Charlotte Property Management Monthly: You Want A Good ROI On Your Rental Home? Hire A $600 Maid!

As a Charlotte property manager for a good nine years now, I’ve seen a lot of rental homes come and go; some rented quickly and some didn’t.  Most of the houses weren’t perfect, but almost all of the houses that rented quickly had one thing in common- they were really clean.  And you may be surprised on how many really dirty homes are on the rental market!

“Cleanliness is next to godliness” is the popular axiom, and it’s also a heck of a differentiator in the rental home business.  The #1 secret of renting a home quickly is making sure it is really clean.  That’s it.  If you can get someone to look inside the home and it is really clean, the closing ratio is 80%-90%.  I’m not joking.  If the cleanliness does not meet the tenant’s expectations, it is the top thing property managers hear about.

But how clean is clean?  Is a $150 baseline cleaning job sufficient or is a $600 cleaning job necessary (where every surface is touched by a great team of maids and one could ice skate on the floors after eating off of them)?  That’s a tough question.  Every tenant has a different idea of what is “clean”. 

Rental homes are about ROI.  So the real question is, “Is $600 a good investment that will procure a higher rental rate?”  Most owners are not going to be happy paying $600 to clean a home that they don’t live in, when they would never pay $600 to clean a home that they do live in!  But is it smart to do it anyway?

Renting out homes isn’t rocket science.  It’s about the value proposition each house makes versus the other houses on the market.  For example, if you go to the grocery store and see that regular bread is $1 a loaf and the whole wheat bread is $2, which do you pick?  If you don’t see value in paying an extra $1 for whole wheat, then you’ll pass and buy the regular loaf.  If a clean house is renting for $1,500 and a dirty house is renting for $1,400, which do you pick?  It’s that simple.  And a lot of people will pay extra for the value of a really clean home.

Before landlords have a heart attack and think that it is necessary to get a $600 cleaning job on all their vacant rental homes, I’ll give the caveat that it isn’t always prudent.  The higher the value of the home, the nicer the cleaning job should be.  This also works from a ROI perspective.  If a really clean house allows the market to charge an extra 5% a month of rent (which isn’t unreasonable), then:

1.  $1,000/month home becomes a $1,050.00/month home.  On a one-year lease, that’s an extra $600 annually.  A $600 cleaning probably isn’t warranted (0% ROI), but a $300 cleaning would deliver a nice ROI (100%).

2.  $2,000/month home becomes a $2,100/month home.  That’s an extra $1,200 annually.  A $600 cleaning job would be warranted if it produced a ROI of 100%.

Besides the empirical ROI dollar figures, there are also the soft numbers to consider.  Clean tenants who take care of rental homes like to move into really clean, rental homes.  And guess what?  Most of them are turned off by dirty homes and won’t move into them.  The tenants who are willing to move into dirty homes usually are not concerned about the condition of the homes like the clean tenants are.  So which type of tenant do you want to attract to your rental home?

With rental homes, ROI is king.  And a $600 maid service can push you further into the black!

Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which  specialize in rent-to-own (lease options) and rent-to-sell homes.  His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)

Charlotte Property Management Monthly: Top 4 Opportunities for Owners in a Hot Rental Market

As a Charlotte residential property manager, we are seeing the rental market really heat up!  There are fewer buyers and more renters; this causes rental prices to go up and vacancy rates to go down.  In the home sales market, sales prices and activity continue to stagnate making it a less ideal time to sell.  The laws of supply and demand are in full effect!

We are also seeing an uptick in inquiries about purchasing the rental homes we have in inventory when they are vacant and on the market.  Unfortunately, the dollar figures for the offers to purchase are not overly appealing.  Buyers are still bargain hunting.

So what does this mean strategy-wise to an owner of a rental property?  It means there is a lot of flexibility available on the rental side to improve financial positioning.  The top 4 opportunities in this hot rental market for rental home owners are:

1.  Raise rents: Rental comparables are rising.  Make sure you are receiving market rate rent on lease extensions.

2.  Lock-in security: If security is the #1 goal, offer to extend existing leases at the same rate for longer periods of time.  Explain the good deal you are offering the tenants.

