Charlotte Property Management Weekly: Drive + Drink = Lease + Option?

“Lease options might be the worst idea ever. Who would ever be a party to one? I tried one once and it was a complete disaster! I mean, I’m not a lawyer- there’s just so much that can go wrong; I don’t have firsthand knowledge of this mind you, but I’ve heard lots and lots of stories.” (Traditional Realtor)

“Combine two innocuous substances and “Walla!” A homemade bomb.” (Al Qaeda training manual quoting a MacGyver episode)


Americans love driving their cars; there are more than 1.5 cars for every adult in the United States! Driving is a major “driver” of our economy as it helps people get to work and transport goods. It also allows a higher degree of personal freedom- who hasn’t felt the thrill of the open road? People vote with their feet, and almost all adult Americans go and get their driver’s licenses as soon as they are of age. Despite thousands of vehicular accidents every year, driving is considered a good thing (usually).


In this economy, though I haven’t seen any firm statistics, I imagine drinking alcohol has become a more popular pastime. This, in itself, isn’t a bad thing. Adults tend to enjoy a cold beer after a tough day, a salted margarita when on a tropical island, and a glass of wine at a romantic dinner. When alcohol was banned in the US during Prohibition, this was extremely unpopular and people went underground to get their moonshine. Despite the well-known dangers of being “over-served”, drinking alcohol is considered a good thing by many people (usually).


But when you mix these two “good” things together, drinking and driving, they become an awful thing. It’s like bringing in the third, previously-unknown pregnant mistress on stage during the taping of the “Jerry Springer Show.” It’s dangerous, incendiary, and potentially lethal. Almost everyone would agree that drinking and driving is a very bad practice and something that should never be done.


As a property manager in Charlotte, I write a lot of rental leases. I’m pretty familiar with them; I’m sure you are too. I remember going to college out in AZ and renting a place off-campus with some friends. Man, that was fun! We had a four-bedroom house that had a full-size pool, 6-person hot tub, a horse shoe pitch, and lime and lemon trees in the backyard. It was 15 minutes from campus and cost us $900 total a month. I remember paying a little extra in my share to have the master bedroom ($250 total). It was a good life!


I don’t remember any big rental contract issues. We signed a lease, paid the rent, and moved out when we graduated. I understand that this is done routinely on Earth (usually without incident) everyday. Leasing places is considered to be good (usually).


Do you know that billions of dollars of options (of the financial variety) are traded everyday? Without options, companies would be much more risky and would be forced to be much more conservative. The steady prices of most goods we enjoy? A lot of this is due to options. Where does the ability of financial companies to manage your investment portfolio risk come from? Much of this is due to options. On the other hand, some of the bank issues our country faces are due to the misuse of some types of options. However, there have never been discussions to eliminate them. Options are largely considered great things that have exponentially increased the ability of economies to grow and prosper (usually).


So, to recap, drinking and driving individually are okay (usually); so are leasing and options individually (usually). But when you put them together, disaster awaits. Is that right? I understand how drinking could impair your physical reactions and make driving more dangerous; I get this part of it. But how does leasing impair your ability to use options? Or vice-versa? It just doesn’t make any sense!


What does make sense is that the real issue is not that leases, options, and lease options are dangerous. Used properly, these are extremely valuable tools that are used everyday, in every industry, everywhere in the world to help people and companies! However, like anything, if you don’t know how to use something properly, you are likely to get hurt.


If you don’t know how to drive, you shouldn’t be on the road, regardless of your age; chances are, you’re going to hurt yourself and whoever is with you.


And don’t think about blaming the car (usually)!


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: “Abe’s” Commercial Lease Negotiation Strategy Unveiled…

“I will get the lowest price per square foot for my new office lease.” (Charlotte Business Owner)




“I will not drop my initial offer for price per square foot for the new lease. It’s not worth it and I really don’t like this guy anyway.” (Charlotte Commercial Landlord)



“I will maximize this commission.” (Charlotte Commercial Real Estate Agent)


One deal. Three different parties. Three different motivations. Sounds like a movie trailer doesn’t it? Granted, not a great movie or anything, but maybe it’s 3-D so you’ll go and see it anyway.

