CW 963 - Evictions, Rent Collection, & Lease Guarantee with American Apartment Owners Association Rent Recovery Service Jeff Cronrod, Part 1

Welcome to the Creating wealth show with Jason Hartman. You're about to learn a new slant on investing some exciting techniques and fresh new approaches to the world's most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine, self made multimillionaire who's actually been there and done it. He he's a successful investor, lender, developer and entrepreneur who's owned properties in 11 states, had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason's footsteps on the road to your financial Independence Day. You really can do it. And now, here's your host, Jason Hartman with the complete solution for real estate investors.

Welcome to the Creating Wealth show, episode number 963. 963. This is your host, Jason Hartman. Thank you so much for joining me today. Today we are going to talk about tenant screening, rent collection and lease guarantees. Yes, lease guarantees. We'll talk a little bit about that. Think it'll be interesting for you. We've got Jeff Kronrod, he's been on the show before, several years ago actually, and he's with the American Apartment Owners Association. So we'll dive into that in just a moment. But.

I want to remind you to come join us in San Jose on March 3rd. Silicon Valley. Jason Hartman University We've got about half of the room full, but I have to tell you it may sell out very quickly because we have a partner on this event. This is very unusual that we have an event partner. Usually we just do them ourselves. Our event partner is also selling tickets for that event and they have a webinar coming up tomorrow and they are doing various promotions and such. So this event may sell out rather quickly. So I just want to warn you of that. Normally I wouldn't say that when the room is only half full or half empty, depending on how you look at it. But for this one it's different because it's not just us selling tickets. So if you are interested, it will probably be the only Jason Hartman University event this year. I usually do this one about once a year and it's where we dive into the details of income, property, investing, the interactive stuff, the hands on stuff. So prepare to roll up your sleeves as the saying goes on this one. And I want to tell you there's some bad stuff going around. Two bad things going around, one you probably know is the flu. And this flu is bad news. Now, I often wonder why we still engage in the tradition of Shaking hands. You know, our president, love him or hate him, I hear he doesn't shake hands. I actually heard that many, many years ago because he doesn't want to get sick.

