Charlotte Property Management Weekly: Groupons & Free Property Management

I’m a big (recent) fan of these “Groupons.” What a great deal for consumers! Groupons are like regular coupons, except on steroids; they offer discounts of 50%+ to use at local businesses. I am impressed and now a big supporter.




Early last week there was a groupon for one of the top restaurants in Charlotte offering $60 worth of food for $25. What a great deal! I bought one and used it the next night. It was as advertised; we ordered the food, got the check, and gave them the groupon coupon (I’m a poet and don’t even know it). They took $60 off the bill and we left without any police following.



As a consumer, I was pleased. Make that very, very pleased. However, as a business owner, my stomach turned. Why would this great restaurant agree to take such a huge price concession? Are these the type of patrons they want to attract? Why are they trying to compete on price? That’s for McDonalds and Wendy’s, for crying out loud!



I always came from the school of marketing that believed that business differentiation is achieved on 3 playing fields: quality, customer service, and price. As a business, you pick the two you want to be good at. Most (sustainable) businesses are very good at one, few are very good at two, and none are very good at three. It’s impossible to do; I challenge you to name one business that competes at all 3 (customer service, quality, and price) very well. This is what this great restaurant was trying to do (albeit it was a promotion and not normal business operations)!



I’ve seen a similar promotional tool offering months of free property management for new customers. I can certainly understand the logic as we (supposively) are in a “new normal” that everyone is talking about. Customers are price conscious and free is always better than paying, right? So most customers will gravitate towards this type of deal; it’s just like the groupon I loved, right? Or is it different?



I would argue that good property management is much different than having a meal in a nice restaurant. Sure, discounts on both are nice. But you can eat at a restaurant and leave after paying for the meal, no strings are attached. The restaurant knows that you will only come back (and pay their regular prices!) if you really enjoyed their food, staff, and overall experience. If there is some bite-back of any kind (aka food poisoning), you would never come back.



However, with free property management, you are signing a minimum of a one-year contract. You are like the Huey Lewis song, “Happy to be stuck with you.” But it’s fine because you’re not paying anything, right? Well, that’s true for the first few months anyway. Or is it? What about if the property management company does something that costs you a bunch of money, like places a destructive, non-paying tenant into your home? Then the few hundred dollars of savings from “free” property management won’t be so free. Costs of eviction, non-payment, and fix-up can really add up!



The point is that if the property management company you are looking into is offering you months of free property management (or other “groupon-like” discounts), you may want to look at what that means to their quality and customer service. No company is good at all three, and quality and customer service cost money to implement and execute! Good people are not cheap! And relationships bought cheaply are usually just that.



Saving money is great on one-time deals, like buying a great, name-brand shirt or an expensive meal from a great restaurant! But be wary when saving a few bucks initially means entering into a long-term, contractual relationship!



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 Weekly: Mr. Smith’s Appointment Implies Real Estate’s Future is in Rent-To-Own & Rent-To-Sell

“Since they collapsed into conservatorship in September 2008, Fannie and Freddie have received $151 billion in taxpayer assistance. More will certainly be needed.”







“If this Mr. Smith goes to Washington as head of FHFA (Federal Housing Finance Agency), he will face a monumental challenge at a crucial time: how to protect taxpayers from even greater losses incurred by Fannie and Freddie.”

(Gretchen Morgenson in this week’s NY Times)



So, it looks like NC’s own Joseph Smith, Jr. will be tapped to run the FHFA. Big deal! Somebody’s got to do it, right? And when you’re looking for employment, the government seems to be the only people hiring, so it’s a logical step for him.



Who is this guy? I really have no idea. He’s been in the papers recently due to this appointment; all of the articles about him say that he has a reputation as “friend and rugged defender of the taxpayer.” I pay taxes so that sounds okay to me.



He is taking over an agency that is losing roughly $6B A MONTH over the past 27 months! Obviously, this agency has to be part of the government because after the first $18B loss quarter (or $72B loss year), it would be tough to keep his job in the private sector.



Anyway, what does his appointment mean? Let’s play his first day on the job out.



The first thing Mr. Smith does on his first day of work is ask his new secretary where the bathroom is and how many vacation days he has a year (everyone knows you can’t ask this in the interview!). The second thing he does is call his top guys and ask them how the heck they are losing so much taxpayer money. Their answers probably can be succinctly summarized into one statement, “We guaranteed a lot of bad loans to people who were not qualified enough to have them.”



Mr. Smith rubs his chin and says, “So, going forward, we should probably start only guaranteeing loans to more qualified people, right?” As his top lieutenants vigorously nod ascent and genuflect, he dismisses them from the room. “Sorry fellas, gotta go. It’s time for me to take it street-side and hug some oppressed taxpayers.”



His lieutenants quickly gather and surmise that “more qualified” probably means that Mr. Smith is saying FHFA needs to require “higher credit scores and down payments for loan applicants.” They pat themselves on the back for this revelation and scan the Washington Post to see what new DC restaurants would be good for lunch.



Back on Main Street, “more qualified” means a lot more people won’t be able to get loans to buy homes. It also means that a lot more people won’t be able to sell their homes (it takes two to tango, right?). And, furthermore, it means that real estate agents need to get used to doing even less brokerage business.



So all real estate agents need to pick up their equipment and go home? Hardly! Consumers still need to be able to transact real estate; the last time I checked, people are still marrying, divorcing, transferring, investing, having kids, sending kids into the real world, etc. They need to be able to acquire and dispose of homes.



The opportunity for real estate agents in the next few years will be placing potential buyers (who can’t get a loan now) into homes they will buy when they qualify for one; this means setting up rent-to-own (aka lease option or lease purchase) transactions. On the same token, it means opening up listings of vacant homes to rent-to-own tenants (also known as “rent-to-sell”).



Mr. Smith will be doing everything he can to stem massive loan losses. He is implicitly communicating to the real estate community that rent-to-own and rent-to-sell transactions will be the way to help customers achieve their goals over the next few years.



Will you change your business accordingly?



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 Weekly: Do You Want Rent-To-Own With That Rental Home? CAN YOU AFFORD TO MISS OUT?

Oh, the joy of the successful up-sell! Ask a simple question many times to many customers and make a ton more money! This is what all corporations pine for:




1. McDonalds: “Do you want fries with that?”

2. Amazon: “7 more dollars and get FREE shipping!”

3. Dominos: “Order 2 pizzas at regular price and get free cheesy bread!”



Mix in a little doubt from a good salesperson and if gets even better!



1. Meineke: “Sure, you could wait to replace your brake pads for another few months, BUT IS YOUR FAMILY’S WELL-BEING WORTH TAKING THAT CHANCE?”

2. Bank of America: “Sure the market has been awful. But with your money sitting on the sidelines, COULD YOU STOMACH MISSING OUT ON THE BIGGEST STOCK MARKET JUMP IN HISTORY?”

