Charlotte Property Management Weekly: Talking To Your Tenant Will Cost You Money

“Talk is Cheap.” (Keith Richards)




“Talk can be expensive!” (Property Manager)



There are “hands-off” owner clients. And then there are the “hands-on” varieties.



The “hands off” clients just want to know the rent money is in their account on the day they expect. If there are repairs that are going to cost them money, they want to know that too. They just want the bare bone facts with no fluff. That’s fine.



Then there are the “hands-on” owners. They want to be continually updated if there is any news at all about their properties. “What repairs are needed now?” “Is the tenant caring for the lawn?” That’s fine. “How did Felicia do on her math test last Friday?”



What??? Who’s Felicia?



As I pull the property folder and scan through the lease, “Felicia” is listed as an 8-year old occupant. Unfortunately, no math test scores were listed. Darn!



As a property manager, we work for the owners. However, we want to have good relationships with our tenants as well. When executed properly, we serve as a cordial buffer between them. That is a valuable service!



However, we can’t get too friendly with tenants, as much as we’d like to with many of them. We don’t work for them. If we get involved talking about their families and what’s going on with Felicia, we can’t do our jobs effectively. For example, what happens when they don’t pay rent and we need to evict them? The relationship gets really personal; personal to the effect of your “friend” calling you screaming that you’re heartless, they can’t understand why you would evict them when you know she lost her job, and how we felt about Felicia being homeless? Yeah, that’s not a good conversation.



Any decent property manager (with any length of experience) quickly learns to keep a professional distance so this type of scenario doesn’t happen. Dealing with these types of situations where bad things happen in our residents’ lives is part of the job (not a good part!). But we know how to deal with them.



This is where the “hands-on” owner sometimes gets in trouble. They decide to contact the tenant in their home and forge a bond. Instead of relying on the property manager for home updates, they go straight to the source. And this is where talk leaves the “free zone” and becomes expensive. Here are a few examples:



1. The owner calls the tenant regularly and asks how things are going. The tenant brings up any minor issue with the home. The owner feels compelled to ask us to send a repairman there.

2. The property manager asks for a rental price increase. The tenant calls the owner directly and makes their case on why they can’t afford it. The rent stays the same.

3. The tenant is late paying rent and the eviction is scheduled to begin. The tenant calls the owner and swears to pay soon. The owner asks us to call of the eviction. This usually doesn’t work out and the owner loses more money.



My favorite all-time story on this topic is the owner who called us about rescinding a rental increase planned for his tenant. When we asked why he didn’t want the extra money, he said:



“It’s not worth it to me to hear him griping night-after-night about it. To even it up, he’d just make me pick up more rounds at the bar anyway.”



When owners talk to tenants, it takes their relationship from a business to a personal one. And it’s tough for most to say “no” to a friend, even when it means taking a financial loss.



So save some money and resist the urge to talk to your tenant. Rest assured, Felicia’s very capable math teacher is doing her job!



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: When Tenants Want Out, Let Them Go: 3 Tips to Negotiating Early Lease Terminations

“Let my people go.” (Moses to Pharaoh)




Happiness. Everybody wants it. That goes for tenants, property managers, puppies, you name it. To accomplish it, sometimes a change of scenery is necessary. I mean, you want to go where everybody knows your name. And they’re always glad you came. Right?



Occasionally, we have tenants who are not happy with their home. They want to break their lease and move out immediately! Things are not fixed up the way they want, the neighbors are unpleasant, and work is too far away. Utility bills are too high, the building complex is too noisy, and their “party friends” found out where they were living.



Some tenants want to take this frustration out on their property managers (I’ll pause briefly for your feelings of sympathy/empathy). Unhappiness can be like gangrene, infecting everyone in its path. It’s not desirable, or necessary! I just want to write them a letter:



Dear Beloved Tenant,


Why so glum, friend? It seems like we’ve had a tough time connecting recently. All relationships have rough patches. We can get through this!






I’m sorry you are unhappy with the house. This happens! It’s tough to know exactly what is best when looking at a house for only a short time. I mean, over 50% of couples who are around each other everyday for years wind up unhappy and divorcing (remember the story you told me about that with your Aunt Cathy and the one-armed sailor?); sometimes our judgment when making long-term commitments isn’t what it should be! But take heart! I understand. We can talk through this!






I know threatening to not pay rent may seem like a good idea now, but it’s not a path that is good for anyone. If you really want to leave, we can work something out. Life is too short and you seemed like such a happy person when we first met (with your rhinestone-collared Shitzu in tow)! Oh, how we laughed as she frolicked! Let’s get you back to that place!






Sincerely,


Your PM






P.S. We need to hug soon. Please pet Mitsy for me.



Keeping unhappy tenants locked into their leases isn’t a “best practice”. It can actually be counterproductive and less profitable than letting them go!



It’s all about how the negotiation is handled. First, let’s establish the needs and concerns of each party:

1. The tenants want to move out. They’re concerned about facing legal and credit score consequences for breaking their lease.

2. The owner wants someone sending them money every month to pay for their home investment. They are concerned about vacancy, costs to get their property into market condition, and marketing costs for a new tenant.



So where is the win-win? Here are three tips in getting there:

1. The rental home goes on the market immediately. The tenant agrees to keep the home in immaculate showing shape and be extremely accommodating for prospective renters wanting to view it.

2. The tenant gives a 30-day notice to vacate and pays a 2-month lease termination fee. If the house is filled prior to 60 days, this falls to a 1-month lease termination fee that will be refunded to the tenant (incentives are important!).

