How Much Do You Know About Thanksgiving? And Your Rental Home?

My 9-year old daughter, Emme, decided she wanted to have a family “Thanksgiving Trivia” game this year.  She dutifully came up with some questions about the holiday that we’ve celebrated every year.  Just through osmosis, I figured that the adults would know most of the answers.  How hard could it be?  I pictured Pilgrims eating turkey and corn with the natives while celebrating the bountiful harvest together with some boats in the background.  That’s at least the sanitized version of events I thought we’d cover.  And it would be multiple choice!  How hard could it be?

 

Well, she didn’t take it easy on us.  Some actual questions:

 

1. How many women were the first Thanksgiving? (5, 7, or 10?)
2. How long did the first Thanksgiving last? (3, 5, or 7 days?)
3. How long was the Mayflower’s voyage from England to America? (66, 77, or 81 days?)
4. How many countries celebrate Thanksgiving?  (11, 16, or 20?)

 

As each person filled out their trivia sheets, it became apparent that we didn’t know Thanksgiving quite as well as we may have thought.  Our ancestors would not have been very proud!

 

It made me think of how well we really know our rental homes.  Sure, we may know how many bedrooms and bathrooms they have.  The advanced landlords may know how many square feet and how large of a lot it has off of the top of their heads.  But what about the aspects that would really make people interested in it?

 

One of the key aspects of marketing is differentiation.  Why would a potential renter pick one 3 bedroom / 2 bathroom house with a .25 acre lot over another with the same features?  Most of the rental homes in Charlotte were built in subdivisions that offer a large degree of uniformity.  Why would one cookie-cutter home be more desirable than another cookie-cutter home? 

 

Price and availability are certainly two differentiators.  If one home is on the market for $2,000/month and one that is close to the same is $1,800/month, the $1,800/month house obviously presents better.  Or if there is only one house available in a desired subdivision, that would also work well- one can only take what they can get!

 

But if there are five rental houses in a subdivision that are available and priced similarly, what would make one stand out?

 

As a Charlotte property manager, one of the questions we ask our new clients is what made them buy their house in the first place.  What were the special characteristics that made them want their house over all the others that were available?  Some have some great insights on why and that really helps in marketing; usually they had lived in it at some point.  Others don’t know.

 

For those that don’t know, that’s okay.  But as the people who are responsible for positioning their home in the marketplace, we need to come up with this differentiation.  What’s special about this rental home that we want potential renters to focus on that other rental homes don’t have?  “This home’s large, manicured backyard boasts a built-in, outdoor gas BBQ and covered back patio making it perfect for outdoor gatherings with friends!” is an example.

 

This also plays into what type of home renovations to do between renters.  Do we want to focus repair dollars on the making the kitchen really nice so we can use something the effect of “Enjoy the smell of simmering cocoa on the new stainless steel stove while leaning against the new granite countertops in your spacious gourmet kitchen!”  I remember picking a hotel to stay at in the mountains during one winter that highlighted the “recently renovated bathroom with heated bathroom floors” as its point of marketing emphasis.  It sold me on an otherwise non-descript room.

 

To consistently succeed in a crowded rental market, smart landlords will know their rental home well enough so they can highlight point(s) of differentiation to entice prospective tenants.  It’s tough to win the Thanksgiving trivia contest by only knowing the basics of the holiday!

 

By the way, the correct answers to the trivia questions above are respectively: 5, 3, 66, & 11.

 

I hope you had a great Thanksgiving & Happy Landlording!

High-Tech Taco Joints & Missing Landlord Reports: Do People Matter?

 

I went to a newly-opened Mexican restaurant the other day to meet a friend for lunch.  When we entered, I was expecting a nice hostess to say “hello”, take us to our table, and hand us some menus.  Instead, we were greeted with some imposing automated ordering machines.  I looked at my friend and asked him if he knew what to do.  He shook his head “no” and then stepped forward to start pecking at the screen.

 

Meanwhile, a manager saw these inquisitive middle-aged men jabbing their fingers into the machine and saw that we may need assistance.  She dutifully came over and began to give us a tutorial on how one would go about ordering.  I told her we had never been there before and wanted to know what she would recommend.  She looked at me quizzically and seemed to recommend that I get with the program and push the screen enough times properly to actually order something.  Fair enough.

 

The prices seemed pretty high for standard taco fare (couldn’t I buy 3-4 large pizzas for this?), but we were past that point.  The machine already had a nice tip in mind for me, automatically applied it to the bill, and was prompting me to just tap a credit card and get moving.  As my card registered with a beep, I was prompted to enter my cell phone number.  When I complied, a text message buzzed with the order number (telling me to pick up a table marker with the corresponding number), my receipt, and a link to sign-up for some restaurant points system.

