Be a Shark Tank Landlord: Invest in Spotless Tenants!

 

“Cleanliness is next to godliness.”

(attributed to several authors)

 

“We feed the eagles and starve the turkeys.”

(Heard in several sales job interviews circa 2000)

 

I have to admit that I’m a fan of the television show, Shark Tank.  For the uninitiated, it’s a show where entrepreneurs pitch their companies to several accomplished business people (the “Sharks”) in order to entice them to invest in their fledgling enterprises.  After the entrepreneur’s presentation pitch, the Sharks begin to pepper the business owner with questions. 

 

One of the main lines of questioning that comes up in the “Shark Tank” revolves around how the owners calculated the sales prices for their companies.  Questions like: How are you computing a $5M valuation with only $150K in sales this year?  Why are you forecasting such aggressive sales growth?  What are you doing to lower your unit cost?  How is this going to produce enough free cashflow so I can get my initial cash investment back in a reasonable amount of time?  Why is this a business I should have a multi-year involvement with?  What is the industry growth forecasted to be?

 

Even after all these questions, it is tough for anyone (even experienced Sharks!) to know how well the companies will do in the future and whether the money they choose to invest will produce dividends.  However, the entrepreneurs are sure.  They come in loaded with enthusiasm and sell their companies as the next big thing- they will be successful!  But as much as they sell themselves and their companies, the proof will be in the pudding at a much later date- do they deliver as promised or not?

 

It's risky investing in start-up businesses.  They are largely unproven and are really just selling future promise.  Statistically, most will fail.  But the allure is, that if successful, the returns can be more lucrative than investing in established businesses.  The fun part for these investors is when a start-up does well, matures, and becomes an established, valuable company.  This allows them to ride its profits for its lifespan.

 

This reminds me of rental tenant selection in a way.  Property managers look at prospective rental applications, process the information, and ask follow-up questions in order to pick a winner.  The applicants are all very optimistic and claim they will be great tenants.  Property manager “Sharks” will decide who they want to “invest in” (aka approve the application and sign a lease), but the ultimate success in the tenant selection will be discovered down the road.

 

Successful tenants pay their rent on time, get along with their neighbors (no drama), and maintain the property.  But what tenant characteristic should landlord Sharks look for that might generate the best future returns?  After many years of residential property management, I’m convinced it is finding and keeping the meticulous ones who keep their rental homes spotless.

 

A certain tenant of our comes to mind.  When we perform our bi-annual home inspections, the house is immaculate.  You could make the argument that it barely looks like it has been lived in, and this is after several years of occupancy.  The HVAC air filter is always fresh and the appliances look to be meticulously maintained.  To re-rent this house, I imagine our fixup would be minimal to none.  What is the dollar value of that?

 

For example, if we calculate the life of carpet at 7 years, what is the value if a tenant cares for the home so well it stretches it to 10+ years?  Or if we don’t need to paint it on the next vacancy turn?  Or if the HVAC unit lasts an additional 5 years due to its care?  It’s estimated the average house needs to spend 3-5% of its value in maintenance costs each year.  What is the value if that figure is reduced to 1% due to meticulous care?  I don’t know, but it’s a lot.  It’s substantial enough for us to really want these people to stay!

 

Like the Sharks, real estate investors want to maximize the return on their rental homes as well.  When meticulous tenants who love to keep their homes spotless come on board, smart landlords will look to lock them up and ride the profits (realized and unrealized) for many merry leases to come.

 

Have a Merry Christmas & Happy Landlording!

Take it From NFL Quarterbacks: Be Thankful for Your Vendors

 

“…the Chiefs quarterback opted to go big with his show of appreciation for his offensive line with this year’s presents.  Mahomes hooked up his protectors with sets of TaylorMade golf clubs, complete with custom bags featuring their jersey numbers and a box of balls for good measure.”

(Nick Selbe in Sports Illustrated: 12/21/22)

 

“Hi, I'm Dan Marino, and if anyone knows the value of protection, it's me.  So I take care of the hands that take care of me with Isotoner gloves.”

(Ace Ventura 1994)

 

“Rejoice always, pray without ceasing, in everything give thanks; for this is the will of God in Christ Jesus for you.”