That's something definitely to be aware of. This flu is just bad news. And I guess we're about halfway through the season, the season they tell everybody it's flu season, so somehow everybody gets sick. Power of suggestion, psychosomatic medicine. So be careful to keep that in mind. You know, psyche, the mind controls soma, the body in many, many ways that we do not even yet understand. So a lot of it is a psychological component to anything and anything in life. But the other thing that is going around that is a very dangerous life ruining disease. And it pervades our culture. It's pervaded our culture for many, many years. Certainly it got a FOOTHOLD maybe about 60 years ago. And it's just been getting worse and worse as the disease has been spreading and spreading since. A 60 year old disease, I mean that has ruined lives. It has made the world an inferior place to live. It just keeps getting bigger and bigger. It's perpetuated by the news media. Talk about psychosomatic, right? It's perpetuated by our culture in general. It's just everywhere you look. Be careful you don't catch this one. I've caught it a few times in my life, but. But I think I've shaken it pretty well. But some people, even surprising people that you think would be immune to this catch this disease. So be careful of it. Here it is. It is the disease of entitlement, the entitlement attitude. It is a ugly, nasty disease. And the interesting thing about it is that people sometimes think mistakenly that the entitlement disease will get them something, but actually it will lose them potentially everything or lose them a lot. Let me tell you. It's bad. And this is why I remember many years ago I took this course that had a big impact on me. And maybe some of you have taken these kinds of courses. They're a little New Agey in style, but in this course they talked about being the source. The source, right. In this concept of being the source, we can look at everything that happens to us in life many, many ways, obviously, right? We are incredibly good as humans at inventing alternate realities, rationalizing things, making ourselves believe what we want to believe, even in the face of an incredibly different reality. So last night, interestingly, I saw the movie Vanilla Sk. Did you see Vanilla Sky? That refers to a famous Monet painting. I love impressionist art. By the way. So now you know what to get me for my birthday or Christmas, right? A Monet. You just get me a Monet, send it on over. If you need my address, just let me know. I'll send it to you. And talk about entitlement attitude, right? Like, I really think my listeners are going to buy me a Monet for my birthday, right? So the vanilla sky is the beautiful color of the sky, right? And the movie is with Tom. Tom Cruise and Penelope Cruz spelled differently. She is so cute. How cute is Penelope Cruz? Right? And then Cameron Diaz. Well, easy on the eyes, too, of course. So anyway, in this movie, lest we get distracted, Tom Cruise, the main character, just invents this totally alternate reality. Now, it was the second time I saw the movie. I saw it when it came out in the theaters many years ago, maybe, I don't know, 17 years ago or something like that. But I saw it again last night because, frankly, I'm running out of stuff to watch. Any suggestions for my Netflix Q or Hulu or Amazon prime? Fire away. Jason hartman.com ask. I would love your movie suggestions. You know, I'd like them from you more than any other because you people are so smart in the general population, you don't get very good movie recommendations. But I bet from you, our dear listeners, I will get fantastic movie recommendations and anything you want to say to me or ask of me. Jason hartman.com ask. Which, by the way, we got a question the other day on taxes and 1031 exchanges and unwinding a real estate portfolio and getting out of the game. Maybe this applies to someone who's older and just wants to cash out kind of thing, right? And I was talking to my partner in this large apartment complex we own just a few minutes ago, actually. And in the real estate game, just like in a business, when you take all the advantages over the years, like depreciation, for example, or appreciation, because you can get both at once. That's the beauty of income property, right? When you take all the advantages for a few years, you get kind of stuck. Yeah, you're kind of married to it, okay? You're married to it. You really are. So it's hard to unwind. The best thing to do, literally, is to die. Just die with all your real estate, right? And you can do 1031 exchanges throughout your life, an unlimited number of them. But the best tax planning is to just keep them, okay? To keep the properties. I did forward that question, though, to see if there were any nuances to Ryan, who was one of our Meet the masters of income, property, speakers and CPA who's been on the show, and I asked him to answer it, and I would play his answer on the show. So more on that, but Jason hartman.com/ask for anything. Anything. Tell me something, ask me something, complain about something, whatever. Jason hartman.com ask. You can go there. So the disease of entitlement and inventing the alternate reality. We are in an alternate reality. Well, you all saw the famous little video that went around years ago and maybe read the book called the Secret. The Secret, right? So the Secret is only half the battle, right? Because the Secret type of follower kind of has the entitlement disease themselves, if you think about it. You know, they believe that if they just sit around and visualize things, everything will come to them. Oh, I'm prosperous. I deserve. The world owes me a living. This kind of thinking is a disease. It is a very bad disease. And I'll tell you, you know, it's happened with some of the people that have worked for me over the years. Maybe, you know, some of these people, right, they earned more money working with me than they ever earned in their entire life. I mean, just not even a contest, okay? Because I knew what they were earning before. And, you know, many of these people I knew for many years before they worked with me, and then they left and they earned way less money, okay? So the disease of entitlement sometimes ruins relationships, right? Because if you start expecting everything, you know, like in an intimate relationship, maybe we've all been guilty of this. I will admit that. I know I have. Keeping score, right? You can't keep. Keep score, okay? You know, it's just not gonna end well. It's not going to end well, right? You probably heard me talk in the past about my days back at Century 21 in Anaheim, California. When I first started in the business, one of the biggest lessons for me was looking around that office and listening to all of the agents complaining about how the company wouldn't do enough for them, the broker wouldn't buy notepads to pass out in their farm area. You know, these notepads were like $180 for a thousand notepads. You know, little notepads with the realtor's picture on them to pass out in the neighborhood, that type of thing. And they were constantly complaining about that. And I remember the comparison. I remember thinking to myself, I worked in that Pioneer Chicken, that my mother owned that Pioneer Chicken franchise. It was an absolutely terrible experience. The windows would get shot out, literally drive by shootings I kid you not. My mother was robbed at gunpoint twice in that place. And she had to put up $275,000 to get into that franchise. 