Renting My Home Out? What To Do, What Stays, What Goes, & the Lawn

 

As a property management company in Charlotte, we’ve fielded many different questions from homeowners who are contemplating renting their homes out to the public for the first time.  Below are a few popular questions from them in our proverbial mailbag:

 

1.  What should I do to get my house ready for the rental market?

 

Make it look good. 

 

Okay, that was the succinct answer for our busy clients; but it’s accurate.  I visited a property recently that had sat on the rental market for months.  When approaching the property, the lawn was not mowed, half the front shrubs were trimmed (and half were not), and a window was broken.  Really, the sale was lost before any prospective tenants even set foot into the home. 

 

So, make the house look good.  But don’t go for broke doing it.  Touch-up paint, normal yard maintenance, carpet steam cleaning, and a professional cleaning should be almost all that is needed in most cases. 

 

 

2.  I’m moving out of my house and want to leave some things behind.  Do I need to worry about the incoming tenant messing with my stuff?

 

Yes.

 

And I don’t mean to make tenants out to be bad people here.  Chances are, 99.99% of tenants don’t care what is in the boxes in your attic and will never check.  But Murphy’s Law dictates that the owners who decide to leave their original Picasso in the garage storage closet will find it missing when their tenants move out.  Or the tenant’s kid’s name scrawled in crayon all over the canvas.

 

So, the rule of thumb is, if you care about something, don’t leave it in the house.  Somehow, someway, it will be taken or defiled and you’ll kick yourself.  If you don’t really care about the stuff, you can leave things (within reason) in the attic or another inconspicuous storage area.  After all, it’s still your house.

 

 

3.  I LOVE my lawn.  I work on it all the time and my neighbors fawn over how GREAT my landscaping is.  The Charlotte Observer takes pictures of my house because their gardening reporter says my lawn “gives him hope in a dark world.”  But, alas, I need to move out of town.  If I leave detailed instructions, will the tenant take care of the lawn like I ask?

 

No.

 

And, please, sell the house instead so you (and the gardening reporter) are not rudely confronted with what a disinterested tenant will allow your meticulously manicured lawn to morph into.

 

However, if selling is not in the cards, then the advice to keep your sanity:

 

a.  Set very low expectations for your lawn’s upkeep (aka the lawn will be mowed approximately every 2 weeks- that’s it.  And the gentle, mineral water feedings are over; pray for rain.)  Unfortunately, there’s really not much a property management company can legally do if the lawn is kept at city code and doesn’t violate any HOA covenants.  As a landscaping aficionado like you knows, we’re talking bare bones upkeep.

 

OR

 

b.  Start a landscape contract for a gardener to visit your home every 10 days and keep it to your specifications.  You can try to include this (lawn care included!) as a selling feature in the rental ad (and increase the rent accordingly); however, it is typically tough to sell the value of included lawn care because few people read the rental ad copy in its entirety and then go a step farther to do the actual math to see if it’s a good financial deal versus other slightly less expensive rentals.  You’ll probably take a small financial loss versus not offering lawn care, but will gain valuable piece of mind that your lawn is not suffering a slow, gruesome death.

 

And that’s all from the mailbag this time.  Good luck!

 

Brett Furniss is the President & Owner 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, condos, and town homes in the Charlotte-Metro Area.  Contact Us Today!

What is the Key to Marriage & Great Property Management?

I was in a marriage communication class this past Sunday at my church.  And the leader began the class by loudly exhorting:

Who wants to have a GREAT marriage???

Everyone enthusiastically cheered and nodded assent.  I quietly commented to my wife that a great marriage did, in fact, seem better than the alternative.

As I felt a sharp elbow in my rib cage, the class leader seized the building momentum with a slide showing a breakdown of a person’s average communication:

7% Verbal                  

55% Non-verbal (ex. aforementioned elbow to ribcage)

38% (the dreaded and infamous) Tone

So, how does this marriage advice fit into performing great property management?  The keys is effective communication via verbal, non-verbal, and tone to your tenants.

To break it down:

A.  Verbal: Present the important points of the lease to the tenant in person.  For me, the Big 3 items to communicate are:

1.  Pay rent on time and in full every month

2.  Maintain the property (cleaning, changing air filters, etc.)

3.  Get along with your neighbors

B.  Non-verbal: Make sure all important points are fully written out.  The writing should be clear and concise; it should include a good lease and other things you care about (lawn care, handling repairs, etc.).  If there is confusion with a tenant about anything in writing, re-write it so it doesn’t confuse the next tenants.  Each cumulative year in the property management business should see a corresponding decrease of tenant/property manager misunderstandings (lack of properly communicated expectations is the root cause of most disputes).