3. John’s Learning Center: “Yes, your child is doing well in school and is up to his grade’s reading level now. BUT WITH GLOBAL COMPETITION FROM INDIAN AND CHINESE CHILDREN, SHOULDN’T YOU BE ADDING TUTORING HOURS FOR LITTLE JIMMY INSTEAD OF SCALING BACK?”



The same tactics can be utilized in the rental home space.



You can up-sell your renter with: “Is this a house you might want to buy in the future? Do you want to lock into a rent-to-own arrangement and start building equity now?”



And then add a little doubt with: “Yes, it will be tough getting a loan in the next year or two, but what about after that? DO YOU WANT TO MISS OUT ON BUILDING UP A DOWNPAYMENT AND CLOSING COSTS NOW VERSUS THROWING YOUR MONEY AWAY JUST RENTING FOR THE NEXT TWO YEARS?”



“Up-selling” and “creating doubt” are not dirty sales terms; they are the backbone of successfully providing customers with the options they need to fulfill their personal goals. Ever been happy about being up-sold (like when the waiter in Paris told you to try their delicious signature dessert?)? Or happy about someone planting a seed of doubt (“You may want to re-think buying that computer. It graded really poorly in “Consumer Reports.”)?



Let’s look at the facts:



Many people want to rent, but even more people want to own! The banks just aren’t cooperating for most people currently.



And most property owners in this economic environment, who are renting out their homes, are open to selling them; at least that is what the feedback I’ve been getting from clients. I mean who couldn’t use a little more liquidity these days?



Up-selling and casting doubt on the customer’s current situation creates value, rather than detracts from it. And when more value is created, more revenue can be earned!



YOU WOULDN’T WANT TO MISS OUT ON MAKING MORE MONEY HELPING YOUR CUSTOMERS MORE, WOULD YOU?



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 Weekly: Charlotte Headlines Say Real Estate Market is on Rebound? Or Not?

“There are no facts, just interpretations.” Friedrich Nietzsche




On a whole, I like honesty. I like it when people tell me what they really think (within reason). And if they don’t have anything interesting or worthwhile to say, omission works well for me too. I like things clear and easily understood.



So it came to my chagrin when I was reading a headline of an article this week that blared, “N.C. foreclosure sales drop 42%.” Wow!! 42%? That’s almost half! Is the job market trending up in our southern paradise? 2011 must be when the US economy really rebounds led by the Tarheels of North Carolina! Charlotte is ready to do its part! This must mean that home price stabilization is around the corner and real estate will start picking up and lead our country to another streak of prosperity!



But wait… I really hadn’t heard anything about the local real estate market getting noticeably better; rather I’ve continued to hear the opposite. Homes sales in Charlotte have continued to dwindle (I read another headline saying that Charlotte home closings were down 23% in 10/10 when compared to 10/09!). Well, I guess that has nothing to do with people actually staying in their homes. So less foreclosed homes equals better capitalized consumers, which equals more consumers with jobs, which equals a better economy, which equals a more robust (and rising!) real estate market? Cool!



And then I actually read the article. The 42% foreclosure decrease was due to the halting of foreclosures due to questionable bank procedures. That explains it! So, this statistic is artificial and misleading. We’ll soon see a headline in the coming months saying that foreclosures are up 42%+ to make up for the halted foreclosures now.



And now that I think about it, our firm did have some closings that were held up because of this foreclosure freeze. So what does that mean about the 23% decline in home sale closings statistic compiled from 10/10 (when compared to 10/09)? Does that make that statistic artificial and misleading as well?



The clearest answer is “yeah, probably.” Who can figure out what’s going on? Maybe this is what Wall Street legend, Peter Lynch, was talking about when he said, “The man who studies macroeconomics for 15 minutes a year wastes 10 minutes.” There are too many moving parts to get a true picture of reality!



It’s like the rock band that labors through the reading of their 2,000 word concert review in Rolling Stone magazine and only wants to know one thing: “Do they think we rock?” I just want the same type of clarity from the headlines I read.



Are things getting better or worse?



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 Weekly: Pricing Rental Homes- List Above, At, or Below Market Value?

I have to admit, pricing rental homes is an issue that I struggle with. As a property manager in Charlotte for the past 6 years, I really should have a good grip on the right approach; however, I’m still constantly debating myself over the correct way to do it. And my therapist says this self-banter does not mean that I’m crazy.




So… it is safe to say that pricing is an inexact science. It is simply impossible to know what the optimal dollar figure is for any product or service. For example, let’s say you are a manager at The Gap (with the traditional logo intact). You put 5 sweaters on the rack for sale at $50 each. It takes 5 days and they all sell. Is this good? Was $50 the optimal price?



You’ll never know! Maybe you could have priced them at $55 each and still sold them in 5 days. Then you would have really screwed up; retail has been a tough field to be in for the past few years and the extra $25 in profit would have really helped The Gap’s stock price! Or maybe the sweaters should have been priced at $45 and they would have sold in 1 day. In this scenario, the lower profit would have been offset by the larger saving in inventory costs. But then again, who knows? Maybe at $45 each, customers would have perceived the sweater’s quality to be less and they would’ve taken 10 days to sell. It’s tough to figure out!



With rental homes, the confusion is similar. Below are the 3 pricing options available to every property owner:



1. Price Above Market Value: This is good if prospects will actually visit the rental; they may just look at the other rentals listed at or below market value. However, if the prospect visits and says they will take the place if the rent is knocked down a bit, that’s fine! The price can still be at or slightly above market value and the prospect is ecstatic they can tell their friends that they got a great deal.



2. Price at Market Value: An average amount of prospects will visit the rental and someone will take it in due time. The only issue is if the prospect says they will only rent the home if $100 is taken off of the monthly rent amount. Now the owner must decide if they want to lock into a below-market rate for a year, or roll the dice and wait for another qualified prospect. (Note: Rent negotiators usually turn out to be good renters. Unqualified or barely qualified prospects rarely try to negotiate the rental price. That takes chutzpah! It’s like getting into a bar at age 17 and arguing over the prices of shots.)



3. Price Below Market Value: Prospects will flock to the house and applications should roll in. Some people will still try to negotiate rent, but being that so many people are interested, these requests can be quickly (and justifiably) rebuffed. Locking into below market rates isn’t great in terms of ROI, but does provide the piece of mind of an occupied property with a good tenant (you can be choosy!).



So what’s the right answer? It depends. I know that’s not an overly helpful answer, but I’m not trying to be evasive. There are many factors that need to be considered besides the obvious ones (risk tolerance and financial wherewithal of the owner). Here are a few to ponder:



1. If the property is 1 of 15 rentals in a neighborhood, pricing below market value could be a good point of differentiation. Conversely, if the rental is the only one in the neighborhood, it may be wise to price above market value.

2. If it is probable that a real estate agent will bring a tenant in on a property, the pricing should be above market value. The reason? They will probably look to negotiate the rent down. If the tenant will probably come in from an ad, pricing at or below market value is probably the best strategy because they will be focused on the list price.

