In all segments in all free societies, there are highly responsible people, highly irresponsible people and most people are somewhere in the middle. This applies to landlords just like it applies to the general population and their societal leaders.
Let’s assume that I am a highly responsible landlord who provides the highest quality rentals at the price point, maintains the rental property in excellent conditions, is immediately and highly responsive to all concerns raised by a tenant, treats all tenants and applicants with respect and total fairness, complies with all municipal regulations and everything else you would want from a responsible landlord. This is not an unreasonable set of characteristics and my tenants know the truth. I even teach my best practices in training videos. I do NOT own rental properties in Pennsauken, New Jersey. I considered buying there and thankfully I didn’t buy there.
As a small mom-and-pop part-time investor with 10 or less rentals (in 2016, 89% of single-family rentals are owned by investors with 10 or less such rentals), I have a choice of where to buy houses to conduct my small rental business which I use to supplement my income, especially to meet retirement needs.
I live in Southern New Jersey and there is a wide variety of towns in which I can invest. I wrote a blog article about this in September 2017 entitled Municipalities Compete for Real Estate Investor Dollars...Whether They Realize It Or Not. The first sentence of this article was “Pennsauken Township in South Jersey gave a rather revolutionary presentation to our local SJREIA recently and I am hoping, maybe naively, that other townships will see the light and change their policy for their own good.”
This article that you are reading now is an update and I want to highlight that I appropriately wrote the words “maybe naively” in that first sentence.
Several months ago, Pennsauken Township raised their annual landlord fee from $75 per unit to $350 per unit. No, that is not a typo. In fact, following is a quote from the Pennsauken code shown at:
“§ 251-23 Fees. A. At the time of filing the rental inspection application form, the owner shall pay an annual fee equal to the following: $350 for each rental unit. B. The required fees shall cover an initial inspection, as well as one follow-up inspection in the event of failure of the first inspection. Any additional inspections will cost an additional fee of $500 per inspection.”
If you are a responsible landlord in Pennsauken, you need to pay the township nearly $30 per month as a rental fee and to conduct an inspection that takes a few minutes annually (assuming the inspection passes). The pre-tax positive cash flow of most of these rentals in Pennsauken, after mortgage, taxes, insurance, vacancy, repairs and administrative costs is often $100 per month to $300 per month. So, the township rental & inspection fee often represents a whopping 10%-30% of the pre-tax profit for the middle-class mom-and-pop landlord! The landlord is already paying upward of 3% of the fair market value of the property every single year in property taxes. This is among the highest property tax rates in the nation. This $350 per year per unit annual fee is deemed necessary by the township since the property taxes are obviously not enough to cover code enforcement costs.
It is interesting that the health and safety of tenants in Pennsauken must be protected by code enforcement through annual inspections and fees, but the health and safety of homeowner-occupants is not as important since they can live in their homes for decades in disrepair without a single inspection for code violation after the owner-occupant moves in.
Do you think that this fee, associated with a short inspection, is an incentive for the best and most responsible landlords to continue to invest their money, time and effort to be a landlord in Pennsauken?
This does not even address the constitutionality of these inspections without a search warrant based on cause that is mandated by the 4th Amendment discussed in this article: Rental Inspections Violation of the 4th Amendment - An Open Letter to My Congressman. By the way, the office of my Congressman never responded to this letter that was also sent directly to his office after I spoke with his aide in person face-to-face at an SJREIA meeting at which the Congressman spoke to our group. I voiced these concerns to the Congressman in front of 80 REIA members, others of which complained about the new exorbitant Pennsauken fees.
Municipal inspection is not the only area of guidance from the government that that puts the most responsible compliant landlords in a paradoxical situation.
Pennsauken will revoke the expensive rental license if the tenants are arrested in certain circumstances. In contrast, the federal government’s Housing and Urban Development Department (“HUD”) issued guidance in 2016 that landlords may not discriminate against tenants and applicants who were arrested.
Following is source material from Pennsauken and HUD, so you can evaluate the constraints.
From the HUD government website at https://www.hud.gov/sites/documents/HUD_OGCGUIDAPPFHASTANDCR.PDF:
“1. Exclusions Because of Prior Arrest A housing provider with a policy or practice of excluding individuals because of one or more prior arrests (without any conviction) cannot satisfy its burden of showing that such policy or practice is necessary to achieve a substantial, legitimate, nondiscriminatory interest.”
From the Pennsauken code shown at https://ecode360.com/11309083
Ҥ 251-26 Revocation/suspension of certificate of inspection; other disciplinary action; procedure; conditional renewal. A. Grounds. In addition to any other penalty prescribed herein, an owner and/or occupier may be subject to the revocation or suspension of a certificate of inspection or having such certificate of inspection placed in probationary status or other appropriate disciplinary action upon the happening of one or more of the following: [1, 2, 3, 4, 5, 6, 7 not shown due to relevance] 8. Whenever the Police Department shall have made an arrest of or issued a summons to a tenant, occupant or guest or owner and/or occupier on more than one occasion during any thirty-day period for an offense related to or arising out of the use and occupancy of the rental unit(s), the same shall be prima facie evidence of a violation of Subsection A of this section, provided that the owner and/or occupier and/or managing agent shall have had notice of the existence of such circumstances or conditions."
There is no question that the devil is in the details and one can envision circumstances in which a landlord can meet the simultaneous constraints of both the federal government’s guidance and the Pennsauken code. However, one can also envision plausible situations in which the landlord can find him/herself between the rock and a hard place with the choice of violating local code enforcement or violating federal guidance. The consequences for each are quite severe.
Which government agency would you choose to defy? There is an easy solution. You can’t violate government rules and guidance if you don’t own property in municipalities that require you to make such a choice. That is my solution.
The consequences can be severe enough that the most responsible landlords may decide it is not worth investing $100,000 (give or take) of their hard-earned money and mortgage loans, time, effort and aggravation to make a couple of hundred bucks per month per unit.
At a recent meeting of South Jersey investors on the topic of the new tax law changes, a few responsible compliant mom-and-pop landlords noted that they were selling their rentals in Pennsauken. One veteran responsible landlord said he was about to list his Pennsauken rentals for sale as soon as possible. Another veteran responsible landlord said he already listed his Pennsauken rentals for sale.
Personally, I am looking to buy one more rental home for my small rental portfolio. Needless to say, I will not buy anything in Pennsauken.
I am a responsible compliant landlord. I have choices.
Check back in 5 years and assess the change in quality of life in the Pennsauken rental community. Do you think that the recent increase of the annual fee to $350 per year and associated inspections will be beneficial for the tenants, the neighbors and the township?
The reality in Pennsauken in 5 years will give you the answer.
It won’t be a matter of opinion.