 

The manager brought us our drinks and told us our food would be out shortly.  One minute later, the tacos were on the table.  We ate.  The manager came back out and asked us how the food was.  I told her it was fine.  She then made a heartfelt plea for a 5-star Google review.  I was non-committal, but she showed me how easy it was to access the review page by asking for my phone and pressing a card with a Google logo against it.  Nothing happened.  Once she discovered that I was an unenlightened Android phone user, she gave up and told me to visit their website when I had time.

 

For a tech person, this restaurant may have been nirvana.  It took the people component largely out of the restaurant experience.  For me, it was a sure sign of the downfall of western civilization.  These types of restaurants are not my thing.

 

I guess I should have done my own investigation and saw what this new place was about before I went.  It had a non-corporate name, but my friend told me they had locations all over the place in other states.  He had asked around and done his homework!

 

To the real estate front… this situation made me think about how few landlord reports we get asked for nowadays when our tenants vacate.  We used to regularly get other landlords contacting us to ask to see what type of tenants they were for us; there was an importance to it!  Like homework, it wasn’t something that anyone really liked to do- it takes effort to pick up the phone, track down the past landlords, send the required information consent forms, get the questions answered, and look into housing gaps in a landlord history.  But, to me, it might be the most valuable tool we have to assess incoming tenant quality and identify red flags.  Past landlords will largely tell you how it is.

 

Like the restaurant business, property management has always been a people business.  If tenant assessment is only done on a spreadsheet level, important (re: costly!) things can be missed.  Asking around and digging in further than a credit score and criminal report can pay big dividends.  Upfront effort can lead to the long-term benefits of finding a great tenant for a smooth tenancy. 

 

High-tech taco joints and algorithm property management can sound good on paper.  But smart landlords (and restaurant owners) know that old-fashioned, low-tech people interactions can prove to be the most vital component of repeat business and successful leases.

 

Happy Landlording!

Prince Rents Out an NBA Player’s Home: Worry or Opportunity?

 

Being in the industry, high-end home rental stories are interesting to me.  I read a good one from former NBA player, Carlos Boozer, who wrote about the time he rented out his house to the famous singer, Prince, of Purple Rain fame.

 

Boozer had recently bought an 18,000 square foot, 10 bedroom/13 bathroom house in Bel-Air, California.  Apparently it had once been owned by the president of Interscope Records (this wasn’t Uncle Phil’s house…) and was pretty gaudy.  But he wasn’t going to realistically live there any time soon; he played for the Utah Jazz so he had a house in Salt Lake City during the basketball season.  It was going to sit vacant for a while.

 

His real estate agent got a call from a party inquiring about renting it.  He wasn’t interested at all; he just paid to decorate it and hadn’t even lived there yet!  But the interested party was adamant and then he threw out what he would pay- $75K/month for 8 months- that’s $500K+ in rent for less than a year.  Boozer was sold.  He flew out to meet the new tenant who happened to be Prince.  Prince was convinced he needed to write his new album in this house because it inspired him.  Boozer handed him the keys and went back to Utah.

 

A few months later, Boozer was back in the Los Angeles area on business and stopped by the house.  His mouth dropped when he went inside.  The entire house had been remodeled, repurposed, and redecorated.  Purple was everywhere.  The carpet was replaced with a different color.  The couches were different.  A bedroom was made into a hair salon (how did they run water into there???).  The weight room was a dance club.  It was crazy!  There were a ridiculous amount of lease violations.  He called the tenant immediately.

 

Prince would not take or return his calls.  Boozer didn’t know what to do.  All the advice he got was to file a lawsuit against Prince to protect himself.  He had been ignored for two months and he could barely recognize his mansion anymore.  His biggest fears had been realized; a great opportunity had turned into a nightmare.

 

As a Charlotte property manager, we get the opportunity to manage high-end rentals on occasion (though the numbers are much, much lower than Bel-Air!).  One of our main jobs in these instances is to lower the owner’s risk as much as possible.  That really boils down to two main things:

 

1. Screen the tenants thoroughly.  A good tenant can leave the house looking better than when they took it over.  A bad tenant can cause much more damage than the rent intake due to the sheer cost of a larger, more opulent residence.
2. Make sure the rent is high enough to exceed the risk.  The good news for very high-end rentals is that there is a limited number of them on the market typically.  This allows for a certain degree of pricing power.  And there is only a certain subset of people who are willing or able to take on a large rental payment; if they like the rental home, the price is not usually the primary reason they would pass on it.