100,000 down, 100,000 in loans and $75,000 in equipment leases, okay? And her big goal was to earn 60 to $80,000 a year from that business and see if she could get three or five of those going over the course of several years. And then you've got these realtors who have this total entitlement attitude where they won't even buy the most minor thing for their business and they could earn hundreds and hundreds of thousands of dollars now even more. But, but you know, back then, just adjust for inflation. You know how to do that math. So the entitlement attitude is like a cancer. It just ruins us, it ruins relationships. It is a terrible thing. It is the opposite of a win win ideology. It is a lose lose ideology. But the person who loses the biggest is the person who carries the weight of that entitlement attitude around with them. They lose the most. This entitlement disease. Guard against it like it's the flu. Okay? How do you guard against it? Well, you guard against it with the idea of self reliance and personal responsibility. And here's the thing about going back to that being the source concept, right? When you are viewing your life as though you are the source, an interesting thing happens. Things shift dramatically. Suddenly you have the power. Not the event, not the circumstance, not the other person. Now it begs the question, was it your fault? But that's not the question, right? That's not the question. That's the typical question. It's just not the right question, right? Because certainly people are victimized. I've been victimized many, many times. Sometimes I feel like I'm getting victimized many times a day in business deals. It's terrible. And some people have been victimized much more tragically, obviously, than any of us. You know, people have been put in concentration camps in the Gulag in Russia. You know, not many people talk about the evils that went on in Russia. They talk about what the Germans did, but not enough PR about the Russians, that's for sure. You know, under Stalin and Lenin and Trotsky and all these evil communists, people wake up every day in places like Cuba and North Korea as political prisoners. Okay? Little kids get murdered. I mean, that's not their fault. Obviously it's not their fault, right? But the difference is, regardless of whose fault it is, when you view yourself as the source and you think, well, maybe I can learn something or gain something out of this, then the power shifts back to you. Right? So the entitlement disease is the disease that half of our country is walking around with. How do I know this? Well, because I know how half of them vote and why they vote that way. They expect something they didn't earn. They want something for free. They want something from government or society or whatever it is. Right? It's the entitlement attitude. And this is worse than the flu. It's really dangerous. So guard against it. Guard against it in yourself because nothing good will come of it. We all have it from time to time. I certainly have it from time to time. Sometimes I wake up and feel like the world just owes me a living. You know, there's an occasional day where I'm just grumpy or sad and I think, you know, why aren't things working out my way? It's not fair. You know, the world owes me, right? And I say this because I'm sure we have all felt that way, even the most responsible person ever. But we got to just check and say, hey, look, if this set of circumstances went a little bit differently or if I did this or said that, you know, maybe this position, this situation wouldn't be happening right now. I mean, how many times have you seen that, you know, you're one number off from winning the lottery or if the light didn't turn red, you would have made it to the appointment on time. And if you made it to the appointment on time, the deal would have come together. But because you were late, you missed the deal. Right. All kinds of circumstances happen. But it will do no good to be entitled having the entitlement attitude. Just a thought for the day there. This should probably be a 10th episode show. I'm on a tangent and I will get off of it because you are entitled as landlords to collect your rent. Okay? And that's what we're going to be talking about today with Jeff Kronrod. Going to talk about lease guarantees, we're going to talk about tenant screening, we're going to talk about collections, all this kind of stuff. Now, one of the things I want to to tell you in this interview, I remember we talked about how I believe, and I've told you this many times before, that landlords really should hold tenants accountable. Too many landlords just let it go. They let them off the hook. They say things like, well, you can't get blood out of the turn up, okay? You know, in other words, the person's got no money. I'M never going to collect, folks. Get your judgment and let it sit. It earns interest. Okay, you know, look, some of you do private money lending. Some of you buy bonds. I hope not too many of you do that. I hope none of you do that. Actually, you all buy income properties and you're willing to be patient and wait for your return on investment. That is the mark of maturity, being patient. Which, by the way, goes back to being at source. Right? See, when you view yourself as the source and you shift that power, then the psychological makeup of your decisions can be instilled with more patience. And a lot of times the situation will just turn around and suddenly you'll get what you want. In fact, I remember a good saying. I used to say a lot during the 90s recession, not the Great Recession, but the one before that. See, this is the great thing about getting a little older. You get some perspective on life, right? I remember saying the key to success in business when I used to do seminars. I used to say this to realtors all the time. I. I would train real estate agents on marketing and direct mail. Mail, yes, snail mail. You know, this was even largely before email. Some of this, okay, email existed, but. But not many people used it. I would say the key to success in business is staying in business long enough for something good to happen. Staying in business long enough for something good to happen. And that's the key to success with income property, because income property is a business, just like selling widgets, okay? It's all business, right? So being at source makes you more patient. And it will allow you to manage your psychology and stay in business long enough for something good to happen. Stay in the relationship long enough for something good to happen. I mean, certainly over the years, you know, I mean, if you talk to couples, for example, that have been married for many, many years, and if they're honest with you, now, a lot of married people don't really tell the truth about their relationships. I understand that. You know, you got to. Nobody knows what goes on behind closed doors, right, in their private lives. But, you know, if they're being candid with you, they might tell you, hey, yeah, you know, we've been married 50 years and we've had some really hard times over the years, but are more in love now than ever, right? And so staying in business long enough for something good to happen. That quote I love so much. I think Jack Parr said, success is largely a matter of, of hanging on after others have let go. So, hey, I'm way off on a tangent here. So we'll do this one in two parts, but here is part one of Jeff Kronrod. Let's talk about that. Go register for Silicon Valley event coming up March 3rd at Jason Hartman university.com Jason Hartmanuniversity.com I look forward to seeing you there. And here is the interview. And I'll be back tomorrow with another episode.

