Is it OK to Visit My Rental Properties if I Have a Property Manager? I’m Sort of Curious To See Them…

 

Answer: Yes!  We live in the United State of America.  If you’re the owner, you are always welcome to visit your properties.  This right is usually written into the lease as well. 

 

This is a very short answer (and makes for a very short blog)…

 

For a longer discussion… the question could be whether it is advantageous for owners to visit their properties if they have a property management company managing them already.

 

Let’s look at 3 scenarios of an owner rental home visit.  Keep in mind (especially after COVID), at least one of the tenants will probably be home at some point during the home inspection:

 

Scenario #1 (Happy Time):

Owner knocks on the door.  Tenant enthusiastically answers and there is a warm greeting.  They tour the home together. 

Owner: “My, you keep my home up beautifully!  How did you get the cracks so clean between the countertop and backsplash? 

Tenant: “Oh, it was a trick my mother taught me- gently scrub a paste of baking soda mixed with lemon juice in with a toothbrush.”

Owner: “Splendid!  And thank you for always paying early!”

Tenant: “You’re welcome!  Have you met my 4-year old daughter, Ivory?  Honey, come say ‘hi’ to our landlord!” 

Owner: “She’s so cute!”

Tenant: “Thank you!  Can I get your number if I have an emergency and can’t get in touch with the management company?  They’re sort of slow sometimes.” 

Owner: “Sure!”

 

Upside: Owner has firsthand knowledge of the property and a budding friendship?

Downside: It might be necessary to evict the tenant and her young daughter.  A personal connection makes this tougher.  The tenant now has an influential third-party to go to when the property manager’s answers are not to the tenant’s liking (the old “Go to Mom when Dad says ‘no’” trick).

 

Scenario #2 (Unhappy Time):

Owner knocks on the door- no one answers.  Owner keys into the property.  Family is eating dinner.  Tenant has been late on the rent.  The home is really messy and not maintained.  Owner speaks to the tenant.  Tenant had a tough day at work and complains about repair issues with the house.  An unhappy conversation ensues.  No one is happy when the owner leaves.

 

Upside: Owner has firsthand knowledge of the property

Downside: The relationship with the tenant is potentially complicated.  There are negative feelings on both sides that may lead to sub-optimal choices that erode the relationship further.

 

Scenario #3: (Normal Time):

Owner knocks on the door- no one answers.  Owner keys in and no one is home.  Owner walks through, inspects all the rooms, and takes a few notes.  Owner is preparing to leave and the tenant arrives home with her daughter from basketball practice.  Owner and tenant cordially greet each other and then each continue along with what they were doing.  Owner leaves. 

 

Upside: Owner has firsthand knowledge of the property

Downside: None

 

As a property manager, our goal is to maximize our owner client’s investment; a large part of that is creating a drama-less relationship where rent is paid, the home is maintained, and needed repairs are done.  We want to create an environment where tenants want to extend their leases and have no landlord-related reasons on why they wouldn’t.  They are free to enjoy their rental home and live their lives.  If at some point we need to file for eviction, the decision is based more on a business case as opposed to any emotion either way.

 

It's a boringly successful relationship for all parties.  Ran correctly, it’s a beautifully benign operation.

 

And it is entirely possible that an owner visit would not affect the tenant relationship at all!

 

But… going back to whether owner property visits are actually advantageous, we still don’t recommend them as the safest move seems to let things be.  It doesn’t seem wise to add any potential disruption of this boring relationship when there is no tangible upside. 

 

Owners are always welcome to visit their rental properties for any reason, including curiosity!  There just seems little to be gained and much to be potentially lost.  Why take an unnecessary risk? 

 

Happy Landlording!

McAlister’s Deli “Service Fee” Strategy: Applicable to Rental Homes?

 

The (FTC) complaint alleges that (a large property management company) advertised monthly rental rates that failed to include mandatory junk fees that could total more than $1,700 yearly… These undisclosed fees ranged from “services” such as “smart home” technology and “utility management,” to air filter delivery and internet packages. Renters could not opt out of paying these fees.

(www.FTC.gov)

 

Some friends and I meet for a Bible study on Monday nights at the local McAlister’s Deli.  After buying my sandwich one night, I started to peruse my receipt after paying.  I was trying to figure out why my regular sandwich cost so much and looked at the bottom of the receipt.  I saw the tax amount (can’t dodge that!), but above it was an itemized “Service Fee”.  And here I thought I had just picked the sandwich up at the counter…

 

I clicked on an icon next to the aforementioned “Service Fee” and it offered a fuller explanation.  “This fee is used to help pay for the restaurant’s app and website.”  Surely, companies can’t charge for that as a mandatory fee.

