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Friday, January 19, 2018

Interview with the Rental Late Fee Police Commissioner

“The lease is the lease.  If you don’t like it, don’t sign it.”

(RLFP Commissioner Hank Smith)

Moderator: I have the privilege of being here today with Hank Smith, the longtime rental late fee police commissioner.  He and his team at the Rental Late Fee Police (RLFP) are in charge of enforcing late fees on monthly rental payments.  Most standard leases dictate that rent is due on the first of each month and is considered late if not received by the fifth of the month; the late fee amount is usually 5% of the total rent due.  The RLFP makes sure that this late fee is enforced.  As you can imagine, his job doesn’t help him win any popularity contests…


So… Mr. Smith, or Hank…


Hank: Please refer to me as Commissioner… it’s a title I’ve certainly earned.


Moderator: Of course, Commissioner.  My apologies…


Hank: I’m never short on getting apologies, especially on the 6th of each month!


Moderator: OK… we’ll get right to it then.  Some people have called you and your policies “heartless” and “ruthless”.  How do you respond to that?


Hank: I have a heart and I don’t know any Ruth’s.  So, “no” and “yes” is how I’d respond to that.


Moderator: I think that they mean you are unfair and aren’t very nice about it.


Hank: Well, I’d certainly take issue with that!  The boys & gals at the RLFP are about as fair as it gets.  If your rent is paid by the 1st, you’ll never hear a peep from us.  Even if you wait until the 5th, there will be nary a word.  Now when the 6th rolls around, that’s why we’re employed, my friend.  We are called to spring into action.  Nobody likes giving a quarter to the librarian either. 


Moderator: I think part of the discontentment stems from the lack of grace on being 1 or 2 days past due and still incurring the whole late fee.


Hank: That’s the most ridiculous thing I’ve ever heard!  1 or 2 days late?   1 or 2 days late is actually 6 or 7 days late!  How many days do you want?  10?  15?  How about 30 days?  Or how about just paying whenever you feel like it?  People like you are what is wrong with this country!


Moderator: Easy, Commissioner…  As I’m sure you can empathize, don’t shoot the messenger. 


Hank: Fair enough.  Sorry about that…  I get a little fired up sometimes.  But, I mean, we’re already giving you a grace period of 5 days past the real due date of the 1st of the month; that’s 120 hours, 7,200 minutes, 432,000 seconds… No matter how you cut it, that’s a lot of grace!  You want more grace than that, then pray to Jesus- he’ll give you all you want!  But the RLFP will only give you 5 days- sorry.


Moderator: But sometimes the check gets lost in the mail and there are holidays to think of…


Hank: If you’re looking for me to defend the postal system, you’ll be waiting a long time.  But why even risk mailing a check?  There are so many other instant payment options out there- BillPay, direct debit, direct deposit, on-line payment, etc. I mean, if you’re hungry, you don’t need to wait for a chicken to show up on your front yard, just drive to Chick-Fil-A!


Moderator: Interesting analogy… But why do property managers and landlords want to get rich off of late fees?


Hank: Get rich?  Is that a joke?  Check out what kind of cars your property managers and the RLFP are driving versus what our other real estate brethren are driving (with no late fees, mind you).  You need a whole lotta late fees to add up to upgrade from a Corolla to a Mercedes.


Moderator: Then why charge late fees at all?


Hank: A. I don’t charge them- I’m just enforcing the lease.  B.  If there is no penalty for being late, then who knows when the cows will ever come home?  I mean, landlords need to make their mortgage payments at some point.  Very few of them are just stuffing the rent dollars into their pockets.


Moderator: Commissioner, thank you for your time.  Any last words for our audience?


Hank: Great!  I’m outta here… I can’t believe they make me do this PR stuff- what a load of hogwash… 


Moderator (interrupting): You’re still on the air, Hank…  Any last words?


Hank: Oh… Pay your rent on time & Happy Landlording!


Monday, December 4, 2017

Christmastime in Charlotte Real Estate: You May Be Sorta Rich

“Holy Moley!  I’m sorta rich!”

(Long-time Charlotte real estate investor)


I was surfing the Charlotte MLS doing some “research” this morning (aka wasting time looking at home values in neighborhoods I’ve worked in) and was truly amazed.  I can’t believe how much Charlotte properties have shot up in value in terms of both rental and sale prices! 


Here is some background on where I’m coming from.  I started working in Charlotte real estate in 2003 and saw a hot market until about midway through 2007 when the mortgage market (and our economy) was decimated.  This caused home and rental prices to drop until there was a market resurgence 5 years later in 2013.  Rental and sales prices have been on a consistent upwards trajectory since then. 


