Tying the Knot with Your Tenant?

“What the true proverb says has happened to them: ‘The dog returns to its own vomit, and the sow, after washing herself, returns to wallow in the mire.’”

(2 Peter 2:22)

 

“Winning is not a sometime thing; it's an all the time thing. You don't win once in a while; you don't do things right once in a while; you do them right all of the time. Winning is a habit. Unfortunately, so is losing.”

(Vince Lombardi)

 

“Frustration is a function of our expectations.”

(Stephen Covey)

 

Relationships can be a funny thing.  I remember hearing some version of this soliloquy about a friend’s boyfriend years ago:

 

“John” can be a really sweet guy and make me laugh!  He brings me to cool places and, at times, makes me feel like the most special girl in the world.  He is ruggedly handsome and is a really good athlete.  He seems to be a big animal lover and is loving on his dog constantly (which is really cute!!).  He sees us being together forever.

 

But… he can also be really cold.  He can’t keep down a job and would get really angry at his co-workers and bosses in the past few places he’s worked.  He is really unpunctual and forgets about me when he’s around his guy friends.  His family has largely alienated him and I’m not sure he cares about anyone but himself (and his dog).   

 

He asked me to marry him and I said “yes!”

 

Wait- what??  Congratulations??? 

 

We have a version of this courtship in Charlotte property management with lease renewals.

 

A tenant and landlord signing their first lease could be viewed like a couple dating.  The tenant can see how the landlord treats them, how quickly inquiries are responded to, and if their business is handled competently.  On the other side, landlords can see if the tenant pays on time, follows the rules of the lease, and cares for the house.  It’s a two-way street.

 

When the first lease is near its expiration date, both sides have a decision to make on whether to keep the lease going.  Do they like each other?  Is the price right?  Does renting this home for another year sound appealing?

 

With a renewed lease, most things for the next year would probably be the same.  Any large behavioral change from either party would not be expected; even when people promise they will change some behavior, they tend to regress back to the mean at some point.  What happens during the first year of the lease is going to be close to what is happening during the second, third, or tenth year of the lease.  From a landlord perspective, the question to ask is whether the status quo is acceptable. 

 

If tenants pay late in 6 of the 12 months in the first year, the chances are they will be late as often in the new lease.  If the tenants are trashing the house in the first year, they are probably not practicing good housekeeping in the second.  Fortunately, the inverses are also true.

 

Renewing the lease and keeping a tenant is much cheaper and easier than fixing up a house and finding another.  But having peace with a rental home should not be minimized.  If late payments or communication issues cause landlords consistent unrest and anger, a lease should not be renewed; it’s not worth it.  However, if the business decision is made to renew a lease to a tenant who is not fully meeting the lease standards, expectations of future performance should be recalibrated.  The correct expectation should be more of the same.

 

Much like tying the knot with “John” after knowing his flaws, lease renewal decisions should be made in light of the respective tenant’s known behavior.  Everyone wants positive change, but it can’t be relied on.  Smart landlords become fully aware of who they are tying the knot with before signing on to extend their lease for another year!

 

Happy Landlording!

Sorting Out Large Estates & the Appliance Repairman Dilemma

 

A friend’s father passed away late last year.  When he died, it turned out that this modest man surprisingly had quite a lot of money; his son could really not believe the financial acumen he apparently had!  He left a rudimentary will that bequeathed everything to his three children (including my friend).  With this tough news, there was an economic silver lining.

 

But the father’s estate was a mess.  There were bank accounts everywhere.  He owned real estate in several states.  Documentation was half on paper and half on-line.  Some of the self-managed rental houses had leases, others were handshake deals.  There was no estate plan; everything was going to probate court. 

 

And complicating the matter, the heirs were not of the same mind.  Some of the siblings needed the money immediately, while others could afford to wait on trying to get the best prices.  It caused a lot of family unrest, on top of the grief they all shared at his passing.  A blessing had become a curse.

 

I thought of how his father could have made this process so much easier by employing professionals.  A good financial advisor could have had all of the financial accounts organized and available at the push of a button.  An estate attorney could have had the assets placed in a trust so they could have avoided probate court.  A property manager could have just kept the houses maintained and rents coming into the estate until any selling decisions were made.  The cost would have been a fraction of his total wealth and would have largely eliminated the turmoil and sheer man hours required to piece things together.

 

On a smaller scale, this reminded me of a dilemma in Charlotte property management with broken appliances.

