Your Car & Tenant Strategy: Pay Now or Later?

Most people own a car.  Statistically, there are more registered cars in the United States than there are licensed drivers!  And people have different strategies on their ownership depending on that they want to pay.  Some people like expensive foreign cars, other people just want a “beater” to get them from point A to point B.  Some keep them a long time; others keep them less than a year.

For the sake of this example, I’ll separate car owners into 2 categories with the pro’s and cons of each:

1. The stereotypical Realtor car owners:  They want the latest and greatest car to flaunt and exhibit success.  They’ll buy or lease a new model of car and then trade it in every 6 months or year to upgrade to the newer model or newest taste. 

Pros: They look really good!  Their Instagram is cool and lots of their pictures seem to have the car in it somehow.  Though they may make others feel poor and unsatisfactory at times, people want to have a few of these car owners as friends so they can drive them places to make an entrance.  And they never have embarrassing car problems which leave them curbside and ruin road trips.

Cons: It costs a lot more money to roll like this.  Friends may feel poorer than them, but in actuality, their net worth might dwarf theirs.  There is more paperwork involved in constant car turnover, but the upside of filling it out in a new fully-loaded Tesla may make up for it.

2. The long term car owners:  They will literally drive the wheels off the car.  They seek a good, reliable vehicle that looks good at first, but will continue to drive it as it mechanically and cosmetically deteriorates.  A reactive repair policy will fix major operational issues so it will continue to run, but it will stop looking cool fairly early in the ownership game as it becomes a “Mom/Dad Car”.  As the average age of a car in the United States is 12 years old, most owners follow this strategy.

Pros: It’s much more economical and takes much less administrative energy. 

Cons: Their Instagram doesn’t feature their car and their kids groan when it’s their turn to drive the carpool.  There are ketchup stains on the car mats and a few rips in the seats.  Buffing out the scratches on the exterior is not in the budget.  The tires are starting to bald so it’s a little slippery at times in the rain.  The tape deck stopped working 2 years ago when it ate “Billy Joel’s Greatest Hits, Volume 1”.

Landlords are similar to car owners when replacing “new cars” with “new tenants”.  When tenants move out, it gives the landlord or property manager the opportunity to come into the property and perform deferred maintenance.  If tenants vacate after a 1-year lease, the rental home usually looks pretty good and there is not much to do.  Fix-up costs are minimal.

But what about when the tenants stay for a long time?

Pros: It’s great for cash flow.  Having a tenant pay month-in and month-out for 8-10 years is a dream.  There are minimal management costs and the loan is being paid down significantly as the property is appreciating (especially in Charlotte!).  The landlord’s net worth is climbing and the property is being maintained by the tenant.  Good stuff!

Cons: When the tenant eventually leaves, it’s time to pay the piper.  And this is where it hurts a lot at one time.  I notice I don’t see many late night real estate gurus touting “Millionaire Real Estate Dreams” covering this topic.  Unless a landlord is really lucky, the home will need to be painted.  The carpet will need to be replaced.  There will be miscellaneous broken things inside and outside the house that the tenant learned to live with that need to be addressed.  These things cost thousands and thousands of dollars.  Totally not cool!  And it burns even more when the incoming monthly rent flow stops at the same time.

Much like the old car where the repairs start becoming so extensive that it needs to be replaced (expensive), the homes with old tenants need to be revamped (also expensive!).  Paying these expenses as late as possible is economically more sound and costs less overall, but paying all the deferred maintenance at one time is painful.  Not everyone has $5-10K sitting around!

When adopting a long-term strategy for keeping a car or a tenant, it is wise to put aside funds for this fact- No car or tenant lasts forever and longer stays equal higher eventual costs.

Happy Landlording!

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!

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!

“Unverifiable” Rental Tenants Can Be Like Rudolph and Save Your Christmas

“All of the other reindeers used to laugh and call him names.  They never let poor Rudolph play in any reindeer games.

 

… then all the reindeers loved him, and they shouted out with glee (whoo-pee!).  Rudolph the Red-Nosed Reindeer, you’ll go down in history!”

Rudolph the Red-Nosed Reindeer by Billy Gilman

 

Rudolph had a tough gig before becoming a legendary Christmas icon and saving Christmas one year.  Piecing together various biographical sources on Rudolph, it is clear he had a privileged, yet difficult, childhood.  Through his envied bloodline (the son of famed Donner and the beautiful doe, Mrs. Donner), he had both the connections and proximity to Santa to have a great life and career.  But the dreaded red nose seemingly doomed him to a life of ridicule and parental shame leading to his estrangement from the North Pole elite.  He found solace in the company of societal undesirables (among them a dentist!) before the serendipitous approach of uncommon foggy weather one Christmas Eve.  Santa took a chance on him and it paid off in spades.  The rest, as they say, is history.

 

When Rudolph was on the road with the undesirables, no one really knew his skills and upbringing (the bloodline, the advanced reindeer training, his untapped flight ability, etc.); they just knew he was sad, unwanted, and unloved.  He couldn’t pull out his press clippings from his pockets (no pants) or pull it up on the internet (no Wi-Fi on the Island of Misfit Toys).  And he didn’t really want to talk about his past, which recently included not even saying goodbye to his girlfriend, Clarice, the only one who really liked him for who he was (red nose and all).  He only had his focus on the future as he was trying to find himself amidst new circumstances.

 

Rudolph was a great reindeer; he just couldn’t prove it.

 

As Charlotte property managers, we get applicants who could be great tenants, but they can’t prove it.  And we want to be sure they would be before we approve them to live in one of our client’s rental houses, but the applications sometimes don’t reveal much.

 

For example, on our four main tenant screening requirements, we may receive a prospective tenant application with the following information:

 

1.  Credit report: very little to no credit history

Tenant explanation: “I don’t like debt.  I pay everything with cash.”

 

2.  Landlord history: scattered to none

Tenant explanation: “I lived with family or moved in with a significant other.  I was not on a lease or a mortgage.”

 

3.  Criminal report: nothing comes up

Tenant explanation: “I’m an outstanding citizen!”  (Kudos!)

 

4.  Income: no paystubs available

Tenant explanation: “I’m a small business owner or do work under the table.”

 

So what to do?  Much like Rudolph, there’s very little information to go on.  The tenant is basically “unverifiable”.

 

This is where it is easy as a property manager to punt and just reject the applicant.  There are a lot of fish in the sea and a verifiable tenant will probably be in contact soon.  Besides, there is a lot to lose.  If the unverifiable tenant pays rent and everything goes fine, then everyone is happy.  But if things go south, clients will understandably ask for details about the tenant screening.  “What do you mean you accepted a tenant with no verifiable information?  Remind me why I hired you????  Did you flip a coin on whether to approve them?”

 

So what to do? 

 

1.  Verify everything you can.  Get bank statements and W-2s.  Money is usually traceable in some form.

2.  Collect 2 months security deposit and as much upfront rent as possible in certified funds.

3.  Ask a lot of questions and do Google searches.  Unconventional tenants can require unconventional screening methods.  What does their social media accounts say about them?

 

We’ve found some great, long-term tenants that other landlords have rejected due to them being unverifiable.  We’ve also walked away from some that we just couldn’t get a good read on.

 

Santa gave Rudolph a chance, and Christmas was saved.  It is sometimes wise to give unverifiables a second look so rent is coming in during Christmas on your rental home.

 

Happy landlording!    

 

Brett Furniss is the head property manager of 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!