3.  Fix up vacant properties and raise the rent: If you have a vacant rental property that is in marginal to bad shape, it is time to make the investment to fix it up.  The market will reward you for this work with higher rents that will pay for the repairs. 

4.  Ride the hot rental market out and then sell: Enjoy the higher rents and subsequent increase in cash flow while the getting is good.  Wait until your home’s value appreciates to the price you want before putting it on the market for sale.  If your house is on an amortizing mortgage, even better!

As a wise man once said, “Don’t fight the trends, ride the trends.”  Use this hot rental market as an opportunity to make more now and later!

Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which  specialize in rent-to-own (lease options) and rent-to-sell homes.  His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)

Charlotte Property Management Monthly: Stick It Out or Play the Field? Long Term Vs. Short Term Leases

In property management, one of the things we discuss with new clients is their goals.  Are they planning on keeping the property long term or are they looking to sell it at the first opportunity?  Do they want to move back into it at some point?  How much flexibility do they need?  What is their risk tolerance?

We want to make sure that we are enacting strategies that fit what clients are trying to achieve.  They aren’t all in the same life situations.

It’s the same thing in the dating world.  Some are looking to get hitched.  They want to be seriously dating in an exclusive relationship on the way to marriage.  They want someone on a long term basis who they will be with through the thick and the thin.  This type of dating allows for greater security and a lasting partnership.  However, it is a difficult one to leave without very hurt feelings and does not always allow you to see the best that the partner has to offer.

Other people are looking for “fun”.  They want to meet as many people as possible and continually upgrade who they are going out with.  This is a strategy that entails a lot of dates, work, and stress.  The swinging singles would also argue that it also includes a lot of excitement, the ability to always see the best of the other person, with little actual commitment from their end; when something better comes along (or any other reason, including none at all), it is understood that they are gone.

Leases are the same.  Some owners want to have the security of a payment coming in every month.  They are willing to sign a multi-year lease for the current market rent, with no rent escalators built in.  They want their tenants to be there for a while and be happy.  To this end, they often will make home improvements for the tenants.  They know they will be holding on to the property long term and are willing to make some sacrifices to keep tenants for the same time period.

Some owners like flexibility and the ability to always get the market rent (or more) for their home.  They entertain weekly or monthly leases where they know they can demand a premium for the short lease period.  Sometimes there are big events (like the upcoming Democratic National Convention in Charlotte) that they know they could get the equivalent of several months rental payments for renting out for only one week!  They also have family and friends that come into town often and they like to have an open place for them to stay. 

There are certainly downsides to short term leasing!  There are no recurring rental payments guaranteed to come in every month, which is a financial risk.  There are many opportunities for the bevy of new tenants that go in and out to damage the place.  There are also increased payments to the property manager for fixing up, marketing, and procuring tenants so often.  These need to be covered by the excess rent that is hopefully commanded.

Long term versus short term leases is much like the old argument of risk versus reward.  Short term leases provide higher highs and lower lows, while long term leases are a moderate investment path that should provide consistent, average returns.  The question is what the owners’ goals and needs are and this can certainly change many times during the relationship with the property manager.

For most property owners, the long term leases are the most economical option for their investment homes.  However, one size does not always fit all and short term leases can provide a nice bump in income!   

Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which  specialize in rent-to-own (lease options) and rent-to-sell homes.  His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)

Charlotte Property Management Monthly: Property Management Going Mobile: Mobile Websites and Apps “Must-Haves” Now?

I was out to dinner the other night in Uptown Charlotte and saw the typical 21st century young, urban couple. They were dressed stylishly, moved with grace, were good-looking, and barely talked or looked at each other the entire time I saw them at the restaurant. Were they:




A. In a fight?

B. Shy mutes?

C. Engrossed with their mobile phones?



Of course, and sadly, the most probable answer in today’s world is C. I have a difficult time with this! I want to say, “Buddy, wake up! You’re with a good-looking woman; I can’t believe I have to tell you to look up and talk to her, instead of texting your friend, Chuck! What’s wrong with you?”



So, being a grown man, I had to decide whether to cry about this newer phenomenon or accept it. After some internal wrangling, I’m happy to report that my righteous indignation has passed and I’ve accepted this digitally-inspired apathy towards fellow humans as the “new normal”. So what does this consumer love affair with mobile phones mean to property managers?