However, even before 2008, relatively inexpensive Charlotte investment opportunities were abundant.  What did you want?  “Starter homes” from $80-$120K were plentiful, but so were tons of homes in less desirable areas that could be had for $10K - $60K.   And then in a bad market from 2008-2012, really great deals were there for the taking if you had money and really good credit. 


When I look at the market now in 2017, all of the Starter homes have climbed to $150K+ and they all rent north of $1K.  The $10K - $60K home market is gone. When I searched for those houses in the MLS today, there were 6 available (the lowest being around $40K and all being sold “as-is”- likely meaning they need a lot of rehab).   There are only two (2!) rental homes under $900 available in Charlotte as of this writing.  So putting two and two together, these formerly valued homes of $10-$60K are probably now renting for over $900/month.  Hmmm…


For full disclosure, I am only using data from the Charlotte Multiple Listing Service (CMLS); I’m sure there are many houses that are for rent that do not list them on CMLS.  But the 7,000+ Realtors in Charlotte do list their properties on it, so it is a good (and regularly cited) source of information.  And the numbers I listed are for the City of Charlotte only and not the surrounding towns which would add some additional lower cost housing supply.


But still…


Only five years ago, I remember seeing several Charlotte houses in the $10K range; some of which were in the now hot “North End” district.  I had people wanting to sell some 2 BR/2 BA condos for $30K that were 5 minutes out of Uptown Charlotte.  I was “too savvy” of an investor to go for those deals!


Now you are a winner if you bought at those prices.  If you are holding them, you’ve got a nice equity build up and a great rental cash flow.  And if you sold them, you made a nice chunk of change.  Well done!


In conclusion, if you bought any real estate in Charlotte prior to 2013, you may want to take a fresh look at your portfolio.  You may be sorta rich.


Merry Christmas & Happy Landlording!

Wednesday, November 1, 2017

Like Dr. Bull, Sometimes the Best Property Management Looks Bad

I occasionally watch the television show, Bull.  Dr. Bull, played by Michael Weatherly (formerly the affable “Tony” from NCIS until he left to get his own show), is a “jury consultant” who helps his criminally-charged clients pick a jury who will be sensitive to their plights and vote “not guilty” when the time comes.  He and his talented team of specialists measure jurists’ reactions during the trial and change defense strategy based on their body language and other factors. 


Of course, like most TV shows, things always go from bad to worse in the first 45 minutes of the show.  “The client didn’t tell them he was romantically involved with the deceased!” or “Not only was she the CEO of the pharmaceutical company who would benefit the most from the stolen formula of the new cancer drug, she also happened to be the hired dog walker of the pup who had to have its irritated stomach operated on in which the stolen cancer pills were discovered!” (OK- that storyline hasn’t made the show yet…)  But Dr. Bull and his team are inevitably able to pull the strings in the last moment to get the favorable outcome we all hoped for, no matter the odds.  Bravo, Dr. Bull and associates!


But real life isn’t always so neat and uplifting.  I remember in 2008-2012 we had clients asking us to sell their homes that were saddled with loans that were 25% more than the market value of their houses.  So, much like Dr. Bull making magic for his clients… no, we actually couldn’t find anyone to buy them. 


But that’s just the part when things go from bad to worse- it’s like TV, right?  So we thought like Dr. Bull and came up with the silver bullet to just rent the unsellable houses out in the meantime.  Yeah!  That will work…. But the market rents (and our fee for management included) left the rental homes negative cash-flowing a few hundred dollars a month for our clients…


Well, this is the season cliff hanger, right?  Where things go from bad - to worse - to much worse - before the glorious ending?  This is how excitement builds, right?


So our next Dr. Bull-like epiphany is to hold the property for years while it negative cash flows.  So, not only are these clients losing a few hundred dollars a month, there are also losses due to repairs, maintenance, and vacancies.  And this goes on for years…


OK, this sounds like a downer, a depressing TV show that needs to be cancelled!


But, the funny thing is, I always felt like our best work happened back in those years when it could be argued that the results were the worst.  We were able to fund stable tenants in a tough job market and economy to keep income flowing in.  But it didn’t look pretty.


I haven’t seen any episodes of Bull where the good doctor gets a slam-shut life sentence case knocked down to only 20 years in prison for his client.  Or a 20-year sentence knocked down to 5 years.  That doesn’t sell.  But, if he wasn’t a fictional character, it might be some of the case work that he was most proud of.  There’s maybe some skill in taking really bad situations and turning them around slightly to make them better, albeit still imperfect.


