Rottweilers, Shepherds, and Pitbulls, Oh My!

The subject of today’s post was inspired by a recent class on accommodating the needs of residents with disabilities. As professional property managers, we know the Federal Fair Housing Act (FFHA) requires us to make reasonable accommodations for renters with physical or mental disabilities. Often times, these requests revolve around assistance animals (note: the term “assistance animal” is synonymous with “companion animal,” “service animal,” “therapy animal,” etc.)  It is widely known within the property management industry that accommodating such requests is generally considered “reasonable,” under FFHA.

What happens when the animal is a “dangerous breed” of dog?

Stories relating to incidents of deadly animal attacks on humans make national news on a fairly regular basis. As many of us know, some insurance companies keep lists of dog breeds they consider “dangerous,” and will refuse to write policies of insurance on homes that keep these breeds as pets. Some of these companies base that decision on a decades-old report by the Centers for Disease Control entitled, “Breeds of Dogs Involved in Fatal Human Attacks in the United States between 1979 and 1998.”  Among the breeds listed on the report are Pitbulls, which accounted for the highest number of deaths during the time studied. Rottweilers, German Shepherds, Huskies, and Malamutes were all included in the study. In fact, the report lists well over a dozen purebred and crossbred dogs involved in dog bit-related fatalities.

What if the owner’s insurance policy prohibits the animal?

A dilemma arises for the property manager when a resident with a disability asks to keep an assistance animal that is banned by the property owner’s insurance policy. Can the manager refuse to accommodate the request, even if the resident has sufficiently documented his need for the animal? In my opinion, the property manager would do so at her own peril. Not only is it ill-advised for the manager to summarily deny the request, I believe it would be equally risky for the manager to require the resident to obtain a separate policy of insurance on the animal.

HUD’s office of Fair Housing and Equal Opportunity has made it pretty clear to housing providers that these types of actions will likely be frowned upon. In its 2004 Joint Statement with the Department of Justice,  HUD states,

“Housing providers may not require persons with disabilities to pay extra fees or deposits as a condition of receiving a reasonable accommodation.”

The Statement then cites an example of a reasonable accommodation that may pose a liability risk for the landlord – use of a motorized scooter inside a multi-tenant building. In this example, HUD and DOJ state,

“…the facility may not condition [this accommodation] on a requirement that he obtain liability insurance…”

What should the property manager do?

Recognizing this dilemma, HUD published an internal memorandum in 2006 that discusses insurance policy restrictions.  In part, the memorandum states,

“If a housing provider’s insurance carrier would cancel, substantially increase the costs of the insurance policy, or adversely change the policy terms because of the presence of a certain breed of dog…, HUD will find that this imposes an undue financial and administrative burden on the housing provider.”

By FFHA’s definition, a request is not reasonable if it poses such a burden on a housing provider.

Not so fast…

However, the memo continues,

“…the investigator must substantiate the housing provider’s claim regarding the potential loss of or adverse change to the insurance coverage, by verifying such a claim with the insurance company directly and considering whether comparable insurance, without the restriction, is available in the market.”

I read this sentence to say that the property owner will likely be required to attempt to find another insurer – one that does not prohibit the breed of dog in question.

According to a national insurance underwriter website, both State Farm and Allstate have changed their approach to underwriting in this particular area of risk. Rather than inquiring about dog breeds during the underwriting process, these companies will only inquire about the behavioral qualities and past incidents of aggressive behavior of the animals in residence. If either of those companies insure properties in your area, it might behoove your owner/client to check on the availability of coverage before you deny an accommodation request for a “dangerous breed” of animal.

Been there?

Please share your experiences on this and related property management issues by leaving a comment on this post. Thanks for reading!

Property Management on Purpose

Much has been said about the “Accidental Landlord,” lately. It seems that a challenging sales market brings out the landlord in all of us. When the demand for housing shifts from owning to renting, the decision to become an investor-owner, rather than a seller, is one many of your clients have either already made, or are making now.