 

Almost every house has the four major appliances: refrigerator, stove, microwave, and dishwasher.  When bought, they work and look great.  There is fully-functional, appliance kitchen bliss which is expected by tenants and required by the lease.

 

But as the years go on, appliances start to break and stop working as designed.  The question becomes whether to try to repair a broken appliance or just replace it. 

 

Employing an appliance repairman will cost around $100 to get him in the door.  Then one of three things happen:

 

1. It’s a simple fix and the cost stays around his appearance fee (best case scenario)
2. It’s a more complex fix and will cost around $200-$500 all-in (most common case)
3. It’s a more costly fix and replacing the appliance is the most appropriate option (worst case)

 

After one of these options is selected, the tenant has a working appliance and everything is back to kitchen bliss.

 

A legitimate question arises: At any point, is it prudent to go directly to appliance replacement and save the $100 appliance repairman fee?  What if the appliance is 30 years old?  What if there is another, pre-existing issue already (like a broken handle)?  No one wants to waste money.

 

As a property manager, we almost always go with sending the appliance repairman for several reasons:

 

1. Older appliances tend to last longer than the newer manufactured ones
2. Replacement costs of $500 -$2,000 are much larger than the possibility of a quick fix at $100
3. If an appliance is broken due to tenant misuse, the tenant can be responsible for the cost.  There is no way to ascertain this without a repairman.
4. The tenant has less down time without a working appliance typically
5. Pre-existing issues are usually not functionally-related and not the reason for the call

 

Much like administering large estates, professionals are trained to understand and handle problems.  They can make trained decisions that usually wind up paying for themselves at a fraction of their upfront cost.  Smart landlords are wise to employ them!

 

Happy Landlording!

Flag Football Scouting & Rental Home Inspections: Worth it?

 

I was at one of my son’s flag football games and noticed that his coach was calling out the opposing team’s plays in advance based on how they lined up at the line of scrimmage.  The players on his team would then shift their defensive formation and consistently stop the other team from gaining yards.  I was impressed!  This coach is much better than I am!

 

I asked my son about it after the game and he shrugged and said, “It was exactly what Coach Roberts said would happen after he scouted that team last week.”  What?  Coach Roberts was scouting 10-year old flag football games?  I had never heard of such a thing.

 

Apparently, Coach Roberts would go and scout the next team on their schedule weekly.  Most of the time that was easy; the games were either right before or after the game on the same or a neighboring field.  He would go and figure out what offenses and defenses the other team utilized and who their best players were.  Wielding his clipboard, pen, and binoculars, he would studiously examine this youth game where he knew no one involved. 

 

When I was doing my no-scouting coaching, it typically took the best player on the other team to have a few long runs before I changed the defense to double-team him.  Coach had them in that defense from the start!  I couldn’t deny the advantage it created for him when he knew before the next practice that their opponent had only one superstar player or that they always threw it to the tight end on their goal line play. 

 

Knowledge is power.  Applied knowledge is even better!

 

In Charlotte property management, there is a version of “scouting” called on-site home inspections.

 

Now there are naysayers (and I used to be one of them…) who might think it is a waste of time to check in on tenants and visit the homes during the lease.  The argument would be that the home is going to look the same regardless when the tenant moves out.  A 10-minute walk-through is not going to change a tenant’s lifestyle dramatically.  But my thinking has evolved on this issue.

 

Knowing things early has its advantages:

 

1. If air filters are not being changed, any HVAC unit service visits could potentially be charged back to the tenant.  Plus, it’s a good time to emphasize their importance and ask for pictures of the filter change.
2. If something crazy is going on, it’s good to know.
3. Are there unauthorized pets?  It’s good to nip that in the bud early.
4. Do the smoke and CO detectors still work?  It could save lives.
5. Is there any evidence of smoking?  The longer it goes on, the more ingrained the smell will be in the house.
6. Do the keys still work?  It’s good to be able to get in when needed.
7. Are any recent repairs up to snuff?  Pictures and tenant feedback aren’t always overly revealing and, if not, vendors can be sent back out to complete the work properly.

 

When tenants know the landlord is paying attention to what is going on in the house, we’ve found that homes tend to be treated and maintained better.

 

Kudos to scouting and Coach Roberts!  Smart coaches and landlords can gain a competitive advantage applying knowledge that most people wouldn’t take the effort to get.

 

Happy Landlording!

Late Rental Payments: Are New Yorkers Scary? Or Just Like Us?

 

“If you owe the bank $100, that's your problem. If you owe the bank $100 million, that's the bank's problem.”