 

I’m not sure what I would have done in landlord Boozer’s shoes.  I really hope we would be able to settle it outside of the courts like Boozer stated he wanted to do.

 

As a postscript, Prince eventually returned his calls.  He was in Asia on his world tour and wasn’t getting messages.  Prince assured him everything would look exactly the same when he got his house back; then he wired him another $500K to reassure him (that brought the total rent tally to $95K/month for the duration of his stay!). 

 

As Boozer tells it:

 

Once Prince’s lease was up, CeCe (Boozer’s wife) and I flew to L.A. to survey the damage, like parents coming home from a weekend to find their kid has thrown an absolute rager. Pulling up, the gate symbols and the purple exterior carpeting were gone. Inside, harsh purple and black had faded back to the neutral palette CeCe had selected. The furniture and other decor were where we had left it. The discotheque was gone, as was the hair salon. My weights were where they were supposed to be. Everything was back in its place, down to the silverware. Prince kept his word.

 

All’s well that ends well?  The worry is worth the opportunity?  Granted, the risk versus reward is important to balance upfront, but most house stories do have happy endings if structured properly.  Plus, you may get a cool story out of it!

 

To read the story in its entirety from Boozer’s book, click here.

 

Happy Landlording!

Bad Times to Buy Bank of America Stock and Charlotte Real Estate?

 

“(Warren) Buffett famously bought $5 billion worth of BofA's (Bank of America’s) preferred stock and warrants in 2011 in the aftermath of the financial crisis, shoring up confidence in the embattled lender struggling with losses tied to subprime mortgages.”

7/30/24 CNBC.com article by Yun Li

 

“The Charlotte Regional Business Alliance reported about 113 people moved to the Charlotte metro every day between mid-2021 and mid-2022. That's more than 41,000 people moving to the region every year.”

CLT Today 3/11/24

 

I remember hearing many years ago that the longer you live, the more economic cycles you’ll see.  The “Dot.com Bubble” (2011) and COVID (2020) are ones I remember readily.  But from a severity perspective, ‘The Great Recession” (2008-2010) was the most memorable and crushing.

 

Living in Charlotte, Bank of America casts a big shadow as it houses our largest corporate headquarters.  And it got hammered during the Great Recession.  Warren Buffett, arguably the greatest stock investor in history, invested $5B in 2011 when it was trading in the $5/share range.  The lowest it had dipped to was $3.14 in 2009 and it was teetering along for years as it hemorrhaged losses from its Countrywide Financial acquisition.   

 

At the time of his investment, Buffet said,

 

“Bank of America is a strong, well-led company, and I called Brian (Moynihan) to tell him I wanted to invest in it,” Mr. Buffett said in a statement. “I am impressed with the profit-generating abilities of this franchise, and that they are acting aggressively to put their challenges behind them. Bank of America is focused on their customers and on serving them well. That’s what customers want, and that’s the company’s strategy.”

 

Today, Bank of America’s stock price is around $40/share and Buffett has been in the news lately for selling some of his shares for billions in profit.

 

That’s what all investors want- buy low and sell high!  But Buffett’s big payday took a long time to come to fruition as the stock languished for years.  It was unknown when Bank of America, and the economy in general, would come back.  But Buffett believed in Bank of America’s fundamentals. 

 

We’re starting to see a real estate slowdown in the Charlotte market.  There was a time, no too long ago, when a house on the market for sale would get multiple offers.  Now, things have slowed, houses are sitting a bit longer, and price increases have waned. 

 

Are home prices too costly?  Interest rates too high?  Economy too risky?  A combination of these and other factors?  Are these buyers right?  Is it a good time to sit on the sidelines? 

 

Or… is this price stabilization a great opportunity for real estate investors?

 

It’s tough to know for sure. 

 

There are facts, though, that are undeniable.  People continue to move to Charlotte every day in droves and have been for years.  Everyone moving here needs a place to live.  Housing is a needed commodity. 

 

As Buffet said about his investment in Bank of America during an uncertain time, he wanted to get involved based on the company and its direction.  Charlotte has an average of 113 people moving here everyday in need of housing.

 

Is this a bad time to buy Charlotte real estate?  Or is it a great time?

 

Happy Landlording!