3. If a downturn of activity is expected because of seasonality (like the Thanksgiving holiday through New Years), it would probably be smart to price below market value for the first few weeks of November. Having an empty house in November and December is going to kill the ROI; a rental reduction upfront in November will definitely have a better total net return than a month or two of extra vacancy.



So the moral is that pricing rental homes ain’t easy. Different times and situations call for different strategies. One size rarely fits all!



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 Weekly: The Options Available to Owners of Vacant Homes

As a Charlotte property manager specializing in lease options (rent-to-own and rent-to-sell), we get many calls from home sellers “exploring their options” about their vacant properties (unlike Obama, my puns are typically not intended). So, as a public service, I’ll run through the available options:




1. Strategic default (I think this is what it is being called): Stop paying the mortgage and taking the credit score beating like a man

2. Put the property on the market for sale: If the home is special and priced well, it will sell in some period of time. If not, eat the mortgage every month until the banks start lending again.

3. Rent the property out: Get most of the mortgage paid every month by the tenant. Keep a tenant in the property until the market comes back and then place the home up for sale.

4. Rent-to-sell the property: Put a rent-to-own tenant into the property who will pay the mortgage and potentially buy the home during their lease period.

5. Rent out the property and then put it on the market: In my experience, this leads to disappointed sellers and upset tenants.

6. Arson: Not recommended. And, no, this is not a service we offer!



All of these approaches obviously have pros and cons (like jail time). Depending on each respective person’s needs and tolerance for risk, each approach could be the appropriate one.



And to conclude the public service announcement, please contact your local property manager for further details.



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 Weekly: Your Rental Home Wants You to Wait Until It’s Ready

Every client we’ve ever had has wanted as little vacancy time for their rental as possible. Zero days are optimal; every day after zero winds up costing them money in utilities, mortgage payments, and maintenance. Not wanting to lose any money leads to a mentality of getting the home on the market as soon as possible, regardless of condition and resident situation.




So some clients want us to put their homes on the market prior to them being ready for occupancy. What I mean by this is that the home has not been completely repaired and there are still personal items in the house. They (or their current tenants) also are within the process of moving.



The rationale, by itself, is sound. The greater the length of time the house is on the market, the greater amount of potential tenants that can see it. If more potential renters see it, the law of large numbers would dictate that someone at some point would love it and want it.



However, does this really work? I would argue it doesn’t. Huh? Why’s that? Isn’t it common sense?



Simply, the American consumer’s mind works differently now. There is an inundation of information being flung at them on a constant basis. Most of it is ignored; however, there are some marketing messages that get through (like a rental listing). If the consumer takes the time and makes an inquiry to visit the property, there is typically one shot to get them. Their attention span is limited.



This one shot means that the house has to look perfect. This visit needs to conclude with the prospective tenant loving the house. If they see or feel something they don’t like, it will probably turn them off and they will want to find another home. And there are many other rental houses on the market that look very similar. The competition is fierce!



So why does this matter? Maybe the diamonds in the rough that aren’t turned off by the home’s uncleanliness will be unearthed and they’ll take it. It’s certainly possible. But are renters who don’t care about the condition of the home desirable? If so, there may be disappointment when move-out time arrives and the home doesn’t look so great. Clean people typically want clean homes.



The other main reason is that once the marketing of the property begins, momentum is started. The rental is on the top of all the searches from rental websites, people who are waiting for a rental are told about it by their property managers, and it is fresh. This is when things typically happen for an average rental home- the first two weeks. Interested calls, inquiring e-mails, and subsequent showings come quickly. They need to be harnessed and converted into applications and security deposits.



But when the rental house isn’t up to the task, momentum is stunted. Interested, potential renters see the property in less than ideal shape and compare it to better kept homes on the market. The home loses out. Or the current tenant in the home is packing boxes to move and glares at the renter who is interrupting their evening after work. The house looks horrible and the vibe is bad. Potential renters flee to the next home. Can you blame them?



With rental homes, it’s more about quality time on the market and less about total time. Make sure the rental home is ready and most inviting when the most people want to look at it!



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 Weekly: 3 Approaches to Fixing Up a Rental Home

We sometimes take over management of homes that have been treated in, diplomatically-speaking, less than desired regard. It’s frustrating for the owners (and the property management company), especially in difficult economic times when cash is scarce.




The purpose of this article is not to talk about the root cause of this destruction (usually poor tenant screening), but rather the options available when faced with a rental home in bad shape.



It comes down to 3 potential approaches:



1. Total Fix-Up: This is when everything is fixed so the home is in tip-top shape. New carpet, new paint, new everything! The upside to this approach is that the home will command top rent and a top tenant, while the downside is that it will demand top dollar to be spent by the owner. ROI on a 1-year rental with this approach is debatable.



2. Partial Fix-Up: This is when the most pressing demands of the house are met. The house is cleaned well, the walls are touched up with paint, and the carpet is steam-cleaned. The goal is to make the house look like a good rental, not a show home. The upside to this approach is that it is much less expensive and will entice a good renter, while the downside is that it will not command top rent and the tenant will usually not be a neat-freak (we love neat freaks!!).



3. No Fix-Up: This is when the home goes to market “as is.” Little to nothing is done to fix the home aesthetically and the tenant is asked to “have an open mind” and the property is listed as a “handyman’s special.” The upside to this approach is that repair costs are low and the home can be put on the market immediately. The downside is tough. Rents have to be lowered considerably, the quality of tenant suffers, and the house will be in even worse shape (think catastrophic) when the tenant moves out (evicted or otherwise).



So which is the best approach? The answer is the universal response in business school to any question- “it depends.” At different times and situations, each approach is appropriate. Many times this answer is dictated by finances. I mean, if you have no extra money, you are forced to use approach #3, right? And if your rental home has gotten to the point that it is absolutely disgusting, you probably have to opt for approach #1 at some point.



Generally-speaking, I’m a fan of approach #2. I try to stretch #2 as long as possible before I’m faced with the decision that the house has to go to approach #1 (or #3). Once I’m at that point, my preference is approach #1 (if finances allow).



The approach chosen for home fix-ups is a huge component on their ROI. One size does not fit all (as some are wont to do). Choose carefully (and profitably!)!



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 Weekly: $200 Rental Application Fees- Genius?

I don’t find myself being amazed at things very often, but I have to admit I was taken aback when I saw a large property management firm change their application fee from $25 to $200.




My initial thoughts were, “who is willing to pay that?” and “how can I justify charging that much for a rental application fee?”



I don’t know why they changed their rental application fee, but I have a guess- they got way too many applications from candidates who would never qualify to rent! Their people were inundated! So they used common sense.



In general, if a company wants less people to apply, then all they have to do is raise their application price. Corporations in every industry do something like this to control demand. If they want to sell less sweaters ($50 retail), then they raise the price to $100. If they want to sell more, they lower the price to $25. Simple.



But a smaller number of applicants equal less people who may rent the house. That’s bad! Maybe… But what if the tenants are screening themselves so that the non-qualifiers don’t even bother applying? If the probable non-qualifiers know they are borderline applicants, they still may be willing to gamble away $25 on an application fee. But $200? Not very likely!