Among the many considerations your clients must weigh in this decision is how best to manage their properties. Are they better off managing a rental themselves, or would they be better served by hiring a professional to take care of tenant selection and day-to-day management?  

This is where you come in! Whether you are a full-time property manager, or you’ve taken on a few management accounts as an add-on service in your real estate business, managing your clients’ properties can be not only profitable, but fun and challenging work!

One step at a time…

First and foremost, proper licensing is key! Most states require, at minimum, a real estate license in order to manage property for others. Some states, such as Nevada, require both a real estate license and an additional property management license or “permit.”

Assuming you’re properly licensed, education is the next step. Property managers must be well-versed in myriad topics in order to properly handle their clients’ investments. Although most real estate prelicensing programs touch on these topics, very few of them cover the subjects in enough detail to give the property manager a working understanding of them. Subjects such as

• Fair housing
• Landlord/tenant law
• Tenant safety
• Insurance and liability
• Maintenance and repairs
• Risk management
• Disclosures
• Rental and management contracts
• Agency

are all applied somewhat differently in property management than they are in sales. By virtue of the fact that your property management accounts anticipate a long-term agent/client relationship, the property manager will encounter circumstances and challenges along the way that would never come up in a listing/sales scenario.

How can you get this education?

Although Nevada requires a minimum of 24 classroom hours of property management education, most states do not. The licensee is left to his or her own devices, when it comes to education in property management. There are many great reference books on the market that, if one takes the time to read them, will go a long way toward providing valuable education in the property management field. Yet, for my money, there’s nothing quite like a specialized course (or ten!) to really drive home the important facts, laws, and best practices of the business.

Consider a trade organization…

Some of the best educational opportunities can be found through participation in one or more trade organizations that support your property management specialty. Depending upon what type of property you manage, these organizations provide wonderful education courses that count toward professional designations, or simply for the purpose of enhancing your property management professionalism. Here are just a few of the organizations catering to the property management community:

National Association of Residential Property Managers – for managers of single-family homes and small residential properties.

Institute of Real Estate Management – for managers of multifamily and commercial properties.

International Council of Shopping Centers – for retail property managers.

CCIM Institute – for commercial property managers.

Society of Industrial and Office REALTORS – you guessed it! For office and industrial property managers.

Community Associations Institute – for managers of common-interest communities.

National Apartment Association – for multifamily managers.

Building Owners and Managers Association – the oldest trade organization for property management professionals, offering top-notch courses for commercial property management.

This is only a sampling of the many outlets available for quality property management education. I urge you, if your 2012 goals include building a viable property management portfolio, consider availing yourself of the benefits of membership in a property management trade organization.  (In a future post, we’ll talk about a few business models for property management that you might want to try, once you’ve got the education piece in place!)

Are you a member of a property management trade organization? If so, what benefits has that membership provided to you? Please join the conversation by leaving a comment on this post.

Trust Account Reconciliation

This post is by special request from a Nevada Real Estate Broker in Las Vegas who tells me that, when he attended a mandatory prelicensing class for Property Management, the instructor didn’t fully cover this issue. He is not alone. I’ve heard the same from other Property Management Permit holders. It seems there are quite a few brokers and property managers who are unsure what the Nevada Real Estate Division is looking for, in terms of the annual Trust Account Reconciliation. We’ll review the basics here, and then I would urge you to submit your comments and questions as a reply to this post, so that we can openly share some of the common misconceptions about this area of Nevada Real Estate Law.

First Things First

If you handle other people’s money, whether for property management or any other real estate purpose, you are required to have a Trust Account. Whether the broker is actually the Property Manager, or not, the broker is the responsible party for the trust account(s). Since the broker is ultimately responsible for everything that goes on with the trust account(s), this post is addressed primarily to Nevada real estate brokers. However, if you are the Designated Property Manager for your firm, please bookmark this post and share it with your broker.

If your company is involved in managing property for others, whether residential or commercial property, and you handle the money of owner-clients and/or tenants, you’re going to be required to have a minimum of two separate trust accounts – one for owners’ money, and one for tenants’ money (security deposits). This means that, every year, you’re going to be reporting on both of these accounts to the Nevada Real Estate Division.

