As if the affordability crisis weren’t tough enough for cash-strapped tenants, corporate landlords’ “junk fees,” heaped on top of “base rents,” have sparked the ire of the FTC, which recently issued an Advance Notice of Proposed Rulemaking (ANPRM), according to The Guardian, resulting in possible legal action.
The increased frustration among tenants and lawmakers with corporate landlords can be a win for smaller landlords, who rarely add extra fees on top of the rental amount quoted in a lease.
The Regulatory Crackdown on Corporate Rental Fees
Federal regulators and state attorneys general have initiated a nationwide crackdown on extra, mandatory charges in residential leasing. These include technology add-ons, trash pick-ups, utility processing surcharges, and nonrefundable administrative fees, among others.
The Guardian reported that hundreds of tenants across the U.S. recently submitted public testimony to federal agencies describing how unexpected lease surcharges have inflated rental costs. During public comment proceedings in April, Seattle resident Farah Momin testified:
“The rental housing market is one where consumers have little power. Landlords can impose fees through take-it-or-leave-it lease terms, and the cost/disruption of moving means that tenants may absorb unfair charges rather than leave.”
Multiple States Are Taking Up the Cause
With midterm elections around the corner, the cost of housing is a big issue and has picked up steam in legislative circles, with many U.S. states advancing bills designed to restrict institutional ownership models and cap ancillary fee structures in both multifamily and single-family housing markets, as a tracking map from Newsweek shows.
“Rent is already too high, but corporate landlords are adding hidden junk fees that make housing even less affordable,” New York Attorney General Letitia James said in a letter to the FTC in April. “Renters deserve to know the true cost of housing upfront, not after they have already committed their time and money. We are urging the FTC to take action so families can make informed decisions and avoid deceptive pricing.”
James emphasized “bait-and-switch” pricing tactics, in which advertised rents could be misleading and mandatory fees were disclosed only late in the application process or after a tenant signed a lease.
The Win for Small Landlords
While Wall Street-funded REITs keep the pressure on asset managers to increase revenue, small investors with no such oversight or inclinations have a chance to slip in and appeal to weary renters, tired of being shocked every time they review their rental statement.
“It’s uncommon to see Wall Street buy entire neighborhoods,” Jeff Holzmann, COO of Dallas-based real estate investment firm RREAF Holdings, told Realtor.com. “But the reality is, when your home is owned by a Wall Street company, what happens is it becomes someone else’s product. When there’s a board yelling at a CEO to make more money, the only way to do it is to raise the rent.”
Wall Street’s drive for relentless rent increases was highlighted in a recent TCD/Yahoo! Finance article, which explained that these numbers are often baked into lenders’ loan approvals before the building has even been purchased. The article stated that “buyers who forecast the biggest increases can qualify for the most borrowing.”
As Time explained, “If current tenants’ wages cannot keep pace with that plan, something has to give: Either tenants pay more than they can afford, or they are pushed out so someone who can pay more can take their place.”
The Rebuttal
In an April 15th letter addressed to the FTC, the National Apartment Association said:
”By separating certain services and amenities from base rent, residents can choose the options that best fit their needs and budgets, rather than paying for a one-size-fits-all package. These fees can cover a broad spectrum of amenities, services, and operational activities. While our industry fully supports fee transparency, we caution against policies that would limit or prohibit the recovery of legitimate business expenses. Restrictions on reasonable fees create practical barriers, inflate base housing costs, and reduce access to valued resident services.”
How Smaller Landlords Can Capitalize on Tenant Mistrust of Corporate Owners
All-inclusive pricing
Smaller landlords tend to structure their pricing very differently from large corporations. Keeping an all-inclusive linear structure, without any surprise line items, helps attract and retain quality tenants, reducing tenant turnover and all associated maintenance expenses.
Be responsive and personable
Fast responses and fostering a personable, noncombative relationship with tenants softens the rental experience, whereas a corporate management structure can feel overbearing and impersonal.
List all costs in ad descriptions
Being completely transparent from the start will make potential tenants more inclined to schedule a viewing. Stating that rent includes standard amenities and excludes hidden monthly move-in charges, administrative costs, or software fees sets your rental apart from nearby corporate competitors.
Focus relentlessly on preventative property maintenance and energy efficiency
This is where some financially stretched small landlords suffer. By scheduling ongoing upgrades and maintenance, such as HVAC upgrades/filter changes, low-flow plumbing fixtures, regular roof inspections, gutter cleaning, and landscaping, you maintain the asset’s quality while reassuring tenants that you, the landlord, are on top of things. It also makes them more inclined to agree to a gradual increase in fair market rent upon renewal.
Don’t transfer technology charges to the tenant
AI and cloud-based software have helped make property management more efficient, but there is usually a cost associated with using property management software and storing documents in the cloud. Corporate landlords often transfer these costs to the tenant.
Differentiate yourself by not doing this. Call it the cost of doing business—and keeping your tenants.
Final Thoughts
While Wall Street funds face financial pressures from investors demanding a high stock price, small landlords face pressure from escalating expenses, specifically taxes, insurance, and maintenance costs, as well as mortgage payments if they have recently bought or refinanced. Tenants also face pressure due to the rapid cost of living increases—so it’s not as if small landlords can ignore the pressure to increase revenue.
However, making smart decisions, particularly by making a large down payment or buying with cash, and then meticulously staying on top of repairs and customer service and fostering a cordial business relationship with your tenants is essential. Stay away from tactics that nickel-and-dime residents for short-term gain at the expense of long-term stability.