(1 Thessalonians 5:16-18)

 

Every year I see articles talking about what Christmas presents NFL quarterbacks give to the members of their offensive line (typically around 10 guys).  Looking at past gifts from the quarterbacks below, they seem to be pretty nice items and run the gamut:

 

Mac Jones (New England Patriots): Bitcoin

Carson Wentz (Indianapolis Colts): Bourbon, some meats, & Yeti coolers

Jalen Hurts (Philadelphia Eagles): Louis Vuitton travel bags

Dak Prescott (Dallas Cowboys): Air Jordan 11 Retro sneakers

 

These are not cheap gifts.  When your livelihood (and long-term health!) depends on these offensive lineman preventing defenders from taking your head off, it is imperative to make sure they know they are appreciated.  And now all the starting quarterbacks in the league make it a point to give nice gifts to the guys that try to keep them upright every game.

 

On that vein, I was listening to a video the other day and the instructor was talking about running a property management company.  He reasoned that the main component of success was the ability to retain tenants; then he began his discourse into specific reasons why tenants did not re-sign their leases.  The #1 reason, by far, was that repairs were not completed in a timely fashion.  He argued that fixing things promptly is the silver bullet to keep tenants.  Landlords can try other things like offering gift cards or flat screen TV’s as lease re-sign bonuses, but they offer little benefit if a tenant’s heating system hadn’t been functioning for 3 weeks the previous winter (like a now ex-neighbor told me recently had happened to him).  To his point, most dissatisfied tenant’s Google reviews against property managers stem from delayed repair resolutions.

 

How does a landlord avoid lingering repair issues?  First of all, work orders must get off the landlord’s desk and be directed to the appropriate vendors ASAP.  Then, it’s all about vendor quality that will drive tenant satisfaction and property management success. 

 

So, the lesson is… hire great vendors!  Hire vendors who care.  Hire vendors that realize that having the heat go down on a Friday afternoon means that it is going to be an awful weekend for the tenant if the work order is pushed until Monday.  I’m amazed (and thankful!) that many of our vendors voice disappointment when they can’t get there the same day or a repair they made didn’t hold.  They have empathy that it could be their families who are shivering at night or have no working plumbing.  It takes a servant’s heart to put someone else’s family before your own.

 

Once a landlord finds these core, caring vendors and puts them to work, it is time to play the role of the thankful NFL quarterback.  I’m not sure that necessarily means Louis Vuitton travel bags or TaylorMade golf club gifts (maybe some Isotoner gloves?), but I’d recommend the following four things we try to give our vendors:

 

1. Loyalty: We give most of our business to our best vendors and keep it there
2. Payment: We make sure invoices are paid consistently, in full, and when expected.  They should be able to worry about their jobs, not exerting energy to collect due funds from us.
3. Grace: Everyone messes up from time to time.  Taking off people’s heads for honest mistakes isn’t going to help anyone.  And when you do this long enough, you know that grace is a two-way street. 
4. Thankfulness: Let them know how much you appreciate their effort on a day-to-day basis.  We all like to feel like what we do is noticed positively.

 

NFL quarterbacks may have millions of dollars to shower their guys with Bitcoin “thank you” gifts, but sometimes the smaller gestures above can go even further.  Give thanks and take care of the hands that take care of you!

 

Have a wonderful Thanksgiving & Happy Landlording!

“100% Guarantee For Your Rental Home!” Delightful or Sour?

 

Tommy:  Here's how I see it. A guy puts a guarantee on the box 'cause he wants you to feel all warm and toasty inside.

Ted:  Yeah, makes a man feel good.

Tommy:  'Course it does. Ya think if you leave that box under your pillow at night, the Guarantee Fairy might come by and leave a quarter.

Ted:  What's your point?

Tommy Boy (1995)

 

My 9-year old son was eating frozen blueberries a few weeks ago and started to complain about them.  “They’re so sour!  Gross!” 

 

I advised him, “Well, that’s too bad.  You get some good ones, and you get some bad ones.  It’s the way life goes…”  Then I patted myself on the back for imparting some timeless, Forest Gump parenting advice.

 

Sometime later, he complained again- and then three or four other times after eating these blueberries.  Finally, I grabbed the package off the table and saw it was the “Great Value” Wal-Mart brand.  My eyes narrowed on the “Great Quality.  Great Price. Guaranteed.” guarantee printed on the back.   Verbatim, it read:

 

If for any reason you aren’t happy, we’ll replace it or return your money.  Whichever you prefer.  All of you need is the package.  It’s that simple.  Guaranteed.