C.  Tone (wasn’t this the subject of a Seinfeld episode?):  Be nice.  At the end of the day, it is a people business.  As the Bible says, “If you live by the sword, you’ll die by the sword.”  Though there are many advantages to taking the emotion out of the business and using a Draconian decision tree approach to management (ex: if they don’t pay by the 16^th, we file for eviction every time), I personally feel that’s a poor methodology (both operationally and from a ROI standpoint).  Emotion matters.  Parents being able to provide a home for their families matter.  Most people don’t take being removed from their homes through court order lightly; they just need some occasional compassion to get through rough patches.  Be nice, to a point. 

By using a confluence of verbal, non-verbal, and tone communication, you can manage your property well and have a great marriage to boot!

Brett Furniss is the President & Owner 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, condos, and town homes in the Charlotte-Metro Area.  Contact Us Today!

Should I Sell My Rental Home?

From the mail bag… (aka a question I may have made up to write about)

 

 Q: I have a few occupied rental homes and wonder if I should sell one of them now that the market seems to be improving.  What are your thoughts?

 

A.  Oh, this is a surprising question from left field!  And a great one!  Kudos to you, mighty thinker!

 

It is a tough decision on whether to unload a rental property.  If you decide it may be time to do so, the first thing is to establish whether you can by asking 4 questions:

 

1.  What is the realistic value of my property?  Have your trusted real estate advisor run sales comparables and put your home’s value at the low end of the range for estimating purposes.

 

2.  How much will it cost to get my property in sales shape?  In my opinion, there is a difference between getting a home in rental shape and sales shape.  With a rental, you may get away with steam cleaning the carpet and touching-up the paint; with sales, there is a lower threshold for cosmetic issues which may mean replacing the carpet and repainting the house. 

 

3.  Do I have the money to cover the mortgage and utilities while the rental home potentially sits vacant for months?  Generally-speaking, showing a home effectively with tenants in it is tough.    

 

4.  Do you have the money to pay the selling costs (Realtor fees, closing costs, less than full market offer, etc.)?

 

So, the math looks like:

 

Answer #1 – Answers #2, 3, and 4 = $$ (hopefully a BIG, positive number)

 

Then the question is: Is $$ above worth selling the property for?

 

If so, do it. If not, continue to hold the rental until the market and your mortgage balance improves further.

 

However, there is a scenario that skews the math and lets you skip cost items #2 (home cosmetic fix-up) and #3 (home vacancy costs), and eliminate or reduce #4 (selling costs in terms of Realtor fees)…

 

Q.  OK, I’ll bite.  What is the scenario?

 

A.  When the tenants in your rental home want to buy it for themselves.

 

This is the #1 question to ask if you think you may want to sell your rental homes.  ALWAYS ask the tenants first.  If they do want to buy it, get them in touch with a mortgage broker and see if they qualify. 

 

If they qualify, this is a win-win exit strategy.  The tenants get to start building equity in a home that they already love.  And you, the owner, get to avoid much of the costs and uncertainty of selling your rental home.

 

And what if the tenants proactively ask you if you are willing to sell your rental home to them when you’re not quite sure you are ready?  You want to think REALLY long and hard about it.  These opportunities don’t come up that often and you need to make sure that it is something you really don’t want to do.

 

Cash is king and the purpose of investments is to make money.  Two well-worn adages come to mind:

 

A bird in the hand is worth two in the bush.

 

AND

 

Buy low, sell high!

 

Happy investing!

 

Brett Furniss is the President & Owner 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, condos, and town homes in the Charlotte-Metro Area.  Contact Us Today!

3 “Insider Tips” When Buying Your First Rental Home

I got a call from a friend of mine from college, “Rich”, a few weeks ago.  After the prerequisite ribbing was completed (Do you have any hair left?  Is your Linked-In profile photo from your high school yearbook?  Are you still awful at basketball?), Rich got down to business:

“I’m thinking of buying my first rental home for investment.  Got any advice?”

Me:  “Ummm… have you looked at the blog I’ve been writing for the past 5 years entitled ‘Charlotte Property Management?’  It seems like all I do is spout out advice on this stuff.” 

