investors able to effectively navigate local policy and politics while installing reliable, long-term tenants. How are they getting this done? Here are three major changes Seattle landlords have recently experienced along with three methods for dealing with and navigating a complicated rental environment like this one:
First, let’s look at local politics, policy, and law:
Change #1: No More Criminal Background Checks
Since background checks are one of the things that most landlords use when making their tenant decisions, the new rule against criminal background checks can slow the process. Due to an ordinance approved by the Seattle City Council in late 2017, landlords can no longer ask about any type of criminal record, arrests, or pending charges as of February 2018. This information cannot be used to make any decisions about resident applications except in the case of sex offenders, and then there are limitations.
How does this affect me?
Don’t own property in Seattle? The issue of including criminal background information may still be important for your rental investment strategy.
As early as 2016, the general counsel for the U.S. Department of Housing and Urban Development (HUD), Helen Kanovsky, issued a statement on criminal background and the Fair Housing Act. She said, “A policy or practice that denies housing to anyone with a prior arrest or any kind of criminal conviction cannot be justified.” Although this guidance does not necessarily affect every single landlord and was, at the time, addressed to apartment building managers, it both sets a precedent for future, localized action (such as in Seattle) that all landlords must monitor and establishes a clear, unequivocal opinion from HUD on the topic.
Change #2: Ban on Rental Housing Auctions
Seattle law has placed a temporary ban on housing auction websites where landlords list properties for a base price and potential tenants put in bids for how much they are willing to pay. The city of Seattle has placed a one-year stop on these sites in the city while they examine the effects of such rental bidding more closely. If and until the ban is lifted, landlords in the area will no longer be able to screen or select tenants on these types of websites.
Change #3: No More “First-Qualified” Tenants
In 2016, Seattle passed an ordinance that requires landlords to rent their properties to the first qualified tenant who meets a predetermined list of qualifications. While hard to enforce, this rule was meant to remove bias in the rental process by establishing a set of standards for tenants that was fully transparent and did not have any “grey areas.” Area landlords argued this ordinance took away their ability to make wise investment decisions when choosing the best tenant for their property, management style, and investment strategies. The law was struck down in March 2018, although there are plans to appeal.
Navigating These Changes
While extreme, these changes should not put your investments at risk. The key is to act knowledgably, responsibly, and immediately.
First, in the event of a major legislative change in tenants’ rights or landlords’ responsibilities, get help with screening your tenants until you get a grasp on the changes. Using a tenant-screening service that helps you gather up information on credit history is still possible, but you can be legally liable if you fail in disregarding standard inclusion of prohibited information like criminal activity.
Second, take more time to get to know tenants before renting to them. By getting to know your client personally, you can gain a better understanding of what type of person they are, how reliable they are, and why they want to move into a better housing situation. The simple solution to changes in tenant law is communication!
Finally, get educated about renting to clients with varied backgrounds. While many landlords fear renting to clients who have a criminal history due to the perceived risk, there are many cases where that risk is more imagined than anything else.
Reach out to a local community center in the area that helps those with records find work, a home, and sanctuary when leaving prison. By talking with the people there, you will get a better understanding of what types of questions to ask of all clients in the future.
Not everyone will agree with rental policy changes, ever. Careful, cautious, diligent landlords make money in the best and toughest markets because they do not permit external issues from affecting the integrity of their internal systems.