It means we better get in the game in the mobile realm. Regular websites have worked really well for a while, but change has come again. New renters are going to want to use their smart phones to search for rentals near them (aided by GPS), fill out rental applications, pay application fees, and put down deposits. They want the whole rental process available from their mobile phones.



What specifically does this mean? It means we better have mobile websites that allow them to do this; the mobile websites need to include only succinct information potential renters would want when on the go. It also means we need a mobile application (a custom company “app”) that customers can put on their devices so we own some real estate on their phones. Trends show that home internet connections are on the way of landline phones; the new battleground is the mobile phone. We need to be on as many as possible.



A mobile website is critical when consumers search for property management companies from their smart phones. Will yours come up? If it does, can consumers easily find rental homes, contact you (even text you!), and do everything you want them to do (like they can when you see them in your office or when they are in front of their home computer?)



An app is critical to sealing the relationship with customers. How can they remember you when they are on their mobile phones? Your app (with your company logo) sitting with the rest of the apps they use everyday is a good start. This is a good way to build mindshare and also to make it easy for your customers to contact you and refer you to their friends. Not an apps believer? Apps are set to be a $36B business by 2015- a lot of people use them and will be using them!



Change is hard, but the mobile revolution is not going away. If making a property management company last long term is the goal, mobile websites and apps are now “must-haves”!



Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)

Charlotte Property Management Monthly: Renting Out Your Home Is Not For The Timid? 4 Reasons Not To Believe The Neighbors

Due to the tough home sales market, some home owners have been thrust into being “accidental landlords”. Their homes won’t sell for the prices they need, they have to move, and they can’t afford to keep them empty indefinitely. So, left with little choice, they will (reluctantly) start the process of renting their homes out.




They start with strong intentions, but then fear takes over! After research which includes talking to neighbors (who all have friends and long lost relatives in the “rental know”) and watching multiple episodes of “The Wire”, they are not sure they can go through with it. There’s so much uncertainty! And risk!



After many web searches, their definition of a “tenant” morphs into:



“A class of unruly persons, usually insatiable smokers, who have extensively studied the art of home destruction and rental payment evasion; commonly known as ‘slackers’ and ‘apathetic deadbeats’, renters have been known to spill drinks and never clean them up, loosen automobile oil pans so driveways become marked for life, and run surreptitious animal compounds (without signing a stringent pet policy disclosure).”



That’s scary!



So, what should fearful home owners do? I’d recommend a few deep breaths for starters. Then let’s look at some facts:



1. Roughly 35% of the population rents currently. Many of the nice places we go to regularly are rentals. I can confidently tell you that a third of the US population is not bent on home destruction. If you believe they are, sell everything you have and buy stock in Home Depot and Lowes.



2. You have lived in a rental at least once in your life (and probably work in one!) and you consider yourself a good, responsible person.



3. Everyone has a “bad renter” story because the “good renter” stories are boring. It’s like how no one talks about all the airplanes that take off safely everyday, everywhere in the world thousands of times; you only hear about the rare occasion when one plane doesn’t.



Example:

Jim: Hey, my tenant paid on-time and in-full yesterday.

John: That’s great (yawn).



4. Being in the business, I can tell you that most people have pride in their homes. They don’t want to be dodging evictions- they feel embarrassed when they can’t provide for their families. They want their home to look nicely- it’s embarrassing when guests and family come over and their place looks disgusting. That includes smoking indoors (people don’t like visiting homes where there is a smoke smell indoors and most parents want their kids to have healthy air to breathe as well) and out-of-control pets (will most self-respecting people accept living in pet filth?).



Are some tenants more meticulous than others? Of course! But the large majority of tenants are fine people who pay on-time and treat their rental homes with respect (this is especially true after professional tenant screening checks!). The tenants just want to live their lives in peace and have home repair issues addressed in a timely manner from time to time. Their lives are not about getting one over on the owners of the rental homes they live in; it’s just a place where they live for the time being.



Don’t believe the hype. And breathe. Even the timid can safely rent out their homes no matter what stories your neighbors tell you!



Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)

Charlotte Property Management Monthly: Island of Misfit Toys Dilemma: Bernanke Says Rent-To-Own Can Save the Housing Market?