Rich: “Sure… I read it all the time, sometimes to my kids at night.  I meant any other advice for the special people in your life.” (wink, wink)

Me: “Oh, the “insider tips”?  Of course!  It will cost you, though!

I suppose “insider tips” means the advice from people that have been burned (or are getting singed monthly) on investing errors.  They now know better.

My top 3 insider tips for first time investors:

1.  Don’t buy in low-priced areas (aka places where you are buying the house for under $75K in Charlotte).

Common retort: “But I can get the house for $15K.  There is a tenant paying $400/month.  And I could buy 10 of them just like this one.  The cash flow would be insane!”

My response: Can you stomach getting calls that say any of the following:

a.  I just saw someone get shot in my driveway!

b.  The air conditioning unit got stolen again.  Should we order you another?

c.  I think my flooring is caving in.

Sadly, I’ve gotten these calls.  I (and my checkbook) didn’t enjoy taking them. 

2.  Hire a great property manager.  I know I’m biased, so I won’t expound on this.  Suffice to say, you don’t know what you don’t know.  And you may enjoy cost savings from not paying a property manager for years; then you make one mistake that wipes out all of the savings and you wonder why you were taking tenant clogged toilet calls at midnight for no long term financial benefit. 

And my top tip…

3.  Don’t get a mortgage; wait until you have the funds and then pay for the house with cash.  Or at least pay more than 50% with cash.

It’s a drain on cash flow when you need everything to go right to make money every month (or to break even).  Because things break (sometimes major things), tenants don’t always pay (but you better pay your bank!), and you will find yourself losing money.  Yes, your accountant will tell you that it’s great for your taxes, but it stinks in real life.  The purpose of investments is to make money.  Locking into an investment that consistently saps your cash flow is no fun.

Example: $1,000 rent - $850 mortgage payment – $100 property management fees – $250 HVAC repair = $200 loss (bad feeling)

Or

$1,000 rent - $0 mortgage payment (you paid with cash!) – $100 property management fees – $250 HVAC repair = $650 gain (good feeling!)

So, Rich, my insider advice in a nutshell is… Set yourself up in a wise, peaceful manner so you can enjoy and make money on your real estate investments!  Be disciplined now so your assets don’t become financial and emotional liabilities…  And don’t crack on my hoops game!

Brett Furniss is the President & Owner 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, condos, and town homes in the Charlotte-Metro Area.  Contact Us Today!

“When To Evict Or Not To Evict”, That Is The Question

"I'll gladly pay you Tuesday for a hamburger today…"

Wimpy

“I will have the rent for you next week- guaranteed!”

Late Tenants

As a property manager in Charlotte, collecting rent is obviously one of our main functions (in my opinion, the most important function!).  Our primary job is to create the most favorable ROI for our clients; we need to be taking rent in for this to be a reality.  When we are collecting rent on time and in full, all things are typically good with our owner clients.  If a tenant is not paying, things aren’t so grand.  And we like things to be grand with our clients!

When a tenant doesn’t pay, eviction is always a last resort.  It’s costly, time-consuming, and stressful.  And, to boot, the tenant will usually tell you they are going to have the money for you next week!  The mind games begin.  You can surely hold out until next week to get paid!

But then next week comes and there is a new excuse.  “My paycheck was shorted!”  That’s one when you don’t feel that badly about going the eviction route.  But when the tenants pull out the big guns like, “My mother is dying and I had to use the money for the rent to fly out to see her one last time (the last time I saw her 2 years ago, we said things we both regret- I couldn’t leave it like that).  I had no choice…  But I get a bonus next week from work and will pay you then!”  That’s tougher.

We get calls from home owners who have tenants who haven’t paid for 6 months.  Once they get that behind, they’re never going to get caught up. 

So what’s the answer?  At what point should eviction be filed?

First of all, bad things occur and many tenants are going paycheck to paycheck.  When a big expense (aka major car repair) happens, the money just isn’t there for that and the rent. 

But most people get paid twice a month (the 1^st and the 15^th).  Filing for eviction prior to the 16^th day of the month doesn’t allow you to get those funds.  So I believe filing for eviction on the 16^th is the earliest point in which it makes sense to do so.

If they aren’t able to make good by the 16^th, the next factor to look at is the tenant’s income from when you did the original tenant screening.  How much money do they make?  Is it even possible for them to come back from being a month overdue (their next paycheck)?  For some people, it’s just not possible. 