 

Now was the time to teach my son about the advantage of paying attention and reading the fine print!  “Son, we’re going to Wal-Mart and you’re going to take care of it.”  “Dad, are you sure we can bring this package in and they’ll give us the money back?  I’ve already eaten half of them…”  “Yes, son.  It’s that simple.  Guaranteed!”

 

After my son negotiated that he could keep the $2.99 windfall and put it towards a pack of football cards, he signed on to this gambit.  We drove over to Wal-Mart and, from a distance, I watched my son explain to the customer service person that the blueberries were sour and that he wanted a refund.  After a minute or so, he walked away from the counter, defeated, and let me know that we could swap it out for another bag of (sour) blueberries; there was no option of getting football card money instead.

 

Now Dad was sure there was a misunderstanding!  It’s guaranteed!  It’s simple!  And it’s a $2.99 charge to a multi-billion dollar conglomerate!  Well, yours truly fared no better when I approached the customer service desk and was promptly (but nicely) shut down.  If I didn’t have the receipt or credit card it was bought with, their hands were tied.  There was nothing that could be done.

 

Undeterred, as my young kids trolled the Wal-Mart aisles unattended, I called the #800 number that was located under the guarantee.  After a 14-minute phone call of providing serial numbers, date of purchase, and personal information, the customer service representative (who was also very nice) said that we would receive a $5.00 Wal-Mart gift card mailed to us within 2 weeks, but no cash.  When we got home, I sent a message through the “Great Value Guarantee” website and they referred me to the in-store customer service desk for any refund requests.   I wrote back saying that was where it all started!  Then I never heard back.  Ugh!

 

If for any reason you aren’t happy, we’ll replace it or return your money.  Whichever you prefer.  All of you need is the package.  It’s that simple.  Guaranteed.

 

The final scorecard read: (1) in-store visit, (1) 14-minute phone call, (1) web inquiry, & (1) 2-week wait for a $5.00 store credit.  So, obviously, it’s not that simple.  And it’s far from guaranteed.  And we are talking about getting $2.99 back from Wal-Mart which they explicitly stated was a sure thing on the package itself.

 

Great story!  But what’s your point?  What does getting a cash refund for a sour bag of Great Value frozen blueberries have to do with property management?

 

A lot, actually.  It’s about the danger of relying on corporate guarantees when picking vendors, especially in real estate.  Whether it is for home warranty insurance against bigger ticket items breaking down (HVAC systems, roofing, appliances, etc.), costly property management occurrences (eviction, pet issues, etc.), or just getting money back from poor work (a flooring vendor recently), it is difficult to get companies to honor them.  No company wants to pay (not even $2.99!) and there is always a reason why the guarantee doesn’t apply.  It’s frustrating, (super) time-consuming, and borderline unethical at times.

 

But that doesn’t stop them from being ubiquitous:

 

1. Home warranty companies: “If your HVAC system goes down and it can’t be fixed, we’ll buy you a new one!  It’s so simple.  Guaranteed!”   
2. Property management companies: “If there is an eviction or pet damage, we’ll cover the costs- It’s so simple!  Guaranteed!”
3. Wal-Mart: “If for any reason you aren’t happy, we’ll replace it or return your money.  Whichever you prefer.  All of you need is the package.  It’s that simple.  Guaranteed.”

 

Life is too short.  The best bet is to pick a company that consistently offers quality blueberries instead of trying to be compensated on the backend when they are sour.  Getting the $2.99 back is arduous at best, and unfortunately, usually fruitless.  Be wary of upfront guarantees and concentrate more on established track records of excellence!

 

Happy Landlording!

Ohio State Football Recruiting Similar to Great Tenant Selection?

 

“He has shown you, O mortal, what is good. And what does the LORD require of you? To act justly and to love mercy and to walk humbly with your God.”

(Micah 6:8)

 

“No Shoes, No Shirt, No Dice.”

Spicoli in Fast Times at Ridgemont High

 

Ohio State college football has been a dominant program for a long time.  In the last 10 years, they have a record of 106 wins and 13 losses while winning 2 National Championships.  This makes them one of the top programs in the country as they have set a standard of excellence few teams can match.

 

To have a perennially highly-successful football team, Ohio State has been able to get great players to come to their school; great players make great programs!  But how does Ohio State determine what high school football players will actually become great college football players?  What do players need to demonstrate?

