This is another AMA episode. Anders from Ottawa asks.

You can now report rent payments and non-payment to the Landlord Credit Bureau and this will be reported on the tenants Equifax credit report.
It sounds like a great incentive for tenants to pay rent on time.
Do you see any drawbacks for landlords except the cost ($19.95/month) and some administration?

The landlord credit bureau is a concept that was founded in Canada back in 2012 by a retired Royal Canadian Mounted Police officer who specialized in fraud prevention and a retired corporate lawyer turned technology entrepreneur. Both men were frustrated by their own experiences as landlords, LCB shines a spotlight on good and bad tenant behavior.

Over time, the LCB has established a relationship with Equifax, one of the credit reporting agencies in order to have rental history become part of the overall credit report.

The LCB suffers from a couple of problems in my opinion. The grand vision for LCB is a good one. The question is how to get from the startup phase to broad market adoption. Eight years since inception, the program is still in startup phase. In order for it to be useful for landlords, the landlord credit bureau needs wide-spread adoption.

I could say the same thing about a number of new technology initiatives that suffer from being below critical mass. If 1% of tenants are members, then chances are high that when I get a vacancy in an apartment, the new prospective tenants won’t be in the system. Facebook by itself has no value. The biggest part of its value is based on the fact that it has 2.7B users. If the Facebook software existed in its current mature form with all kinds of features, but it had no adoption, it would be worthless.

Think about other platforms that have achieved wide adoption. Think about Youtube, or Facebook. Both these platforms went several years with a free service in order to maximize market penetration before figuring out how to monetize the offering.

If I’m a landlord, and I have a good tenant, I’m not going to pay $20 a month out of pocket to report on my good tenant. The value proposition for landlords having good existing tenant relationships is simply not there. The landlord credit bureau might be useful to me in 10 or 20 years time when enough people have adopted it that I get some real value from being a member. I’m not going to be a member for 20 years hoping that someday it might be useful. If I’m a large landlord with hundreds or thousands of units, maybe I will get more value. But the pricing goes up if you have more units in your portfolio.

The concept is good, but the problem is in their business model. In my opinion, they should find another way to monetize the offering that eliminates the membership barrier.

Think about it this way. If I have a vacancy as a landlord, I’m going to be thinking about solving that problem. I have two problems in fact.

1) When am I going to get a tenant?

2) Am I going to get a good tenant or a problem tenant?

At that moment, I’m probably willing to spend money to solve that problem. I might be willing to spend $200 for a package of credit searches during that 30 or 60 day period of vacancy. But I might not be willing to spend $20 a month for the possibility that someday down the road I might get some intangible benefit.

It’s the difference between vitamins and pain medication. When a landlord has the problem, they’re more likely to spend money to solve the problem. If they don’t have the problem, they probably won’t spend the money on the vitamins that have an uncertain benefit down the road.

The landlord credit bureau is a business, and I fully respect that they need to make money to survive. . My personal opinion is that they need to refine the business model to better connect with a value proposition that both landlords and tenants will find compelling.