Note:  This is something I would strongly recommend paying strong attention to in the tenant screening process.  Watch the income to rent ratio- when it is too high, it makes you highly susceptible to negative events happening in a tenant’s life.  You ideally need to be less than 33% (examples: $3,000 monthly income and $1,000/month rent = 33% ratio.  $4,000 monthly income and $1,000/month rent = 25% ratio.  25% ratio would be much better!) 

    

If their income is too low, eviction should be filed right away.  However, if they make enough money to pay the rent by the 1^st of the following month and then get caught up sometime later that month (and express an earnest willingness to do so), then I’d wait.  It could be worth the gamble. 

But set hard, no-excuse deadlines at this point.  If you don’t have all of the money by the 1^st, you need to file for eviction to protect yourself.  After a month goes by with no rent, you can’t wait any longer (no matter how good the excuse is).

If the tenant really is going to have the money in another week like they claim, they can bring it to court and stop the eviction.  If not, you need to move on and take the loss.  There is really no excuse to go multiple months without full rental payments.

Timing evictions for maximum ROI is a judgment call.  But going past 30 days is a dangerous and usually unfruitful proposition!    

 

Brett Furniss is the President & Owner 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, condos, and town homes in the Charlotte-Metro Area.  Contact Us Today!

Security Deposit Dispersion: Should You Treat Long-Term and Short-Term Tenants Differently?

Scenario #1: Melissa has been in your rental home almost as long as you’ve owned it.  And it’s been a good ride!  It started out as a standard tenant-landlord relationship with formal calls for repairs and rent checks sent solitarily in the envelope.  But over the years, Melissa (now “Mel”) has really grown on you and vice-versa. 

It started when she had some tough financial times and asked for you to allow some late payments.  You assented and wound up having some deep conversations after the initial rental payment was discussed.  A few years later, the water pipe blew and ruined many of her things.  You promised to make it right; Mel paid her rent diligently and never complained about all the workmen coming in and out of the house for a few weeks.  She really could have!

Over the years, Mel started sending some pictures of her kids having major life events in with her rent check every few months.  Oh, how you looked forward to seeing what had become of her family.  You were so proud of them!  But now, with Michael, Jr. graduating at the end of the summer, Mel has told you that she needs to downsize.  And that means she’s moving out.

Mel has been a tenant for 12 years.  And you have to admit that your stomach has been in knots since that phone call.  On one level, you knew this day was inevitable.  On another, it’s almost like losing a family member. 

Scenario #2:  Wally moved into your Uptown Charlotte rental condo right after his internship at Goldman Sachs ended in Manhattan so he could take a job with Bank of America.  You knew Wally would never be Mel.  This condo was clearly a stepping stone for him to get used to the area and figure out where he wanted to live in Charlotte (or elsewhere in the world).   

Wally was very cordial and business-like when you met him to sign the 1-year lease.  “You’ll probably never hear from me!” he joked.  And he was right.  He set up his on-line bill pay and his rent checks showed up on time every month (sans any other correspondence).  And, expectedly, about 40 days prior to his lease expiration, you got an e-mail from him giving you his 30-day notice to let you know he was moving out. 

Two of your tenants are leaving and you’ll have to do two walk-throughs so you can disburse the security deposits.  Personal feelings aside, do you treat these 2 tenants differently from each other?

Absolutely.

Tenants should be charged for any damages beyond normal wear and tear.  The amount of normal wear and tear for someone who lived in a rental unit for 1-year versus 12 years is substantial. 

Fix-up expectations for a 12-year rental:

1.  Probable repainting of entire home

2.  Probable carpet replacement

3.  Professional cleaning

4.  Replacing miscellaneous worn out items throughout house

Likely charge to tenant: $0.00

If a tenant lives in your property for 12 years, that’s a lot of normal wear and tear.  It would be difficult to justify charging them anything (short of them detonating a bomb in your home prior to move-out).

Fix-up expectations for 1-year rental:

1.  Minor touch-up paint

2.  Carpet steam-cleaning (hopefully already performed by tenant prior to move-out)

3.  Professional cleaning

4.  Any damages beyond light wear and tear

Likely charge to tenant: That depends typically on how dinged up the walls and flooring are and if there are any major items of damage.  Tolerance for rental unit abuse is low.

