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Thursday, July 5, 2018

New York City Living & Landlording: Count the Cost




“Suppose one of you wants to build a tower.  Won’t you first sit down and count the cost to see if you have enough money to complete it?”

Jesus Christ (Luke 14:28)

 

Shortly after I graduated college, I moved to New York City (NYC- aka the “Big Apple”).   “If I could make it there, I could make it anywhere.”  Wow!  It was definitely an experience.

 

Honestly, I was a little scared.  All the television shows and movies that had criminals crushing the common folk were in NYC.  I grew up in NJ, but my parents really never took me into the big city so I wasn’t sure what to expect.   The mafia and gangs could just be waiting for fresh meat to show up so they could take my lunch money every day.  Who knew?

 

Fortunately, my physical safety was never really threatened.  My issues were more on the economic side.  I wasn’t making much money; I was in a sales job and wasn’t selling anything.  My manager nicknamed me “rowboat”… because I had no sales (get it?).  The lack of cash inflow was tough.

 

And the cash outflow required was excruciating.  It was the $3.50 for a small apple at the corner bodega.  Then buying a round of 5 drinks after work that ran $90.00 (without tip).  I used to joke that it cost me $20.00 to cross the street.  Geez, it was an expensive place to live!

 

Good deals were hard to come by.  And breakfast at the food cart on the corner of my street was one of them.  $2.00 got you a large coffee (with milk and sugar) and a huge cinnamon raisin bagel with butter.  It was my go-to meal every morning that I’d take on the subway into work.

 

One morning, there was a couple in front of me in line at the food cart.  I could make out parts of their conversation; it was apparent that they were visiting from the Midwest somewhere.  When the man was placing his order I could see him getting agitated.  Then he said something that I’ll never forget:

 

“$1.00 for a cup of coffee???  I’ve NEVER paid $1.00 for a cup of coffee in my life!”

 

That’s when I knew that he was going to absolutely hate this trip to the big city.  I almost felt obligated to get him in a cab (and pay for it) so he could immediately return back home.  If $1.00 for a cup of Joe was cause for righteous price indignation, he was due for a heart attack later that day. 

 

He did not count the cost of what visiting New York City was going to do to him.

 

Unfortunately, the same can be said of being a Charlotte landlord. 

 

The investment real estate gurus preach that you will be a millionaire through rental homes!  Buy as many properties as you can!  This is the way that you build residual income that will last a lifetime for you and your children’s children!

 

They just don’t tell you that it is a cash-poor business.  All of the above can be true, but the trick is the ability to stay solvent for year upon year as things break and wear out.  All the financial models go out the window when a messy eviction happens or your HVAC unit needs to be replaced (just happened to me this month- the dreaded $5K phone call…). 

 

Carpet will not last forever and will need to be replaced.  The entire house will need to be repainted at some point.  Appliances only last so long. The roof too…

 

Long term real estate investment can be a wonderful, profitable endeavor (you’ll love your net worth!), but don’t let anyone fool you- it can and will cost you money.  So before diving in too far, count the cost.  A few miserable days in NYC can be remedied with an early flight home to your 25 cent coffee vendor.  Several broken-down rental homes saddled with mortgages in a buyer’s market is a little tougher to navigate out of.

 

Happy Landlording!

Tuesday, June 5, 2018

$2.88M Baseball Cards & Rents: Prices Too High?

 


“’It’s no good, it’s no good!’ says the buyer- then he goes off and boasts about the purchase.” (Proverbs 20:14)

 

The ex-NFL football player, Evan Mathis, made headlines earlier this year when he sold his mint condition, 1952 Mickey Mantle baseball card for $2.88M.  $2.88M!  That’s $2,880,000.00 for a small piece of cardboard for those scoring at home.  It seems to be a lot of money for something that doesn’t love you back, you can’t live in or drive, and really shouldn’t eat.

 

When I collected baseball cards as a kid, I would have died to have a card like that.  I thought I was going to make it big with my 1986 Topps Dwight Gooden card (even though the 1984 was the one to have), 1986 Donruss Jose Canseco “Rated Rookie” card, and the 1988 Kevin Seitzer Fleer rookie card.  Alas, my dreams of million dollar baseball cards were undone by mass production, drugs, steroids, and fading play.  The value of even my best baseball cards for consistent players on the straight and narrow are worth very little now, even 30 years later.

