Selling Rental Properties: 3 Free Steps To Determine Whether You Should

There’s been a lot of good news of rising home prices coming from the Charlotte housing market, as well as the rest of the country. For real estate investors, this news is a mixed bag. There are less great buying opportunities for them, but their net worth is increasing. It also presents a good opportunity to turn their home assets into cash.




Making money on selling rental homes is a nice aspect of the investment real estate game. Buy low, sell high. When a real estate investor is able to do this, life is good! It makes all the repairs, waiting for late rental payments, and extra tax work worth it!



Let’s face it, there are two main joys of selling investment homes:



1. A good amount of cash is transferred into your pocket

2. The worry about your extra home is gone and given to someone else!



So if you have an investment property that you may want to sell, here are 3 free steps to make a quick determination on whether you should:



1. Determine the value of your home: Ask your property manager or friendly Realtor a realistic range of values for your home. Why a range and not a fixed number, you ask? Real estate pricing is subjective. If your home is in great shape and in a desirable section of the neighborhood, your home should sell in the top of the range. If it’s been beaten by years of tenants and little fix-up has been done, it will be in the lower range of the values. Estimate low for this exercise.



2. Estimate selling costs: Nothing creates a bigger vacuum of air on the phone when I explain that owners should factor in 10-15% in selling costs. After the initial scolding pause, they ask the requisite question, “What? How do you figure that, brother?”



This general estimate of 10-15% is computed by:



6% Realtor fees

1% Miscellaneous seller closing costs

3-8% Less than list price offer and seller concessions (typically paying for the buyer’s closing costs)



For example, Mecklenburg County (Charlotte) currently has an average offer acceptance of 92% of the list price (and this is on the rise from 90% from last quarter).



3. Find out your loan balance: For a general idea, just look at the loan balance remaining on the monthly mortgage statement. If you don’t get a mortgage statement, you’ll really like this exercise!



Once these 3 figures are retrieved, the math looks like this:



Value of home (be a pessimist!) – Estimate the cost to sell (say 12%) – Your loan balance = Profit (or loss)



For example, take a $100K house with a loan balance of $60K:



$100K (home value) - $12K (12% of $100K) - $60K (loan balance) = $28K (Profit!)



This is a general estimate of whether it is worth putting your home on the market to sell. Now you can decide whether this approximate dollar figure works for you.



Selling homes can be a very good thing for your wallet! Just use this simple exercise to see if it is worth doing at any given point in time.



Brett Furniss is the President & Owner of BDF Realty (Charlotte Property Management) which works with Charlotte real estate investors and homeowners 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: Don’t Return Your Tenant’s Security Deposit Just Yet

As a Charlotte property manager, I am a big proponent of returning as much of the tenant’s security deposit to them as possible.  If the tenant took time to care for the property, did what they were supposed to do during their lease period, and paid all of their rent, they certainly deserve it back!  There is a reason property managers are required to put the security deposit into an escrow account; it is a reminder that the security deposit is not the landlord’s money, it belongs to the tenants.

However, that being said, I’m also a proponent of the “slow return.”  By NC law, the security deposit does not need to be returned to the tenant for 30 days.  And also according to the law, if the landlord is still figuring out repair costs and won’t make the 30-day deadline, they just need to notify the tenant that the payment will be delayed in writing and let them know the approximate cost of the repairs at that point in time.

Why would landlords delay the tenant’s security deposit return?  The most popular question asked (by far) when a tenant moves out is, “when can I expect the security deposit back?”  If you want to be a “cool” landlord, shouldn’t you just give it back after the walk-through?  You already know how much the repairs are going to cost (if there are any) and the tenant could use the money back.  You certainly want to be good to the tenants who were good to you, right?

Well, yes, but not exactly.  I recommend keeping the security deposit as long as possible.  Once it is given back, you really need to consider the tenant gone and their account closed.  You need to assume that you will never get any money from them again.

So?  They moved out already, right?

Yes, but…  Walk-throughs are an inexact science and sometimes things are missed.  Think about home inspectors; they are professionals that take hours doing a walk-through to write a comprehensive damage report and they still miss issues with the home.  I guarantee that landlords are not close to conducting several hour walk-throughs at the level of detail that they are (nor should they be).  Things get missed and that’s life.

However, you can provide yourself some extra time so missed things can get caught before it’s too late and you have to pay for it!  It may be one of the handymen working on your home that alerts you to new repair issues.  It may be a Realtor or marketing person who wonders why something looks off.  Or (usually) it’s the next tenant who moves in afterwards that lets you know what’s not up to par (and by the way, they want the issues fixed on your dime!).

Let tenants pay for damages they are responsible for.  And, unfortunately, the delay in returning the security deposit to them is a good way to ensure this happens.