Another thing I liked is that the property management firm refunds the $200 application fee if the tenant is approved. Now, good applicants know there is no risk to applying at $200 a pop. This property management firm is using price to lower the amount of resources needed to screen applicants (by lowering the number of applicants themselves!). They are also freeing their people up to work on higher margin activity (like filling the rental properties with their smaller, but better, applicant pool).



What’s not to like? Should every firm go to $200 per rental application?



As I racked my brain to figure out why I shouldn’t raise our rental application fee to $200, I came up with several reasons:



1. Applicants who don’t qualify will get really angry; not $25 loss angry, but $200 loss angry (which could equal the money earned in several days of work). This can really stress out employees and make it so they want to work for someone who has $25 application fees and not get screamed at everyday.

2. Employees would need to be prepared to be doggedly challenged on turned-down applications. That means the tenant screening process would need to be super- tight and really easy to explain. This would also remove some (in my opinion) much needed subjectivity in the application screening process.

3. The main objective of changing the application price is to save time. Unfortunately, almost every person that calls is new to the firm. That means the $200 rental application fee will have to be explained in every phone call! I’m getting a headache just writing that.



I still think it’s a great idea; I’m curious to see how it will work in practice. I’m still a middle-of-the-road $75 rental application fee believer, but am ready to be convinced otherwise!



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 Weekly: Delayed Rental Walk-Throughs Cost Everyone Money

Unfortunately, I’m yawning as I’m writing the title of this article. I’m not sure how to jazz it up a little (maybe “Lindsey Lohan falls for property manager during rental walk-through! Then she heads back to rehab.” I’m intrigued at least.




That would be a nice segment into this! Instead, coming in a close second in terms of excitement, I’ll give the definition of the walk-through so we’re all on the same page: A walk-through is simply visiting a rental property after a tenant moves out and assessing the damages. Then, one would deduct the damages from the tenant security deposit and mail the tenants the check.



I figured I’d write on this topic after a friend told me he’s still waiting for his rental security deposit back 7 weeks after move-out. Yes, a property manager holding it this long (without a written explanation) is illegal in North Carolina, but that’s not the point. It just doesn’t make any sense financially.



Let’s look at the stakeholders when a walk-through is not done in a timely manner:



1. Tenant: He wants his money back! He now thinks unfavorably of your property management company and is actively plotting his revenge against you (sad, but true).



2. Rental home owner: He is footing the bill everyday the property remains vacant; vacant properties are generally tough to fill if they are not cleaned up and put on the market (requires a walk-through…). If owners are withheld cash for long periods of times, they tend to find property managers who disburse it to them on more regular intervals.



3. Property manager- this is the primary loser in this game for many reasons.



First of all, there is the oft-cited statistic that the #1 reason why 90% of businesses fail is due to lack of cash flow. And vacant houses don’t typically bring in any cash flow; however, they certainly have the potential to! Let’s look at the revenue that a vacant house can bring in. The fee list includes (but is not limited to):



1. Fixing the home up fees

2. Application fees from tenants

3. Tenant procurement fee

4. Monthly management fee

5. Potential brokerage fee if the house is also on the market for sale



None of the above money-making happens until a walk-through occurs.



Also, there is a lot of talk about the vital importance of working capital; this is the money that is in your bank account that funds day-to-day business operations. Experts say to collect money faster from clients and pay vendors slower in order to keep this account flush (because without money in it, you’re essentially out of business).



If this is the case, it behooves property managers to conduct walk-throughs as soon as the tenant moves out! It pushes up the earning of cash flows from vacant homes and makes customers happier.



I mean, why wait seven weeks to start getting paid when you can get the cash now?



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 Weekly: Another Ploy in Rental Home Fraud

At this point, most people are aware of the rental scam where a prospective tenant answers your ad and:




1. Loves your house and wants to move in soon

2. Asks you if you will accept a year in rent upfront (duh- yeah!) by certified check (double yeah!!)

3. Then they send you several thousand dollars more than the one year rent (by accident…) and asks you to send the balance to Texas via Western Union

4. After sending the balance (real money) to their Western Union account, your bank notifies you that their certified check was from a bank that doesn’t exist (fake money)

5. You’re out a tenant and a couple thousand bucks



This scam was highly successful and snagged many people. A warning about this scam is included in most rental websites; that’s how successful it was!



Perhaps the next “big thing” in rental fraud is high-jacked rental house ads. We just started managing a property and were surprised when potential tenants started contacting us about a different Craig’s List ad on the same house (at a much lower rental rate); they were wondering which of the Craig’s List ads for this rental house was legitimate.



Below is the content of the e-mail response from the fraudulent guy after a potential expresses initial interest (Note: the real rental rate for this house is $1,300 - $1,400/month):



Thanks for your response and interest in my house. Calvary greetings to you, also to your household (sic).






The house is very much available and it is a large 3 bedrooms and 2.5 bathrooms house. Which was formally occupied by me and my wife before we left for Nigeria for a pastoral duty, we left for a volunteer mission together with other missionaries for a development program with the aim of developing the people of west Africa physically and spiritually as God as directed us. We wanted to sale the house initially but we later changed our mind after we discovered that we wouldn't be spending more than 3 years here in Africa. So I contacted the agent back and requested for my keys and documents. Later we decided to have the house rented out, we would have give the same agent this job also but the truth of the matter is that the agent would want to handle it professionally and the occupant may not be able to reason along with him later. If you notice, you will discover that the price we are offering is far below standard price, this is enough for you to know that we are not after the rental fee but the absolute care for the property.






So as you know where the house is located at XXXXXXXXXXX which my family and I have spent so much time and money to maintain it up till its standard. We have been trying our best to make the house as clean as possible, because am a clean person and we don't like dirt around our surroundings and also the Bible says cleanliness is next to Godliness.






So we are looking for a well-behaved, clean and honest tenant to rent out our house too. So will like you to give us your word and promise us that you will take good care of our house so that we will be happy when we come to visit you in the future... We accept short or long-term rent and month to month also.... All the utilities are included in the rent... Pets are allowed. So kindly get back to us with this information below.






RENT APPLICATION FORM


Full Name_________________________________________________


Home Phone_____________________


Date of Birth_________________________________


Other Phone ________________


Current Address __________________________________________________


Reasons for Leaving_Foreclosure___________________________Rent $__________Phone ( )____________


Are you married________________Yes____________


How many people will be living in the house____________________________


Do you have a pet___________Yes_________________


Do you have a car___________Yes_________________


Occupation____________________________


Your Exact move in date____________________________


How soon can you make the deposit payment________________________


How soon do you want to receive the keys and documents of the house________________________






Looking forward to hear from you with all this details so that I can have it in my file in case of issuing the receipt for you and contacting you. Await your urgent reply so that we can discuss on how to get the document and the key to you, please we are giving you all this base on trust and again I will want you to stick to your words, you know that we do not see our self's yet and only putting everything into God’s hand, so please do not let us down in this our property and God bless you more as you do this. I am looking forward to hear from you.