This was the situation when I met a friend of mine at Dean & Deluca recently. “Abe’s” (yes, I realize the irony- it’s a fake name for our President known for honesty) office lease was expiring and he wanted to extend it. However, he knew this was the time to get a great lease rate as the commercial market is in a state of sheer awfulness. The real estate agent he just hired to represent him on the lease extension whole-heartily agreed. However, the landlord does not see why he needs to come down in price at all- his costs had gone up!

Abe broke down the situation for me:

Him: He wants to stay in the office. It’s close to where he lives, it has room for future expansion, he loves what he does, and his employees are happy with it as well. His business is growing and he (almost) salivates when he thinks about the result of his increasing sales cash flow mixed in with a sizeable reduction in fixed costs (if his rent is lowered in a new lease). He doesn’t want anything to do with the hassle of moving. He likes where his office is and wants to sign a fair, multi-year deal.

Landlord: He doesn’t really like Abe, besides the fact that Abe pays his rent on time every month. Though a third of the building he manages for a national commercial firm is empty, he is adopting a hard line on the price. He is offering a minor price reduction for a 3-year lease. He is still a few dollars off from what could be argued is current market rate. He also mentions that if Abe wants new carpet or painting, the rental price would have to go up.

Agent: He seems reluctant to negotiate with the landlord now because it’s more than a few months before the expiration of the lease. He’s confident that in his discussions with the landlord that he can get him to drop the price further if Abe can commit to a long-term lease. I asked Abe how the agent was compensated and he said the agent would get a percentage of the total size of the deal (monthly rent multiplied by the months in the lease agreement multiplied by his commission rate).

“So,” Abe says, “Let’s take a look at what’s on the negotiating table:”

1. Price per square foot

2. Length of lease

3. Improvements- carpet, paint, other?

4. Free months of rent- Abe heard other tenants nearby were being courted with this offer.

“At least with this information, we know where to start. I guess we’ll figure out soon enough where it ends up.”

Abe then began to detail his strategy. “The first thing is to align my agent’s interests with mine. I want to pay the lowest amount of money, while he gets compensated the most by having me pay highest amount. We need to revamp our commission structure; clearly our incentives are not aligned. So we either come up with a incentive structure that ensures he gets compensated the most when he benefits my interests the most. This also means he needs to understand where I stand on all the negotiable items. If not, we’ve got to part ways immediately.”

The second is to proffer some trial offers. What is important to the landlord? I really have no idea. I want to see what he is willing to easily give up in the negotiation. I assume he wants me to stay. The one thing you can usually be sure of is that no one is stupid enough to blatantly act against their own self interests. Why is he giving such a hard line on the rental rate? I want to know what his mandate from corporate is and what his commission structure looks like. I’m willing to lay most of my cards on the table and I’ll ask him to do the same.

At the end of the day, it would be an absolute tragedy if I left. It would be a pyrrhic victory- we’d both be losers.”

As Abe prepares to leave to meet his real estate agent, he picks up his folder of vacant commercial property listings (with their corresponding lower rental rates) off of the table.

“Wish me luck!”

His strategy sounded good to me. What do you think?

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: “Terms” of Endearment- The Key to Selling Real Estate Buyers

"They wouldn’t come down in price. I said, ‘Sir, excuse me, sir, do you want to know how many other houses my client can buy?’ We couldn’t bridge a gulf of $2K and the deal fell through. Their loss!” (Indignant Charlotte Realtor)

“Why ask why? Try Bud Dry.” (Old Anheuser-Busch slogan)


If you were offered both of these jobs, which one would you take?