 

Wait- or can they?

 

I always thought companies were only allowed to upcharge under the condition that they added more value.  If McAlister’s allowed me to add another slice of cheese to my sandwich, I’m fine with them charging me more.  If I wanted a bigger drink than what is in their value meal, I’d expect to pay more.  But ordering on their app or website?  Isn’t maintaining the on-line ordering portals the cost of doing business in today’s environment?  And isn’t it cheaper and easier for them if I use them?

 

The line on chargeable value has gotten blurred in rental real estate as well.  As property management companies have piqued Wall Street’s interest of late, maximizing revenue is being stressed and companies are getting really “creative”.  Now I’m all for “revenue enhancement” as making more money is generally good.  However, fees should be generated by providing tenants voluntary options that could make their lives easier or give them greater flexibility; mandatory fees for unwanted or unwarranted services could easily cross a line (see the FTC blurb above detailing the “value-added services” that incurred a $48M fine).

 

We are starting to have tenants ask us things like, “Is the rent really $1,800/month or are there hidden fees that are not mentioned?”.  Being that these questions are being asked at all means this practice is becoming prevalent; legislation and more enforcement is probably on the horizon.

 

Landlords and property managers all aim to maximize revenue for their real estate investments and rightly so.  However, we need to be cautious and make sure a fair value proposition is made.   If any fees are questionable and wouldn’t withstand scrutiny, they should be scrapped.  Landlords should be on notice and make sure general business practices on add-on fees stay on the right side of the law.  “Service Fees” for common technology usage may only work in the food industry.

 

Happy Landlording!

How Much Do You Know About Thanksgiving? And Your Rental Home?

My 9-year old daughter, Emme, decided she wanted to have a family “Thanksgiving Trivia” game this year.  She dutifully came up with some questions about the holiday that we’ve celebrated every year.  Just through osmosis, I figured that the adults would know most of the answers.  How hard could it be?  I pictured Pilgrims eating turkey and corn with the natives while celebrating the bountiful harvest together with some boats in the background.  That’s at least the sanitized version of events I thought we’d cover.  And it would be multiple choice!  How hard could it be?

 

Well, she didn’t take it easy on us.  Some actual questions:

 

1. How many women were the first Thanksgiving? (5, 7, or 10?)
2. How long did the first Thanksgiving last? (3, 5, or 7 days?)
3. How long was the Mayflower’s voyage from England to America? (66, 77, or 81 days?)
4. How many countries celebrate Thanksgiving?  (11, 16, or 20?)

 

As each person filled out their trivia sheets, it became apparent that we didn’t know Thanksgiving quite as well as we may have thought.  Our ancestors would not have been very proud!

 

It made me think of how well we really know our rental homes.  Sure, we may know how many bedrooms and bathrooms they have.  The advanced landlords may know how many square feet and how large of a lot it has off of the top of their heads.  But what about the aspects that would really make people interested in it?

 

One of the key aspects of marketing is differentiation.  Why would a potential renter pick one 3 bedroom / 2 bathroom house with a .25 acre lot over another with the same features?  Most of the rental homes in Charlotte were built in subdivisions that offer a large degree of uniformity.  Why would one cookie-cutter home be more desirable than another cookie-cutter home? 

 

Price and availability are certainly two differentiators.  If one home is on the market for $2,000/month and one that is close to the same is $1,800/month, the $1,800/month house obviously presents better.  Or if there is only one house available in a desired subdivision, that would also work well- one can only take what they can get!

 

But if there are five rental houses in a subdivision that are available and priced similarly, what would make one stand out?

 

As a Charlotte property manager, one of the questions we ask our new clients is what made them buy their house in the first place.  What were the special characteristics that made them want their house over all the others that were available?  Some have some great insights on why and that really helps in marketing; usually they had lived in it at some point.  Others don’t know.

 

For those that don’t know, that’s okay.  But as the people who are responsible for positioning their home in the marketplace, we need to come up with this differentiation.  What’s special about this rental home that we want potential renters to focus on that other rental homes don’t have?  “This home’s large, manicured backyard boasts a built-in, outdoor gas BBQ and covered back patio making it perfect for outdoor gatherings with friends!” is an example.

 

This also plays into what type of home renovations to do between renters.  Do we want to focus repair dollars on the making the kitchen really nice so we can use something the effect of “Enjoy the smell of simmering cocoa on the new stainless steel stove while leaning against the new granite countertops in your spacious gourmet kitchen!”  I remember picking a hotel to stay at in the mountains during one winter that highlighted the “recently renovated bathroom with heated bathroom floors” as its point of marketing emphasis.  It sold me on an otherwise non-descript room.