Best Regards


Note: the Rent is $800 and security deposit is $700






Total Move-In Cost: $1,500


Pastor XXXXXXX


Please call me at +234-704-147-8446 or 011-234-704-147-8446



Be careful! Cyberspace can be a dangerous place!



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 Weekly: Reaction to Proposed FHA Loan Changes for Those in Lease Option Contracts: “No Sweat”

There has been a lot of discussion surrounding proposed (and current) changes to tighten FHA loan guidelines. Heated discussions. Unhappy folks. Panic.




Real estate agents are unhappy. Buyers are unhappy. NAR is not happy. And if mommy isn’t happy, nobody is happy.



Why is this? Well, if more buyers are pushed out of the market for not having the proper qualifications now, the real estate market will continue to worsen. If that happens, who knows what the effect will be for the economy in general, and especially for those that are employed in the real estate industry.



It reminds me of one of my high school friend’s patented lines when he would see one of us wearing an ugly shirt or some God-awful hat, “I didn’t think there was a possible way for you to get even less girls, but you may have found it.”



To extend this wisdom to the real estate industry, if real estate agents didn’t think there was a possible way to do even less brokerage business, FHA may have found a way.



Don’t blame Congress; they don’t have much of a choice. They can’t responsibly sit idle while their GSE’s keep losing so much taxpayer money every quarter from loan losses. The choice is out of their hands.



The same is true with buyers and sellers in today’s market. If they go into contract on a home and the bank underwriters decide not to make the loan at the last minute, the buyer and seller have little choice: the buyer walks and the seller keeps the home on the market.



However, for those lease option buyers (rent-to-own) and sellers (rent-to-sell) under contract, there is a choice. No one has to walk; the lease contract can simply be extended until the lease option tenant qualifies for a loan. They can try to get a loan every month if they want. There is no panic, no one has to move, and the deal can still happen.



To further clarify, the lease option (rent-to-own) tenant is under a lease agreement and is paying the seller’s mortgage with their monthly rental payments. This lease can go on indefinitely (with mutual agreement, of course). As long as the tenant still wants to buy and the owner still wants to sell, no one is worried. It may take a little longer than both parties want, but the sale can still happen. This goes for any FHA closing issues such as low appraisals, increased down payment need, or higher credit score requirements.



Lease options provide greater flexibility to close deals in a changing lending environment. The lease can be extended and the terms renegotiated on the fly. Agreements can be salvaged and completed. Choice is a nice thing.



While others fret, lease option principals (including real estate agents) say “No Sweat.”



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 Weekly: Are You Practicing Insanity with your Home for Sale?

The definition of insanity is to do the same things over and over again and expect a different result. Is this what is happening with all the vacant homes still being listed for sale (that shouldn’t be)?




I’m not talking about occupied houses where the occupants would like to move, but don’t have to. I think they should have their houses on the market; they could get lucky. As the Lotto says, “You’ve got to be in it to win it!”



I’m talking about vacant homes that are sucking dollars out of the owners’ pockets month after depressing month. If you need general help in identifying these homes that shouldn’t be listed for sale, here are some obvious signs:



1. The house is listed $50K more than a comparable home in the neighborhood (regardless of condition)

2. The house has been on the market for a few months and has had few showings

3. The house has been on the market for a few months and has gotten no offers

4. It is not in tip-top shape

5. The home is in a neighborhood riddled with short sales and foreclosures

6. The neighbors that don’t have a “For Sale” sign in their yard feel left out



As we continue to see owners with expiring listing agreements inquire about rent-to-selling their home (opening their home to a rent-to-own tenant), I wonder why they were listed on the market in the first place. As my conspiracy-loving friend said, “It’s probably because if the real estate agent has the house listed for a regular sale, they’ll be first in line to list it as a short sale.” I seriously doubt this is how most real estate agents are conducting business, but some of the houses on the market make me wonder.



Most homeowners don’t want to default (and yes, a short sale is a default). And they don’t mind paying real estate agents if they are helping them achieve their goals of lifting the financial burden of the home off of them. The question is how. There are a lot of homes on the market for sale!



And there aren’t many qualified buyers out there. But… By logical deduction, that would mean that there are a lot of unqualified buyers out there; we can call them “non-qualifiers” (yuck!) or tenant-buyers (rent-to-own tenants). These rent-to-own tenants would love to occupy the vacant houses on the market and buy them at some point. Hmm… that sounds like a win-win for the owner and tenant-buyer.



But what about the agent? We need a win-win-win. That’s the part where we know that clients are willing to pay for value. An agent just needs to sell the created value and put a price on it. It shouldn’t be too hard; a client who stops losing thousands of dollars a month will happily pay a fee and thank you afterwards.



Wouldn’t you?



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. He is also the author of 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 Weekly: What’s the Difference Between “Rent-To-Own” and “Rent-To-Sell”?

Another popular question I hear from prospective clients is:




PC: “What’s the difference between rent-to-own and rent-to-sell?”



Us: “There is none!”



PC: “Well, if that’s the case, why don’t you eliminate the whole “rent-to-sell” terminology? I’ve heard of rent-to-own, but this rent-to-sell thing is new to me.”



Well, it’s a matter of perspective. A rental tenant who aspires to be a buyer would use rent-to-own as the correct terminology. Example:



“I want to rent-to-own this house. This means I’m going to rent the house, work on my credit until I can buy it, and then buy the darn thing before my lease is up!”



Most people get this part of it pretty easily.



Then there is rent-to-sell. This hasn’t been in the limelight until the past year or two, but has been picking up a considerable amount of steam in this poor economic environment. Now as more sellers have vacant homes sitting on the market and qualified buyers are nowhere to be found, they need a new solution to sell their homes.



So the sellers market their homes as rent-to-sell. They want renters to lease out their houses, make their monthly mortgage payments, and then buy them sometime during their lease period. If they don’t, that’s okay. They can then just rent-to-sell them again when the tenants move out.



To simplify, buyers rent-to-own (I want to rent and then buy the house) and sellers rent-to-sell (I am willing to rent my house out and let the tenant buy it). It’s that simple.



A more advanced example: A rent-to-own tenant would be looking for home sellers who would be willing to rent-to-sell their home to them. The rent-to-own tenant would lease the property, build their credit and down payment up during their lease period, and buy it from the home seller. Then the home would be considered “rent-to-sold.”



Yes, terminology can be confusing at times. But as more consumers and real estate agents are learning in this economy, knowledge of rent-to-own and rent-to-sell is imperative to housing liquidity.



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. You can contact him directly at Brett@BDFRealty.com.

Charlotte Property Management Weekly: Lessons from the Banking Crisis for Properly Structuring Incentives for Rent-To-Sell

Potential clients of ours ask, “Why do you charge a “Realtor Fee” of 5% or 6% when a rent-to-own tenant buys our home (rent-to-sell)? Some of your competitors provide the tenant, keep the upfront option fee, and then let us manage the property. We then only pay the attorney fees when the tenant buys.”