(John Paul Getty)

 

“I love payin’ rent when the rent is due…”

(from “Dear Mama” by 2Pac)

 

I remember years ago when I was coming out of college and my first job was in New York City (NYC).  A friend of mine had an extra bedroom in the Lower East Side of Manhattan that I was able to rent.  I was about to become a “real” New Yorker and ride the subway into work every day.  It was an exciting time!

 

But, truthfully, it was also a scary time.  I grew up in NJ watching television shows (NYPD Blue and Law & Order) and the news channels depicting rough city life.  I rarely went into NYC as a youth and wasn’t really comfortable with life out of the suburbs.  When I did go into NYC, there were homeless people begging for money, people urinating openly in the alleys, and throw up on the pavement.  The subways were dirty and crowded and everything was so expensive.  I was lost when I ventured out of the streets and avenues in the lower area of Manhattan and would ride the subways going the wrong way (Uptown?  Downtown?).  The whole environment was disconcerting.

 

However, when I started living in NYC and settling in, it took me a few weeks to realize that the people there were actually not scary.  Now some were definitely strange, but most non-tourists were just like me.  Every day, they were just trying to get to and from work and enjoy the time they had off when we weren’t working.  Very few were trying to cause trouble or be threatening; they were just trying to make it.

 

From a rental home perspective, there seems to be a parallel from “scary New Yorkers” to “scary tenants”.  The news is rife with tales of woe deriving from revolutionarily, disruptive tenants.  Tenants that destroy a rental house, break all the windows, and don’t pay for six months.  Or those that professionally squat in a rental home, live there rent-free for 2 years, and brazenly berate the owners when they stop by the house they own.  Crazy stuff.

 

In my experience, most tenants are agreeable people who pay their rent regularly.  And the late paying tenants who were on the brink of eviction?  Most were not scary or even trying to be scary.  They actually wanted to pay.  Some lost jobs.  Some tenants made poor choices and were irresponsible.  But very few were maliciously trying to swindle the owner.  At the end, almost all were trying to do their best to make things work- and sometimes they couldn’t pull it off.  Life is a tough teacher sometimes.

 

Eviction is tough.  Really, it is a game of losers, played by losers.  The tenant loses out on their home, feeling of security, and usually most of their personal belongings.  The owner loses a lot of money: marketing, repair, and legal costs, as well as the incoming rent.  The property manager looks bad and may lose his job.  No one is winning.

 

Leases are a partnership.  The owner fixes major things and pays the macro property bills.  The tenant lives there, pays rent, and takes care of the micro bills and fixes.  And they should live happily ever after (or until the lease is up and one side decides to end it).

 

It can be scary when the partnership starts to break down.  The best solution is to do everything possible to make it work.  The tenant-landlord relationship is contractually intertwined.  If the tenant has a problem, the landlord also has a problem.  If the tenant loses, the landlord typically loses.

 

Smart landlords view tenants as such and and try to (cautiously) do what they can to keep them in the house (payment plans, extensions, etc.).  Or, if that’s not possible, they work with the tenants to create a solution to offboard them as respectfully as possible.

 

(Most) tenants are not scary!  They are like us or any regular New Yorker; they’re just trying to make it.

 

Happy Landlording!

Late Rent & Library Books: What’s the Right Approach?

 

I remember approximately five years ago when the Charlotte Mecklenburg area libraries stopped charging late fees for overdue books.

 

My first thought was, “How will they ever get their books back on time?”

 

To be fair, they put some checks in place.  If a book was two weeks overdue, no other books could be checked out on the account.  If it was a month overdue, the cost of the book was charged to the account.  But if the book was brought back within a year, the cost of the book was refunded to the account so there was no charge (it just created more work for the librarian!).

 

So if I checked out Calvin & Hobbes and got really into it, I’d have 364 days to get it back to the library without incurring any type of monetary penalty.  That is really borrower friendly!

 

Local governments thought this “no late fee” policy for libraries wouldn’t materially affect their book returns as there was adoption throughout the country.  And I don’t know of any libraries that stopped operating because of this policy change.

 

Would this policy work with rental payments?  It would definitely be more tenant friendly!

 

As Charlotte property managers, we are not strangers to late rent payments.  It is part of the rental home game.  Rent is due on the 1^st of each month and it is considered late if not received by the 5^th of that month.

 

The biggest problem with late rent payments is that it slows the payment wagon.  Rent money typically goes to the property manager who pays any vendor bills (if applicable) and then deducts their own fees (we need to eat too!).  Then the money is sent to the owner. 