Sorry, Wally, but you need to be really careful to keep things nice if you’re only sticking around a year.  But, Mel, you don’t need to worry so much and thanks for staying so long (I’ll miss you!); just because you moved away doesn’t mean you can’t keep in touch!

Brett Furniss is the President & Owner 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 (including Rent-To-Sell) for single-family homes, condos, and town homes in the Charlotte-Metro Area.  Contact Us Today!

How Much Should I Fix Up My Rental Home for the Next Tenant?

The perfect scenario: 

You are lounging on a sunny, deserted beach with your loving wife by your side.  You have a cold drink in your hand as you marvel at the solitude and beauty of your surroundings.  The only sounds you hear are the waves gently crashing in front of you and the occasional fluttering of a seagull’s wings.  The sun subtly warms your skin before a timely breeze arrives to refresh you.  You grasp your wife’s hand as she lovingly reciprocates.  And you just filled your last rental property with a tenant.  Life is perfect.

But, wait… is that your cell phone ringing in your beach bag?  Who could be calling you?  As you reach for the phone, your wife aggressively removes her hand from yours.  “You better not answer that!  We haven’t been away together since Eli was born and I’m not going to have our vacation ruined by work calls!”  As your eyes refocus to the numbers on the phone, you realize it is the new tenant.  “I’ve got to get this,” you mutter as your wife disgustedly begins to turn her beach chair away from you.  You feign an enthusiastic greeting of “Hey Herb, what’s up?  How’s the place?” as your eyes plead forgiveness to your now emotionally-estranged wife.

Herb begins his 10-minute rant, “This place is a dump!  The whole house is filthy!  The cabinets and appliances are especially gross and the entire trim needs to be repainted.  The landscaping has been completely neglected and the yard is mostly weeds.  My wife and I have spent our first 48 hours here on our hands and knees scrubbing and aren’t even close to being done!  The air conditioning doesn’t even blow cold air.   How could anyone live in this place??”      

“Multiple tenants have managed to survive the experience in past 12 years I’ve rented it out,” you want to retort and then think better of it.  You turn your head to see your wife disgustedly heading back towards the resort while pounding feverishly on her iPhone, undoubtedly spewing Facebook hate (Subject: You). 

Herb is irate and you hear his wife trying to get into the action in the background.  Once Herb says his piece, you tell him you’re very sorry, you’ll have someone over to look at the air conditioning, and will send the cleaners back (“No need!  If they think the condition they left it in was clean, I don’t care to entertain their second act!”).

So this is bad.  You thought you had the rental home in good shape and the tenants are ripping it apart.  You look up at the resort and see your wife talking to the pool boy as she uncharacteristically is downing cocktails at 9 AM.  This was supposed to be a relaxing, loving vacation and things are going very wrong.

What could have been done to avoid this tenant situation?  Honestly, nothing.  No matter how clean a house is left, some tenants will say it is filthy.  Cleanliness is subjective. 

There is a relatively predictable spectrum of responses from tenants after they move-in:

1.  10% will be happy with whatever condition the home is in when they move-in

2.  10% will be unhappy with whatever condition the home is in when they move-in

3.  80% will be happy if the home is reasonably clean and touched-up when they move-in

So if things are reasonably clean, all major systems are working, and the house has been touched up, 90% of tenants will be happy.  And everyone likes happy tenants.

And what about the unhappy 10%?  It’s not a desirable situation, but there is a silver lining.  You will take heat on the front end from them; that is for sure.  And you won’t like it.  But there are 2 positive takeaways:

1.  There was nothing you could have done to avoid their unhappiness.  If you fixed your home up to such a pristine condition, it would crush the ROI on your investment property.  And if you are going to pay to fix it up that much, do it only once and sell it for top dollar.  Don’t do it every year.  The objective (I’m told) is to make money on investments.

2.  When the initially unhappy tenants vacate, they will probably leave your home in move-in condition for the next tenant!  This allows you to take the pain now to experience joy later.

So, to sum it up:

1.  Fix-up your home in a reasonable manner between tenants.  This means all systems working, touch-up paint (don’t repaint the house), steam cleaned carpet (don’t replace the flooring), and professional cleaning.

2.  Hire a property manager so you don’t have to answer the phone on vacation. 
3.  Go get your wife!

Brett Furniss is the President & Owner 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 (including Rent-To-Sell) for single-family homes, condos, and town homes in the Charlotte-Metro Area.  Contact Us Today!