Brett Furniss is the President & Owner of BDF Realty (Charlotte Property Management) which works with Charlotte real estate investors and homeowners 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: Interested in Investing in Charlotte Homes? 3 Strategies & 1 FYI

As a Charlotte real estate investor and property manager for almost a decade, I’ve spoken to a lot of clients about buying Charlotte investment homes.  Many different clients have many different goals, but the goals typically fall into three camps (all cash flow, cash flow and equity, all equity).  Below are these 3 types of investment strategies and the residential houses used to achieve them:

1.  All cash flow ($10K - $50K priced homes): These homes make investors lick their lips.  “I could just put the house on my credit card or write a check!”  Yes, this is true and it has been done!  It’s nice that these homes will rent anywhere from $250 - $500 a month.  With home payments less than $150/month (figure taxes around $50/month and insurance around $35/month), vacancy doesn’t hurt too much.  The plan is to buy up a bunch of these homes, fill them with good tenants, and enjoy the cash flow!

The downside is that these homes are not in desirable neighborhoods and are barely liquid, even in great real estate markets; selling them to home owners (non-investors) is close to impossible, which allows for virtually no capital appreciation.  Vacancy costs don’t hurt that much, but the damage and theft expenses can add up quickly (you may see your home’s missing HVAC unit for sale on the street… Hint: buy it back!  It’s cheaper!).  “Good tenants” are tougher to find than with higher-priced homes.  Bottom line, this strategy is either high risk or high reward (if managed well) depending on what month you ask.  It’s a boat that goes up and down on the waves- buckle up!

2.  Both cash flow and equity (home price appreciation) ($90K - $140K homes): These homes are my personal favorite to invest in.  The tenants are typically stable and treat the homes well.  If the home is bought properly, they fill quickly and do appreciate in rising real estate markets.  These are moderate risk investments.  Vacancies and fix-up costs hurt more than the less expensive homes, but monthly positive cash flow can be in the $200-$400 range (if bought correctly).  These homes are more liquid and are appealing to both retail and investor buyers.

3.  All equity ($250K+ homes): These more expensive homes can be bought at great discounts because most real estate investors don’t hold them (too expensive) and most home owners don’t like buying major fixer-uppers.  However, buying a house $100K-$200K below retail value, fixing it up (gulp- maybe a $50K cost?), putting a renter in it to net out the monthly mortgage costs, and then flipping it when the subdivision the home is in stabilizes can be a very profitable venture (with time).  Utilizing this strategy requires a good cash reserve and patience to sit on the home before cashing it out.  The good news is that the tenants in these homes are typically very stable, pay on time, and will take care of them.  As the Tom Petty song goes, “the waiting is the hardest part.”

And the FYI:

Investors love multi-family units!  But multi-family homes (1 to 4 units) are not that prevalent in Charlotte.  I don’t know why more of them weren’t built (maybe due to cheaper land here?), but there are typically very few of them available for sale.

Charlotte is a beautiful, up-and-coming city with a growing population.  Whatever the strategy being used, the time to invest seems to be now!

Brett Furniss is the President & Owner of BDF Realty (Charlotte Property Management) which works with Charlotte real estate investors and homeowners 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: Landlords- 5 Reasons Why Our Time Is Now

Wow! Has it already been over five years already since the real estate market tanked? TARP, the “new normal”, bailouts, CDO’s, and toxic assets were all the rage back then. Home buyers disappeared, home sellers were really unhappy, and real estate prices dropped like a rock. Renters were deemed the smart folks, and landlords, not so much.




It was a tough time for most people as the economy soured and landlords were no different. Rental rates were relatively low, almost no one could get a mortgage to refinance, and people (landlords and tenants included) were losing their jobs. This affected landlords in two ways. First, if they lost their job, they still had to pay for their home and their rental homes. And, secondly, if their tenant lost their job, they had to deal with that situation as well. The uncertainty made for tough times for all involved. Many landlords got out of the rental business either by choice or by economic necessity.



However, the times have changed in almost every way for the better now. The rewards for hanging in there the last five years seem to have arrived and I’m seriously wondering if we are entering into a golden age for landlords. Wait- What??? Why would someone vested in real estate for his livelihood make such an outrageous claim? Well, let’s look at the facts on the ground:



1. Rental rates keep on rising. Love you, extra cash flow!



2. Mortgage rates have dropped even lower making leverage really cheap. Locking into low interest rates is fun!



So, higher rents coupled with lower mortgage costs equals bigger profits for landlords. Sweet!



3. Home prices are still low and seemed to have bottomed out. For landlords with cash, they can pick up rental homes on the cheap that will immediately cash flow and be primed for a quick equity build-up when the market recovers. There are undoubtedly still more sellers than buyers in the market.



4. The rental market is healthy and homes are filling quickly with higher quality tenants. Many great former homeowners who hit a rough spot are now clamoring to live in rental homes on the market today. They pay on time and maintain the homes extremely well. They know the drill and are great to work with!



5. Being that it seems that home prices have stabilized (and with inflation coming at some point in the near future), home prices will begin to work their way up again. So the landlords who have held on and been paying down their mortgages over the past five years, will be rewarded with equity (cash) in a liquid market.