It’s been on my mind as we’ve had some of the aforementioned underwater homes from almost a decade ago sell in the past few months.  These long term clients who mucked through some tough market times with us walked out of their closings with $50K-$75K checks in hand.  Not too shabby!


So maybe there is a  future Bull storyline here after all?


Happy Landlording!

Wednesday, October 4, 2017

Good or Bad Home Warranty Company: Who’s Taking the Call?

“My mom always said life was like a box of chocolates. You never know what you're gonna get.”

Forrest Gump

I like to play basketball at the local recreation center.  I often wind up with “Jim” on my team which I’m ambivalent about (and don’t ask Jim what he thinks about having me on his team…).  What I mean is that some days, having Jim on my team is a pleasure.  He’s a virtual scoring machine; he just doesn’t miss any shots! I feed him the ball and just watch him go to work.  We’ll call that “Good Jim”.


But then there is “Bad Jim”.  I’m not sure if he has a split personality, or if he and his wife have an “on again/off again” relationship, or what, but other days he just doesn’t have it.  He is disinterested, doesn’t play any defense, passes up easy shots, and turns the ball over constantly.  Frankly, it’s disheartening.  I feel like we are destined to lose when Bad Jim is on my team.


Do you want to know what reminds me of Jim?  Home warranty companies.  Some of our Charlotte property management clients utilize them to handle their repairs.


For the uninitiated, home warranty companies charge owners an annual fee (usually around $500) to handle any repairs.  So when tenants have an issue, we (or the tenants) call the home warranty company, pay a service call fee (usually $50 -$100), and they will send vendors to fix any major component or appliance issue in the home (including, if necessary, the replacement of them) that are due to normal wear and tear.  It doesn’t sound like a bad deal, especially for an older home.


But, like Jim, there is “Good Home Warranty Company” and “Bad Home Warranty Company”.


When Good Home Warranty Company is on, the vendor they put us in touch with gets back to us right away, schedules with the tenant, and takes care of the issue.  It can be a good experience (though it makes it difficult to establish any type of service record with a particular company as their vendors change often).


But when Bad Home Warranty Company shows up, it makes it really tough on the property management company and the tenants.  We recently had a refrigerator that took around 35 days to get fixed from the initial call(!) and an air conditioning issue that took a week to resolve (a long time to put up with excessive heat in the South during the summer!).  The problem is that the home warranty companies have a vendor list and they send you one that you have to work with (and some are not so reputable).  Sometimes these vendors call you back right away and other times they wait for days.  As a property manager, it’s tough to push vendors you don’t know and have no prior relationship with. 


Fortunately, 95%+ of our clients do not use home warranties.  It allows us to use our own vendors who we have worked with for years; we use them because all of them care whether our tenants have to spend the night without air conditioning or don’t have a working stove to cook with.  I think it’s important to have strong teammates who you know consistently have your customers’ best interests at heart.


Jim is a nice guy, but just not someone I like to have on my basketball squad because he’s too erratic; I never know if Good Jim or Bad Jim is going to show up at the gym.  I feel the same about using a home warranty company.  Not knowing whether Good Home Warranty Company or Bad Home Warranty Company is taking the call makes either of them difficult to rely on.


Happy Landlording!

Friday, September 8, 2017

Higher Rental Rates Could Be a Problem for Landlords?

It’s been a busy season for property management in Charlotte.  The market is hot, activity is high, and rental prices continue to escalate. 


So this sounds like good news in our arena!  Higher rents, bigger profits for landlords, and faster turn-around times to fill rental homes is the new normal.  Property managers are looking great!  Everyone is happy!


Well, maybe not everyone.  Tenants are seeing rents go up dramatically and they generally aren’t making much more money to offset the increase.  This is really making some of our traditional tenant screening criteria, like debt-to-available-credit and rent-to-income ratios, go off the charts of even marginal acceptability.  Truthfully (and this comes from screening a lot of applicants over the past few years), many of the applications didn’t have great ratios to begin with then.  But as rents have moved up, things have begun to look even worse.  Example:


Tenant makes $3,500/month.  Old rent was $900/month and the rent of the new house they want is $1,250.  Credit card debt is $8K out of $10K available.


For the rent to income ration:

$900/$3,500 = 26% (pretty good- we try to keep it around 25-33%)

$1,250/$3,500 = 36% (marginal)


But the real kicker is more of a common sense question.  If the prospective tenant isn’t living within their means with almost maxed-out credit cards with a $900/month rental rate, what happens when the rent goes up $350/month?