 

Like every college football program, coaches will look at all the on-field performance measurables: how many yards, touchdowns, tackles, etc. each player had in high school.  And then the physical measurables:  how fast, big, agile, and strong each player is.  And then there is mental aspect where players will take tests and answer questions showing off their “football IQ”.

 

These are all very important metrics and are heavily considered; the top recruits all grade very well on most or all of the criteria.  But what gives players who measure out well in the criteria above the edge over one another?  I remember reading something about that from former head coach Urban Meyer.  He said that one of the most important things he looked at in recruiting was how the high school player played in the biggest games and versus nationally-ranked players in one-on-one match-ups; he was looking for what he considered true greatness.  Did their performance ramp up to meet the challenge or was it pedestrian?  Did most of the players noteworthy performances come against average teams or did their biggest, statistic-rich games come against the best players in the most high-profile games?  Did they look forward to and excel in the most competitive situations and will their team to win?  Coach Meyer believed that getting the types of players who had the ability to rachet their games up a notch was paramount to Ohio State winning national championships.

 

In property management, tenants are the big-time recruits!  Landlords are looking for tenants who pay on time, maintain the rental homes well, and stay out of trouble.  If landlords can secure great tenants, property management can be really easy!  This is why great landlords spend considerable resources on tenant screening.  We look at all the measurables of the “Big 4”:

 

1. Employment & Income
2. Past Landlord Reports
3. Credit Check
4. Criminal Background Check

 

Measurables tell most of the story and tenants who grade out highly in these areas can provide a solid program.  But what about in situations when there are many tenants applying for one house?  Who is the best one when all the measurables look good?  Who is going to take care of the house?  If some bad event happens, who is going to remain steady and still pay rent?  Bottom line, how can great tenants be found?

 

These are tough questions.  The right tenant roster can make or break a landlord.  What to do?

 

I tend to pay extra attention to 2 things:

1. Debt level (and the corresponding available credit): How extended is the tenant?  Hard times: If there is a sudden job loss or car issue, can they absorb it?
2. Past landlord reports: What did they think?  Did they like the tenant or was the tenant difficult to deal with?  How did the house look when they moved out?  Would they rent to them again?

 

At the end of the day, Ohio State football and smart landlords are looking for great players.  Great recruits win championships and profitably pay off rental houses.  Pick wisely!

 

Happy Landlording!

Does the “Rental Bible” Say That Evictions are the Unforgiveable Sin?

 

“…but whoever blasphemes against the Holy Spirit will never be forgiven; they are guilty of an eternal sin.”

Mark 3:29

 

“Do not be one who shakes hands in pledge or puts up security for debts; if you lack the means to pay, your very bed will be snatched from under you.”

Proverbs 22:26-27

 

Evictions are bad to have on the credit report in the rental home game; I won’t try to gloss over that fact!  There is a reason that they are asked about on every rental application worth its salt.  Landlords do not like to see a prior eviction come up on a prospective tenant’s dossier because it means that things got about as bad as they could get with the tenant’s former landlord.  It typically means that the tenant did not pay, did something really against the rules, and/or would not move out of the house.  No landlord wants to have a repeat performance; it’s a major red flag!  We like peaceful, nice relationships…

 

Now, there are two sides to every story.  The narratives that previously evicted tenants will tell are typically less confrontational:

 

My mom got really sick so I moved out of my place and into hers to help her.  My roommate at the time stopped paying rent and my name was still on the lease so it happened.

 

I’ve never lived at that residence in my life!  I have no idea what you’re talking about!

 

COVID happened.  Enough said.

 

I co-signed a lease for my friend so he could get into the property.  I guess he didn’t pay.  I’ll need to ask him about that.

(Free advice: Please don’t co-sign for someone else.  There is a reason they couldn’t get approved on their own.  The Bible even cautions against it (see above)!)

 

It’s always some combination of best intentions paved with unforeseen adversity.  And I don’t doubt that at all.  But life is life and stuff happens and will happen again.  Landlords just don’t want it to happen on their watch.

 

When a tenant doesn’t pay or follow the rules of the lease, experienced landlords will try to communicate and work with the tenant to get things in compliance.  There is often give-and-take and patience required to right the ship.  But sometimes the tenant either cannot or will not do what they signed up to do.  When backed into this corner, there is one nuclear bomb that a property manager has- filing for eviction.  And this bomb is not free.  It takes a lot of human resources to see it through, it costs the owner money while rent is not coming in (cash flow double-whammy), and (when vacated) the rental house is usually left in deplorable condition.  It’s the downside of real estate investment.

