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!

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!

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 6^th 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 1^st, you’ll never hear a peep from us.  Even if you wait until the 5^th, there will be nary a word.  Now when the 6^th 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 1^st 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!

 

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!

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

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Happy Landlording!

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

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

Forrest Gump

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Happy Landlording!