Some landlords might say, “So what?  I’ve got enough problems of my own.  Let them deal with it.”  But I’m reminded of a quote from the billionaire John Paul Getty:
"If you owe the bank $100, that's your problem. If you owe the bank $100 million, that's the bank's problem."
So if we slightly revise this for the Charlotte property management genre:
“If your tenant’s car breaks down, your tenant has a problem.  If your tenant is living paycheck-to-paycheck and has no cash reserves or available credit and his car breaks down and he can’t make rent, that’s the landlord’s problem.”


So what’s the answer?  Well, I actually have two for you, and you won’t like one of them.  In fact, I’ll put it second so you would read a little longer before abandoning this blog.


  1. Screen a lot of tenants and don’t compromise your standards.  However, this is easier said than done.  When your rental home is sitting empty and you already have done 20 showings that generated 10 applications and you haven’t accepted any, you’re tired because it’s a lot of work.  And by the way, expect angry phone calls and e-mails because prospective tenants DO NOT like being turned down.


  1. (Gulp) Price the rental house at the lower end of the market.  I know, I know- I’m hearing it already:


“But, Brett, that’s heresy!!  I’m here to make as much money as possible!  Do you understand how investments work?  I’ll give to charity on my own!  Top dollar or new property manager!”


That’s harsh.


We recently had a rental home where we ran through 7 relatively bad applications in a few weeks.  We were priced near the top of the rental rates in the area.  We lowered the rent $45.00 and received two great applications that were both easily approved.  Now they lovingly share the house together (kidding- we sadly had to turn one away).  Good tenants find good deals.


When I’m running comparables on rental properties, it seems like the large institutional investors always have filled their properties for the highest rental rate (by a good margin).  It’s seriously impressive and I almost feel like less of a man because I wouldn’t even attempt some of the rental rates they have asked for (and gotten!).


But, being that some of them are public companies, they had to release their occupancy and eviction rates to their investors.  They had a 25% eviction rate (1 out of every 4 tenants!).  That’s really high.  Evictions are expensive.  Their model works because they can spread these expenses over thousands of units at higher than market rents.  However, this wouldn’t work well economically (or emotionally) for the typical landlord who owns south of 5-10 units.  One eviction can really hurt.


Higher rental rates are limiting the “safer” tenant pool.  Screen wisely and (at least think about) keep the line at the rental rate.


Happy Landlording!

Wednesday, June 14, 2017

Golden State Warriors's Recipe for Property Management Excellence

The Golden State Warriors won the NBA Championship!  They displayed a level of dominance that the league had never seen in its history by winning 16 out of 17 games in the playoffs.  And in the only game the Warriors lost, the Cleveland Cavaliers had to set several offensive records to beat them.


How did they do it?


The easy answer is the players.  They certainly have great ones- Charlotte’s own Steph Curry, Kevin Durant, Klay Thompson, Draymond Green, etc.  With that amount of talent, it could be argued that they could win by managing themselves.  From a property management perspective, if you have great tenants who pay rent on-time without being asked and do their own repairs, it makes the job much easier!


But there is something to be said about the ownership group and management (including coaches) that make for a winning organization.  It is truly a top-to-bottom effort to become a champion.  Ownership and management need to be supportive of each other and have a common vision.   


Owners Supporting Management


The majority owners, Joseph Lacob and Peter Guber, treat their employees and players well.  When their head coach, Steve Kerr, had back problems the last 2 years (which caused him to miss half of last season and most of the playoffs this year) ownership showed unwavering support.  They put no timelines on his return; they just wanted him to come back when he was ready.  There was no coaching change controversy.  They believed Coach Kerr was the right man for the job and he’s brought them 2 NBA Championships in the last 3 years.


Property management can be viewed the same way.  Property managers work for home owners.  And sometimes property managers make mistakes.  We recently had a longer term tenant who we believe started running an illegal business out of the rental home; we don’t know why and exactly how it started.  However, instead of getting angry and blaming us, the owner offered support as we worked to get the tenant out of the home as quickly as possible. We do our best, but will inevitably fail at some aspect of management.  Having ownership support gives us the ability to do what needs to be done to right the ship and get back to a profitable equilibrium.


Owners Making Strategic Investments (aka Spending Money)


When the Warriors fell short in the NBA Finals last year, management felt they needed to improve the team; that meant spending and reallocating money on other players.  With complete ownership buy-in, management went and signed Kevin Durant to a $54M guaranteed 2-year contract in the offseason.  They were willing to spend money to potentially get better.  There was no guarantee that Durant would mesh with the existing players (who had already won a championship 2 years prior without him).  But they spent the money anyway.  And Durant wound up winning the NBA Finals MVP!