Job #1: $80K annually

Job #2: $30K annually


Duh, the $80K one.

Now let’s look at the job descriptions:

Job #1: Work begins at 4 AM. Your job is to produce 100 widgets an hour. You cannot go home until you complete 1,500 widgets a day minimum and your job is six days a week. There is no overtime or hopes of advancement. Your boss will ask you to complete menial tasks for her during the day, which include errands and hand-feeding her. She weighs in excess of 350 pounds, so your trips to McDonalds are frequent. She prefers you to keep your hands greasy from the fries for the post-meal kneading of her feet.


Job #2: You are forced to transfer to an exotic island with your family. All expenses are paid, which include a personal chef. You have one mandatory work day per week which includes giving feedback on the company’s 4-star chef’s new dessert menu. The rest is free time in which you can visit any of the many island attractions at no cost as an employee of the company. Most of the employee training manual is about avoiding sunburn and the importance of frequenting island restaurants.


Do you still want the “$80K one”? The “$30K one” is looking pretty good now. You’d be making less, but the terms are so much better. And terms are endearing!


In life, and in real estate, terms can be more important than price. But negotiating terms is hard! Why? It is simply because it becomes a much more involved house sale. You need to know what is important to your client, which means you have to talk to them a lot and probe. The agent on the other side of the deal must also do the same thing. Then you must come together with the agent (even if you don’t like them) and hash out what is important to both parties and creatively put together a deal.

This rarely happens. The market had been so good for years that it has been easy on Realtors. You just need to stick a price out there within market price parameters, get an offer, wait for both parties to give a little on price, and then come to a deal. It’s actually thrilling to see where the price will wind up after counter-offers continually switch hands, but it is sort of a primitive method. The assumption is always that price is king.

With less financing available and more competition for buyers, listing agents are going to need to truly understand the needs of incoming buyers. Price is price and will always be important. But the battle for sellers that can’t (or won’t!) reduce price has to be made on terms.

What exactly are the “terms” I’m talking about? It is simply looking at the buyer as a whole. What are their needs? Anything can be written into a contract. Here’s an example of a buyer making offers on 2 similar houses both listed for sale for $300K:

Buyer scenario: They love the house, but don’t want to move in until their kids are out of school (which will be in 4 months). They would like hardwood floors downstairs. They have another child on the way (they’re moving for more space) which means they also need a bigger car. Because of the economy, they haven’t been on a family vacation for 3 years; now with this house purchase, they are looking at another 2 years of “staycations.”

Ordinary Seller offers to accept: $290K

Creative Seller offers to accept: $305K

AND a willingness to push the closing date for 3 months later (with a larger earnest money deposit). Their cousin, Tony, does great flooring work and will put hardwoods downstairs in for them at cost. They’ve been looking for an opportunity to get rid of the minivan they have (the kids are out of the house- that’s why they are moving to downsize) and offer it to the buyers (with an increase in purchase price). They also own a beach house which they offer to the buyers at no cost for two weeks this summer.

Which deal does the buyer take? For $15K less, it better be the $290K deal, right? Or, maybe not?

Terms are endearing; price is not always king. Be unique and fight the battle on both fronts!


What is the best creative deal you’ve ever put together that trumped a higher-priced offer?

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. For a FREE subscription to “Charlotte Property Management Weekly” via RSS, click here. Or by e-mail, click here.

Charlotte Property Management Weekly: Former BOA CEO Ken Lewis Teaches Real Estate Investing

“I’m going to tell my clients to start buying real estate once things stabilize. It’s still too dangerous.” (Charlotte Investment Realtor)




“When a true genius appears in the world, you may know him by this sign, that the dunces are all in confederacy against him.” (Jonathan Swift from Thoughts on Various Subjects, Moral and Diverting)



Ken Lewis is the man. You might have read and heard things in the news during the past year saying he is not the man, but they were all wrong. He’s got an unbelievable instinct for investing creatively. And he’s got the guts to execute.