3. The tenant is required to leave the home in move-in condition (including steam cleaning the carpets and a thorough cleaning). The security deposit is insurance of this. (Note: make sure this side agreement for early termination is in writing)



The owner should be kept whole financially with a new paying renter, and the tenant gets their freedom in 30 days with no consequences. A win-win situation is achieved.



Then we can all go back to being happy again. Cheers!



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: Rent-To-Own: Why Locking into a Home Price Today is a Brilliant Bet

“You want me to lock into a price today on a house that could be worth $30K less in two years? You’re crazy!” (Potential rent-to-own tenant)




Human nature is a funny thing. There is a herd mentality that seems to be so tough to break. If everyone is buying, then it is the time to buy. When everyone is selling, it is time to sell. When everyone is doing nothing, it is time to do nothing. And so on.



The shrewdest, and consequently, richest investors do the opposite. Examples:



1. “I buy straw hats in the winter.” (John Paul Getty)

2. “The time to buy is when there is blood in the streets.” (Wall Street Mantra)



So, basically, the idea is to buy low (and when no one else is) and sell high. That makes sense to me. Let’s see how this translates into rent-to-own deals being formulated today.



Rent-to-own home transactions (aka lease options) have become in vogue in the past year or two since the banks stopped lending to a large part of the public. Lease options allow tenants to lease the property, while buying an “option” (aka the contractual right) to purchase the property at a locked-in price sometime in the future (typically anywhere from 1-3 years). So, in short, the rent-to-own tenants rent and can buy the property at a pre-negotiated price anytime during their lease period. It’s pretty simple.



The purchase of the option (cost: typically 1-5% of the home’s purchase price) is a sticking point for some tenants now; I would argue that it is the best, and most vital, part of the deal for people who want to be homeowners, especially now. Why? For a few thousand dollars, the tenant gets:



1. Peace of mind: the owner cannot sell the property out from under them, nor jack up the purchase price at the last minute

2. Financial flexibility: the option can be exercised (aka the tenant purchases the home), or not. So the house can be test-driven for a few years and the tenant can choose to buy it if they like the price of the home; if not, they can keep renting or move-out. Let’s take a quick poll: how many people who bought homes in the past 5 years wish that they bought an option (with the ability to walk away hassle-free from the house) instead of actually purchasing? Let’s see… a few thousand dollars to buy an option or the home value dropping tens of thousands of dollars minimum with no escape clause. Your call.

3. Home flexibility: the tenant can make upgrades, paint rooms, and basically make the home their own. They don’t have to ever move out, if they choose.

4. A brilliant bet on the housing market



What? What’s with point #4? Lease options equal a tenant bet? No, not just a bet, but a great bet. A brilliant bet.



The housing market is in flux. There has been a prolonged historical drop in home prices that is trending even lower. People are scared. The crowd is not buying homes. There is blood in the streets. Wait- could this be the time the great investors would be telling you to buy?



Of course. The housing market is really low. Through a lease option, rent-to-own tenants could buy an option to lock into a depressed home price today that would be exercisable for the next several years. And the option would cost only a few thousand dollars, and has a huge upside for profit when the housing market recovers.



Break away from the crowd! Use lease options for brilliant financial returns!



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: Rental Home Walk-Throughs: 4 Ways to Protect Yourself

“You know you have a good compromise when both sides are slightly unhappy.” (Many Authors Credited)




As a Charlotte property manager, my least favorite part of the job are the end-of-lease walk-throughs; that is, when the tenant moves out, and we visit the property to check out its condition. If there are damages, we need to decide whether they are “normal wear and tear” (no charge to the tenant) or damages that need to be repaired from the tenant funds. It’s very subjective.



There are three scenarios when it comes to these property manager walk-throughs. The house is left in:



1. Great condition: The tenant gets their security deposit back and the owner doesn’t have to pay much to get the home in market shape. Everyone is happy.

2. Mediocre Condition: Some of the damage is normal wear and tear, and some of it was caused by too much rough play by the tenant. This is where the greatest conflicts occur between owner and tenant.

3. Poor Condition: The security deposit is basically conceded by the tenant. They know they don’t deserve anything back and hope that there is no future contact concerning the property. The owner is able to use the security deposit to mitigate repair costs.



I’m going to focus on the most challenging situation, the home left in “mediocre condition”. This can elicit two different responses from the same walk-through report:



Owner: “You’re killing me! That tenant treated my home like a kid’s tree house and they are only being charged $500 for damages? Add a zero please! They should be put in jail! Did they ever think to cover the food in microwave so it didn’t erupt all inside of it? Did they decide to save money on towels and wipe their hands on the walls? The carpet was new when they moved in! You’re being easy on them! You represent me, remember? Why do you like them so much?”



Tenant: “You’re killing me! I treated that home like my own! I cleaned it daily. We took our shoes off when we were inside (which we shouldn’t have even bothered with, being that the carpet was shoddy-looking when we moved in- I told you this!! Remember??) There might have been a couple things wrong, but I could have fixed them for like $50! $500? Are you crazy?? I thought you liked me! This is highway robbery! You’ll be hearing from my attorney!”



Property managers are really trying to do the right thing, but are stuck in the middle of competing interests. It’s sort of like being friends with both the wife and the husband when they are in the midst of a divorce. You want to be friends with both (like usual), without either of them feeling slighted. Practically-speaking, that can be tough to do!



To make this experience as clean and easy as possible, I’d offer the following four suggestions to landlords:

1. Trust your instincts- there is no “right” answer and it is usually impossible to make both parties entirely happy

2. Be specific on damages and document repair costs

3. Have a consistent methodology on how costs are assessed

4. Take pictures or use video during the walk-through so tenants can see the damages they are being charged for



Though rental home walk-throughs can’t always be pain-free, there are ways to limit potential fall-out from this necessary part of the property management business.



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!)