 

The owner has mouths to feed as well.  There are usually mortgages and other loans tied to the property that need to be paid.  Then there is money that needs to go to property tax bills, home insurance, and sometimes an HOA. All these funds then feed other people and entities.  The economy goes on.  But it all starts with a single tenant making their rent payment!

 

So getting the rent on time is paramount for everyone downstream.  If too many tenants decide to wait a year to pay their rent, the system crumbles.  And for most landlords, if one tenant does not pay for months, it has a noticeable effect on their ability to pay others.

 

If this is the case, what should landlords do to facilitate on-time rental payments?

 

1. Screen applicants well upfront: talk to past landlords (paying rent on-time is a habit!) and make sure the underlying tenant finances show they have that ability to afford their rental payments
2. Send late letters and always charge late fees: there needs to be some sting.  On-time rent is important!
3. File for eviction after the 2^nd payday: if there is no money then, it is really hard to catch up.  Cutting losses on the earlier side will curtail longer term lateness.

 

I remember during COVID we allowed penalty-free late rental payments for months.  The late rents shot up during that time, even with all the government money flowing in.  With no penalty there was a relaxed effort, even for a few historically good payers.

 

Libraries have the luxury of being non-profit entities that have local government as a financial backstop to continue to operate.  Smart landlords know they have a lot of mouths to feed (with no taxpayer back-up!) and need to be proactive to make sure tenants are doing their part. 

 

Happy Landlording!

Surprise Parties Should Be Fun & Managing Rental Home Expectations

 

“Frustration is a function of our expectations…”

(Stephen Covey)

 

You ever really look forward to seeing a movie?

 

Well, I have.  And several years ago, I was looking forward to seeing a movie that opened right before my birthday. 

 

I had a really long week, but just kept thinking of what it would be like for it to be Saturday and how I’d be feeling when I was watching this movie.  I’d be sitting in the air-conditioned theater, legs kicked up, eating popcorn, and enjoying a few hours of restful entertainment.  It was a dream in my mind to be sitting in that early showing. And being that it was going to be my birthday, there didn’t seem to be any obstacles to this unfolding like I had envisioned.

 

I had my birthday breakfast, my wife and kids left to run errands, and I was just killing time before the movie.  Then I heard a knock on the door.  It was my neighbor and he asked if I could help jump his wife’s car across the street at the recreation center. 

 

I quickly glanced down at the time on my phone.  I still had twenty minutes until I had to leave, so we hopped into my car and ran over to the recreation center.  I parked next to his wife’s car and he said that we needed to talk to her inside first.  I wasn’t sure why that was necessary, but I dutifully followed him.  He went down a hallway and then opened up a door to a room that I hadn’t been in before.

 

“SURPRISE!  Happy Birthday!”

 

I looked up and saw smiling friends and family all around this mysterious room filled with birthday streamers.  My wife was beaming, looking at me expectantly.  This should have been a really happy time, but my disappointed face said it all.

 

My perfect birthday plans had been foiled.  I was crestfallen.  This long-awaited movie wasn’t going to happen.

 

Expectations aren’t always rational, but they are very real.  My wife worked so hard at putting it together and people took time out of their day to celebrate my birthday; I should have been extremely thankful and had a massively happy day.  But my happiness was temporarily jolted.  I did not get what I expected and was feeling sour.

 

As Charlotte property managers, listing vacant homes for rent is somewhat straightforward.  We typically fix up and clean the homes before putting then on the market so everyone knows what to expect.  Prospective tenants are walking into a home that largely looks like it will when they move-in.  Rental home owners have already paid the fix-up costs.  Tenants could move-in immediately after rental application acceptance.  Everyone has relatively clear expectations on what is transpiring.

 

However, it’s not so clear when there are showings on an occupied rental home.  Prospective tenants see a home that is being lived in and this creates many potential questions: Is this home being painted after the current tenants move out?  Is the stained carpet being cleaned or replaced?  Are there any upgrades being done prior to move-in?  What items were brought by the tenant and will be removed, and what stays?  When will it be ready for me to move into?

 

The rental home owner also has questions: Can we avoid a full paint job when the existing tenants vacate?  Can the stained carpet stay?  How much of the security deposit can we use?  What are all these things going to cost?

 

The tenants and owners are asking the property manager for answers, but the property manager has questions too: What condition is the home going to be left in when the existing tenant leaves?  Is the tenant going to paint before move-out?  Are they any good at painting?  Will the stains come out of the carpet?  What will my final walk-through reveal about the house when everything is out?