If you live in Charlotte, you must heart Big Ken; it’s required. He built the entire town, kept the headquarters here as he grew Bank of America (BOA), and made sure his bank was actively involved in the community. He should be given a great deal of thanks for the Panthers, Bobcats, Four Seasons Hotel, support for countless charities, etc, etc., etc.

If you’re a large shareholder, you may feel differently. BOA’s stock got hammered the past few years from the mid-$50 range down to a couple of bucks (then rebounded to around $16/share). The dividend went from $2.56/share/year to four cents/share/year. If you were depending on BOA stock to live off of, you did not heart Ken. You were one of the people who wrote Congress telling them that you knew who the Anti-Christ was.


In the short-term, Ken was the Devil. In the long-term, I think he will be considered an investment genius of epic proportions (seriously) and someone we should try to learn from. He bought Countrywide (the largest mortgage company in the country) and Merrill Lynch (one of the largest brokerages) at huge historical discounts. When everyone was running away from these “toxic asset”-laden institutions, Ken was stepping up and taking them down. He had chops.


He wasn’t just paying cash either; he did not have enough of it to close on these deals. No matter. Ken was working the government for guarantees, cheap financing, and taxpayer assistance. He knew the government had to find a way to steady the financial system and there weren’t many institutions willing to step up and take huge risks in catastrophic economic circumstances. Sure, when economic times are great and risk is completely known, other CEO’s have no problem paying top dollar to acquire other companies (even though the large majority of acquisitions actually destroy shareholder value for the acquiring company). But when there is risk and market values plummet (creating potentially unbelievable shareholder value creation), they will not step up.


Ken did. He has an investor’s heart and instincts to locate and take down undervalued assets. Let’s discuss:


I. Locates Undervalued Assets: For an entity the size of Bank of America, there are few companies (in terms of sheer size) whose acquisition would result in any meaningful impact on their earnings. BOA is huge. In the space of a year, he saw the opportunity to add two massive companies to the BOA fold, Countrywide and Merrill Lynch. Countrywide propelled BOA to the #1 mortgage company in the world. Merrill Lynch filled a huge gap that gave BOA 16,000 stock brokers (sorry, “wealth advisors”) working on Baby Boomer’s investment portfolios. Oh yeah, did you forget about the biggest segment of the population that every financial company in the world was competing for before the economy collapsed? Ken didn’t. BOA went from Baby Boomer “player-hater” to “top 2 player” overnight.


Let’s look at using this methodology for locating real estate deals. What attractive opportunities are available in your town? Are there any good fits for you or a client’s investment portfolio? Any great commercial locations at the main intersection that you didn’t think would be available for a million years? How about beach house you always wanted? I bet the banks (or struggling sellers) that have them muddling on their books would be willing to deal now- on your terms. If you handpicked a great property or two and the market came back, how would your nest egg look in the next 3, 5, or 10 years?


II. Takes Them Down: Ken used stock, cash, government guarantees, government grants, etc. to get the companies he wanted. He had the government over a barrel and used this to his advantage.


So, on the same token, how can you actually acquire the real estate you want? Like everyone, you say you don’t have much money to invest. How about you get creative like Ken? Do you think if the world economy wasn’t on the brink of disaster he could have gotten the price, terms, cooperation, and financial assistance he did to close these deals?

These are not normal times and you can use this to your advantage as well; the sellers will try to help you as much as they can! Maybe it’s time to start asking about and using:


1. Seller financing- let the seller act as the bank and get a good price and terms from them

2. Government financing- there are more state and government programs available than you know. The $8K tax credit is merely the tip of the iceberg.

3. Sandwich lease options: lock into a low price today (buy an option), pay a reduced rent to the owner, and then rent it out to someone else at a higher rate. As a great man once said, “Control is more important than ownership.”

