Thoughts on intentionally allocating a portion of your rental portfolio to help others?

Question

We have a modest portfolio of rental properties (more than 10, less than 50) in San Diego. The current rental market is insanely tight for renters and every vacancy has an incredibly high response rate - finding good tenants is not a problem right now.

Like any businessman, I'm raising rental rates in step with the market and managing the business to increase profits where I can. I would call myself a capitalist.

At the same time, in every other part of my life, I devote a lot of time to causes I care about and supporting organizations I feel make our communities more vibrant and healthy. Until now, I've always treated business and philanthropy separately.

Do any landlords out there mix "giving back" with their business by, for example, allocating a percentage of their unit portfolio to higher-risk / disadvantaged / needs some help tenants?

As a specific example, for every 10 units you have, perhaps you may allocate 1 unit to take a chance on someone who needs a break. Imagine you get two applicants for the unit:

(1) A single 35 y/o male with a long-time $70k/year job, excellent rental references, and high likelihood to stay in my unit for a long time.

(2) A 30 y/o mother of one going through a divorce with no rental history, but going back to a $40k/year full time nursing job. She needs some place to land and get back on her feet.

Normally you'd take applicant #1 because of the higher income and references from past landlords. But, for this part of your portfolio you'd take #2 because they meet your minimum criteria, but you want to help them out.

From a financials perspective, this sort of thing might even end up as an Income Loss Credit on the P&L.

How do you think about this? How do other landlords think about making money AND helping people who need help with housing?

Justin R. · Answer

Account Closed I'm afraid you're right, though I don't want you to be. Your point about open-ended exposure is a good one - didn't think about.My gnawing observation is that I have a product (housing) that some people are simply getting squeezed out of - they CAN'T get it, even from charities I might financially donate to because there simply isn't enough supply in the right areas. If I'm in a position to help in a way no one else can, how can I say "No"?I wouldn't consider a tenant who doesn't meet my minimum standards - in a softer market, I'd be happy to take tenant #2 above - so I'm not taking on substantially more risk in this scenario than I normally would. I am, however, giving up some benefit.If a kid has to deal with the stress and risk of switching schools, and I'm able to help prevent that with minimal risk to the business, it just seems like I should find a way to do it.In case it matters, the unit I'm thinking about here is a 400sqft studio - the lowest priced unit in our portfolio.

Account Closed · Answer

@Justin R.I understand what you say about the housing crisis. I have two rentals in the Bay Area and I know how hard it is for renters here. But I still keep my rents at market level. I have a very expensive asset that needs to be properly cared for. Market rents (>$3K/month) gets me professionals who can easily afford it and generally take care of the place. Even feeling charitable I will not risk that asset with lower end tenants. Also, with my low end rentals in the mid west ($700-$800 rent) I find a different mindset. Rarely does it help to be "nice" and let late rents slip or forgive late fees. Lets face it, the extra $25 or so in late fees I don't need but if I let it go, the rent gets perpetually late. You are just pegged as a soft mark and people will take advantage of you. Not 100% of course but often enough that you don't want to do it. So keep business as business and support whatever good causes you want with your profits.

Account Closed · Answer

I would keep the two separate. The reason is that in the second case your "Charity" is open-ended. You could lose months of rent, she could trash the place and your exposure is unlimited. Bill Gates did not give free copies of his software to needy people. He made billions in the market and gave back through his foundation. Thats the right way to do it. And also people may not see it as you doing them a favor either. And your relationship with them would always be mixed. Are you a landlord or a benefactor? Too confusing.

JD Martin · Answer

Great post. I think it is admirable your intentions; that said, you have to consider how a misstep in this area could compromise your ability to share your good fortune in other areas. For example, if your tenant turns out to not pay, fight you to the death on eviction, and damage the place, the thousands you spend will reduce your ability to spend on more worthy causes.For that reason, I agree with everyone else. Keep business and philanthropy separate in this arena. If they were more or less equally qualified, I could see giving the one who needed it more a break, but I would not take a lesser qualified tenant for that reason.

Anthony Gayden · Answer

I would not make any exceptions to your criteria ever. The result will be losses on your end.

Matthew Paul · Answer

Its your money and properties , you can do what makes you happy . Sometimes its not all about the money . I had a long term customer , served as a naval officer . He had some health issues and wasnt doing too well . Arrived at his house for a 20 minute repair . Looked at some other things in his house , spent 6 hours there . Only billed for the 20 minute repair . But I felt good .