 

Everyone has expectations.  Generally-speaking, the incoming tenants expect a nice-looking house with everything working when they move into it.  The exiting tenants expect to get most of their security deposit back.  The owner expects not having to pay a lot to fix-up the property for incoming tenants.  These don’t always gibe.

 

And when expectations are not met, people get upset.  Even on their birthday!

 

Many property managers and landlords don’t market occupied homes until they are vacated, partly to avoid issues like this.  It can seem like a great idea to get a jump on finding a tenant, but managing expectations while dealing with uncertainty can be challenging.

 

Smart landlords who do choose to go this route have conversations with all parties and try to set realistic expectations with all of them to avoid disappointing surprises.  As I’ve been told, surprise parties are supposed to be fun!

 

Happy Landlording!

Scratched-Up Rentals: Possible Win-Win for Tenants & Landlords?

 

A few years back, my wife and I were fortunate enough to take a trip to Barbados.  Due to the many things we wanted to see on the island, it made sense to get a rental car.  When I Googled how American tourists fared driving there, the information that spit out was that driving was fine with two caveats: they drove on the left side of the road which made things trickier, and if we went off the highways, the local roads were narrow and could be challenging.  We didn’t plan on going to any remote places, so I didn’t think much of the second issue.

 

However, when we got to the rental car agency and they went through the costs associated with bringing back a damaged car, I got a little nervous.  I started moving past the shiny, newer convertibles and went to the shabby, scratched-up section of the lot.  My eyes landed on a weathered, small model that had taken some rough driving in its day.  I picked it out and we drove off.

 

On the next to last day of our trip, we took the car up to some tourist spot on the top of the island.  While driving there, the sky began to darken and the winds started to pick up.  When we got there, the tourist spot was closing due to the weather and we were thirty minutes away from our hotel.  It turns out a hurricane was forming and power wound up going out across the whole island.  Everyone was being let go from work and the roads quickly filled up with bumper-to-bumper traffic.  This was not good for a tourist driver!

 

Google Maps was working and it started to give us off-the-beaten path directions to avoid the traffic.  I dutifully followed them and we were now on the local narrow roads where locals were speeding home.  My comfort level was now really low.  Cars were speeding by us on the right side of the road and our clearance from them could be measured in inches.  To create more space, I was hugging the left side of the road.  Unfortunately, I got too close to a curb and resulting in some tire and wheel well damage.  I was praying that we could just get back in the vicinity of the hotel and not be left in the middle of nowhere in a full-blown hurricane.  Fortunately, the car was able to continue on.  My prayer was answered and we were able to leave the car on the side of the road near the hotel. 

 

When I called the rental car agency the next day, they were pretty busy and said they would pick the car up at some point.  I was wondering what my deductible was and how much of this car I was going to wind up buying.  But when I finally heard back from them, they said there was no issue- “No problemo!  Things are good.”

 

I didn’t ask any questions, but I have to assume the car’s condition at pick-up left me a lot of room for damage. 

 

I bring up this story because as Charlotte property managers we are tasked at fixing up homes prior to new tenants moving in.  If tenants are asked if they want new carpet and painting prior to taking possession, probably most would immediately answer “Yes!  Definitely!”  But is that really what they should want?  Sometimes it’s worth a discussion based on their future security deposit return.

 

New carpet and painting will undoubtedly look great!  But it starts a new cycle on their useful life (we generally use a 7-year wear schedule).  If a tenant moves out after one year, there is an expectation that the new paint and carpet would have incurred one year of normal wear and tear and be useable for another six years.  Any wear and tear fix-up expenses outside of one year (a small amount of damage) would be deducted from the security deposit (or billed back if the wear and tear costs exceeded the security deposit).  And costs for these items have really shot up in the last five years!

 

Recently, we had a rental home with a very worn wood floor that we hadn’t refinished for over a decade.  It was scratched-up heavily in a few places.  I asked the incoming tenants if they preferred that we refinish the floor or if they wanted the peace of mind that we would not be charging them for any new scratches on it.  If we finished the floor (a costly repair) prior to them moving in, they would need to be very careful with it.  They opted for peace of mind and some well-placed rugs.

 

Rental homes that are scratched-up can be used to create win-win scenarios for tenants and landlords alike.  Not coming home to a hefty rental car repair bill saved having a shadow cast on a really nice vacation! 

 

Happy Landlording!