It's my pleasure to welcome Jeff Kronrod to the show. He's a returning guest. He's founder of the American Apartment Owners association, also founder of Rent Recovery Service. We're going to talk about a new program, fairly new program they're involved with called lease Guarantee and just some other issues that affect single family homeowners and small cap apartment owners. Jeff, welcome. How are you?

I'm good. Thanks for having me back, Jason.

Yeah, it's good to have you on the show. So let's dive in and talk about lease guarantee first. I mean, every landlord wants their lease or their rent to be guaranteed. Who wouldn't want that? There have been other players in this world with, I guess I'll say similar promises. They've been done sometimes as an insurance policy. Yours is not an insurance policy, it's a contract, I guess. Forgive me for maybe diving in too deep too quickly. Give us the macro picture of what is lease guarantee and then let's drill down on it.

Well, in a macro sense, it essentially is there to cover both tenant and landlord in providing a safety net really for both sides to cover any losses that might be adjudicated in terms of anything from a breach of the rental agreement or the lease. So from a landlord standpoint or property management company standpoint, lease guarantee is going to help them rent a unit, help them secure the unit to a strong tenant. And I think from an applicant or tenant standpoint, it would avoid the problems of either being required of a cosigner or if they have poor credit or even no credit, a lot of young people renting that may not have credit. Then additionally, it can also be used in lieu of or in addition to a security deposit. So there's, there's lots of help there for both sides.

So is it for any landlord with any type of property or any tenant or only the certain market that you mentioned?

It's available to any landlord. It can be someone with just a single family home or condo to someone with thousands of units certainly can use it. It's available on a tenant by tenant basis and it is part of the tenant screening process. So when the landlord or property manager runs a screening report they're advised whether or not the applicant qualifies for a lease guarantee contract. And if they do, then it's their option and either the landlord can pay for it or in most cases the tenant pays for it. Although we've had some landlords pay for it and then amortize the expense over the course of the year. It's been interesting to watch different ways in which they've been doing it, but it's really designed for the tenant to pay for it. And it's been used a lot to soften the move in money because frequently an owner will waive or reduce the security deposit, which could be sizable given today's rents. Rather than coming up with two or three months worth of rent up front, which is hard sometimes for a tenant, they can do a lease guarantee and reduce that move in money. So again, it really works both sides.

Yeah. So give us an example of say you've got a single family home and just for nice round numbers sake, it rents for $1,000 per month. And you want your tenant to get this lease guarantee, not insurance, but this lease guarantee contract. How much does it cost them and what does it provide for the landlord and the tenant?

The minimum contract amount is $2,500, and the cost for a $2,500 contract starts at about $299.

Does that contract mean that's the value of the lease? That would only be a couple hundred bucks a month for a year, if it's a year lease, but. Or what do you mean a contract? Or is that the amount that they'll pay out, the maximum amount paid out, or what is that number?