When is the report due?

The annual Trust Account Reconciliation report is due on the anniversary date of the broker’s license renewal. In other words, whether the broker’s license is due to renew in 2 years or 4 years, the trust account reconciliations are due to the Division every single year on the anniversary of the broker’s license renewal date.

What period should the reconciliation report cover?

The Trust Account Reconciliation report should cover the calendar month immediately preceding the broker’s license renewal date. Example:

Broker’s License Renews:  June 30, 2013

Trust Account Reconciliation(s) Next Due: June 30, 2012

Period Covered in the Next Report: May 1 through May 31, 2012.

What does the report consist of?

The report is essentially a comparison of what the broker’s trust accounting records show, and what the bank statement shows. Let’s take a look at the report, section by section:

The first part’s easy, right? Just your basic office/brokerage information, and the banking information on your trust account. Remember that, if you’re reporting on more than one trust account, each account must be reported on a separate form. Up at the top where you see check boxes for “Custodial” or “Trust” accounts, in most cases, you’re going to check “Trust Account.” A Custodial Account is an account that is established in the client’s name (or property’s name – for a single property), and to which the owner/client has full access. If the client is not a signer on your account, it’s going to be considered a Trust Account. Either way, the report contents will be the same.

This first part of the report is a very simple reconciliation form. Using our example from above, where we’re reporting on the month of May, 2012, the first line of Part I is going to show the “ending balance” as reported on your bank statement as of May 31, 2012. (Don’t forget to attach a copy of your bank statement to the report.) The next line will show the total of any deposits to the trust account that were recorded on your books for May, but are not reflected on the bank statement. (Perhaps, you made a deposit after the bank’s normal business hours on May 31st, and it was not credited to your trust account until June 1.) The next line is a subtotal line, adding the two previous amounts together.

Any checks you’ve issued that have not cleared the bank by May 31 are going to be listed (in total) on the following line.

As for “Adjusting Entries,” I’m hoping this line is zero on your report. You really shouldn’t have any adjustments to your reconciliation, right? Your accounting software likely gives you the ability to record any bank fees in the month they’re charged which would change your ending balance accordingly. So, no “Adjusting Entries” would be needed in that case. Let me just say this… if I were a Nevada Real Estate Division Compliance Officer, and I were reviewing your trust account reports, I’d probably look first for “Adjusting Entries.” In “old school” bookkeeping lingo, we’d call those entries “force balancing.”

The last line of Part I of the report is simply the reconciled ending balance of your trust account (as of May 31, 2012), after adding deposits not appearing on the bank statement and subtracting checks that haven’t cleared the bank. It will not be the same number as the bank statement ending balance, unless you have no outstanding checks and no un-credited deposits. So far, so good. Let’s look at the next section:

The “as of” date that goes here in Part II is May 31, 2012 – all the amounts you’re showing on this report are as of the last day of the month on which you’re reporting. The “total” line in Part II is going to be what your accounting records show as the ‘grand total’ of all money in that trust account as of May 31, 2012. If you’re doing this correctly, that number is going to match the last line of Part I.

Part III is simply a breakdown of your individual property ledgers. So, rather than the balance sheet total for the trust account, the number that appears in this section is the total of the property ledgers, all added together. Your software will do this for you, and you can probably run a “property totals” report, or something similar that lists each property and its cash balance as of the report date (May 31.) Again, the “as of” date, in our example, will be May 31, 2012. If you’ve done this part correctly, the total between Parts I, II, and III will all be the same! The broker signs at the bottom of this section.

The schedules appear on the second page of the report. Just as they indicate, this is where you will individually list any outstanding checks or un-credited deposits. Remember, on the first page you listed totals for these categories. Here is where you’ll list the individual deposit(s) that is/are outstanding, and the individual uncleared checks.

As you might guess, “Schedule C” is where you’re going to list any “adjustments” you made on the first page. Naturally, you’re not going to have any of those, right?