We answer, “So you don’t experience something akin to the banking crisis.”



“What does that mean???”



Let me explain.



I’ve been reading a lot of books lately on the banking crisis over the past few years. There were two things that I found very interesting:



1. When banking firms went from partnerships (owned by the firm founders and selected employees) to public entities (owned by stockholders), the risk level banks were willing to take on skyrocketed. This was because the risk shifted from the partners to the shareholders.

2. Lenders originated sub-prime loans, securitized them, and sold them off (without keeping any). They earned their fee (the incentive) at the beginning of the loan process and didn’t have to be around later to see if the loans were any good. These loans are now the “toxic assets” held by investors and financial institutions that ruined our economy.



So what does this have to do with rent-to-sell (placing rent-to-own tenants into vacant homes until the tenants buy them)? A lot, actually!



We charge the Realtor Fee because we want to get paid when the rent-to-own tenant buys the house. I guess I don’t know of many real estate firms that don’t want to get paid (on anything and everything!). But the point is that this is actually in the client’s best interest. What???



If a firm only gets paid (the incentive) when a tenant is placed into the home, then the firm is going to place a tenant into the home as quickly as possible. The incentive ends there. There are no financial reasons (besides referrals) for the firm to care whether the tenant pays rent after they move in (no incentive in place) or if they buy the home during their lease period (again, no incentive).



But if the firm that places the tenant also gets paid to manage the property (incentive), the firm will probably care if the tenant pays rent. And, if by far, the biggest bonus (Realtor Fee) is achieved when the tenant buys the home, then the firm definitely cares about placing tenants who want and can buy the home!



Wait- so how does this fit in with the banking crisis again?



It’s all about incentives! They need to be aligned properly to cause the desired behavior. If banks had to hold on to the subprime loans they made (and were paid incentives when the borrower paid their mortgage every month), they wouldn’t have taken on so much risk and allowed non-credit worthy borrowers to qualify.



It’s the same with rent-to-sell. If you want a tenant to pay rent every month and then buy your home, it is wise to incent your property management firm throughout the whole process (tenant procurement, management, and sale).



Your results will typically be a direct product of the incentives you have in place.



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. You can contact him directly at Brett@BDFRealty.com.

Charlotte Property Management Weekly: Maybe You Shouldn’t Fix Up your Rental Home?

The “Golden Rule” was an excellent idea as soon as Jesus said it; our lives would be so much better if we followed it all the time. But it’s not such a smart philosophy to follow it with rental homes. Let me explain.




There are many well-intentioned investors who believe that the “Golden Rule” should apply to their rental properties. “Do unto others as you would have them do unto you.” Through the years, I’ve heard:



1. “I like granite countertops. I imagine that tenants would also like to have them in my $75K townhouse that rents for $550 monthly.

2. “Once the tenant moves out, get started on the new paint and carpet please. I would want everything spotless and new.”

3. “Should we include all utilities in the rental price?”



Americans don’t want average homes for themselves; they want distinguished trophy homes without any flaws. Unfortunately, trophy rental homes with bells and whistles don’t make money; average homes do. So the key is to keep your rental home average and undifferentiated? That doesn’t sound like good marketing, does it?



Don’t get me wrong, these would be very nice improvements that would make the rental move faster. My issue lies with 2 things:

1. The ROI

2. The way to effectively market the increased value in the internet age



The question should not be “Would the tenant like these improvements?” Of course they would! Who wouldn’t?



Rather, the questions should be:

“Will the tenant pay for these improvements with increased rent?

“Will the market allow us to raise rents to cover and profit from these expenses?

“Can we effectively communicate this increased value in our marketing?”



The first problem is the ROI. In short, if you pay $2K to install granite countertops, how much extra rent can you charge? The answer is between slim and none. And slim just left the building. The reason? If your home is priced out of the market, no one will go look at it. And if they don’t go look at it, they can’t see how awesome your improvements are. Pictures only go so far.



The second reason is that it is too hard to effectively communicate extra value in rental homes; attention spans are too short. People look for rental homes on the internet and are clicking between hundreds of them. The main things people are looking at are price, number of bedrooms and bathrooms, and the areas in which the homes are located in.



So as potential renters are clicking expediently through homes, they notice your home is listed at $1,500 and another similar rental is listed at $1,350. Guess which one they click on? Yes, the cheaper one.



"But I have electricity, lawn care and cable included! They would save money ultimately by taking my property instead of the one for $1,350!"  Yeah, that’s probably true. But to learn that, they need to read the house remarks thoroughly and be a math major (and also know the typical bills that utilities in your area run). That’s way too hard.



The “Golden Rule” worked because it was simple to figure out. To move your rental profitably, keep your rental pricing and improvements simple as well!

Charlotte Property Management Weekly: Better to Rent or List Your Home for Sale? 3 Question Litmus Test

This seems to be a FAQ these days. As a property manager in Charlotte, we get many calls from people asking themselves this question.




I didn’t think there was a one-size-fits-all answer to this, but I was corrected. It just seems to come down to who you ask. If you ask:



1. Realtors: “You should definitely put your house on the market! Interest rates are at all-time lows!”

2. Property Managers: “Nothing is selling in this market. You can either eat your mortgage every month as it sits or have a respectful renter pay it for you.”



So which is the right answer?



It really depends on your answers to these 3 questions:



1. If you wanted to live in the area your home is located, would you buy your home at the price it would be listed at? Take an honest look at comparable homes for sale in our area. If “yes”, list. If “no”, rent.

2. Does your house have a differentiator that would make it more appealing than cheaper, comparable houses (aka foreclosures and short sales)? If “yes”, list. If “no”, rent.

3. Can you stomach a possible rogue renter and locking into a negative cash flow for a year or two? If “yes”, rent. If “no”, list.



These questions make it easy and really boil down to a simple question:



Is your home among the best of the best?



If not, it’s like trying to sell your clothes retail when everyone else is having a 50% off sale. If your home is special and you can communicate this effectively in your marketing, then list your home for sale and be confident it will sell. If it is not, then you must rent until banks starting lending to the masses again.



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. You can contact him directly at Brett@BDFRealty.com.

Charlotte Property Management Weekly: Importance of Getting Paid from Rentals in the Next 5 Years

“Go to where the money is.” (Business Axiom)




According to an article in Barron’s this month, the future of the real estate market is in rentals for the next five years. Most real estate agents are hoping this news is akin to the Bush White House claiming the existence of Iraqi weapons of mass destruction (WMD); hopefully, it is just another example of faulty American intelligence.



However, the supporting information for a rental uptrend (as well as brokerage to be on a continued, extended downtrend) is pretty compelling; if this is what is going to happen, then anyone in the field of residential real estate needs to start thinking about how they are going to operate in this type of future. And then think about how they are going to operate in a rental-dominated market.



And let me clarify. When I say “how to operate”, I mean “how to make money” and “how to stay employed in the real estate industry.”