 

So when a prospective tenant claims that a landlord filed for eviction “by mistake” or “on the 2^nd day of the month after I left for vacation when the check was still in the mail”, I’m skeptical.  Filing for eviction is a last resort and one most landlords would not take lightly.  The costs are just too high. 

 

A “successful” eviction typically means that every rock was turned over, every resource for payment exhausted, and nothing could be settled outside of the courtroom.  That’s not a good reference for a renter coming in.

 

So, is eviction the unforgiveable sin?  Is it an automatic rental application denial?

 

It really can’t be.  No matter how draconian the landlord, saying that a human being isn’t worthy of having a place to live is a tough line.  Bad things do happen to good people.  And many people use these awful experiences to change for the better.  We all learn from struggles and hard times and need another chance.

 

However, we do say that not disclosing an eviction filing on the rental application when asked is an unforgiveable sin.  If we don’t start from a position of honesty, I don’t think differences can be bridged to make a tenancy palatable.

 

To determine whether a previously evicted tenant has a path for approval, we try to focus more on the numbers and less on the story.  The stories are usually compelling, but what do the facts look like?  We try to investigate:

 

What does their current debt level look like?

What is the length of the current employment and its real income?

How long ago was the past eviction?

What do prior (non-evicting) landlords say?

Why are things different now?

How much cash do they have on hand to put down to mitigate risk?

 

So, no, the “Rental Bible” does not say that eviction is the unforgiveable sin.  But it is a very real red flag!  Prudent landlords will need to put in the research to determine if it is likely to reoccur in their rental homes.

 

Happy Landlording!

Don’t Be a Desperate Housewife (or Landlord), Just Push the Right Buttons

 

“Desperate times call for desperate measures.”

(Hippocrates)

 

Typing the word “desperate” makes me think of the old TV show, Desperate Housewives.  The story centered on four suburban women who were neighbors.  They found themselves making risky choices in order to look good, be fulfilled, and live the lives they thought would make them happiest.  This made their lives hectic and drama-filled.  And it also made it one of the most successful shows on TV for its 8-year run. 

 

However, no one really wants to live the way they did; it may be entertaining to watch, but it’s not peaceful.  Desperate is not desirable.

 

Desperation can elicit hopelessness and cause knee-jerk reactions:

 

I never think anyone is going to marry me!  So I’ll lower my standards and date anyone and try to make it fit. 

 

I don’t have any money and lots of debt.  I’ll rob a bank.

 

We need to win a championship this year or the fan base will be calling for my head.  I’ll trade away future draft picks, get a marginally better player now, and hope it works out.

 

We see it in all walks of life in many different situations.  Desperate situations make people feel that they have little choice but to make hasty and risky decisions.  And these decisions generate results that usually share one common trait- they are poor.

 

For landlords, they typically begin to feel desperate when their rental properties are vacant and they need tenants to move-in and start paying rent.  Things look bleak as time rolls by and there has been:

 

1. Financial bleeding: mortgage payment, management costs, utilities, lawn mowing
2. Vandalism and/or squatting while vacant
3. Only substandard applicants applying

 

It’s tough.  There is pressure on landlords to accept the first person that has the deposit and first month’s rent to put down.  “Just move in quickly, please!!  We need this off the market to get the rent coming in!”

 

As a Charlotte property manager, we are not immune to this either.  We get some version of this at times:

 

Aren’t you the professional??  Why is my property empty? What does your marketing look like?  It doesn’t seem to be working, bud!!  I could do better than this myself!

 

Desperation can take hold… And it takes discipline to stick to the fundamentals and not succumb to the pressure. 

 

When a property has sat on the market for longer than expected, the key is not to panic!  Slow down, take a breath, and push the right buttons:

 

If there are no showings of the property:

1. Double-check the marketing, add/replace pictures, make sure the home is coming up in on-line searches.  Then see if any showings happen.  If not, go to step #2.
2. The price is too high.  Lower it ASAP.  Prospective applicants are not seeing the value on-line versus other homes.

 

If showings are being generated:

1. Ask people who have seen it why they are not filling out an application.  It will usually come down to some cosmetic issue.  Take care of the issue!  Note: Some “cosmetic issues” are personal preference- if it is not a major flaw and only one or two people comment on it, it might not make sense to address it if it is costly.  If almost everyone mentions it, it either needs to be fixed or the price needs to be lowered (or both).