Lastly, each of your individual property ledgers, with their corresponding balances (“as of” date remains the same, throughout) are all listed on Schedule D.  As is indicated on the form, you may make as many copies of the Schedule page as you need to, to accommodate the number of properties comprising your trust account.

That wasn’t so tough!

Am I right? It’s really easier than it looks. If you run into problems, don’t hesitate to email me with your questions. And, for those of you who have had some confusion about this requirement, I hope this post helps! Oh! One last thing… The Nevada Real Estate Division has published a guide to help you with all things “trust accounting.” You can download that publication here.

Please remember to post your comments and questions so I can follow up if there are issues I didn’t fully address in this blog. Thanks for reading!

Do you post video tours?

What an awesome discovery this has been for me! I recently started using video tours to promote my vacant rental properties in Sparks, Spanish Springs and Reno. Not only did it seem like a far better way to showcase the property than the standard still photographs, but the video allows prospective renters to get a really good “feel” for the property before ever making an appointment to see it. I personally show all my vacant rental properties; I don’t issue keys. As you might imagine, the video tour cuts down on the number of unsuccessful and no-show property showings. That’s just one benefit. 

Surprise Benefit

You may have heard that Google recently purchased YouTube. I’m no tech expert, but logic tells me that the more you frequently update a combination of video, still photographs, and written content on your website, the more likely you are to see a significant boost in your site’s visibility in a Google search. The logic paid off already. My first video is fairly new on my site, and already, I’ve moved up in ranking. Go ahead! Try it. Just do a Google search for “Reno Property Management” and see where I land. My company, Truckee Meadows Property Management, is on the first page! I didn’t used to be there, I assure you.

What equipment do you need?

I remind you, I’m no techie. I use my Android phone to take the video, and I edit it in Microsoft Live Movie Maker. Then, I publish the video on my YouTube account, and post a link on my website and other online advertising venues – Craigslist, Zillow, and Trulia, to name a few. That’s it!

Practice Makes Perfect

I should warn you ahead of time, this video was my first. The camera’s a bit shaky, and the editing is amateurish. Doesn’t really seem to matter much, though! The video is getting viewed, and it’s resulting is excellent property showings. With each video, I’m sure my technique will improve.

Watch this video on YouTube.

Isn’t it time you started using video in your property management business? If you’re already using video for property tours and other promotional content, please share your tips with our readers by leaving a comment. Thanks!

Happy New Year!

We all make them, don’t we? We all promise ourselves to do better, do more, and achieve the goals we missed in years past. And, if we’re like so many others, we lose sight of those goals in the madness of living, day to day.

This year, I would suggest to you, as a property manager, resolve to embrace just 3 principles that will greatly improve your day-to-day existence in the property management world. When the work life is under control, the rest of life generally seems to follow…

1. Document Everything

This is tougher than it may seem, but I urge you to do exactly that. As a property manager, your words are your tools for success or implements of failure. Document every single phone call you have, no matter how brief. Make a record of it – the date, the time, who you spoke with, what you discussed, and then make note when the issue has been resolved. Whether it’s a rental inquiry, a maintenance call, a possible new account, or a discussion with a vendor, make a record of it.

More than anything else, this principle is about risk management. As you likely know, a complainant in a fair housing matter has up to 2 years to file a case against you in federal court. How skilled are you at remembering telephone calls that took place two years ago? Two months ago? That’s what I thought. Document everything.

2. Be Consistent

Property managers really aren’t allowed to have a bad day, are we? If I treat one prospective renter differently than I treat another, am I not opening myself up to trouble? This is where your written policies and procedures will really serve you well. If you have established procedures for everything you do, and you follow those procedures to the letter, you are much less likely to be perceived as having shown favoritism, or its opposite, when dealing with tenants, landlords, and vendors. Be consistent.