 

But somehow Evan Mathis got someone to pay him $2.88M for one of his.  Wow!

 

As a Charlotte property manager, I’ve been seeing a real estate version of this play out in the past couple of years.  Rents have been going up steadily almost everywhere which has skewed the old values of what particular houses in different areas would rent for. 

 

For example, we had a rental house that rented in the $800 range in a non-desirable area last year.  A new owner took over the property, did some improvements, and wanted to rent it in the $1,300 range.

 

We talked about it and the conversation went something like this:

 

Owner: How about renting it at $1,350 a month?  As the expert, what do you think?

 

Me (expertly replying and wearing my glasses): The data I just pulled up would not support that price.  It looks like a much larger house rented for $1,150.  There has never been a house in that area that rented that high…

 

Owner: Hmmm… well list it at $1,350 anyway.

 

Me (expertly): Okay.

 

Ultimately, the house rented for $1,350 and was on the market less than a week.  So much for the “expert” opinion…

 

In hot markets, it’s really tough to gauge how much properties will actually rent for.  Beauty is in the eye of the beholder and it gets exacerbated by perceived scarcity. 

 

Years ago, I made the decision to adopt the rental pricing policy of “I recommend, but the owner can ultimately pick the listing price.”  I go off of data and will typically recommend what I feel the existing market pricing will allow.  However, that’s not always right.

 

Evan Mathis could have heard that expecting to get $3M for his 1952 piece of cardboard with Mickey Mantle’s photo on it was lunacy.  But someone, somewhere is bragging about buying it.  And he’s bragging as well! 

 

Happy Landlording!

Thursday, April 26, 2018

Sorry, Draymond- Landlords are Looking for Cool Lovers, Not Fighters





“Blessed are the peacemakers, for they will be called sons of God.”

(Matthew 5:9)

 

Draymond Green is a great basketball player.  There is no denying that.  He is a vital cog to the Golden State Warriors and instrumental in them wining two of the last three NBA Championships. 

 

His professional accomplishments are many:

3-Time NBA All Star

2-Time NBA Champion

Defensive Player of the Year

All-NBA Team Member

USA Basketball Selection

 

But he also has this statistic line: 11, 13, 15, & 15.  Those are the number of technical fouls he has received in the past 4 years which puts him among the league leaders.  He‘s a fighter who is prone to argue with officials and other players, often to the detriment of his team.

 

With Draymond and his enormous talent, you take the good with the bad.  If he was an average player, he’d probably be out of the NBA for his conduct.  But that’s why his coach, Steve Kerr, gets paid $5M/year to channel his “passion” into the confines of a winning basketball team.

 

Property managers, most who are making well south of $5M/year, also need to make sure they have a “good team” of tenants in the properties they manage.  This starts with screening tenants and picking the ones who will pay their rent on time, maintain the property, and get along with their neighbors. 

 

To help determine this, one of the main screening criteria is culling information from past landlords.  We sometimes hear some version of this from prospective tenants:

 

“I gotta be honest- if you call my past landlord, Bernie, he’s not going to have nice things to say.  And there’s a simple explanation for that- Bernie is a complete jerk!  What a loser.  I was the best tenant he ever could hope to have- I mean I fixed the kitchen faucet without even asking for anything from him; of course, I got no love from him.  He was just impossible to deal with!”

 

So, I’m guessing, the tenant is hoping I’m hearing:

 

  1. Bernie is not cool.  However, the prospective tenant is cool.  And it’s tough for cool people to get along with uncool people.  If I’m cool, I understand.  And I, of course, am really cool, so I understand.
  2. The tenant can fix a faucet without us sending a plumber
  3. I am a much better landlord and person than Bernie so I can be confided in
  4. If the tenant fixes the faucet (or some other repair on his own), show him love.  It’s what cool people do and will make it possible for him to deal with me.

 

However, what I’m hearing:

 

“I didn’t get along with my past landlord.  I blame him for that and have no problem badmouthing him to strangers to further my own ends.”