So, as a landlord, you should be excited! Our time is now!



Brett Furniss is the President & Owner of BDF Realty (Charlotte Property Management) 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: Cash Flow Happens On Both Ends: After You Check Your Rental Comps, Do the “Bank Thang”

A property manager’s most important task is to maximize their client’s cash flow.  This includes looking at most of the inflows (good!) and outflows (bad!) of the property.

Cash Inflows: Rent from the tenants (typically the biggest or only inflow)

Cash Outflows: Repairs, management fees, & vendor fees

What is out of the property manager’s control, however, is typically the largest outflow for landlords- the financing of the property.  This is the mortgage payment that goes to the bank each month.  If this outflow can be sizably reduced, all other expenses (outflows) seem minimal.

So does that mean I need to start doing the “bank thang” (defined as giving up total control of your personal information and providing a ridiculous amount of documentation)?  Unfortunately, yes.

You may not like dealing with the banks again (I didn’t either!).  And you may think that the Fed is crushing the value of our dollar by printing money (I do too!).  But one of the positive results of the Fed’s “Quantitative Easing” we read about in the news is that it has pushed interest rates on mortgages to historic lows (for now).  And, as a landlord, you need to explore taking advantage of these low rates and minimizing your biggest outflow.  And that means having a conversation with the banks about refinancing options. 

The three ways to deal with refinancing (from best to worst option):

1.  Read the mail the banks send you, especially the letters that come via UPS and FedEx.  I got a letter from Chase (one of my existing lenders) the other day via UPS that offered to reduce my interest rate from 6.875% to 4.25% on one of my rental properties.  I called them and it was legitimate (no closing costs and limited documentation needed).  This took my payment down 30% on this house.  That is a good outflow reduction!

2.  Proactively call the lenders who hold your home loans and see if they can do anything for you.  Mention government programs like HARP, HAMP, and HARP2.  Then hope they know what you’re talking about.

3.  Call a mortgage broker and ask them to look over your loans and see if they can refinance any of them with favorable rates.

Property managers can run rental comps to make sure their landlord clients receive the highest possible rents and try to minimize other costs.  But landlords, especially in this historically low interest rate environment, need to do their part to maximize cash flow.  And that means doing the “bank thang”!   

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: Everyone Loves Pets (Except Landlords): 3 Reasons Maybe They Should Too

“Oh, did you see Fluffy.  He’s so cute!  He’s practically part of the family.”

(Most pet owners)

“Pets in my house?  Never!”

(Most landlords)

Almost everyone loves pets.  Some people are dog people.  Some are cat people.  And some like the more interesting kinds, like birds and snakes.  Pet enthusiasts are a multi-billion dollar business segment; and those billions don’t count the home rental income from tenants who crave those fenced-in backyards and pet doors.

However, landlords are the one minority group that typically despises pets.  They’ve heard the horror stories of urine-soaked flooring, smells that just never seem to go away, and shredded interiors.  “I’m not going to allow that to happen in my house!” thousands of landlords have told property managers throughout the years.

But maybe going in the complete opposite direction of this conventional wisdom is the best way to maximize ROI? 

Here are the top three reasons why landlords should consider welcoming pets into their rental homes:

1.  It’s much easier to place tenants!  From personal experience in Charlotte property management, tenants have pets 50%-75% of the time.  I really don’t think this is an exaggeration!  Property managers turn away so many prospective (great) tenants when pets are not allowed.  This crushes ROI as it slows the property being occupied, turns away better tenants, and commands lower rents as a smaller pool of tenants are being courted.

2.  Non-refundable pet fees are free money.  Tenants will pay extra for their furry (and non-furry) animal friends to be in the house.  The bigger the house, the bigger the pet fee the tenant will pay.  The more pets they have, the more pet fees they will pay.  Try to charge per child for big families and see how that is received!  But, with pets, it is industry standard. 

Furthermore, there is nothing that says that pet fees have to go towards cleaning up for the pet; this is what the security deposit is for!  The pet fee is merely paying for the right to have a pet in the home- nothing more. 

3.  It is important to have a realistic view about pets and the potential damage they cause.  Have pets caused costly damage to rental homes in the past and will they continue to do so in the future?  Yes.  Flooring, especially carpet, is the usual casualty when pets go rogue.  And new carpet isn’t cheap.  Now, with that being said…

Tenants who like and can afford nice homes typically like to have clean places that their friends and family can visit.  It is embarrassing to most people to have visitors into their home if it reeks of pet urine and there are visible pet feces ground into the carpet.

With lower priced rentals in questionable neighborhoods, the carpet is typically a goner anyway.  So instead of fighting this, rip up the carpet after the current tenant moves out, replace it with linoleum, and allow pets!  As my friend who invests in lower price rentals says, “Carpet?  What’s that?”

Allowing pets often makes for a better ROI.  Maybe landlords should consider showing pets more love!

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: 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!)