 

I remember we had a large house on the market that “desperately” needed work.  We did not want to pay for it (it was going to cost a lot to get to market shape) and we were hoping we could slide by with one more rental cycle before ordering the major (cosmetic) fix-up.  We went a few months with several showings, but no approvable renters from those who filled out an application.  Most non-applicants who visited the home cited a few issues they wanted addressed.  What to do?

 

The easiest way path is to give in to the desperation, roll the dice, and approve a risky tenant.  In contrast, experienced landlords will reject substandard tenants, double-check the marketing, fix any reasonable home repair issues, and lower the price.  It’s better to wish you had a tenant than wish you didn’t.

 

Don’t fall for the feeling of desperation and press the panic button!  Stick to the fundamentals and your future self will thank you for dodging the money/time/emotional sinkhole of the eviction process.  Don’t let yourself become another desperate resident of Wisteria Lane!

 

Happy Landlording!

Is Signing Zion Williamson a Worthy Tenant Placement Strategy?

 

“Therefore everyone who hears these words of mine and puts them into practice is like a wise man who built his house on the rock. ²⁵ The rain came down, the streams rose, and the winds blew and beat against that house; yet it did not fall, because it had its foundation on the rock. ²⁶ But everyone who hears these words of mine and does not put them into practice is like a foolish man who built his house on sand. ²⁷ The rain came down, the streams rose, and the winds blew and beat against that house, and it fell with a great crash.”

(Jesus Christ in Matthew 7:24-27)

“…(Zion) Williamson and the team quickly agreed on a five-year rookie max extension worth at least $193 million. The new deal will kick in at the start of the 2023-24 season, and the figure could rise to $231 million if Williamson makes an All-NBA team or wins a major award next season. The No. 1 overall pick in 2019, Williamson's career has been plagued by injuries and concerns about his conditioning. He missed nearly his entire rookie season after undergoing knee surgery, was shut down early in his second season with a broken finger and did not play at all last season due to a broken foot that required surgery and did not heal as quickly as expected. 

When he has been on the floor, he's been spectacular. In his second season, when he played 61 games, he averaged 27 points, 7.2 rebounds and 3.7 assists per game while shooting 61.1 percent from the field, and was named an All-Star. All of which is why, despite his injury history, the Pelicans were eager to extend him as soon as possible. At the same time, giving $193 million to a player who has been on the court just 85 times is a risky proposition.”

(Jack Maloney in CBSSports.com 7/29/22)

As stated above by Mr. Maloney, when Zion Williamson is healthy, he is a spectacular basketball player loaded with potential.  With experience, he could even be much better! 

If Zion was a healthy tenant, he’d be the dream of any landlord.  He’d be paying above market rent, he’d keep the place spotless, the rent would come in early each month, and there would never be any outside complaints about him.  He’d maintain the property flawlessly and even take care of minor repairs on his own (and on his own dime!).  His uncle would be a world-class handyman who loved to stop in and help his nephew out with some free repairs and upgrades from time-to-time.  He’d kick some courtside tickets to his favorite Charlotte property manager when the Pelicans came in to play the Hornets.  And, to boot, Zion would love the house and want to rent it forever. 

Cash flow heaven!

But what if, as his application suggested could happen, he got hurt and lost his job?  Things could start going downhill quickly for Mr. Williamson (and his landlord):

Rent?  Late and not paid in full.  Eviction is probably required (NBA tickets now nixed)

Repairs/Maintenance? Not up to it

Outside Complaints? The lawn guy who is not getting paid stops the service.  Air filters are too expensive now.  The HOA and City are up in arms and threatening fines.

His Beloved Uncle? Now that Zion is hurt again, he doesn’t seem to come around…

But Zion?  He still wants to stay in the house forever!

As a property manager in Charlotte, we get rental applications from people similar to Zion.  They have a lot of potential and are willing to pay top rent, but their rental screenings show that they are susceptible to bad stretches of luck (which made some of their past tenancies bad landlord experiences…).  The question is: are they just isolated events in their lives or a pattern?  Is Zion Williamson going to continue to miss seasons with injuries or will he turn the corner?  It’s impossible to predict.  The New Orleans Pelicans apparently believe he will be healthy as evidenced by them handing him a $193M guaranteed contract.

So is the high risk, high reward strategy a good or bad one?  I believe it depends who the landlords are and whether they can financially handle the downside.