 

To consistently succeed in a crowded rental market, smart landlords will know their rental home well enough so they can highlight point(s) of differentiation to entice prospective tenants.  It’s tough to win the Thanksgiving trivia contest by only knowing the basics of the holiday!

 

By the way, the correct answers to the trivia questions above are respectively: 5, 3, 66, & 11.

 

I hope you had a great Thanksgiving & Happy Landlording!

High-Tech Taco Joints & Missing Landlord Reports: Do People Matter?

 

I went to a newly-opened Mexican restaurant the other day to meet a friend for lunch.  When we entered, I was expecting a nice hostess to say “hello”, take us to our table, and hand us some menus.  Instead, we were greeted with some imposing automated ordering machines.  I looked at my friend and asked him if he knew what to do.  He shook his head “no” and then stepped forward to start pecking at the screen.

 

Meanwhile, a manager saw these inquisitive middle-aged men jabbing their fingers into the machine and saw that we may need assistance.  She dutifully came over and began to give us a tutorial on how one would go about ordering.  I told her we had never been there before and wanted to know what she would recommend.  She looked at me quizzically and seemed to recommend that I get with the program and push the screen enough times properly to actually order something.  Fair enough.

 

The prices seemed pretty high for standard taco fare (couldn’t I buy 3-4 large pizzas for this?), but we were past that point.  The machine already had a nice tip in mind for me, automatically applied it to the bill, and was prompting me to just tap a credit card and get moving.  As my card registered with a beep, I was prompted to enter my cell phone number.  When I complied, a text message buzzed with the order number (telling me to pick up a table marker with the corresponding number), my receipt, and a link to sign-up for some restaurant points system.

 

The manager brought us our drinks and told us our food would be out shortly.  One minute later, the tacos were on the table.  We ate.  The manager came back out and asked us how the food was.  I told her it was fine.  She then made a heartfelt plea for a 5-star Google review.  I was non-committal, but she showed me how easy it was to access the review page by asking for my phone and pressing a card with a Google logo against it.  Nothing happened.  Once she discovered that I was an unenlightened Android phone user, she gave up and told me to visit their website when I had time.

 

For a tech person, this restaurant may have been nirvana.  It took the people component largely out of the restaurant experience.  For me, it was a sure sign of the downfall of western civilization.  These types of restaurants are not my thing.

 

I guess I should have done my own investigation and saw what this new place was about before I went.  It had a non-corporate name, but my friend told me they had locations all over the place in other states.  He had asked around and done his homework!

 

To the real estate front… this situation made me think about how few landlord reports we get asked for nowadays when our tenants vacate.  We used to regularly get other landlords contacting us to ask to see what type of tenants they were for us; there was an importance to it!  Like homework, it wasn’t something that anyone really liked to do- it takes effort to pick up the phone, track down the past landlords, send the required information consent forms, get the questions answered, and look into housing gaps in a landlord history.  But, to me, it might be the most valuable tool we have to assess incoming tenant quality and identify red flags.  Past landlords will largely tell you how it is.

 

Like the restaurant business, property management has always been a people business.  If tenant assessment is only done on a spreadsheet level, important (re: costly!) things can be missed.  Asking around and digging in further than a credit score and criminal report can pay big dividends.  Upfront effort can lead to the long-term benefits of finding a great tenant for a smooth tenancy. 

 

High-tech taco joints and algorithm property management can sound good on paper.  But smart landlords (and restaurant owners) know that old-fashioned, low-tech people interactions can prove to be the most vital component of repeat business and successful leases.

 

Happy Landlording!

Prince Rents Out an NBA Player’s Home: Worry or Opportunity?

 

Being in the industry, high-end home rental stories are interesting to me.  I read a good one from former NBA player, Carlos Boozer, who wrote about the time he rented out his house to the famous singer, Prince, of Purple Rain fame.

 

Boozer had recently bought an 18,000 square foot, 10 bedroom/13 bathroom house in Bel-Air, California.  Apparently it had once been owned by the president of Interscope Records (this wasn’t Uncle Phil’s house…) and was pretty gaudy.  But he wasn’t going to realistically live there any time soon; he played for the Utah Jazz so he had a house in Salt Lake City during the basketball season.  It was going to sit vacant for a while.

 

His real estate agent got a call from a party inquiring about renting it.  He wasn’t interested at all; he just paid to decorate it and hadn’t even lived there yet!  But the interested party was adamant and then he threw out what he would pay- $75K/month for 8 months- that’s $500K+ in rent for less than a year.  Boozer was sold.  He flew out to meet the new tenant who happened to be Prince.  Prince was convinced he needed to write his new album in this house because it inspired him.  Boozer handed him the keys and went back to Utah.

