Charlotte Property Management Weekly: Is the Section 8 Program Good for Landlords?

I was signing a lease with a Charlotte Section 8 tenant (the government subsidized rental program) a year or two ago and asked her if she liked the Section 8 program. She smiled and said, “Yeah, it’s a pretty good deal.” I laughed; when the government is willing to pay some (or all) of your rent, I guess it would be tough to answer any other way!




So, it’s a good deal for tenants. But is it a good deal for landlords?



I only have limited space, but here are the most pertinent and succinct pieces of advice I can offer to landlords to determine whether allowing Section 8 tenants to rent your properties is a good deal:



1. If your house is higher-end, Section 8 has limits on how much they are willing to pay based on the amount of bedrooms and whether utilities are included. This leads into point #2.

2. The rental rates aren’t that high. To see if allowing Section 8 tenants to rent your home makes sense, the cash-flow needs to be computed on a property-by-property basis. On some properties, the cash flow is good and should be recommended as a viable rental source. On others, it just doesn’t make sense.

3. The house will need to meet many government requirements and will be inspected to make sure it is up to snuff. If the house is newer and kept up, it will usually pass. If it is older, there are usually costs incurred to meeting these requirements; the question is if incurring these costs is worth it.

4. It’s a government program which always means two things: it isn’t fast and features many, many documents to sign.

5. Payment is guaranteed, but when mistakes are made (aka missing or incorrect payments), getting them corrected is usually arduous. See point #4.



And as a bonus, here is an answer to our most FAQ by far:



Q: If I allow Section 8 tenants to rent my house, am I just asking for my property to be torn up?



A: I haven’t seen this be the case. There is actually additional protection against a Section 8 tenant tearing up the home, when compared to a regular tenant. Let me explain. The Section 8 program has a huge tenant waiting list (no surprise there!). If a Section 8 tenant tears up the home (or does anything that violates the lease), there is an implied understanding that they can be reported to Section 8 and be removed from the program. The tenant cannot afford for this to happen!



Section 8 can be a great option for the right house. Use it wisely and selectively!



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: David vs. Goliath: Punish Those with No Credit or Landlord History?

Everyone knows the biblical story of David versus Goliath. David, a young shepherd, takes his slingshot and takes out the menacing giant, Goliath, with one shot. Then he picks up Goliath’s sword and cuts off Goliath’s head with it, saving Israel from the Philistines as a result. Pretty good work for an amateur!




In the world of property management, “David”, the prospective tenant, is often put on the sideline per se. See, David will probably be a good renter, but it can’t be proven. He has no credit score (works at a restaurant and pays with cash) and no landlord history (besides Mommy, Daddy, and his undeserving ex-girlfriend). With no provable payment or rental history, he is the great unknown. To take Shakespeare into the rental world, “To rent or not to rent to him, that is the question.”



Our property management firm uses four criteria to screen tenants:



1. Credit report

2. Criminal background check

3. Landlord history

4. Income and employment verification



So, let’s play this out. We’ll go off the assumption that David is employed, makes enough money to afford the rental home, and isn’t a (known) criminal. We know that he has the money to pay the rent each month. But we still have no idea if he actually will.



Property managers are tasked with proving to their owner clients that they did their due diligence in the screening of prospective tenants that may rent their home. That’s obviously fair. But in a world of limited information, how can David get approved? The easy thing to do would be to reject the application due to having insufficient information to make a decision. This is a common practice in everyday life. For example, this issue was a big reason why President Obama was elected, right? President George W. Bush went to war against Iraq with insufficient information about WMD’s and look where that got him. Most Americans (see polling numbers) wish he had waited for more proof!



So application rejection is a warranted (and defendable) action; if the information isn’t there to make a well-informed call, it needs to be denied. This will cover the property manager if something bad happens, right?



Or, let’s wait a minute. Hasn’t everyone been in this situation once in their life? Does a generation of new renters deserve to be shut out because property managers can’t figure out how to adequately assess their suitability to rent?



I don’t think so. I’ll approve David’s application if he:



1. Passes the aforementioned four screening methods that he can actually qualify for

2. Shows attentiveness and responsibility during the application process

3. Has the wherewithal and willingness to put down additional security deposit monies (this will mitigate the additional risk of insufficient application information)



Israel didn’t shut out David from saving them, even though he wasn’t an experienced soldier. Don’t automatically reject renters of unknown quality; most will turn out to be pretty good tenants!



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: Tenant Stories Often Raise Red Flags

“If you have to ask how much it costs, you can’t afford it.” Maxim of the Wealthy




“If you have to ask for a payment plan for the home’s security deposit, you can’t afford it.” Maxim of the Intelligent



We are approached by potential renters a few times a month with something like the following:



“We love this house! We want to take it! We would call our lives “complete” if we could inhabit this home with our children! We get goose bumps just imagining the daily ingestion of pure beauty that permeates from each nook of this stunning domicile. We have the first month’s rent ready to put down now! Where do we bring it? We will treat this house like our very own with weekly carpet baths and loving dustings!






But… The only problem is that we are a little short on the security deposit. Will the owner accept breaking this payment into 3 months? Let the owners know we are good for it and I will be praying that they be blessed this Sunday at each of the church services we regularly attend.”



Thinking like a property manager, how many red flags come up in this beautiful soliloquy? A few come to my mind:



1. Lack of funds: I dare to call this the number one tenant screening technique; this is the collection of the application fee, pet fee, security deposit, and the first full month’s rent upfront and in full. This really is the number one way to find out if they have cash on hand. If they can pay it, they probably have money. If they can’t, they probably don’t and won’t apply.



2. Offer of the security deposit in a payment plan: This ties into red flag #1, but there is another issue. If they don’t pay it upfront, you are left with absolutely no leverage to get it after they move in. You can’t evict them because they are paying rent. Please don’t take payment plans! I’ve done it a few times (because it seems so easy and the tenants seem so sincere…), but they rarely keep up with them. Moving is always more expensive than they realize and cash was already short. They won’t give you the money simply because they don’t have to. They duped you on the front end and will now avoid your calls and hollow threats.



3. Effusive praise over a rental home: I like it that you like it, but let’s not go overboard. When you tell me that you’re going to take meticulous care of it, that’s great; but I’ve never had a tenant tell me that they were planning to systematically destroy their rental before moving in.



4. I like it that you’re into church: But I wonder why you’re telling me this when you’re applying for a rental home?



Red flags don’t mean you need to wave a white one. Be diligent in your screening process and the right tenant will come along!



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!)