With rentals, this means creating:

1. Quantifiable value

2. Your fee structure

3. A narrative to explain why you should earn your fee



So what does this look like? What is the quantifiable value of a rental tenant? What is my fee? What story (narrative) am I telling to back up my fee? An example:



If I bring a tenant paying $2K/month and they sign a 2-year lease, I just created $48K (24 months X $2K/month in rent) in future cash flows for you, Mr. Owner (this is the quantifying the value). What is this worth? 10%. Why? How about because that is what the commercial agents charge for leasing fees (the narrative)? If so, that’s a $4,800 commission to you.



A tried and true business model in any industry is to take a percentage of the money you bring in. It works for hedge funds (they take 20% of the money they earn for their client off the top), real estate firms, and any other commissioned salespeople.



So, to recap:



1. How much money are you bringing in to your client? (total quantified value)

2. What percentage of it is your fee? (your value)

3. Why? (the narrative)



Those that adapt will survive!



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. You can contact him directly at Brett@BDFRealty.com.

Charlotte Property Management Weekly: 700+ Credit Score Tenants Not the Best Option for your Rental Home?

I was talking to a prospective Charlotte property management client the other day and he had only one criteria he really cared about. He wanted to make sure that we placed a rental tenant into his home that had 700+ credit scores. That was it.


I told him I didn’t think that was a good idea; it would reject a lot of better suited applicants. He told me I was crazy (in so many words).



Well, let’s do the whole Benjamin Franklin pro’s and con’s thing. Then we can make an educated decision.



First, the overall goal must be established. As a Charlotte property manager, we want to make sure that we maximize our client’s investments. Generally speaking, we define this as providing the most net cash flow to our owner clients. Most clients agree that we should be measured by how much money we put into their pockets.



Now for the pros of a 700+ credit score client. They will almost always:

1. Pay their rent in full and on-time

2. Leave the home in great shape when they move out

These are the two biggest concerns of our clients, so these are very good attributes.



Let’s now look at the cons. I could nitpick, but tenants with 700+ credit scores are pretty good to have. So, I just want to focus on one con:

1. They typically vacate after their initial lease expires



This one con crushes a client’s overall cash flow and ROI.



Most people who have 700+ credit scores buy homes immediately. The ones that don’t usually have a reason like they:

1. Are a mobile professional who will move with their company in 1-2 years

2. Are waiting for the right deal on the house they want (Guess what? The deals are here now!)

3. Just moved to town and will buy once they get to know the area



So a full year’s rent is secure, but then there will usually be a few months of vacancy and holding costs that have to be factored in after the 700+ tenant vacates.



The ROI might be better with a tenant with sub-620 scores (who can’t buy) and a solid landlord history? I’m thinking there is certainly a case to be made.



Tenants who stay for years are almost always a better investment than those that are one year and done. In conclusion, it may be time to rethink the “700+ credit tenant or no deal” strategy.



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. You can contact him directly at Brett@BDFRealty.com.

Charlotte Property Management Weekly: Wouldn’t You Want the Market to Know Your Rental is For Sale?

As a Charlotte property manager, we work with many clients who are looking to rent-to-own a home. As the banks continue their non-lending ways, this group of clients continues to grow.




To find homes for them, we look through many sources. Homes listed for rent-to-own (aka lease option or lease purchase), homes for sale, and rental homes. We approach the agents of these homes and ask if their client (the seller) would be open to a lease option arrangement; some of them are and some of them aren’t. Lately, obviously, sellers are more open to this arrangement.



Asking agents of rental homes and homes for sale whether their clients are interested in rent-to-own can be a timely process. The manual effort of calling and leaving messages, and then waiting for responses when the rent-to-own client wants to see the home now, makes it a very arduous process. Then the discussion of actual terms makes this go on forever.



However, in an increasingly illiquid market, most wanna-be sellers are turning to the rental market to decrease the short-term pain of monthly payments on their vacant homes. What they really want to do is sell (and not of the short variety).



If this is true, doesn’t it make sense to have a discussion about this prior to listing the property? The conversation would start with, “Hey, we’ll put your home on the rental market even though I know you really want to sell. Taking this into consideration, we should also communicate to the market your willingness to sell it through a tenant-buyer purchase (aka rent-to-own, lease purchase, or lease option). To do this, we need to sort out three things upfront:



1. Monthly rental price- OK, we got this already

2. Option money required upfront for lease option- 1-3% of the home price is good

3. Rent-to-own sales price- 3-5% appreciation a year probably works



By including this in the listing copy, the market now knows how serious your client is about selling (aka rent-to-selling) the home. This now turns into a potential win-win-win scenario.



Win- Seller sells their home

Win- Tenant-buyer locks into the home they want and are building up a down payment (upfront option fee) and closing costs (monthly rent credit) to purchase in 1 to 2 years

Win- Agents get paid on rental and sale



Note: Your pricing upfront for rent-to-own can also signal to the market how uninterested your client is in selling. If your client asks for a $300 rent premium per month on the rental, 20% upfront option fee, and 15% annual home sale price appreciation, it is clear that they have no interest in rent-to-selling. Actually, this would be good for other agents to know as well!



Ask and you shall receive. Don’t ask and the logic still works!



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. You can contact him directly at Brett@BDFRealty.com.

Charlotte Property Management Weekly: 52 Consecutive Weeks of Writing- Some Random Thoughts on the Real Estate Industry

Writing a blog every week is hard! My hats are off to the people who write multiple times a week, and especially to those that do it every day- kudos!




My thoughts haven’t changed in the past year on the near future of short-term residential real estate (next 1-2 years). Rent-to-own and rent-to-sell (as well as short sales and working with serious investors) seem to be what the main growth areas will be.



As foreclosures continue to rise, banks will not even pretend to relax lending guidelines.



As the US economy sputters, FHA loans will not become more affordable or easier to get. It will actually be the opposite. Fannie and Freddie have lost and continue to lose a lot of money!



People, in general, have less money. For people disbursing it (banks, government, property managers), the pressure of delivering it is on much more than usual.



More real estate offices will close as technology and business realities (aka less revenue and customers) continue to hit. Office virtualization will continue to grow.



I don’t like the thought of owning a business in a downtrend industry. There, I said it. Being involved in high growth industries is much more exciting (and profitable). Property management is a good growth industry with steady income, but the margins are not close to those of brokerage. You live off of property management and vacation from the brokerage business.



The biggest market for rent-to-own and rent-to-sell prospects will continue to be $250K+ homes. These owners (especially those over the FHA maximum loan amount) need solutions for their homes!



Rental (and especially rent-to-own) tenants are plentiful in this market!



Other people are still the best source of blog material!



Is social media going to continue to trumpet it’s ROI in anecdotal format? Has anyone made any money on Twitter on a consistent basis? Let’s see the numbers, not hear stories!



On that token, one of my favorite quotes on social media is, “Conversation is king. Content is just something to talk about.” Twitter is a bit one-sided (aka no conversation), no?