3. Follow Through

This may be the most challenging of my 3 recommendations for your new year. The follow-through is what tends to trip up most property managers. When you think about it, it’s really no surprise that this is so tough! We get so busy, sometimes things slip through the cracks. We forget that we told the vendor we’d make payment within a day or two of receiving his invoice. We forget we told the renter we’d check on the delivery date for that new dishwasher. And, we forget we told the owner we’d report back after conducting the move-out inspection.

After all, who among us likes to make that phone call to the owner, telling him he’s going to have to replace the carpet after only 2 years’ wear? It’s no fun. So, many of us simply avoid the unpleasant phone call, until the situation reaches a critical point. Now, the owner’s angry that you haven’t rented the vacancy after a month, and you still haven’t told him the carpet has to be replaced! Not good. Not good at all.

The Burn-Out Factor

You don't have to burn out!

In my experience, many property managers burn out and leave this profession in as little as 2 years on the job. Why? Because they haven’t embraced the 3 principles outlined in this post. Things are piling up, and it seems every phone call is bad news – someone’s unhappy with them, and they can’t begin to imagine how they’re ever going to cope.

It doesn’t have to be that way. This can be a very rewarding, even fun, profession. The key to success is in the 3 principles, outlined above. Document everything (you never know when you’ll need to refer back to it.) Be consistent in all your dealings (if you’re having a bad day, take a minute to collect your thoughts before responding to any challenges.) Follow through – do what you say you’re going to do, when you promised you’d do it. If you can’t meet your self-imposed deadline, say so! Then, revise your promise, and follow through on it. If you have a difficult phone call to make, make it first – don’t postpone it. 

Do you have other principles for success in this business that you’d like to share with our readers? Please do so, by leaving a comment. Thanks, and Happy New Year!  

Charging Tenants for Eviction Costs

This question came in from a property manager last week, and is one that arises rather frequently among residential property managers in Nevada.

The story goes something like this…

It’s the 5^th of the month, and the tenant hasn’t paid rent. The property manager assesses late charges, and warns the tenant that he faces eviction if the rent’s not paid by the close of business. On the morning of the 6^th, seeing that the rent is still unpaid, the property manager serves an eviction notice for non-payment of rent. The tenant now has five “judicial days” to pay the rent or be evicted from the dwelling. On the 7^th day of the month, the tenant comes into the office with the full amount of rent and accrued late charges.

Can the property manager refuse to stop the eviction, pending the tenant’s payment of eviction costs (filing fees and/or charges for serving the notice)?

The answer, quite simply, is No.

NRS Chapter 40 provides for summary eviction for nonpayment of rent:

“NRS 40.2512  Unlawful detainer: Possession after default in payment of rent.  A tenant of real property or a mobile home for a term less than life is guilty of an unlawful detainer when the tenant continues in possession, in person or by subtenant, after default in the payment of any rent and after a notice in writing, requiring in the alternative the payment of the rent or the surrender of the detained premises, remains uncomplied with for a period of 5 days, or in the case of a mobile home lot, 10 days after service thereof. The notice may be served at any time after the rent becomes due.”

Back in the old days…

Prior to 1999, it was not uncommon to see “rent” bearing a very specific definition in many residential rental agreements. “Rent” was often defined as “all sums owing by tenant to landlord.” By defining rent in this way and making that definition a part of the rental agreement, some property managers were then including eviction costs and legal fees in the total they’d require from the tenant, before stopping an eviction for nonpayment of rent.

In 1999, Nevada’s Legislature took a hard look at this practice, and deemed it unreasonable. Assembly Bill 462 was introduced, adding new language to the state’s eviction law, providing:

“A landlord shall not refuse to accept rent from a tenant that is submitted after the landlord or the landlord’s agent has served or had served a notice pursuant to subsection 1 if the refusal is based on the fact that the tenant has not paid collection fees, attorney’s fees or other costs other than rent, a reasonable charge for late payments of rent or dishonored checks, or a security.”