 

A few months later, Boozer was back in the Los Angeles area on business and stopped by the house.  His mouth dropped when he went inside.  The entire house had been remodeled, repurposed, and redecorated.  Purple was everywhere.  The carpet was replaced with a different color.  The couches were different.  A bedroom was made into a hair salon (how did they run water into there???).  The weight room was a dance club.  It was crazy!  There were a ridiculous amount of lease violations.  He called the tenant immediately.

 

Prince would not take or return his calls.  Boozer didn’t know what to do.  All the advice he got was to file a lawsuit against Prince to protect himself.  He had been ignored for two months and he could barely recognize his mansion anymore.  His biggest fears had been realized; a great opportunity had turned into a nightmare.

 

As a Charlotte property manager, we get the opportunity to manage high-end rentals on occasion (though the numbers are much, much lower than Bel-Air!).  One of our main jobs in these instances is to lower the owner’s risk as much as possible.  That really boils down to two main things:

 

1. Screen the tenants thoroughly.  A good tenant can leave the house looking better than when they took it over.  A bad tenant can cause much more damage than the rent intake due to the sheer cost of a larger, more opulent residence.
2. Make sure the rent is high enough to exceed the risk.  The good news for very high-end rentals is that there is a limited number of them on the market typically.  This allows for a certain degree of pricing power.  And there is only a certain subset of people who are willing or able to take on a large rental payment; if they like the rental home, the price is not usually the primary reason they would pass on it.

 

I’m not sure what I would have done in landlord Boozer’s shoes.  I really hope we would be able to settle it outside of the courts like Boozer stated he wanted to do.

 

As a postscript, Prince eventually returned his calls.  He was in Asia on his world tour and wasn’t getting messages.  Prince assured him everything would look exactly the same when he got his house back; then he wired him another $500K to reassure him (that brought the total rent tally to $95K/month for the duration of his stay!). 

 

As Boozer tells it:

 

Once Prince’s lease was up, CeCe (Boozer’s wife) and I flew to L.A. to survey the damage, like parents coming home from a weekend to find their kid has thrown an absolute rager. Pulling up, the gate symbols and the purple exterior carpeting were gone. Inside, harsh purple and black had faded back to the neutral palette CeCe had selected. The furniture and other decor were where we had left it. The discotheque was gone, as was the hair salon. My weights were where they were supposed to be. Everything was back in its place, down to the silverware. Prince kept his word.

 

All’s well that ends well?  The worry is worth the opportunity?  Granted, the risk versus reward is important to balance upfront, but most house stories do have happy endings if structured properly.  Plus, you may get a cool story out of it!

 

To read the story in its entirety from Boozer’s book, click here.

 

Happy Landlording!

Bad Times to Buy Bank of America Stock and Charlotte Real Estate?

 

“(Warren) Buffett famously bought $5 billion worth of BofA's (Bank of America’s) preferred stock and warrants in 2011 in the aftermath of the financial crisis, shoring up confidence in the embattled lender struggling with losses tied to subprime mortgages.”

7/30/24 CNBC.com article by Yun Li

 

“The Charlotte Regional Business Alliance reported about 113 people moved to the Charlotte metro every day between mid-2021 and mid-2022. That's more than 41,000 people moving to the region every year.”

CLT Today 3/11/24

 

I remember hearing many years ago that the longer you live, the more economic cycles you’ll see.  The “Dot.com Bubble” (2011) and COVID (2020) are ones I remember readily.  But from a severity perspective, ‘The Great Recession” (2008-2010) was the most memorable and crushing.

 

Living in Charlotte, Bank of America casts a big shadow as it houses our largest corporate headquarters.  And it got hammered during the Great Recession.  Warren Buffett, arguably the greatest stock investor in history, invested $5B in 2011 when it was trading in the $5/share range.  The lowest it had dipped to was $3.14 in 2009 and it was teetering along for years as it hemorrhaged losses from its Countrywide Financial acquisition.   

 

At the time of his investment, Buffet said,

 

“Bank of America is a strong, well-led company, and I called Brian (Moynihan) to tell him I wanted to invest in it,” Mr. Buffett said in a statement. “I am impressed with the profit-generating abilities of this franchise, and that they are acting aggressively to put their challenges behind them. Bank of America is focused on their customers and on serving them well. That’s what customers want, and that’s the company’s strategy.”

 

Today, Bank of America’s stock price is around $40/share and Buffett has been in the news lately for selling some of his shares for billions in profit.

