Rental Memo – Corporations Are Becoming Landlords, Part 1 – Warnings For Tenants

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To listen to the podcast version of memo click here —> Podcast Version

If you follow rental news, you have heard how large corporations have been buying up residential real estate. 

The main takeaway from this podcast / memo is:

• Renters, avoid large corporate landlords.
• Only rent from small traditional landlords, especially single family homes, condos and townhouses. Apartments are more of a commodity and more temporary in nature so I am excluding them from this warning.

What are the downsides for tenants renting from a large corporation instead of a traditional landlord?

• No Human To Human Contact (Human Tenant to Human Landlord Property Owner)

• • • One of the most important components of the landlord tenant relationship is the human to human connection. The tenant has a need for a home, and the landlord wants to provide that home. There is an emotional and personal component to the majority of these relationships and it is crucial. Being able to talk directly to the human owner of your rental property is something you should never give up. Having human landlords with financial skin in the game is an essential component of a positive rental experience for tenants, especially with single family homes. 

• Power and Leverage

• • • With corporate landlords, power and leverage are exponentially in the corporate landlord’s favor.
    • The human landlord, usually with one or just a few rental properties, has so much at stake, they are incentivized to respond to the tenants quickly and to maintain their properties diligently. The power and leverage balances are much more equal between the small human landlord and tenant.
      • Let’s imagine a corporate landlord that has thousands of rental properties.
        • The bottom line is the only important thing to the corporate landlord. Their income projections will include the cost benefit of not responding to tenant problems versus responding and also the timing of their response. There is zero human concern for your tenant needs. 
          • Everything will be put through an algorithm.
          • With corporate landlords, the possibility of tenant neglect exponentially increases without many consequences for them or recourse for you.
            • Need your gutters cleaned? 
            • Toilet unclogged? Or your
            • Air Conditioner fixed on a 90 degree day and your elderly mother has asthma?
              • The corporate landlord, with so little invested in your rental property relative to their total rental property holdings, has no incentive to quickly respond to your complaints at all. 
                • Unlike the small traditional landlord who will respond quickly out of fear that his rental property investment will lose value, and your desire to renew your lease will be dependent on his performance.
    • Legal Power.
      • If you want to sue, these corporate landlords have lawyers on the payroll making any legal action an unfair fight.
        • You will never be able to outspend the corporate landlord.
        • Most tenants do not have tens of thousands of dollars saved to sue their landlord. The corporate landlord will bury you in legal proceedings that will bankrupt you within months. 
          • Then they will not renew your lease, and your financial position will be so diminished you may not be able to rent elsewhere in the area.
          • They have unlimited legal resources to fight you and then also to evict you if you cause too much trouble. 
        • Does your potential landlord have lawyers on staff? This might be a warning sign.
        • Do your homework here. How many lawsuits was / is this landlord involved in? Who started the lawsuits? Does it seem that there is a history of tenant harassment? Is there a history of tenants consistently suing this landlord? If so why?  
  • Your Micro Tenant Needs Are Not Considered In the Macro Corporate Landlord World.
    • With any residential lease, you are effectively trapped and at the mercy of the landlord for the lease term. A bad decision by you can make the next year a nightmare. If you have a family, especially children, you need to think long and hard and do your homework.
    • The corporate landlord’s only concern is the overall bottom line from 1000s of properties, which is a macro view. Small landlords have the micro concerns of each tenant and property at heart. Each property is such a large part of their small portfolio of investment properties, they cannot neglect the micro needs of each tenant and property. They stand to lose too much relatively. 
    • It is impossible for corporate landlords to take a micro approach. The macro, bottom line approach, is implicit in the investments the corporate landlord has made in real estate. Therefore neglecting or putting off the “micro” tenants’ needs is standard landlord practice for them. 
    • It is imperative you understand how different having a corporate landlord is. 
      • Just think of what customer service is like from a huge corporation. It is usually terrible, but usually the reasons for your call are not life altering or extremely consequential, right?
        • Most customer service calls relate to things like cell phone issues, returning an item, making dinner reservations, etc. and not household emergencies that need attention immediately.
        • Imagine your worst customer service experience for these mundane items, and imagine your basement was flooding and that your only recourse was a call center!
          • Or worse than a call center, imagine the tenant complaint app right on your phone. There is zero human intervention or you have no way to ever talk to a person, unless the corporate landlord chooses to call you.
            • Hot water heater broken? Basement flooded? Open up the tenant complaint app on your phone, check those boxes, and someone will get back to you in the near future! This is the reality of many corporate landlord customer service interfaces. 

• Leases From Corporate Landlords.

• • The leases presented to tenants by corporate landlords are much more complex than what we are used to.
  • And therefore exponentially larger
  • You need to get this thoroughly reviewed by a seasoned attorney who will not only eliminate biased language, but will add safeguards for you in many areas.
  • You can be sure that the entire lease will be worded against your best interest and will try to have you voluntarily give up many of your usual tenant rights.
  • Be sure to note the following:
    • What is your tenant’s responsibility for repairs?
    • Be sure you are given lists of contractors that you can call when repairs are needed i.e. electrician, plumber, general contractor, etc. 
      • You must have the right to call these contractors without first having to call the corporate landlord.
    • What specific individual is assigned as your landlord point of contact? You must be given this person’s cell number and have 24/7 access to them in case of emergency.
      • Do not accept a general customer service number or the use of an app. This is your home, rented yes, but your home nonetheless, so generic customer service should never be tolerated.
    • Are the renters’ insurance requirements much higher than usual and therefore your insurance premiums will follow suit. Is this necessary?
• Bottom Line. 
  • When renting a single family home, condo or townhouse, the fewer properties your landlord has, the better for all the reasons enumerated above. 
    • Be sure to verify the name on the deed of the property. If it is in an LLC or corporate name, verify that the person presenting themselves as the owner / landlord, is, in fact, the owner. 
    • Today, it is more important than ever to do your homework and to do background checks and due diligence on your landlord before signing any lease.
    • Many corporate landlords have people presenting themselves as small landlords.