 

By contrast, this is what a lot of prospective landlords say about tenants when we contact them:

 

“Jim and Jane are such a great couple!  They always paid their rent on time, took care of repairs on their own, and were such a pleasure to deal with.  I’m so sorry they are leaving!  Great tenants!”

 

Jim and Jane sound very cool to me.  They seem to value a peaceful relationship with their landlord.

 

Draymond Green is one of the fifteen most talented basketball players in the world so he can get away with not getting along, at least right now.  However, there are 60 people moving to Charlotte every day looking for rental homes, so they are not as rare.

 

At the end of the day, property managers are looking for cool lovers, not fighters, for their rental homes.  Settling for someone like Draymond is just not usually necessary.

 

Happy Landlording!

Thursday, March 22, 2018

Landlords & Lease Renewals: Don’t be Like Spectrum!




First of all, this is not a blog of a Spectrum (formerly Time Warner Cable) hater.  I actually don’t have strong feelings either way about them.  I was a user of their internet and basic cable and was relatively happy.  The service worked decently and the price was reasonable.  I put my bill on auto-pay and lived my life.
 
Then about 6 months ago, I saw a change in my $20.00 basic cable bill (aka the cheapest plan where I get about 10 channels).  They started billing me $4.00/digital adapter (I have 2) for some cable boxes they made mandatory for me to use a year or two ago.  While $8.00 isn’t life-changing, I brushed up on my middle school math and computed it was a 40% increase.  That’s substantial in percentage terms.
 
Still, changing services is a pain.  I could eat a 40% increase ($8 is still $8, no matter how alarmingly you dress it up).  I was not pushing the panic button (thank you, hot Charlotte real estate market). 
 
But when that happened, I actually started looking at my Spectrum bill each month.  A few months later in the “Spectrum News” section on the front page of it (I didn’t previously know there was a “news” section I could be enjoying each month!), I see the following verbatim:
 
Your current promotion is ending, but your savings will continue.  As a valued customer, we have automatically extended your preferred rate.
 
(good so far…)
 
Important Billing Update:
Effective for your next billing statement, pricing will be adjusted for:
-          Starter TV Service from $20.00 to $23.89
-          Broadcast TV Surcharge from $7.50 to $8.85.  This reflects costs incurred from local Broadcast TV stations.
-          Digital Adapters from $4.00 to $4.99
 
Not good.
 
We’re up roughly another $4.00 on 10-channel TV, not to mention another $5.00 for internet service (not previously affected).  I don’t even need to do the percentage math anymore.  We’re above a 50% increase in less than 6 months on my lame cable TV plan.
 
Now, on general principle, I’m trying to leave Spectrum cable TV service due to a large increase which appears to be largely meritless.  So I fish out some $10-$20 antennas I bought from Amazon a year or two ago and see if I can make them work.  Viola!  They work like a charm after I put in a little more effort in this go-round.
 
I call Spectrum and cancel my starter cable TV service.  I won’t lie; it feels good.  Injustice was made right!  Then they tell me that my internet service is not only going up $5.00 next month, but because it’s not bundled with TV anymore, it is going up another $20.00.  Touché Spectrum!  I have to have internet service, so they may have won this battle.  But I am not a Spectrum cable TV customer any longer.
 
Unfortunately, now my resolve to rid myself of Spectrum in its entirety has built.  I wrack my brain for a solution.  Wait!  Who was digging up my front lawn 6 months ago to my son’s delight?  Google Fiber! They’re boasting $50/month internet service! So my dream of a “Spectrumless” home may become a reality next week.
 
But… my true thoughts on my mini-“SpectrumGate” are how sad and unnecessary it was.  I was fine being a Spectrum customer.  I paid my bill every month, they collected the money, and everyone was happy.  It just seemed to me that they got greedy were trying to stick it to me.
 
To be fair, I don’t know Spectrum’s economics.  They may be losing money on customers like me and it’s better for them to lose me than to keep me at a lower monthly fee.  Fair enough.  That’s business.
 