That would be the max amount paid out in the event there's a breach of the tenancy agreement. Whatever is adjudicated by a court, if there is a problem, we all hope there isn't. But if there's a problem and the tenant either leaves, breaks a lease, leaves without paying rent, or does property damage, or there's legal costs, it covers all of it, whatever is adjudicated by a court up to the contract amount. And you can purchase contracts up to $10,000. But, but just keeping it simple, a $2,500 contract is going to cost about $299 or more, depending upon some of the underwriting algorithms that we use. But just keeping it that it's an annual payment, it's renewable, and it is part of the tenant screening process. So when a screening report is run, we're able to gather up enough information to in real time offer the Contract to both the landlord and the tenant. Let them decide if they, if it makes sense in their transaction.

Basically, the cost is a little bit more than 10% of the amount of the. I keep wanting to say insurance.

It's definitely not insurance.

What do you call it? The amount of the contract?

Okay, yeah, it's a guarantee contract.

Okay. Right. In order to get this money, say the tenant just leaves and breaks the lease early or they damage the property. I mean, what's covered? Is it damages to the property above and beyond the security deposit or is it breaking the lease or is it both? Or tell us that it's.

Anything that a court will grant would include legal fees, it would include property damage and lost rent.

This is what I find to be really discouraging. And since you've been in the collection business, you know, most landlords just don't pursue it. They don't litigate, you know, that breach. They just let it go. And they say things like, well, I had a bad experience. You can't get blood out of a turn up. You know, I've heard it so many times. It just sickens me that these landlords just don't hold tenants to their contracts. But that's just the reality of it. I mean, is that a way for you guys to not have to pay too many contracts? Sorry if I'm being a little confrontive, but I want to be healthy skepticism.

Yeah, no, I understand, but it's actually just the opposite. It helps them because they're going to have to sue to get possession. They're going to have to go to court to evict. And I agree with you, most of them don't want to pursue collection. They get a judgment, they get the tenant out and they let the judgment go. We have that issue. Issue. When we were, when I had Rent Recovery service convincing landlords that in fact you can collect it. But we're not asking them to collect anything. We're basically putting ourselves out there and saying we'll give you the money immediately following your successful eviction judgment. So get an eviction judgment is what you need. And you need to do that anyway to get them out, right?

Not always, but a lot of times.

Yeah, well, yeah, I mean, you're right. They do have to mitigate their damages in order to collect on the contract. In fact, that was a significant problem with one of our predecessors that didn't make it in this business because they didn't subrogate and they didn't force the claimant, the landlord, to get a judgment. There were a Lot of fraud claims because people were just, they were just claiming that there was a loss when there wasn't. There was no proof of claim. So we do need a judgment and in theory, pretty much every landlord is going to have to evict.

Okay, so let's, let's make sure all the listeners understand this. If you have a bad apple, which happens occasionally, but it really doesn't happen as much as people say it does. They like to talk about it. These people that don't invest in real estate like to talk about it like it happens all the time. It really is pretty rare. In fact, it took me a couple of decades after my very first property, my first property I had to evict. I was 20 years old. That was a bad experience. But after that I went many, many years, like about two decades, I think, without an eviction. It was a pretty amazing, really. Well, you know, I didn't own zillions of units either. So, you know, but you know, I had a, I don't know in there. I probably had several hundred tenants maybe over the years. You know, in that time there's two stages. Just let's make sure everybody understands this. When a tenant doesn't pay their rent, the first thing you do is you give them the three day notice to pay or quit, right? You can have a process server do that. You can do that from anywhere in the world. You don't need to be local, blah, blah, blah, that's easy. Or your property manager does this. If they don't move or they don't pay, you have to basically sue for eviction, which means you're suing for the right to retake possession of the property literally by force. The sheriff will come or the marshal will come and they all kick them out. They'll put their stuff on the curb and they'll be kicked out. This hardly ever happens because they usually move before then, obviously, but that's what you're doing. You're literally filing a lawsuit for possession of the property. Okay, but after that, and this is the part that most, and most times the tenants will just move and you won't have to go through with it, you know, but after that, then comes the money. You've got the possession of the property, but then comes the money. Are there damages to the property above the security deposit? Right. Is there back rent owed? Is there forward rent owed? Meaning did they break the lease? And you know, you're sitting with a property that's vacant for an extra month or two because you didn't release it Right away, they're potentially liable for all of that stuff. Do you want to add to that? No.