What To Do When Elon Musk & Bill Gates Both Apply for Your Nice Rental House

In this month’s edition, we have a riveting property management fairy tale!  Once upon a time in a nice, far-off place called “Charlotte, NC”, a nice landlord put a nice, vacant rental house on the market.  Now the market was not too hot, not too cold, but just right… 

 

The next day, a nice rental application was submitted for it.  And the day after that, another nice rental application was submitted.  The nice landlord dutifully ran the applications and found that both applicants looked to be fully qualified:

 

Tenant #1:

Elon Musk

802 credit score

Criminal record: 3 traffic tickets in last 3 years

Employed: CEO of X, SpaceX, & Tesla, Inc.

$221.4B net worth

Homeowner: no recent personal landlord history

No pets

Move-in date: 35 days from today

Length of lease desired: 2 years

 

Tenant #2:

William (“Bill”) Gates III

814 credit score

Criminal record: None

Employed: CEO of Bill & Melinda Gates Foundation

$127.3B net worth

Homeowner: no recent personal landlord history

Pets: 1 cat (10 pounds) & 1 border collie (60 pounds)- aware of non-refundable pet fees

Move-in date: immediate upon acceptance

Length of lease desired: 1 year

 

The nice landlord has a very nice problem!  Two well-heeled applicants want his rental property.  They have 800+ credit scores, no criminal background issues, plenty of income, and no landlord issues.  That is great!

 

But outside of the nice fairy tale, is it really great?  How would a regular landlord pick a winner and a loser?  He may have to be not so nice?

 

The Musk application has many positive aspects with it having no pets and wanting to lock into the property longer with a 2-year lease request.  But there is a 35-day wait for occupancy (each vacant day costs money!) and there is a criminal record (frequent speeding tickets can signal risky behavior).

 

On the other hand, Gates wants to move in right away (cha-ching!) and has a higher credit score than Musk.  But he does have a lower net worth and who knows the damage the 2 pets could do to the house especially if he leaves after the initial lease ends.

 

So under normal circumstances and with no one else involved, both tenants would easily be approved for the property.  But there is only one home.  And they probably don’t want to share it.  So what to do?

 

It’s a tough one and it happens every so often.  Unfortunately, the non-approved person usually gets upset.  But a decision has to be made. 

 

I don’t think there is perfect methodology for this.  Some landlords use tactics such as:

 

1. First application in gets first dibs on the house: I like this one due to its simplicity and it seems to have the “get in line” logic that most adults can appreciate.  Its major flaw is that a property manager really needs to pick the best available applicant for the owner client, regardless of who was first.  If a marginal candidate applied first and then Bill Gates submitted an application, should I be married to the marginal candidate?  I don’t think so.
2. Make the applicants give their “highest & best” offer: The rent is listed at $2K/month.  “How much rent are you willing to pay if we let you have the house- $2,500/month?  Will you sign a 3-year lease?  Move-in right away?”  We’ve done this on occasion and it’s a lot of effort and most people don’t want to play (I’m not sure I would either).  Due to the bad feelings it creates, I largely tend to shy away from doing this.
3. Have some sort of points system based on all quantifiable application information.  Add up the points and whoever has the highest score wins the house.  This does not take into account any non-quantifiable information (or “soft skills” for lack of a better term) which tend to matter a lot with tenant relations.

 

Trying to make a choice between great tenants can be a good problem to have if handled properly (in and out of fantasyland).  But I think I’d go with Musk application on this one.  It’s very nice!

 

Happy Landlording!

No Hard Appointments: Can Property Management Be Easy?

 

"If it is possible, as far as it depends on you, live at peace with everyone.”

Romans 12:18

 

I remember when I started my first “real” sales job.  It was all about making quota, that is reaching (and hopefully exceeding) the required number of sales my company wanted me to achieve each month.

 

Now, for me, working in sales was hard.  And doing sales in New York City was even harder.  I would tirelessly cold call people on the phone, show up at business offices, blast faxes to lists of businesses, mail out postcards, and send out weekly e-mails to prospects- whew!  All this effort was to generate the blessed “appointment”; a set time with a decision maker to sit down and offer my wares to a potential buyer.  “Appointments set” was the goal that management had us chase because appointments were expected to inevitably generate sales.

 

Sales Manager: “Furniss- how many appointments did you set today?”

 

Sales Manager (regardless of the number I replied): “You (really stink)!  I’d have gotten double that number in half the time.  More calls!”

 

When I did finally get an appointment in my early tenure, it was even harder.  I had to look some adult in the eye and try to solicit a need for my product.  After listening to my spiel, they would then poke holes in my nascent presentation with “objections”.  Objections were good I was told- it meant that they were paying attention and should be considered to be “masked buying signals”.  Things that were considered bad were visible apathy, frequent phone checking, over-agreeability, and yawning. 