“Rent-to-own provisions, which would give existing tenants the option to purchase the home during their tenancies, might facilitate the transition of some renters back to the owner-occupied market. Such provisions may also reduce costs by encouraging renters to maintain their properties to a greater extent.”


(Ben Bernanke, US Federal Reserve Chairman)



I was interviewed recently about the rent-to-own home market (read article by clicking here) and what Bernanke said above. His assertion made a lot of sense to me. It led me to a flashback of the TV Christmas special, Rudolph the Red-Nosed Reindeer, and the Island of Misfit Toys.



The Island of Misfit Toys was the dumping place for all of Santa’s broken and imperfect toys that his elves bungled. The toys did not fit the criteria of what the good kids wanted, so they were never delivered by Santa and were sent to the dreaded Island instead. It wasn’t the misfit toys fault; all they wanted was to be loved by children.



Then there were the poor children that didn’t receive any toys from Santa. They would have loved to have gotten these imperfect toys to play with and love. But no one knew how to make the exchange happen. The idea made a lot of sense (matching unloved, misfit toys up with poor kids that would love them), but the logistics plan was lacking.



It’s a similar situation in the current housing crisis. People are not able to buy homes, and in turn, people are not being able to sell their homes (it takes two to tango!). So wouldn’t it make sense to match up the two largest groups with the two largest needs in today’s housing market? They are:



1. “Wanna-Be Sellers” (WBS): “Could someone please bring a somewhat decent offer and buy my house??? Please?!?!? It has been on the market forever and I can’t reduce the cost any more! These payments are killing me and I’m looking at a short sale or foreclosure.” (Or “I have broken toys that the kids with money and credit don’t want!”)



2. “Wanna-Be Buyers” (WBB): “I would love to buy that house but I can’t get a loan due to my low credit scores and lack of a big down payment. Banks just won’t lend to me!” (Or “I have no toys, but want one to love!”)



So the head of the Fed brings up rent-to-own as a solution. Let the Wanna-Be Buyers (WBB) rent-to-own the Wanna-Be Sellers (WBS) homes (aka rent-to-sell). Walla! Problem solved! If the WBB pay their rent on time and in full for a year or two, they qualify for a loan in the house they are in. If they don’t, they move out of the house at the end of their lease and rent another home to live in.



So why is there still such a housing issue? Because “rent-to-own” and “rent-to-sell” are still largely being unutilized. But with such a large group of WBB and WBS out there, how can this be? Why aren’t real estate agents jumping on a chance to work with them?



Surprise! The two main reasons are related to money:



1. There is no loan program (that I know of) that gives low down payment and low credit score WBB a mortgage based on rental history. (No money to transport the toys)



2. Real estate agents don’t think there is enough money in it for the risk and headaches they think they are potentially taking on by transacting rent-to-own and rent-to-sell deals. (No manpower to find the toyless kids and deliver the toys to them)



The first reason could be solved with a government-sponsored loan program for renters. It would be based on landlord history. Yes, I know it would be open to fraud, but the smaller brush strokes would need to be worked out by people smarter than me.



The second issue is incenting the manpower to carry the mission out. Generally-speaking, real estate agent compensation is relatively simple. They help someone buy a house and get thousands of dollars. They help someone sell a house and get thousands of dollars in commissions.



But this rent-to-own thing? Placing WBB in homes typically only generates a nominal commission. For example, in Charlotte, 10% of the first full month’s rent is a common commission rate that is offered. So the math isn’t that great for real estate agents; for filling a house that rents for $1,000, they earn a commission of $100. At $4.00/gallon gas, that isn’t going very far. Then the agents must hope that their WBB purchase the home in a year or two so they can earn their much larger sales commissions. That is hard to keep track of, is uncertain to happen, and doesn’t pay the light bills today.



Hypothetically, if the commission structure was changed (augmented by the banks and government?), it would be interesting to see what would happen. If real estate agents received $3K for placing WBB into WBS homes, that would generate interest. Then if they were also given the selling commission if the WBB wound up buying the homes, that would make it even more enticing. I’d imagine that the WBB would be shown the WBS’ homes pretty quickly!



