After the Freeze: A Few Things Worth Checking at Home

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Until recently, rental payments to your landlord didn’t have an impact on your application for a mortgage, but Fannie Mae is looking to change that. Fannie Mae is the federally backed institution that purchases mortgages from banks and other financial institutions that evaluate and underwrite potential borrowers. Essentially, they set many of the standards for what data matters and who qualifies for a mortgage. They have announced that they now plan to review an applicant’s rental payment history and taking it into account during their review process for granting a loan. This will have the largest impact for tenants who otherwise would not have a robust credit history. According to the Consumer Financial Protection Bureau roughly 20% of American adults have no or limited credit history, potentially there are millions of people within the US that would benefit from this expanded review. Currently less than 1% of the data that is sent to the credit bureaus are related to rental payments, this could be because currently landlords must submit reports directly to the credit bureaus. Fannie Mae however is looking at alternative ways of submission instead of relying solely on landlords providing the information to the credit bureaus. This could include showing proof of payments thru bank statements or other sources that can be validated. At Camber we will continue to evolve our processes to ensure that the tenants making on time rental payments on our homes are recognized through this system. On the other side of the coin, the tenants that fail to pay or do not pay in a timely manner pursuant to their lease, it will shine a light for future landlords and have effects on their abilities to secure a mortgage. As times continue to change, especially with COVID-19, and the evolution of lifestyles, it is encouraging to see that lenders are beginning to look at the whole picture when analyzing applicants as a large portion of our population rents at one point or another before choosing home ownership. So in a nutshell, on time rental payments are not just important to your current landlord, it could affect your ability to secure a mortgage in the future.

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In Spring 2020, as we began to see how serious Covid-19 was and we all became familiar with the term pandemic, I was very concerned. I was worried not only for my clients, but also for myself as a fellow investor. The questions of will tenants be able to pay rent, will we still be able to lease properties? Would our investors’ properties still be able to cash flow and appreciate? There was so much uncertainty in our world, that I really didn’t know how bad this would get. In terms of impact, the OKC metro area was extremely fortunate in that single family homes, duplexes and quadplexes didn’t see the projected drop, it was larger multi-family condos and apartments that were more negatively impacted. Why is this? I think there were several reasons. 1. The single family product became very attractive. With so many people spending increased amounts of time at home, the demand for more square footage, private laundry, outdoor entertaining areas and backyards increased. The fear of sharing space with so many others was also real. Most of our local moves were tenants of urban style and large multi family properties to single family style neighborhoods in suburban towns. 2. Will tenants pay rent? From the beginning of the pandemic to present, we have had zero evictions, we were fortunate enough to not even have to file on any tenants. While we normally have low rates of eviction due to our thorough vetting process, we had even lower numbers during Covid vs pre-pandemic. This isn’t to say that we didn’t have tenants that couldn’t pay rent. One of the hallmarks of my company and the way we do business is that we find the best solution for everyone. For example, if a tenant truly can’t pay rent, the best thing is to help the tenant to end their lease and vacate the property. This allows us to get a new paying tenant in quickly, sometimes so quickly that the former tenants were able to get some of their deposit back. A win-win in my book. The owner was made whole on most occasions and the former tenant didn’t have an eviction on their record, because let’s be honest, these times have been extremely tough on so many by factors that are completely outside of their control. 3. Tenant Retention. We have seen a dramatic increase in tenant renewals and at higher rates. This coupled with low inventory, our ability to be even more selective in the tenant placement process and greater demand for these types of homes will create scarcity. If this continues, we should see investor returns skyrocket as rents and home values continue to climb even higher. Which is exactly what you want to see in your single family home investments. 4. Influx of people moving to smaller cities and less restrictive states. We have seen an increase in the number of tenants that are moving from out of state. With so many businesses and people operating and working from home the need to be close to an office was no longer a huge factor. This has been a tremendous boost for our market to have so many new prospective tenants and homebuyers. While I don’t have a crystal ball, there is so much to be grateful for and to be encouraged by for the future of the rental market in the OKC metro area. I would be happy to discuss in greater detail why this market should be on the top of your list for investment opportunities should you be interested.

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One of the most common mistakes we see with investor property owners is underestimating the importance of tenant retention. As someone who has been managing investment properties for over 12 years and a fellow investor, turnover is the biggest expense an investor can incur. Contrary to popular belief, turnover outpaces routine repairs or maintenance, fees paid to your property manager or even property taxes in terms of cost. Every time a home is vacant it is real money lost that you can never recoup. Lost rent, utilities, make ready costs, leasing/marketing fees and the often-overlooked risks that come with having a vacant home. 3 Ways To Minimize Turnover: Placing the right tenant for your property Seems simple but it’s truly an art form. While prospective tenants with 800 credit scores are traditionally safe and look great, there are some negatives. Tenants with great credit soon become home buyers. We prefer to look at the whole picture. For example, Tenant A has great credit, stable income, excellent mortgage history and is coming in with a job transfer. Tenant B has a much lower credit score due to say…unpaid medical bills but does possess good income and long term rental history. Tenant A looks like an easy choice, right? Not necessarily…we would most likely recommend Tenant B (with an additional deposit). The reasons are Tenant B will struggle to buy a home soon. Also, they have excellent income with a long history of renting. Through tracking our tenant compliance and longevity, we have learned that prospects like Tenant B not only stay years longer on average, they actually have a lower lease default rate. Attentive, Concerned, Communication and Responsive Long term, good tenants expect this. Might seem obvious but it takes an excellent process, well trained, motivated staff and vendors to meet the expectations of today’s tenants. At Camber, we have a great recipe for tenant success while still working for our investors to keep total cost of ownership to a minimum. Tailored Renewal Strategy I often see property managers or investors approaching renewals two ways: They either fail to send them out, allowing tenants to auto-roll month to month at the same rent rate, or they fail to consider all factors before offering a lease extension. At Camber, we look at each home focusing on retaining your tenant and evaluating rental rates. Through preparation and analysis of market conditions, we systematically send fair and reasonable lease renewal offers to your tenants. We also consider the following during our review: · What would we realistically get in rent on re-lease? · How long would it take to secure a new qualified tenant? · Turnover costs? · We also review the current tenant’s payment history and how they have cared for your property. Our experience has shown that a combination of all these factors contributes to successfully renewing your tenants. At Camber, our core strengths always include matching the proper tenant to your property, ensuring your tenants have an excellent rental experience and working tirelessly towards meeting your goals for the property and keeping your total cost of ownership to a minimum.