In addition, AB 462 amended NRS 118A by changing the law’s definition of rent:

 “Rent” means all periodic payments to be made to the landlord for occupancy of a dwelling unit, including, without limitation, all reasonable and actual late fees set forth in the rental agreement.” (emphasis added)

In testifying in support of AB 462, then Assemblywoman Buckley said it did not make sense to “kick people out of their apartment when the tenant had all their rent, [just because they didn’t have the eviction costs and/or attorney fees.]”  Both the state and local Apartment Associations supported the bill, as did the REALTOR® Association.  AB 462 quickly passed without amendment.

What does this mean to the Nevada property manager today?

It means that, should you serve a non-payment of rent eviction notice to your tenant, you’d best stop that eviction as soon as the tenant comes up with the rent and late charges. If you wish to collect eviction costs or other charges, you’ll have to address those separately.

What is your policy on eviction? Do you address eviction costs in your rental agreement? If you are located outside Nevada, does your state have a similar provision in its Landlord/Tenant Law?  Please share with the property management community by leaving a comment on this post.

Too much of a good thing?

Ah, yes. It’s that time of year again. It’s the season we property managers have grown to love; after all, it challenges the best of who we are!

It’s the time of year when furnaces go out in the middle of the night, water heaters flood basements, ice dams build up on walkways, and tenants sometimes forget the rent payment is due on the first day of the month.

Seasoned property managers will have prepared for this season.  We’ve changed the smoke detector batteries, serviced the furnaces, caulked the windows, and reminded our tenants of their responsibility to remove snow and ice around the property. Despite our best efforts, sometimes things just don’t go the way we plan them. It’s a good thing we’re all pretty cheery during this season!

One of the best ways to retain that cheerful spirit is to commiserate with fellow property managers. To know you’re not alone in this challenging industry is pretty uplifting. To be able to laugh at yourself and the world around you is a true blessing.

The National Association of Residential Property Managers (NARPM®) is a great venue for networking, year round, with others who share your trials and tribulations. Just last week, a fellow NARPM® member shared this:

“The Twelve Days of Christmas” (Property Management Version)

On the first day of Christmas my tenant gave to me …

A Rottweiler with a bad knee

2 toilets flowing

3 lawns a dying

4 notices to vacate

5 golden carpet burns

6 extra roomies

7 cats & dogs

8 candles burning

9 pets a urinating

10 bed bugs biting

11 cars a rusting

12 rolls of crime scene tape

Enjoy this season, fellow property managers. Soon, it will be spring. Wishing you many smiles, and high hopes for a joyous holiday, and a prosperous year ahead!

Fondly,

-Judy

In the area of screening tenants for residential rental properties, property managers often like to think of themselves as great judges of character. After all, as a property manager, you deal with prospective tenants from all walks of life, don’t you? A few years in the business is likely to give us the feeling that we instinctively know who’s going to be a good tenant, and who isn’t.

Once upon a time…

A few years into my property management career, I was beginning to feel quite confident in my abilities. Things were going well. New accounts were coming in regularly, I was placing great tenants who paid their rent on time and took good care of the properties, and I considered myself to be pretty darned successful. One of the benefits of this success is that I had learned the value of observation. I believed that I could tell, just by looking at and listening to someone, whether he or she was sincere. This powerful tool was very useful to me, especially in tenant selection!

One day, a pair of newlyweds came to view a property I had for rent. The property was a very quaint older home in a well-established neighborhood in Reno. The home was built during the days of brass door knobs, and crystal light fixtures.  Every fixture in the home was original, and in superb condition. It was really important to me to get a tenant in that property who would fully appreciate the rare and beautiful condition of this home.

The couple wasn’t your average pair of newlyweds. They were, I guessed, somewhere in their 80s. As I listened to their story, it warmed my heart. They had been high school sweethearts who’d lost track of one another many years before. They each went off to live their separate lives, married others, raised families, lost their respective spouses, and never heard from or saw one another until they were unexpectedly reunited through a mutual friend, just a few short months ago.

This darling pair was absolutely beaming with love  – not only for one another, but for the little dollhouse! Finally! I’d found a tenant who could fully appreciate what that house had to offer.  As we walked through the property and chatted about the home’s features, and the wonderful love story unfolding between that cute couple, my excitement grew. I couldn’t wait to tell the owner what a perfect match between property and tenant I’d found for him!

