Texas Multifamily Myths

by Perry Pillow, AATC Director of Government Affairs

Can you distinguish between myth and fact?

Myth Busters is must watch television at my house. The series uses a combination of science and common science to test the veracity of rumors, urban legends, movie scenes, internet videos, news reports, and other “myths.” The purpose of the show is to either confirm the myth, find it plausible, or, more often, bust the myth.

Residential property management has its own myths. Some are plausible, and some are false. I’m going to attempt to confirm or bust some of the most common multifamily operational myths. As always, be sure to test the below against the REDBOOK.

Myth # 1: Rent Increase Caps. Times are good in our industry. Rents are increasing. Most of us have been in the multifamily industry long enough to have encountered a resident that believes with all their heart that there is a legal cap on the amount of rent that can be increased upon renewal. Generally, the resident is basing their claim on their super reliable, family friend’s third cousin’s boyfriend’s aunt who is married to a cousin of an attorney who told them that their rent can only increase $50 or less but no more than 5% or only on odd Thursdays in leap years ending in twenty-two.

If only their reliable source has been an economist–they would understand that this myth is busted! There is no cap on rental increases in the Lone Star state.

In Texas, the free market, aided by modern software, still sets rents. Unlike New York and the Peoples’ Republic of California, Texas does not have rent control except under extremely limited circumstances (natural disasters, nuclear war, Baylor winning the NCAA football championship, etc.)

Unfortunately, many onsite employees fall victim to this myth. If you are using a revenue management software package, be sure your onsite and corporate folks understand how it works. More importantly, ensure they know how to successfully sell a rent increase to renewing residents.

Myth # 2: You Can Treat Residents Differently. AATC members are strongly committed to fair housing. Treating people differently based on based on race, color, religion, national origin, sex, disability, or familial status is discrimination and, frankly, it is illegal under, federal, state, and local statutes. Acting or failing to act based on the above listed seven categories (classes) is not only against the law, it is wrong.

This myth is plausible. Everyone wants to be treated like an individual, you cantreat people differently so long as your treatment is not based on race, religion, sex, or any other of the above factors. For instance, you may have a resident that cannot meet your rental criteria but with a guarantor standing behind the financial obligation you rent to them. You can have some residents with guarantors and some without. You can give rent discounts to teachers, police officers, military personnel, etc. You can have shorter lease terms for full-time students or residents who work for certain employers. You can immediately terminate an ex-employee’s lease. You have some residents whose lease has become a month-to-month term. You can adjust the rents based on credit score and previous rental history. Yes, you can treat residents and employees differently.

Myth # 3: Three Day Right of Rescission: Stop me if you have heard this one: “I’m giving you my keys back and moving out of my new apartment that I moved into over the weekend because it is too __________ (fill in the blank) and I was told that it had _________ (fill in the blank) and I’m returning my new pillow covers to Targetbecause they no longer match where I’ll be living.”

A common myth in our industry is that the resident has a statutory right to change his/her mind and back out of a lease or an application agreement within three days after signing. Not so. Texas law defines a “consumer transaction” as a transaction between a merchant and one or more consumers. The definition does not include residential dwelling unit leases and does not include sales contracts signed outside of the consumer’s place of residence at the time of signing. Therefore, residential leases are not subject to any three-day right of rescission.

The resident can return the pillowcases to Target but not the keys to their new apartment. This myth is busted.

Myth # 4: Landlords Cannot Require Renter’s Insurance: If you work in this business long enough, you’ll have a resident cause a fire in the kitchen that spreads to several units. This fire will cause thousands of dollars’ worth of damage, but the resident doesn’t have renter’s insurance and doesn’t have enough personal assets to pay for the damage, assuming you are able to recover a judgment against the resident in court.

The National Fire Protection Association estimates that there are approximately 95,000 fires in multifamily buildings each year and that 70 percent of all fires are caused by a resident’s negligence. The solution: requiring renter’s liability insurance.

TAA’s “Lease Addendum for Requirement of Renter’s or Liability Insurance”is a tool that you can use to help limit your liability and manage your risk by requiring residents to purchase renter’s insurance, which also includes liability coverage to cover your out-of-pocket expenses in the event of resident negligence.

While some jurisdictions in some other states, such as New York and Massachusetts, have enacted restrictions on the ability of a property owner to require renter’s insurance, Texas has not done so. This myth is busted.