 

However, I didn’t see it that way.  Objections were bad for me; I had no idea what to say most of the time. 

 

Decision Maker: “Your product is too expensive!” 

 

Me: “Uh… yeah, I guess it does cost more than the other guys- you got me there.  Do you mind if I circle back to you if we ever cut our price by 50%?”

 

I needed help, and fortunately, my sales manager was a self-professed sales closer.  I wanted to see how someone of his ilk could set aside difficult objections to score big deals.  So I asked him if I could accompany him to one of his harder sales appointments to see how it was done.

 

Sales Manager:  I wish I could help you with that, Rowboat (a nickname for having no “sales”), but that is an impossibility with me.

 

Me: It’s impossible for you to take me on a sales call?

 

Sales Manager: No… I just can’t take you an any “hard” sales calls, Rook.  They’re all easy.

 

At the time, I thought his response was a way to dodge being exposed as a sales pretender while still expanding his aura of cockiness.

 

However, after being there for a few years and looking back, he really didn’t have any hard appointments.  As a sales manager, he had kept a decent amount of large, longtime clients that he brought lunch to and visited often.  He knew the decision makers very well and brought a humble attitude (one he did not share with his underlings) of empathy and service.  When opportunities for new sales came, his clients were bringing it to him, and not vice-versa.  And as long as they stayed in their current roles, their existing business with him was never going to a competitor- they loved him.

 

As I got into property management in Charlotte, I began to realize how hard it could be.  Our owner landlords had ideas on how things should go, our tenants had others, and the property management company sometimes had a completely different version.  We could constantly be fighting with everyone and make every day a battle.  Or we could try to facilitate an easier environment, a land of “no hard sales calls”.

 

Property management, like sales appointments, can be easy (or at least easier).  But it does take a continued, humble effort of empathy and service to pull off. 

 

Happy (Easy) Landlording!

Building God’s Temple & Lease Extensions: Are You Ready?

 

“King David rose to his feet and said: “Listen to me, my fellow Israelites, my people. I had it in my heart to build a house as a place of rest for the ark of the covenant of the Lord, for the footstool of our God, and I made plans to build it. ³ But God said to me, ‘You are not to build a house for my Name, because you are a warrior and have shed blood.’”

(1 Chronicles 28:2-3)

 

“If you fail to plan, you are planning to fail.”

Benjamin Franklin

 

King David loved God; they were tight.  Towards the end of his life, he wanted to do something grand for God- so grand that he aspired to build the greatest temple in the world for Him!  David shared this with Nathan, his resident spiritual advisor, and asked him to see if God would approve.  Nathan inquired and relayed that God was not amenable to King David doing it; however, He told him that Solomon, his son and future successor, could build it.

 

King David did not use this as an excuse to sit on his hands.  He asked God exactly what He wanted and proceeded to write down specific plans for Solomon to use.  He not only detailed plans to build the temple and the surrounding buildings themselves, but for the all the items that would be kept in the temple.  He mapped everything out precisely, even the weights of the lamps and tables and how the priests who would work there would contribute.  All Solomon would need to do is dust off the plans and enact them when he was coronated.  He would be ready to go!

 

For smart landlords, this is how lease extensions should be approached.  When leases are expiring in the near future or tenants are proactively in contact about extending their leases, landlords should not be scrambling!  A well-thought-out plan should be in place ready to be enacted.

 

As a Charlotte property manager, retaining good tenants is paramount.  If we don’t hear from tenants prior to 80 days before their leases’ expiration, we start the “Lease Extension Plan”.  This begins by running the nearby comparables to determine market price, checking their payment ledger to ascertain tenant quality, and making a recommendation to the owner on what we feel the lease extension price and terms should be.

 

Once we have finalized our lease extension offer, we e-mail it to the tenants somewhere between 60-75 days prior to lease expiration.  This gives them plenty of time to ask any questions and make a decision.  We also incentivize tenants to commit earlier as the proposed rental price is offered in tiers based on when they let us know their plans (example: “Let us know by 6/15, and the price will be $1,500.00/month… or if after 6/15, the price will be $1,600.00/month.”).  We also offer options for month-to-month lease extensions (at a 10-20% premium to the existing rent based on current market conditions) and multi-year extensions (incentivized by allowing the rent to stay the same over the life of a longer lease term). 

