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Landlord-tenant laws appear to be getting tougher and tougher. This can especially impact ‘mom and pop’ individual landlords and small real estate investors. Making great and profitable investments in real estate is no longer just about looking at the basic numbers when acquiring a property. It is also about comparing true net profitability, including evaluating risk-reward potential.
New rules and interest in pursuing individual landlords may be making it harder for solo investors who are directly investing in single family rental homes. There is the Airbnb issue. Then there are progressive cities like Seattle which are playing an increasingly intrusive role in dictating who private landlords lease to.
The ‘first in line’ rule is a big one. This ruling states that landlords must take the first renter who applies and meets their predetermined tenant qualification criteria. That may not be optimal and may open landlords up to new risks. Yet, it is also designed to prevent discrimination, which is a good thing.
Then there are various bans on conducting criminal background checks on renters. If you can’t run background checks you don’t know who you are getting. It’s unfortunate that regulators feel they need to go this far. Though, this is what happens when the industry doesn’t regulate itself and isn’t proactive about creating solutions itself. There are millions of people who have had their reputations tarnished with legal accusations or have been extorted into taking plea deals, as well as those who have already done their time for their crimes as teenagers. There are many who are now coming out of jail for crimes that are now no longer crimes like using marijuana. Whatever we feel about these things, the fact is that if these millions of residents aren’t provided housing, we end up with more homelessness, crime and higher taxes. You don’t personally have to house them, but there needs to be some type of solution.
The point is that landlords have fewer choices about who they can and can’t rent to. More worrisome and risky is that these laws are changing fast. If landlords aren’t constantly on top of these rules, they can be swiftly bankrupted by lawsuits.
Fox News reports that these trends are increasingly making it difficult for individual investors to make it, and is causing many to sell out. Bigger funds though are able to operate more effectively in this space while remaining more insulated from risk. With more capital, they have the ability to use bigger and deeper data. Plus stay safe under new data keeping and marketing laws like GDPR. They can attract a bigger pool of quality renters, and can afford the insurance and legal team necessary to effectively protect assets from lawsuits.
Ultimately, with lower liability, better defenses and more upside potential private real estate funds may be far safer and offer better net profitability than trying to go it alone with single family rental homes.
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