Example: The institutional investors who have bought up thousands of houses in Charlotte seemed to have embraced the high-risk strategy.  They list their rental homes for above market rent and then accept risky tenants who are willing to pay.  Does it pan out?  Well, I had read something that said one of the institutional investors had a 25% eviction rate; that’s super high (bad!).  It also means that 75% of their tenants were able to pay the above market rent to them monthly (good!).  So spread over enough houses, the excess rent may be able to pay for the evicted houses that face no incoming rent, court costs, and needed repairs.  The math could work, even in their favor(!), when factoring in that they probably have faster tenant placement times due to less stringent tenant screening.

However, we work mostly with smaller investor-landlords (the “Mom-and-Pops”), where this strategy wouldn’t work well.  One bad tenant could destroy their profit for the year, let alone two of them.  We need “build on the rock” tenants, not “sand” tenants, because our property management clients need them to hold up in storms.  So that has been the strategy that we have used.  It requires more stringent tenant screening and sometimes a longer placement time.  But we will feel it is the wise strategy for our particular client base.

Zion is a great, generational basketball talent and all basketball fans want him to get healthy so they can enjoy watching him play.  But not all landlords can afford to risk $193M to find out if he’ll even be on the court.  Pick your tenant placement strategy accordingly!

Happy Landlording!

Steve Martin, Roxanne & Tenant Identity Issues

 

In the timeless appeal of romantic comedies, one of the tried-and-true story lines is the ugly guy who tries to get the really beautiful girl who is out of his league.  I was thinking of the movie, Roxanne (with Steve Martin and Daryl Hannah), and realized bringing up that reference was probably on par with bringing up Ben-Hur with Charleston Heston at this point- it’s like how long ago was that???  But humor me…

 

In Roxanne, Darryl Hannah is the beautiful bombshell and Steve Martin is the smitten, huge-nosed fire chief who does not feel worthy to pursue her.  A much better-looking, witless firefighter expresses interest in Hannah and Martin decides to help him; he gives him romantic ideas and poetic things to say to woo her.  Hannah loves it and the romance is on.  Of course, the subterfuge can only work for so long until it is discovered and then… (you’ll have to get the VHS to find out the dramatic ending!).  But, suffice to say, the ruse did not help either of them with their relationship with her in the aftermath. 

 

Outside of Hollywood endings, lying about one’s identity is not typically a long term, winning strategy.  And as a property manager in Charlotte, we are seeing a lot of prospective rental tenants misrepresent themselves on their applications (right now, I’m applauding myself for my diplomacy in that last statement).  Okay, to be more direct, some applicants are outright lying.  And this may be the worst that I’ve seen in my twenty years of screening tenants.  It’s high quality “fakery”- doctored paystubs, friends as landlord references, other people’s information being offered (with better credit & criminal reports), etc.

 

Why?  I believe it is a combination of much higher rental rates and inflation.  Housing and regular living expenses cost much more and this has eroded the financials of many prospective renters; debt levels have increased, credit quality has declined, and landlord reports have less nice things to say.  So, it makes it harder to have prospective tenants pass muster on screening criteria.

 

The thing is, at its core, good tenant application screening is designed to protect everyone (especially tenants!).  I don’t know how many times I’ve given some version of this stump speech:

 

Listen, we want to approve you as a tenant.  We easily get paid the majority of our fees to place tenants, not turn them away.  But prospective tenants with similar incomes have a tough time making it work at this rental price coupled with their other monthly obligations.  Then when rental payments inevitably aren’t made, it creates a bad situation for everyone: the owner doesn’t get the money, which forces us to use available avenues to secure the money, and then it creates a lot of all-around stress.  No one wants that- trust me, we do not want to chase you.  So, let’s avoid it and find a less expensive rental house for you.

 

Of course, most people don’t like to be told “no”, no matter how nicely or well-meaning the message might be.  So, they try to avoid the “no” by submitting falsified information making their application appear stronger. 

 

How do we figure out what tenant information we receive is true and what is manufactured?  As President Reagan famously said, “trust, but verify.”  And verify.  And verify.  And verify.

 

As landlords, we need to ask a lot of questions, especially now.  Call landlords and wait to get them on the phone.  Is the information the same as what is stated on the application?  Call the employers and do the same.  Is there a potential fraud alert on the credit application?  Do the paystub calculations for taxes and deductions pass an eye test?  Request bank statements to confirm the money flow.