The purpose of this story is I see landlords use similar tactics on tenants during lease renewals.  The tenants pay their rent on time every month and take care of minor repairs on the rental home.  But when their lease is up, the landlords try to stick the tenants with a 10%+ increase and additional fees.  The tenants feel betrayed and don’t renew their leases on principle.  Both parties lose.
 
We’re in a rising real estate market, I get it.  But the grass isn’t always greener on the other side.  New tenants don’t always pay the rent on time and take care of the home.  Plus the fix-up and other vacancy costs could more than devour any surplus a higher rental rate from a new tenant might offer.
 
If you have good tenants and are making money, keep any rent increases between lease renewals within reason.  There is no reason to endanger the money flow.  Most tenants understand that landlord costs go up a little bit every year too.
 
However, if you are losing money and need to stop the bleeding, I get that too.  A rising market could finally bring a new tenant to get bring positive monthly cash flow back into play.  Business is business.
 
Happy Landlording!

Monday, February 26, 2018

Why You May Want to Reject Cam Newton as Your Next Rental Tenant




"I could be wrong on him (Lamar Jackson), and I hope I am. I hope he succeeds as a quarterback. But I also go back to, if he's going to miss, why is he going to miss. You don't make a living as a quarterback running in the National Football League," Polian said. "Cam [Newton] is the exception. You try to take exceptions and say they're the rule: they're not. Bill Parcells taught me that a long time ago. Parcells often said, if you have one or two exceptions on your team, you'll end up with a team full of exceptions. You can't make a living with those guys. You get one every now and then but it's hard to do it."

(Former Indianapolis Colts General Manager Bill Polian on ex-Louisville quarterback and current 2018 NFL draft prospect, Lamar Jackson)

 

Predicting the success rate of college football players coming into the National Football League is hard.  It’s so hard, in fact, that talent evaluators who do this for a living at the highest level are frequently wrong; and they don’t get fired because everyone expects them to be wrong!  The key in their profession is to be right more often than they are wrong, especially on the most important and expensive positions, like quarterback. 

 

Bill Polian, quoted above recently, is in the NFL Hall of Fame largely because he evaluated talent better than his peers.  He makes the point that Lamar Jackson is extremely talented; he won the Heisman Trophy 2 years ago as the best player in college football!  But much of his productivity was based on his electric running of the football.  His passing, however, is not overly accurate and great accuracy is typically what makes quarterbacks successful in the NFL.

 

Now the Carolina Panthers quarterback, Cam Newton, is an exception.  He is an awesome quarterback (2015 NFL MVP- go Panthers!) but is not an overly accurate passer.  But his ability to run is what gives him the edge over other more accurate quarterbacks. 

 

Polian just doesn’t believe that exceptions are a solid way to build a football team. 

 

I believe it is the same way with rental tenants.  We screen prospective tenants on credit scores, criminal background, income, and past landlord reports.  Sometimes tenants have some poor results in one or more of these areas.  This can be understandable; sometimes bad things happen to normally reliable people and an argument can be made that they shouldn’t be unacceptable to landlords based on an unfortunate life occurrence (job loss, illness, divorce, etc.).

 

However, should a prior eviction or bankruptcy be ignored?  How about bad credit or a non-positive landlord report?  Isn’t it possible that the prospective tenant is an exception and will actually be a great tenant going forward?

 

Yes, it is possible.  And we’ve had many tenants who fit this mold over the years.

 

But it is also true that the tenants we’ve had that had great credit scores and landlord reports almost always are great tenants for us.  And the ones that we’ve had issues with seem to have had some areas that they were less than stellar in when we’ve ran their applications.

 

Property management can be really easy when the houses are filled with great tenants who care for the homes and pay their rent on time.  Conversely, it can be really difficult when they don’t.

 

Cam Newton is an exception that worked out well for the Panthers (and hopefully Lamar Jackson will be one too in the NFL).  But counting on exceptions to work out well to fill the entire team is a tall bill (so says another Hall-of-Famer, Coach Bill Parcells).

 

Be careful on how many exceptions are approved as tenants in your rental homes.  Cam worked out well, but no one was positive he would when he first got drafted.  We all want to give exceptions the benefit of the doubt, but it is a far riskier play than sticking with safer, traditional candidates.

 

Happy Landlording!

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!