Property management is no different.  No one likes to spend money; I certainly don’t enjoy spending money on my personal rentals.  But strategic investments are necessary to maintain and improve rental properties to keep them competitive against other rentals.  When property managers make recommendations to spend owner funds, it is difficult to win when there is constant owner pushback.  I guarantee Golden State ownership had financial questions about investing in Kevin Durant, and that is understandable!  But no organizations can succeed in the long haul by practicing persistent parsimony (how’s that for alliteration!).  And, really, it is much easier to not recommend needed maintenance and upgrades.  The Warriors only missed winning the NBA Championship last year by losing Game 7 (so close- and they were even up 3-1 before eventually losing)- but everyone in San Francisco is ecstatic now that the organization didn’t rest on its laurels and aggressively pursued Durant.


The Golden State Warriors and successful property managers share a common recipe for consistent excellence- owners and management working together to make smart decisions for the long haul. 


Happy Landlording!


Brett Furniss is a property manager at BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords & Home of $100 Flat Fee Property Management.   BDF Realty utilizes their innovative Pod System for exceptional customer service in residential property management, home repairs, and home sales for single-family homes, Uptown condos, and town homes in the Charlotte-Metro Area.  Contact Us Today!

Wednesday, May 10, 2017

Rental Home Marketing: Kim Kardashian or Jennifer Lawrence?

“There are pitfalls, lack of privacy, loss of privacy, and that’s not for everyone. For me, I can handle it.” Kim Kardashian (60 Minutes, October 2016)

“I teeter on seeming ungrateful when I talk about this, but I’m kind of going through a meltdown about it lately. All of a sudden the entire world feels entitled to know everything about me, including what I’m doing on my weekends when I’m spending time with my nephew. And I don’t have the right to say, ‘I’m with my family.’ … If I were just your average 23-year-old girl, and I called the police to say that there were strange men sleeping on my lawn and following me to Starbucks, they would leap into action. But because I am a famous person, well, sorry, ma’am, there’s nothing we can do. It makes no sense … I am just not OK with it. It’s as simple as that. I am just a normal girl and a human being, and I haven’t been in this long enough to feel like this is my new normal. I’m not going to find peace with it.” Jennifer Lawrence (Vogue, September 2013)

So, fame is a  mixed bag.  So many people work to be rich and well-known, and then realize they just want to be residential property managers (OK- not true- but it sounds like Jennifer Lawrence may potentially be convincible if we were able to get her at her lowest point).

But who cares about us?  What about our rental properties?  Should they be like Kim Kardashian, “handling” (if “handling” and “relishing” now mean the same thing) the pressure of being well-known?  Or like Jennifer Lawrence, shunning the spotlight?

In Kim’s world, our property manager is a marketing dynamo!  The rental property is on every website imaginable!  We see people using our marketing ad as a screen saver.  The magazine racks at the grocery store have publications with our property in there!  #502THEMainStreetCharlotte is trending and its master bath has its own Twitter handle!  Strangers are liking our home on Facebook and we’re getting rental inquiries from abroad!  Strange men are following our employees to Starbucks to get the inside scoop (“It even has dual vanities???  Crown molding!  I couldn’t even tell from the revealing Instagram photos!”)!  The management office looks like it is having a telethon. 

In the J Law (as the insiders refer to her as) world, the rental property would be left alone and no one would even know it was available..  “Shhh… it’s a pocket listing, I think.”  The only way to find it is to do an exact address search on (and if you mess up on spelling or spacing, you’re probably out of luck…).  Digital tumbleweed blows through your rental ad’s corridors.

So the Kardashian marketing method, though unnecessarily audacious, is probably the best plan to get a good renter quickly.  But what about if your rental marketing is producing the privacy J Law craves and is your new normal?

Try these things:

  1. Google “rental homes in your town” and post the rental ad on the top 3 websites that allow you to do so.
  2. Get the property on the local MLS that Realtors use
  3. Put a sign up in the yard
  4. Post the rental to your social media accounts

Here’s a bonus: make sure your property maps correctly on MapQuest and Google Maps.  We’ve occasionally run into some J Law results in our marketing, and upon some research, realized that the mapping companies had the rental property showing up on an ISIS air field (OK- not really- but you get the point).

“There’s only one thing in the world worse than being talked about, and that is not being talked about.” Oscar Wilde

Keep up with the Kardashians and Happy Landlording!