 

Other important factors we incorporate in the “Lease Extension Plan”:

 

1. The new lease is written on the latest version to make sure that the owner has the best legal protection incorporating any recent changes to landlord law
2. The tenant information is updated:  Did anyone leave or is now joining the household?  Did anyone get married/divorced?  Name change(s)? New children?  New pets to be accounted for?
3. Are there any issues that we want to address with the tenant (or vice-versa) before we reup with them for another year or more?

 

Though King David was disappointed he would not be the one to build the temple, he made sure approved plans were prepared and ready when Solomon got the green light.  Smart landlords will follow his example!  With increased repair costs on rental home turnovers, keeping tenants by signing lease extensions is becoming more and more important to achieve rental home ROI.

 

Happy Landlording!

 

Fix or Replace Broken Appliances? Factoring in Sunk Costs at Carowinds

 

I remember several years ago my out-of-town, 6-year old niece was coming to visit.  My wife wanted to make sure that she had a great time, so we were brainstorming a list of activities:

 

Bowling?  No, that could be done anywhere.

Movies?  Same thing.

Family board games?  No, she might beat us…

Hiking?  Not a bad plan, but…

 

How about going to Carowinds, the local amusement park?  Yeah!  It’s a bit pricey (around $50/person) but Carowinds is a legitimate, massive amusement park and would provide fun for the entire day.  And this would make her trip memorable.  It was decided!

 

The big day came and we excitedly ushered my niece to Carowinds.  It went well at first; the first few rides were a blast!  But then 30 minutes into our adventure, my niece says (something to the effect of), “Well, that was fun!  Where are we going next?”

 

This was not a question I was expecting.  Of course, the real answer was (something to the effect of), “There is no “next”.  For 50 bucks a person, we are staying at the amusement park for the next nine hours.  In addition, you are going to love every moment of it and be bragging for years about how visiting your Charlotte-based aunt and uncle was your childhood’s crowning experience.”

 

However, from a marriage perspective, I recognized that “my real answer” and “the real answer” given to my niece could possibly be different; I wasn’t sure what my wife’s appetite for niece appeasement was yet.  And from an economic perspective, it was close to immaterial.  The Carowinds tickets were a sunk cost regardless (we already bought the tickets).  If we left the amusement park and went hiking (free), it was a wash.

 

To me, this story feeds into how we handle broken appliance repair calls from tenants in our Charlotte property management company.  When we get these calls, we are left with the choice to either send an appliance repair person or just buy a new replacement appliance.  What’s the best way to handle them?  Sunk costs are part of the decision-making process. 

 

The economic analysis on these starts with the appliance repair company.  The way they bill is that it costs roughly $100 for them to show up at the house and diagnose the issue (this is the sunk cost- we bought it when we called them).  If we choose to approve the quote for their recommended repair, the $100 is credited towards the repair.  If we think that an appliance is too costly to repair, we can just thank them for the diagnosis, refuse the repair recommendation, and pay them their $100 service call fee. 

 

Lower-end appliances in the Charlotte market usually cost somewhere between $500 - $1,000 when shipping, taxes, installation, and old appliance removal fees are factored in.

 

Some of these decisions are common sense.  If a new stove costs $800 and an older stove is found to need $700 in repairs to fix, we’re going to replace the stove.  However, for math purposes, the cost for a new stove is really $900 ($800 for a new stove + $100 appliance repair company diagnostic fee).  Tacking on the sunk cost of the diagnostic fee will make replacing appliances cost more.

 

In turn, the math goes down when repairing appliances.  If the same stove is found to need $250 worth of repairs, the real differential is $150 (the first $100 is a sunk cost).  This usually makes repairing appliances a better proposition unless there are other mitigating reasons to replace them (beat-up looking, opportunity to homogenize mismatched colored appliances, etc.).  $150 versus $800 makes taking the chance that the repair would keep the appliance operating for a while very appealing.

 

The harder decisions are when the cost of the repair is 50% of a new appliance.  I tend to go towards the repair.  It requires less money outlaid initially and I’ve found that older appliances seem to be built better than the newer, low-end ones.  The only problem is when an older, repaired appliance breaks down near-term for a different reason and I’m left eating the loss on the larger sunk cost of the repair (and holding a bag of regret). 

 

Smart landlords factor in sunk costs when in appliance “repair or replace” dilemmas.  Smart uncles also factor them in to assuage anger when one is unexpectedly hiking Crowders Mountain after paying to ride the Fury 325.

 

Happy Landlording!

Sportsbook & Tenant Application Gambling- Now Both Live in NC!

