Avoiding Rental Scams During and After COVID-19

/ Pelican Properties of SC LLC/

We have anticipated a small recession for a while. From a property management and RE Investor stand point the influx of building in the Charleston area reversed the amount of supply compared to demand causing rental rates to level. Brand new apartment complexes with new appliances, fixtures, and modern amenities offering competitive initial rental rates to entice tenants to move into apartments forced single family homeowners to upgrade their investment homes and lower rental rates to remain competitive. Areas of greater Charleston became hot spots including West Ashley and Summerville due to affordability and central location. Still, the Charleston area remained a relocation hot spot due to the increasing ability to work remotely, our mild winters, southern charm, beautiful beaches, quality of life, history, restaurant scene, life on the water, and certain districts having excellent South Carolina public schools. Many tenants were relocating from more expensive locations causing rental rates to level but not be drastically reduced over the last three (3) years.

We anticipated a recession. NO ONE anticipated the effects of COVID-19. Small businesses closing, restaurants shut down, non-essential personnel being laid off. People wearing masks and gloves in grocery stores becoming normal attire. Children unable to have play dates with their friends. Teaching children not to touch or hug one another. Shutting down sports, recreation areas, and boat landings for an undetermined amount of time. Phone and online chat forums becoming our only source of social interaction. Beautiful southern spring weather emerging and beaches and public pools closed. Pretty much everything shut down except residential streets and essential supply stores. Being told to social distance and get outdoors while the municipalities shut down every outdoor space that would allow socially distancing and enjoying the outdoor quality of life that Charleston and Mt Pleasant offers to its residents. I have always gone to the beach and out on the water to socially distance and get away from society. Sullivan’s Island is a large beach. I don’t agree that if certain people refuse to follow socially distancing guidelines that none of us can have nice things. The normally quiet residential street I live on has become a zombie apocalypse of pedestrians and bikers, some forgetting that the roads still have cars that need to drive on them. If there is anything good in all of this neighbors are waiving to each other once again and being kind to one another. I have seen a lot of kindness in my limited interactions among neighbors and while grocery shopping. We want to be social. We are all in this together.

Now more than ever it is important for non seasoned home investors renting their homes to be wary of scams. Professional tenant scammers will look for vacant properties and rental homes NOT managed by a professional Property Management company. They will have sympathy stories. They will have excuses not to submit applications and income verification. From experience a licensed Property Manager will better denote parts of these stories don’t add up. I call them “red flags.” There will be a plethora of inconsistencies and excuses. Beware of prospects who are persistent that the owner agree to every concession requested, especially drastic reductions in rental rates, providing appliances not included in the rental listing, and negotiating reductions in rental rates in exchange for longer lease terms. Professional tenant scammers know there is a way to get out of leases if they show a change in circumstance. Pelican Properties has protocols written into the lease agreement for when a change in circumstance occurs to protect the homeowner and the tenant. It is common occurrence that prospects looking to scam a homeowner may become argumentative when the unrealistic demands they are requesting are not considered. They may personally attack the person politely saying No. I consider this the biggest “red flag” we encounter. If a prospect becomes argumentative or disrespectful before they move into a rental home imagine how the working relationship is going to be throughout the lease. Prospects who are not respectful of a homeowner’s rental requirements or the current rental market will likely not be good tenants. Many prospects may use the current circumstances to move into a home they cannot afford.

On occasion tenants will look great on paper but prove difficult to work with. I have rented properties where a tenant gets into an expensive area of Charleston County at a decent rental rate and then attempt to demand that every appliance and fixture be replaced new in the home. If someone insults your rental home prior to applying just do yourself a favor and let them walk away. Other tenants may not look great on paper and have “red flags” in their previous financial history but they can become great tenants. These tenants acknowledge their past financial hiccups and are willing to take additional measures including additional security deposits to show the owner they are financially invested in caring for the home. They will likely remain in the home for a longer period of time while they rebuild their credit and finances. If the applicant has “red flags” but doesn’t take responsibility for them there will likely be problems down the road.

Below are some of our recommendations for qualifying tenants during a recession and at all times. Right now is an important time to take additional measures to make sure everything on the application checks out.

DO-

  • Hire a professional Property Management company experienced in qualifying tenants

  • Take preventative measures to thoroughly screen tenants including credit reports and background checks

  • Make small negotiations under reasonable terms

  • Take additional measures when there are “red flags” in the application process

  • Verify employment and rental history

  • Ask for personal and professional references

  • Consider additional security deposits in lieu of cosigners. Cosigners may be financially responsible but do not guarantee the tenants they are signing for will take care of the rental home

  • Allow a third party Property Management company to act as a Leasing Agent to advertise, process applications, and negotiate lease terms. This eliminates pressure for a homeowner to sympathize with a prospects circumstances

  • Require applications prior to negotiating rental concessions

  • Consider prospects who apply and have “red flags” when they are willing to provide additional security to secure housing

  • Require ALL adults residing in the rental home to submit an application

  • Remember that renting a home is a business transaction and the lease is a written contract

  • Be respectful of all parties involved including owners, tenants, property managers, and contractors

  • Make reasonable repairs and address maintenance in a timely manner

DO NOT-

  • Make excessive concessions to get a tenant into the home. The property should be in habitable condition prior to advertising

  • Waive security deposits or forego the application process

  • Rent to prospects who cannot provide income verification

  • Negotiate rental terms prior to a prospect submitting an application

  • Rent to an unqualified tenant just to get someone in the rental property

  • Fall prey to sympathy stories. Use the application process to qualify the tenant and have a third party Property Management company qualify the applicant

  • Deviate from lease terms. This could make the lease VOID. The lease agreement is in place to protect all parties.

  • Rent to family and friends. If you are going to rent to family or friends go through a third party Property Management company and require the tenant go through the application process and be properly vetted.

  • Consider short term leases or month to month leases that will move the advertised rental dates out of the spring or summer. There is significantly less real estate activity in the fall and winter.

  • Discriminate on protected classes due to personal preferences

  • Consider prospects who repeatedly inquire about a rental property listing but do not apply- These prospects may create multiple online accounts so an owner believes there is lots of interest. This may be an effort to wear the owner down into rental concessions when the prospects the owners believe are interested do not move forward with renting the home

  • Immediately deny applicants with “red flags” or poor credit history. Many applicants will accept personal responsibility and will provide additional security to secure adequate housing

An experienced Property Manager has seen and heard just about everything. We hear inconsistencies in stories. We ask specific questions when speaking with prospects. We pick up on bullying tactics to negotiate concessions on rental properties when there is no investment on the prospects side. We have proactive and consistent company policies in place. We work with experienced contractors to coordinate maintenance and repairs. Becoming desperate and accepting an unqualified tenant may cost more than the short term income that is gained in damages to the property and court costs. It is important that prospects go through a thorough application process and implement preventative measures to avoid placing an unqualified tenant who will not care for your investment home.

Pelican Properties has proven to be successful in qualifying tenants prior to placing them in homes. In the last three (3) years we have not filed any evictions for rental properties we manage that we placed tenants in… we are proactive in explaining the lease terms and working together with all parties. In April 2020 amidst drastic effects from COVID-19 All of our tenants in our rental homes paid rent in full. I could not be prouder of the clients we work with, our fantastic tenants, the amazing contractors who help us with maintenance and repairs, and the beautiful homes we manage.

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