What is Disparate Impact and How it affects Landlords and Managers
greboredo • December 18, 2019
Can you be discriminating against tenants not knowing it? Can you deny a tenant with a criminal record?
The Fair Housing Act does not specifically deny a landlord the right to reject an applicant based on a prior conviction; however, HUD has issued a statement saying a blanket policy to deny felons can have an impact on minority populations under “disparate impact.”
What is disparate impact? It’s an act of discrimination that may not harm a single individual under the Fair Housing Act but is deemed harmful to a minority group overall. According to HUD, some minority communities have a higher percentage of members convicted of a felony, and that makes blanket policies against all felons discriminatory under the Fair Housing Act.
“Unfortunately, it doesn’t matter if a rental policy purposely discriminates or not, however,” says Grant. “With HUD’s recommendations in hand, a law firm can file a lawsuit. And even if a property management company has done nothing wrong, it’s always expensive for a brokerage to defend itself in court.”
Things to consider when developing an in-house rental policy
Overall impact
Does the policy have a disparate impact – an action that may not discriminate against a specific applicant yet still impact a group protected under the Fair Housing Act? Is there a distinct impact on a group of people because of their race or national origin, for example? HUD recognizes that this is fact specific; however, it points to several Department of Justice statistics showing that blanket denials based on criminal history have a significant impact on African Americans and Hispanics.
Justified policy
A housing provider must show that its screening policy is justified, which HUD defines as “necessary to achieve a substantial, legitimate, nondiscriminatory interest.” The policy can’t be speculative or hypothetical, meaning evidence must exist that supports the screening policy. While protection of other residents’ safety and their property may be considered, the housing provider must prove, through “reliable evidence,” that the policy serves that purpose.
Alternatives
Is a less discriminatory alternative available? Examples will depend on the details of the applicant’s background. However, HUD mentioned the length of time that has passed since an applicant’s conviction, a good tenant rental history before or after the conviction, and the circumstances surrounding the criminal conduct.
Click here
to watch a video from Juana Watkins from Florida Realtors with more information on this subject
Share this post
What is it? A cost segregation study looks at the different parts of a rental property to see which ones can be depreciated faster. This can allow investors to take some deductions sooner instead of spreading them out over the standard 27.5 years. Who uses it? It’s mainly used by real estate investors and property owners who want to claim larger depreciation deductions sooner on their rental properties. A qualified tax professional or cost segregation specialist typically performs the study. Where does it apply? Cost segregation can be used on residential rental properties, including single-family rentals, although whether it makes financial sense depends on the property and the investor's tax situation. The IRS specifically provides guidance for cost segregation studies involving residential rental property. When should investors consider it? It is often considered when purchasing, constructing, or making significant improvements to a rental property. Investors can also look at existing properties, but the potential benefit depends on the property's cost, improvements, and tax circumstances. Why does it matter? The goal is to potentially move some depreciation deductions into earlier years, which can reduce taxable income sooner and potentially improve near-term cash flow. It doesn't create new value in the property, it changes when certain costs may be deducted for tax purposes. Investor Takeaway: A cost segregation study can be worth exploring for investors with higher-value rental properties or significant improvements, but the potential tax benefit varies from property to property. It is recommended to always work with a qualified tax professional to determine whether a study makes sense for your situation.
The body content of your post goes here. To edit this text, click on it and delete this default text and start typing your own or paste your own from a different source.
This is a subtitle for your new post