 

Sports betting became legal in North Carolina on March 11.  This may be news to non-residents.  To residents, it’s been hard to miss the blatant and ubiquitous advertising bombarding us both in real life and digitally.  My 10-year old son starting asking me about sports gambling after repeatedly seeing billboards on the interstate.

 

Son: Dad, what’s a 5-team parlay?

 

Dad: It’s a type of bet that either turns your college fund into a full ride or enters you into an indentured servant relationship with the college of your choice.

 

Son: Oh… Thanks…

 

Gambling is a funny thing.  In the back of your mind, you know you’re going to lose.  Logically, casinos and sports gambling entities don’t become massive conglomerates by paying out more than they take in.  Quite the opposite!  They know that if they can keep you gambling, you will lose.  So why does anyone choose to gamble when the odds are that your money is going to find a new home?  I mean, it is an optional activity that millions of people choose to participate in every day.  What’s the appeal?

 

Well, some people do win big, cash out, and have a lot more money than when they started.  The rest just write off the expected losses as an “entertainment expense.”

 

But what about when it’s a real-life situation and you need to win?  It’s not about entertainment; it’s about having a house for you and your family to live in.  And I’m not talking about sports gambling, but about tenant rental applications.

 

Especially now, many tenants do not have good credit, good reports from former landlords, and/or sufficient income to afford higher-priced rental homes.  But they need to have a place to live.

 

So, tenants with substandard credentials are submitting rental applications that cost around $75 per adult.  They know, especially with homes marketed by property managers, that it will be an uphill battle; most will uncover negative information and have standards that the tenants know they cannot meet.  And there are not enough owner-managed homes where there is little tenant screening and where they can give a “down-on-my-luck” narrative and get a sympathetic owner to approve them (and this does not often work either).  So they have no choice but to gamble and keep applying, though it is draining their finances one turned down application at a time.

 

But what if they could stack the odds in their favor and win?  That would be appealing!  And this what we’re seeing and hearing about.  Don’t have good credit?  Buy a false credit and criminal report.  Need income?  Photoshop paystubs that show more.  Need a former landlord to say something nice?  Create fake landlord reports. 

 

It’s raising the stakes.  If a landlord winds up approving a wayward applicant, the costs can be significant if the tenant reverts to previous ways and does not pay.  Not only is there a loss of rent, but now there are court costs and attorney fees for filing for eviction.  To boot, public tax dollars are funding pro bono lawyers to congregate in the courthouse to train tenants to appeal the rulings regardless of whether justice was served or not; this can make the process go on indefinitely as cases enter an overwhelmed court system, while the tenants stay in the rental houses.  And when a court victory eventually happens, the landlord is often left with costly fix-up of a battered house.

 

The prospective tenants may be gambling on false rental applications ($75), but the real gamblers are the landlords who are not screening their tenants thoroughly ($10K+).

 

Legal sportsbook gambling may be new to NC, but attempting to illegally improve the odds is not a new concept.  Smart landlords will run their screening checks thoroughly or outsource to a property manager whose job it is to keep up on the latest schemes.

 

Happy Landlording!

Crushed by Cumulativeness: Rent Increases and Why the NFL Player Didn’t Sign Your Kid’s Football

 

“What a jerk!  All he has to do is just sign his stupid name to ONE football and it would mean the world to Little Johnny.  But instead he needs to hurry to the locker room to recount his millions of dollars!”

(Reaction of many parents after their child’s autograph request is snubbed)

 

I was talking to a local college football player (a kicker, if you must know) about what he was doing after he graduated in May.  He said he was starting to figure that out being that he finally had some time to think about it.

 

Some time?  He’s in college!  I was thinking of how wasting time was sort of what my friends and I did during our undergraduate tenures…

 

“You don’t have any time?  How did you get so scheduled out?”

 

He pulled out his team-issued iPad.  “Do you see this?  I had to look at this every day for the last five years; it told me where I was supposed to be and what I was supposed to be doing every hour of every day… Now, honestly, I’m adjusting to doing life without it.”

 

Wow!  That sounds pretty demanding for a college kicker at a small-time football school.  If I were him, I think I would have opted for intramural soccer.

 

Now let’s think about NFL players.  There are even more football activities than college.  They are travelling for training camp and games.  If they don’t do well, they can be cut at any time.  If they want to get better, they need to take the time to practice, lift weights, and study the playbook and game tape on their own.  Then they have family, faith, friends, financial, and other real-life commitments- and everyone likes them and wants to be near them because they are wealthy and famous.  They are super busy! 