Here’s to another 52 weeks…



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. You can contact him directly at Brett@BDFRealty.com.

Charlotte Property Management Weekly: Rent-To-Own- Just like Burger King for Buyers and Sellers

A lot of banks don’t like Burger King. Why do I say that? It’s simply because they don’t want you to “Have it Your Way.”




I’m obviously a fan of rent-to-own. It’s sort of a nice change from the rigid rules that mortgage underwriters make clients go through. For example, banks have rules like:



1. Must have 3.5% down and it must be meticulously sourced

2. Credit is now run the day of closing. Anything on that report that the underwriters don’t like will cause the loan to get kicked.



This has caused much client consternation. Some have been left in moving trucks in front of what they thought were going to be their homes; then the homes don’t close and they have to go back to their the old homes. I’ve heard that this isn’t a fun experience.



But, rent-to-own on the other hand, is really flexible. There are no rules that wouldn’t allow a tenant to move in. For example:



1. As long as they have the money, who cares where it comes from?

2. If the house is vacant, they could move in the next day (after a tenant screening)

3. If they need additional time to get qualified for a loan, the lease can be extended indefinitely

4. There is no reason for the seller to wait to make financial moves. As long as there is a signed lease, they can submit this to the bank and do what they want.



Rent-To-Own is like Burger King, for both the buyers and sellers. Both can “have it their way” when they negotiate the rent-to-own transaction.



So have fun and put together rent-to-own deals that benefit both parties. And, while you’re on a Burger King kick, get the French toast sticks while you’re there; they are really good!



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. You can contact him directly at Brett@BDFRealty.com.

Charlotte Property Management Weekly: Making Rent-To-Sell’s Story Sound like BP’s

The following are two descriptions of a $99.00 special on the same hotel suite on the Gulf of Mexico:




1. Come to our wonderful beach hotel on the Gulf of Mexico (get a suite at a discounted rate!). Yes, there is oil washing up on the beach and don’t think about eating the seafood. Please feel free to bring your own firewood as we will be burning BP’s management team in effigy at our nightly bonfire.



2. Our waterfront suites, which are normally $1K a night, are now heavily discounted and available immediately! Enjoy our two Arnold Palmer-designed golf courses, five-star restaurants, and five pools.



Which one sounds better?



Now read these two descriptions about the same service:



1. Instead of losing $2K a month on your mortgage, we can have a qualified tenant move in and make these payments for you! This is a net gain of $41K for you in their 18-month lease period! They are working with credit repair to buy your home within 18 months and are willing to put down $5,000 upfront (yours to keep). If they don’t buy your home, they’ll move out at the end of their lease. It’s a true win-win in these tough lending times.



2. Misery. Agony. It will definitely lead to eviction which means years of court battles that will make the OJ trial seem like a traffic ticket. Once the tenant moves in, your life will be drastically different. It’s like having another child; be prepared to be over to your old house weekly at 1 AM to fix the toilet. I feel I must present this offer to you, but I would highly recommend against it. Someone in my firm told me that these deals never work out. Even though there are still 19 other houses in your neighborhood for sale (including 3 foreclosures and 4 short sales), your house is the best and will get the $50K premium over what the other houses are selling for.



Now which one sounds better?



It’s amazing to see how the same exact thing can either be desirable or non-desirable depending on what version of the story is heard.



Rent-to-sell often falls into this category. And rent-to-sell has a good story to tell.



Rent-To-Sell is simply allowing a rent-to-own tenant (who wants to buy your home) move-in and pay your mortgage every month. If they qualify to buy your home, they probably will. If they don’t, then they move out at the end of their lease.



Another way to explain this is that rent-to-own and lease options are the same things. “Lease option” is a combination of a lease (we know what this is) and an option (they have the exclusive right to buy your home while they live in it). Isn’t that reasonable?



I am an unabashed proponent of rent-to-selling vacant homes; I don’t see my optimistic view as idealistic. BDF Realty is a property manager; we place tenants (and rent-to-own tenants) all the time. Almost all of the tenants we place pay rent every month. Almost all of the tenants we place treat their homes with respect. Some of the rent-to-own tenants in our properties buy the home they are in before their lease expires; some don’t. This isn’t rocket science.



The thing that I’m pessimistic about is a vacant home that is on the market for months on end. That’s expensive and will bleed you dry.



So, maybe I’m a simple guy. Playing 36 holes and lounging by the pool all day for $99 a night sounds like a good deal.



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. You can contact him directly at Brett@BDFRealty.com.

Charlotte Property Management Weekly: When Will Rental Rates Rise?

Every property owner I’ve ever met (including yours truly) wants to charge the highest rent possible. Every tenant wants to pay as little rent as possible.




Sorry, there is no huge revelation here. This is pretty much the way any market works. The girl who sells cans of peas wants you to buy them for $100/can, and you want to buy 3 cans for a dollar.



This is what a free market is all about. What are buyers and sellers willing to accept price-wise?



Then supply and demand are thrown into the mix. If the girl is selling the peas for $100, and five other people are selling them for a dollar, the $100 price is not going to fly. But let’s say the pea market heats up (it becomes the rage in Europe) and the $100 girl is the only one who has peas to sell now. You come home and your wife tells you she is dead set on serving her famous pea soup with a side of pea pilaf for your anniversary dinner. Now, $100 may seem like a great deal!



The same is true of the rental market. When the economy is great (and especially when properties are in a hot geographic area), rental prices are able to rise because homes are snapped up as soon as they go on the market. The supply of homes is low and demand is strong.



Conversely, when the economy and real estate market are slow, the rental market suffers. The people who can’t sell their homes put them on the rental market, which join the many homes that are already on the rental market. This creates a glut of homes (increased supply).



With many rental houses to choose from (low demand), much like the many sellers of peas example, the prices must be lower. This has happened for the past few years. To be competitive and fill their properties, sellers have had to drop their rental prices.



Which leads to the question we really care about: When can we raise the rents to my properties? In short, soon. Why is that?



Many investors and home owners are sick of losing money every month on their rental properties. Some can no longer afford to be in the real estate investment game. As national sales numbers have shown, short sales and foreclosures continue to dominate the market. Many home owners are letting their houses go and this activity is a growing national trend.



As banks continue to take growing losses on bad loans, they will loan out even less. A recovery is not imminent; defaults will continue to abound.



However, in terms of the rental market, short sales and foreclosures will accomplish 2 things:

1. Removing rental homes from the market as owners let their investments go back to the bank (lower supply)

2. Adding foreclosed homeowners to the tenant-pool who now need to rent (increased demand)



The rental market will recover much sooner than the housing market (which is years away). I believe early 2011 will bring rental price increases, after years of holding the line or being reduced. The market is shaping up to reward the investors who hang on during this difficult period with higher rents and lower vacancies.



So, hang in there! Rentals will be back in 2011 and, in the meantime, “pea mania” has not hit the States and are still available on the cheap.



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. You can contact him directly at Brett@BDFRealty.com.