Ken won’t be vindicated in the next year or two, just like making these deals now won’t turn you into Mr. Burns overnight. There is always short-term pain (heck, Ken got fired) required for long-term gain. Ask any athlete.

Or in two or three years, ask Ken. His BOA stock will be funding his retirement very nicely.

What do you think? Is it time to invest in real estate creatively?


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. For a FREE subscription to “Charlotte Property Management Weekly” via RSS, click here. Or by e-mail, click here.

Charlotte Property Management Weekly: “Cash for Clunkers” Predicts a Cloudy 2010 Housing Market

 
“2010 home sales will pick up! It’s the last chance for Obama money!” (Optimistic Charlotte Realtor)




“The world is ruled by facts. People are ruled by ideas.” (Anonymous)



It might be too late to still be giving out 2009 “Best of” and “Worst of” awards, but please humor me.

“Can’t Believe You Still Have a Job” Award of 2009: Obama’s “Cash for Clunkers” sales forecasting team. As they projected a total 7-week program amount of $1B, they ran out of money before the first week was out and had to go begging Congress for $2B more.

If “prognosticatin’” is your game, and you’re off by that much, you probably need to find a new job- you just ain’t that good at it. I’m not even sure that you can qualify for horseshoes or hand grenades (where being close counts for something). However, the very next prediction you made after the sales results came in was probably spot on; you knew you were definitely getting fired. And you couldn’t argue.


But alas, you work for the federal government where the bar for dismissal is pretty high; you have to make more than a concerted effort to get a pink slip. Michael Brown, of FEMA-Katrina fame, almost made it through. Reality show wanna-be’s getting by Secret Service and hanging with the President at a private party, no problem for the security folks. So I wasn’t overly surprised when I didn’t hear anyone having to fall on the sword for the “Clunkers” miscalculation. Then I started thinking- maybe this wasn’t a mistake. And I’m not going all “government conspiracy X-Files” all of a sudden. Stay with me here.

When the news came out the “Clunkers” program was bankrupt after the first weekend, the response from the public not interested in buying a car was something to the effect of, “what a bunch of government idiots.” However, the response from the public in the market for a new car was to hop in their clunker and floor it (top speed: 35-40 mph) directly to a dealership.

My next award: “Best Public Relations Move in 2009”- won by the Clunkers forecasting team


They ensured the dealerships would be jumping for the life of the program because you never really knew when the clunkers cash well would finally run dry. Heck, it was almost over the first weekend! Human nature responds predictably to scarcity. All you have to do is check the food stores when there is even a slight threat of snow. No milk, bread, or batteries to be found. Did you ever think that it might be in Wonder Bread’s best interest to pay off some meteorologists?


What happened after 8/24/09 when Clunkers was over? Sales went down for the next four months. Edmunds.com forecasted that only 18% of the new car sales were actually new; this means that 82% would have happened anyway! They just happened faster because of the incentives.


Let’s fast forward to the $8K (or $6,500) tax credit that’s now set to expire on 4/30/10. It was first set to expire on 11/30/09 and some people (like me) were duped into thinking that it was going to be over. Everyone who was somewhat interested in buying a house rushed to their local Realtor. National home sales went up in November and December (due to the actual house closings going past the 11/30/09 deadline).

But, what happened in 1/10? Home sales were down considerably. The home buyers were just like the car buyers, rushing to get their sale in before the deadline. February’s numbers are not out yet, but if the Clunkers program is any indication of consumer behavior, the following will take place:

2/10- dead

3/10- dead

4/10- a little better

5/10- much better

6/10- big decline

7/10- awful

8/10- awful

9/10*- awful

10/10*- awful

11/10- possible slight uptick

12/10- dead
* Mix in some bad sales seasonality as the kids go back to school and families vacation at the end of the summer
Here’s hoping I’m wrong!

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. For a FREE subscription to “Charlotte Property Management Weekly” via RSS, click here. Or by e-mail, click here.