 

It takes more time.  And applicants do not always like the increased scrutiny- and they’ll tell you this!  But there is a lot at stake.  Since the CARES Act, evictions take more time and a wrong applicant can be very costly.  Take the upfront time to avoid the backend headaches.

 

Steve Martin and his young accomplice had Daryl Hannah fooled… up to a certain point.  Smart and thorough landlords need to make sure that certain point is prior to handing the keys over!

 

Happy Landlording!

“Oh, you know, COVID…”: Spotlighting Tenant Retention Amid Rising Costs

 

“I noticed you didn’t post a blog last month?  I really missed it!!”

(Actually, no one said this…😊)

 

I think one of the frustrations that I’ve had in the last year is how seemingly how every business underperforming service-wise or raising prices can be explained away easily by COVID or her offspring (shortages, inflation, sharp price increases, not enough employees, etc.).  Examples:

 

My coffee cost $4.00 last week and now it is $5.50.  Why?

“Oh you know, COVID…  Prices of coffee in South America have spiked due to complications in the harvesting process and container price shipping increases.”

 

Why wasn’t the gym open this Monday when I showed up there?

(A sign with a partial explanation was posted to the locked front door on Monday and then Tuesday the front desk person offered more details)

“Oh, you know, COVID…  Staffing is still really tough as no one wants to work anymore.  Once people left the workforce, they just didn’t want to come back.  You know, I think it’s mostly due to video games- guys just prefer to play them all day instead of going to work.” (Oh, really???)

 

Voicemails I run into frequently: “Due to recent events, call volume has increased creating longer than normal hold times."

(I’d like to get an explanation on why this voice mail message is still there and has not changed in almost three years).  But I can speculate…  COVID?

 

I can be frustrated as a consumer, but understand it.  I’m used to getting what I want at a reasonable price and in a reasonable time period and feel slighted when I don’t.  Pretty much every business has raised prices and many have had hiring issues.  It’s a fact that costs and wait times have skyrocketed whether I agree with the causation rationale or not.

 

Many landlords have experienced “Oh, you know, COVID…” conversations for the costs now associated with fixing up rental homes between tenants.  All of the issues above coupled with a hot real estate market has led to sticker shock when these repair quotes come out.  The cost of painting an entire house and replacing the flooring (as well as the myriad of handyman issues) has risen, especially when landlords compare prices 5-10 years ago (think double).

 

Rising rents after fix-up will eventually offset these increased costs, but it is still painful to look a $10K+ repair bill and know that the person writing that check is going to be you.  So, how can this be avoided?

 

It can’t be avoided forever.  However, there is the strategy of kicking the can down the road as long as possible.  This can be accomplished through an intentional effort in tenant retention.  The basic rationale is that if tenants don’t move out, most repair costs (cosmetic, that is) can be avoided until after their tenancy is eventually over.

 

So how do landlords accomplish tenant retention?  There are books written about this, so I’m not going to go into all the creative ways people have thought up of: giving free flat screen TVs to the tenants when they sign a multi-year lease, delivering chocolate chip cookies on their birthdays, having a monthly rent credit incentive where some of the money is forfeited if tenants move-out prior to a set number of years, etc.  The advice below is for a landlord who is more a “nuts and bolts” person and doesn’t bake very well.

 

The great news is that the cards are stacked in the landlord’s favor right now so most of what I propose is being done by others already.  The landlord’s job is just to keep the rental rate reasonable on lease extension offers.  That’s it.  I’m not even saying to not raise the rent at all; just don’t be greedy.  That’s the only thing the landlord has to do right now as a decent tenant retention strategy. 

 

Very few people like to move.  Landlords should continue to perform normal landlord activities in a timely manner so tenants do not have some explicit reason why it is imperative for them to leave the house.  And be pleasant.  Then wait.  The heavy lifting is already being done by the big institutional landlords who own houses nearby and are raising the rents up 25%-50%.  When tenants see the advertised rental rates of homes on the market and then see their reasonable lease extension rate, most will stay put. 

 

If the tenant still leaves, then biting the bullet on fixing up the property may be an unfortunate reality.  But the silver lining is that the house can now be advertised at the higher market rate (thank you again, big institutional landlords!) which will reduce the time on the ROI.

 

Best of luck keeping your good tenants around and avoiding the “Oh, you know, COVID…” expenses on your rental home for as long as possible.

 

Happy Landlording!