So, what’s wrong with using our gut instincts when selecting a tenant for a rental property?

First and foremost, contrary to what most of us like to believe about ourselves, we really don’t know how any tenant is going to behave, once he’s in the rental property. We can evaluate many indicators of financial stability, rental history, and references. But, these are only indicators. They are not guarantees of future performance.  Hence, the temptation to use gut instinct to supplement the evaluation of objective criteria is always there.

The thing is, no matter how experienced you are, your “gut” doesn’t always tell you the truth. When we’re speaking of our instincts as property managers, we’re really speaking about our experience. Once you experience a situation, that experience sticks with you, and clouds your judgment, either for the good or the bad.

Unquestionably, using subjective evaluation (“gut instinct”) when deciding who to rent to, and who to decline, opens the property manager up to a number of risks, including fair housing claims. Imagine this, for a moment: An attorney in federal court (where any fair housing claim might end up)asks you, “So, Mr. Property Manager, on what basis did you decline my client’s application to rent your property?” You answer, “I could tell by the way he kept his car—it was very dirty – I knew he would not be a good renter.” Really? Are you really comfortable with that kind of answer? (Disclaimer: if you could see my vehicle right now, you’d NEVER rent to me.)

Fair housing risks aside, subjective decision making is pretty hard to justify when things go south.

Can you guess the rest of the story?

Not only did my perfect tenants quit paying rent almost immediately, by the time I finally got them out of the dollhouse, it was no longer a dollhouse. Every single doorknob was missing. All the light fixtures were gone. The place was loaded with trash, and absolutely filthy.

 The moral of the story…

Had I remained objective, rather than becoming emotionally attached to the notion of that cute couple being such a perfect fit for the house, I might have discovered the truth. The cute elderly couple was a pair of scam artists. This was not the first time they’d moved into a property, quit paying rent, and trashed the place before moving out. Because I relied on my gut instincts, and those instincts were wrong, it cost my owner a small fortune, and cost me a good client.

It was a mistake I never repeated.

Please share your experiences. Have you ever relied on your instincts in placing (or declining) a tenant, and later found out you were wrong?

A few days ago, I participated in a discussion around security deposits. The issue at hand was whether a landlord (property manager) could increase a security deposit for a single tenant, and not run afoul of fair housing laws. I maintain that YES, in Nevada, you can charge different deposit amounts for different tenants.

First, let’s take a look at the applicable prohibitions under the Federal Fair Housing Act. The Act prohibits us from treating renters differently, which would include different security deposit terms, based on a renter’s membership in a protected class. For clarification, on a federal level, the protected classes we’re talking about are race, color, religion, national origin, gender, familial status, and disability. In Nevada, our state has added 3 more protections: ancestry, sexual orientation, and gender identity/gender expression. To reiterate, the law prohibits us from treating renters differently because of their membership in a protected class. In other words, I would be violating fair housing law if I were to increase a family’s security deposit because they have children.

There is nothing in federal or Nevada state law that precludes our taking reasonable measures to offset our risks in renting property. The key is in evaluating rental prospects in an objective (measurable) way.

Let’s look at some of the things we can objectively evaluate…

Credit is first to come to mind, especially if we utilize a FICO score for credit evaluation. It’s measurable; it’s objective; and it has absolutely nothing to do with someone’s membership in any protected class under federal or state fair housing law. The lower someone’s credit score, the higher the risk may be in renting to him. A low credit score, then, may justify a higher security deposit.

Income is another factor we can objectively evaluate. If the rent on a single family home is $1,500/month, someone who makes $3,000/month is going to be a higher risk than someone who makes $4,000/month, right? Rent-to-income ratio is something we can measure objectively, and something that may justify an increased security deposit.

What about pets?

This is an area in which most property managers have no problem increasing deposits. Pets (not “assistance animals”) are not protected under federal or state fair housing laws, and are widely perceived to increase a landlord’s risk in renting to a tenant. If a property manager allows pets in a rental property, it’s not uncommon for the manager to charge either a separate pet deposit, or an increased security deposit, because of the pet.