I believe this would also be a significant bargain for homeowners, banks, and the government (still holding tons of defaulting mortgages). It has the potential to stop the erosion of home values and become a true win-win-win-win-win for WBB, WBS, banks, real estate professionals, and our country’s neighborhoods. It would also create jobs and get money flowing into the housing sector.



The only thing missing is the financing for the renter loan program and commissions for the real estate agents. On the Island of Misfit Homes, it worked well because Santa and the elves worked for free on a handshake deal. In real life, we need the government and banks to step up with cash incentives and guarantees.



Filling vacant homes that aren’t selling (WBS) with renters who want to buy them (WBB) seems like the solution that worked on the Island of Misfit Toys. Is Bernanke ready to pay up to transport and deliver the toys?



Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)

Charlotte Property Management Monthly: If You Can’t Sell, Rent: 3 Steps to Get a Great Tenant

Rental homes are in a full-on, undeniable uptrend! A recent real estate article headline blared, “Property Managers Set to Rule the World! 1.8M new tenants to enter the rental pool in the next two years.” Exciting stuff for us stodgy property managers!




While this leads to raised glasses (no plastic cups- they’re actual glass now!) in the property management industry, it is unwelcome news for homeowners trying to sell their homes. The math is easy to calculate: there is roughly the same amount of people moving into homes every year. So if 1.8 million more of them are now renting, there are 1.8 million less of them buying.



So people with homes they can’t personally live in anymore have to do something. The “selling the house and moving on” thing isn’t working for most due to an uncooperative real estate market. Some are letting their houses go back to the bank via the foreclosure route. It’s not a great option in terms of stress and credit damage, but it does solve the problem. Others are going the rental and rent-to-sell route to fill their homes. Some might argue that this is more stressful than the foreclosure route!



But why is it stressful? It boils down to one thing- the tenant. If you get a great tenant, they pay on time, care for your home, and don’t bother you. If you get a bad tenant, you never get paid on-time, enjoy a myriad of excuses for this non-payment, wind up in costly eviction proceedings, and are rewarded with a busted-up house at the end.



So how do you get a great tenant? Let’s define a great tenant first. They:



1. Pay on time and in full every month

2. Respect the home (aka like keeping it clean and undamaged)

3. Get along with the neighbors, the HOA, and you!



To get someone like this, there are 3 steps to follow:



1. Gather information: Order credit and criminal background checks, verify income and employment (request copies of the tenant’s last two paystubs and call the employer), and call the tenant’s past two landlords. You’ll want to ask the prospective tenant, employer, and past landlords as many questions as it takes to get a comfort level of what type of person wants to rent your home:



a. “Mr. Prospective Tenant, it is a pleasure to speak to you again! I never tire of your hilarious tales of amazing coincidences, which seem to be your hallmark. The honeymoon beach story with your two ex-wives somehow being on the same beach as you and your soon-to-be third ex-wife? Priceless! Now, why didn’t you pay your light bill in 2008? Why is there a collection account with Macy’s? What would your last landlord say about you?”



b. “Mr. Employer, if I may humbly ask, is Mr. X’s employment part-time, full-time, or contract work? How long has he been working there? Is he in good standing?”



c. “Mr. Landlord, your azure eyes must have been killing the ladies for years! At a risk of wasting your precious time with my inquiries that are so well beneath you, would you rent to this tenant again? Why or why not? How many times have they paid late? What did the house look like when they moved out? Is your superior intelligence a product of extensive domestic schooling, a plethora of renowned international boarding schools, or ‘Good Will Hunting’-like genetics?”



2. Analyze the data collected. Does the prospective tenant have stable employment? Do they make enough money to afford the rent and their other expenses realistically? What about if there is a slight bump, like a big car repair- can they still afford the home? Do they pay other people they commit to pay? What did their last landlord think of them? Would I feel unsafe renting to them if I had to give them bad news? Am I being overly optimistic about their merits or am I making a solid business decision?



3. Make the call. If they pass the smell test, approve them and move forward. If your gut is telling you to pass on their application, then pass! There is more than one fish in the sea.



There are many great tenants out there! Get a lot of data on the applicant, analyze it objectively, and make the decision on whether to approve them. It will work out most of the time!



Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)