“Champagne tastes with beer budgets.”
Common real estate agent lament
I drive an old car. And it has lots of miles (almost 300K!). I’m reminded of this from time to time:
“Dude, seriously? You’re driving that? Don’t you want to step things up a little?”
An old friend
“You thinking about buying a new car soon? I only ask because I’m looking to buy a car for my teenager and thought you might be interested in selling… How does it run?”
Pastor at my church when I saw him in the parking lot
I get it. Nothing looks like success more than a new, nice car. If you want people to think that you’re the “property manager to the stars”, you shouldn’t be driving a beater. Realtors especially lock into this mindset. A nice car means lots of closed sales. “You look good, you feel good, you sell good” as the old salesperson mantra goes.
But there are positives to driving a beater. First there’s an overall peace of mind (if it doesn’t breakdown). For example, when I take things out of my car, I don’t particularly care if it scratches the paint or rips the seat. When I walk out of the supermarket and someone has dinged my door, I’m OK. When my young kids spill something in the backseat, I’m not reading them the riot act. I’m cool. No worries.
There’s also the financial piece. There are no car payments. The taxes are low. Occasional repair bills are taken in stride as they are lower then having a new car. Insurance is lower with a “liability-only” policy. I’m not worried about additional miles detracting from the value of the car.
Most people don’t subscribe to my “peace of mind” thinking. They want to look cool. I’m OK with that, to a point.
I see a similar thought process play out in rental homes. As rental rates continue to rise significantly annually (in the Charlotte-metro area, newly offered rents increased 16.7% from September 2020 to now per CoStar), the tenant income levels needed to support the higher rents also need to rise significantly. But people’s incomes are not going up 15%-20%. This is where all the press about the lack of affordable housing comes from. Renters are becoming “severely cost-burdened” where over 50%+ of their incomes are going to housing costs. That’s a huge percentage (which many experts call a crisis).
What has contributed to this crisis? One factor is the decision a landlord is generally left with after their tenant moves out and they are preparing the house for the next tenant. Do they spend a lot of money to make the rental house look great (full paint jobs, new carpet, new appliances, etc.) or do they try to “let it ride” (minimal to no touch-up paint, steam clean carpets, entry level appliances, etc.)? I think with all the HGTV housing television shows, many owners decide to fully refurbish their rental homes. By employing this strategy, they are looking to get top rent when it goes back on the market.
This only works when tenants play along. Tenants need to be willing to sacrifice a higher percentage of their incomes for a nicer, updated home.
And they are! Even when they clearly can’t afford it.
When some of our clients “let it ride”, we accordingly price the house lower. The owner chooses to accept below-market rents to avoid a pricey fix-up bill. They play the long game; every year that goes by, they use the rents to lower their mortgage payment until it goes away (that’s when the landlord game gets a lot more fun!). And as a bonus for the tenants, they keep more of their money. They also get a lot more leniency on their security deposit deductions as the house is already worn, so any mishaps they inflict on the house aren’t so noticeable or costly when they move out.
But many tenants choose not to make this trade-off. “The carpet is stained! The walls have some scratches! The refrigerator is old!” Um, that’s why it is priced lower.
Most tenants don’t seem to care. Frankly, it’s shocking to me. I’ve expected more tenants to happily make the trade-off for the peace of mind it offers.
Old cars may not look cool, but they may allow for a cooler, more peaceful life. But if this line of thinking has little appeal, I suppose landlords need to give people the housing they want.
Happy Landlording!
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