 

And then there are constant, on-going demands for their time.  Want to be on a weekly talk show (aka NY Jets quarterback, Aaron Rodgers)?  Make sure you cut an hour or two of every week for that.  Endorsements?  Autograph shows?  Dinner with your wife?  Your kid’s basketball games?  Team functions?  Mailing back football cards kids send them to sign?  Your college wanting you to come back to accept an award on an off-week during the season?

 

If it was signing one football, that would be one thing.  But it is signing one football in addition to an overpacked schedule.

 

So how does football player busyness fit into rent increases in today’s world?

 

A landlord may be heard muttering, “If a tenant can’t come up with an extra 5-10% for rent every year, maybe they shouldn’t be in the property in the first place!”

If it was just $100.00/month extra for rent every year, that would be one thing.  But rental increases are not happening in a vacuum.  Tenants have been absorbing increased rents in addition to increased costs for almost everything else they consume.  Food, gas, car prices, car insurance, plane fares, restaurants, NFL tickets (another 4% increase in ticket prices was just announced by the worst team in the league, Carolina Panthers), etc..  Netflix just went up by another $2.00/month, for goodness sakes!  Like small papercuts that keep happening, the bloodletting becomes very real eventually.

 

Cumulativeness can be crushing! 

 

Property managers and smart landlords need to balance potential rental increases with killing the golden goose.  Good tenants are an asset that maintain the property and pay down the underlying debt.  Dumping another increased expense on them can be detrimental to both parties, especially if the tenant moves and the property needs to be repaired and put on the market again.

 

Good news!  The college and NFL players don’t hate your kid.  If they had an iPad with lots of empty time slots and/or few other commitments, I’m sure they would happily sign footballs most every time!  And if rental increases are measured, good tenants will be able to absorb them and continue to be a reliable monthly partner.

 

Happy Landlording!

 

What Vacant Rental Home Fix-Ups Should a Landlord Do (or Not Do)?

 

My wife and I were looking at renovating our primary bathroom so we had someone come in and give us a quote.  We weren’t looking for anything overly-extravagant; I’d say it was much more on the practical side of replacing some older bathroom pieces.  I thought the proposed work was relatively basic and was more concerned about the inconvenience than the cost.  Then the quote came in around $50K.

 

To me, the quote was a lot; $50K for a practical bathroom renovation is significant.  For that, I’m thinking heated tiles, a sweet hot tub, and a roomy, rainwater shower equipped with a state-of-the-art entertainment center.

 

If we take this out of the “splurge on myself” category (where things like this are sometimes justified on a personal residence- note: not in this case…) and put it into the “rental home investment” category where the numbers need to make actual sense, we could do a quick calculation of making this potential investment:

 

With a renovated primary bathroom, we’ll say the rent can go up an additional $500.00/month; that seems high to me, but we’ll go with it.  At $6K extra rent coming in annually ($500 for 12 months), we’re looking at the payoff time for a $50K bathroom investment to be roughly 8 years (8 years multiplied by $6K = $48K).  That’s a long payoff period, especially if a destructive tenant moves in and degrades it quickly.

 

This type of repair figure, post-COVID, is not crazy though.  The question then is how much home fix-up is a justifiable expense for a landlord?   That’s a tough question as it is really an answer that has to be made on a case-by-case basis.

 

But philosophically, my answer would be to spend as little as possible with several caveats if the rental home is a long-term hold:

 

1. Don’t skimp on preventative maintenance
2. All home systems need to be functioning per the lease agreement
3. The home needs to be desirable to rent near the market rental rate (no major red flags aesthetically)
4. The home needs to be very clean and pest-free

 

This is much more of an art than a science.  The issue is that when new things are installed in an older house, it makes the older things look even older.  For example, if one room gets fresh paint, the rest of the unpainted rooms scratches look even worse.  Replacing one appliance can make the other ones look 10 years older.  What not to renovate can be more important than what to renovate.

 

And different aesthetic issues are going to make the home unrentable to certain people; it helps to be a bit thick-skinned if some potential tenants are critical of certain aspects of the home.  New construction and/or complete renovations appeal to everyone!  But most owners and tenants are either not willing or able to pay for that.

 

I want to be clear- a home is always easier to rent and will rent at a higher rate if everything is renovated.  If the financials can be made to work, this is the best option by far.  It is really nice to offer rental homes that have the best of everything!  It makes a property manager’s job much easier!

 

However, for others, $50K of renovations may not be a viable investment strategy; the numbers are usually tough to justify on a standard rental home.  Smart landlords learn to be judicious in what they choose to fix-up (or do not).

 

Happy Landlording!