I mean, your description is right on. And the only thing I might want to add in terms of the frequency is and depends upon the economy and the geography, but just to sort of fine tune how frequently we do it. And the eviction courts are backed up. There are a lot of evictions, and they run anywhere from about 6 to as high as 9% in different areas currently. And when the economy falters, that number goes up. So there's a reasonable amount of landlords that do have to follow through unexpected.

Sure, sure.

Sounds like you had a lucky 20 years.

Yeah, yeah. Well, certainly I did. But I'll tell you something. The way to not have evictions is to do better tenant screening up front. So maybe you want to address that after this. But let's get through the. Where this contract comes in. I explained the two parts of the lawsuit. One is for possession, the other parts for the money. Usually I find landlords just throw up their hands and they don't bother chasing the money. You know, I just think this is crazy. This has to end. You get the judgment for the money and you hand it to a collection agency, that judgment's gonna last for 10 years. I believe everywhere now it's 10 years. I could be wrong. I'm not a lawyer. And you can renew them. At some point, that tenant, especially if that judgment gets on their credit report, is going to want to buy a house or a car. And that creditor may well say, look, before we can give you a loan or a lease for a car or a lease for another property, you got to satisfy this prior creditor. I mean, do you want to speak to that a little bit? I mean, you're in that business. You know a lot more about it than I do.

And your description is right on. Except, of course, that not everyone wants to wait 10 or 20 years for the length of a judgment. Plus renewal time. And lease guarantee allows you to get your money right away.

I know you're promoting lease guarantee. I got it. I'm fine with. No, no, no, I'm fine. I'm fine with that. But all I'm saying is, to get the lease guarantee, what judgment do you need to get? Only eviction or money judgment, at least in California.

Generally, they're one of the same. Now, it's not identical. They don't mirror each other, but they can be. They can be done concurrently. Since you're paying the attorney to show up in court and get an unlawful detainer action, which is a judgment for possession. You also concurrently get one for restitution, which means money. And so you get a money judgment concurrent with your eviction judgment. It doesn't cost. I think it costs pennies more. At least it used to be just 20 or $30 to get that additional judgment.

Right.

And I think it's similar throughout the country.

Yep.

So it's almost foolish. With or without lease guarantee, as you said, you're always better off with the money judgment if you're willing to wait out the time that's, you know, judgment's good for 10 years, renewable.

That's exactly.

Anyone who spends the effort to get an eviction. It doesn't make sense not to get a money judge.

I. It blows my mind the way landlords just don't bother. They just let them go. You got to stop doing this. Landlords don't let them go like that. You know, you got to look at.

I mean, as you know, I've been in this business for 30 years and middle landlord for 40, and I've been preaching exactly what you're saying all that time. It doesn't make sense to let them get away with it. It's like stealing your goods off the shelf.

If you were a shopkeeper. Yeah, yeah, they're shoplifting. If for no other reason than philosophically. Look at. Society collapses when people don't uphold their contracts. That's why we have courts. So you don't have to go be violent. You don't have to stick a gun in their face. You take them to court, and through the civil process, you force their hand to uphold their contract. And that's what you got to do. So when you get that money judgment, if that money judgment says $2,000 and you bought the $2,500 contract or the tenant bought it for you, then you just instantly pay that out, Right? Correct. Okay, okay. What else do you want people to know?

It works and it makes sense. It really is there to help both sides. I mean, I think that's, for me, is the key for an owner who has a vacancy, he's losing money. And, you know, even circling back to getting a judgment for a minute and what we were just talking about, it's more than just getting even. These landlords are not all rich people, and they have a mortgage to pay and taxes to pay and so on. And losing a month or two of income sometimes puts these landlords in foreclosure. So it's really less about getting even and chasing the bad guy and more about saving your own skin because they're in business to make money.

Absolutely. This will be continued on the next episode. Thank you for listening and happy investing. Thank you so much for listening. Listening. Please be sure to subscribe so that you don't miss any episodes. Be sure to check out the show's specific website and our general website, hartmanmedia.com for appropriate disclaimers and terms of service. Remember that guest opinions are their own, and if you require specific legal or tax advice or advice in any other specialized area, please consult an appropriate professional and we all very much appreciate you reviewing the show. Please go to itunes or Stitcher Radio or whatever platform you're using and write a review for the show. We would very much appreciate that. And be sure to make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.