What else can we objectively measure? How about rent payment history, eviction history, criminal background, and employment history? These are all things that can be objectively evaluated, and used for the purpose of determining risk. And, the higher the risk in renting to someone, the greater the justification for a higher security deposit.

In Nevada, the maximum security deposit, including “last month’s rent,” cleaning charges, and other deposits collected at the beginning of tenancy is a sum of three times the periodic rent. In other words, if the rent is $1,500/month, the maximum security deposit you can collect is $4,500. This gives the property manager a good deal of leeway in determining appropriate deposits, on a case by case basis. As long as the manager is objectively evaluating risk to determine the amount of the security deposit, and the perception of risk is in no way related to a renter’s membership in a protected class under fair housing laws, it is perfectly justifiable to vary security deposit amounts between tenants.

Do you agree or disagree? Please share your thoughts and experiences by leaving a comment on this post. Thanks!

This question comes up frequently, and the response might surprise you.

Peter writes,

“Can a landlord refuse to rent to a convicted sex offender, and can a homeowners association have rules and regulations prohibiting owner/landlords from renting to sex offenders?”

The short answer is YES and YES.

Sex offenders are not protected, as a distinct class of individuals, under federal (or Nevada state) fair housing law. It is not a violation of fair housing law to refuse to rent to sex offenders. Yet, there are a few things to keep in mind, should you, as a property manager, decide to ban sex offenders from your rental properties.

First, if you have a policy against renting to sex offenders, how do you enforce that policy? Do you search Sex Offender Registries on every prospective tenant, before you agree to rent to him/her? Do you continue to check your local registry on a regular and frequent basis to keep yourself informed of changes in the neighborhoods in which you manage property? What do you do when you find out a sex offender has moved in next door to your rental property? Do you have a lease clause allowing cancellation of the rental agreement, should a sex offender move into the neighborhood?

Despite what the term “sex offender” may conjure up for many of us, not all sex offenses are the same.  Is it your aim to prohibit all sex offenders from renting your properties? If so, you may have difficulty enforcing that policy, due to the limited availability of information on lower-level sex offenses.

Nevada law provides:

“In any sale, lease or rental of real property, the fact that a sex offender…resides or is expected to reside in the community is not material to the transaction, and the seller, lessor or landlord or any agent of the seller, lessor or landlord does not have a duty to disclose such a fact to a buyer, lessee or tenant or any agent of a buyer, lessee or tenant.”

What Nevada law tells us is that, as a property manager, you are not required to either disclose or track registered sex offenders in or near any of the properties you manage. Your tenant will have no cause of action against you (or the property owner) for failure to disclose the presence of a sex offender in the neighborhood.

Let’s look at this from another angle. For illustration purposes, I’ll paint a picture for you…

You’ve just taken on management of a nice 3-bedroom home in a popular neighborhood of your community. The owner of the property tells you there is a registered sex offender living next door to the property, and you double-check this information on the Registry. The neighbor in question is a “Tier 3” offender – the most dangerous of sex offenders.

The property owner expresses to you her concern that the property may be difficult to rent, because of the presence of the sex offender. Being a student of state and local laws, you’re familiar with NRS 40.770, which specifically protects you and your owner/client for failing to disclose the presence of the sex offender. You assure your client that this will not be an issue in renting her property.

Saturday morning, you get a call from a rental prospect who wants to see the property right away! Based on what he has told you, he’s well qualified to rent the property, and is ready to move in as soon as his application is approved. As you’re touring the property with this prospect, he begins to talk about his family. His 3 children are all in elementary school. In fact, that’s what makes the property so perfect for him! It’s just ½ mile away from the school.

Then comes the defining moment. The prospect asks you if you’re aware of any sex offenders in the neighborhood.

What do you do? Do your agency obligations to your owner/client influence your response? Do you perceive a conflict in this situation? 

Please share your views and experience by leaving a comment on this post.