 

That’s what all investors want- buy low and sell high!  But Buffett’s big payday took a long time to come to fruition as the stock languished for years.  It was unknown when Bank of America, and the economy in general, would come back.  But Buffett believed in Bank of America’s fundamentals. 

 

We’re starting to see a real estate slowdown in the Charlotte market.  There was a time, no too long ago, when a house on the market for sale would get multiple offers.  Now, things have slowed, houses are sitting a bit longer, and price increases have waned. 

 

Are home prices too costly?  Interest rates too high?  Economy too risky?  A combination of these and other factors?  Are these buyers right?  Is it a good time to sit on the sidelines? 

 

Or… is this price stabilization a great opportunity for real estate investors?

 

It’s tough to know for sure. 

 

There are facts, though, that are undeniable.  People continue to move to Charlotte every day in droves and have been for years.  Everyone moving here needs a place to live.  Housing is a needed commodity. 

 

As Buffet said about his investment in Bank of America during an uncertain time, he wanted to get involved based on the company and its direction.  Charlotte has an average of 113 people moving here everyday in need of housing.

 

Is this a bad time to buy Charlotte real estate?  Or is it a great time?

 

Happy Landlording!

What To Do When Elon Musk & Bill Gates Both Apply for Your Nice Rental House

In this month’s edition, we have a riveting property management fairy tale!  Once upon a time in a nice, far-off place called “Charlotte, NC”, a nice landlord put a nice, vacant rental house on the market.  Now the market was not too hot, not too cold, but just right… 

 

The next day, a nice rental application was submitted for it.  And the day after that, another nice rental application was submitted.  The nice landlord dutifully ran the applications and found that both applicants looked to be fully qualified:

 

Tenant #1:

Elon Musk

802 credit score

Criminal record: 3 traffic tickets in last 3 years

Employed: CEO of X, SpaceX, & Tesla, Inc.

$221.4B net worth

Homeowner: no recent personal landlord history

No pets

Move-in date: 35 days from today

Length of lease desired: 2 years

 

Tenant #2:

William (“Bill”) Gates III

814 credit score

Criminal record: None

Employed: CEO of Bill & Melinda Gates Foundation

$127.3B net worth

Homeowner: no recent personal landlord history

Pets: 1 cat (10 pounds) & 1 border collie (60 pounds)- aware of non-refundable pet fees

Move-in date: immediate upon acceptance

Length of lease desired: 1 year

 

The nice landlord has a very nice problem!  Two well-heeled applicants want his rental property.  They have 800+ credit scores, no criminal background issues, plenty of income, and no landlord issues.  That is great!

 

But outside of the nice fairy tale, is it really great?  How would a regular landlord pick a winner and a loser?  He may have to be not so nice?

 

The Musk application has many positive aspects with it having no pets and wanting to lock into the property longer with a 2-year lease request.  But there is a 35-day wait for occupancy (each vacant day costs money!) and there is a criminal record (frequent speeding tickets can signal risky behavior).

 

On the other hand, Gates wants to move in right away (cha-ching!) and has a higher credit score than Musk.  But he does have a lower net worth and who knows the damage the 2 pets could do to the house especially if he leaves after the initial lease ends.

 

So under normal circumstances and with no one else involved, both tenants would easily be approved for the property.  But there is only one home.  And they probably don’t want to share it.  So what to do?

 

It’s a tough one and it happens every so often.  Unfortunately, the non-approved person usually gets upset.  But a decision has to be made. 

 

I don’t think there is perfect methodology for this.  Some landlords use tactics such as:

 

1. First application in gets first dibs on the house: I like this one due to its simplicity and it seems to have the “get in line” logic that most adults can appreciate.  Its major flaw is that a property manager really needs to pick the best available applicant for the owner client, regardless of who was first.  If a marginal candidate applied first and then Bill Gates submitted an application, should I be married to the marginal candidate?  I don’t think so.
2. Make the applicants give their “highest & best” offer: The rent is listed at $2K/month.  “How much rent are you willing to pay if we let you have the house- $2,500/month?  Will you sign a 3-year lease?  Move-in right away?”  We’ve done this on occasion and it’s a lot of effort and most people don’t want to play (I’m not sure I would either).  Due to the bad feelings it creates, I largely tend to shy away from doing this.
3. Have some sort of points system based on all quantifiable application information.  Add up the points and whoever has the highest score wins the house.  This does not take into account any non-quantifiable information (or “soft skills” for lack of a better term) which tend to matter a lot with tenant relations.

 

Trying to make a choice between great tenants can be a good problem to have if handled properly (in and out of fantasyland).  But I think I’d go with Musk application on this one.  It’s very nice!

 

Happy Landlording!