Finding Value & Buying Rental Homes on Your Credit Card

Fresh out of college, I was living in New York City and was slinging cell phones by day (they were relatively new back then) and dreaming big dreams at night.  How could I become financially successful like many of the people I was passing on Wall Street everyday?  I wasn’t overly into finance, but started reading a lot of material from the real estate gurus.  Be a millionaire with no money down!  Live off of passive income to live the life you’ve always imagined!  It’s so easy anyone can do it!

 

That sounded right up my alley- easy and something even I could do.  If that mother of 6 in El Paso could be netting $25K month in passive rental income, surely I could do half of that?  I was all-in.  Unfortunately, New York City real estate was prohibitively expensive for me to buy (got $1M to plunk down?), so I wasn’t sure how I would get started. 

 

So I moved to Charlotte and became a full-time Charlotte real estate investor.  The $1M homes were replaced with much more affordable options.  I posted classified ads (“We Buy Homes!”) and tried to follow the guidelines from the infomercials.  I joined an investment club and started getting calls and e-mails for discounted homes to buy.

 

Many of the homes were really cheap, some to the tune of $50K.  The problem was to what to do with them after purchase.  Most people didn’t want to live in them as they were in “war zones”.  I’ve never been a gun guy, but visiting some of these homes made me think hard about my self-protection stance.  I didn’t feel overly safe at many of them and replacing broken windows constantly didn’t seem economically savvy.  So I, and others, passed on buying many of these homes (laughable now, right?) and they languished on the market for months and years.

 

One day, I visited one of these types of homes and was not really interested.  The seller said she was negotiable on price, but I liked being alive and really didn’t want to be involved.  Plus, she said she needed to close really quickly and needed cash, and I didn’t have a ton of cash on hand.  I figured I’d ask what she was looking for before declining.

 

$8K. 

 

Well $8K was in my wheelhouse.  I wrote up the contract and asked the closing attorney if he would take one of my Visa checks that came in the mail earlier that week from my credit card company.  No problem! 

 

Did I want this house?  Not really.  It came with issues.  I had to sink another $20K into it just to make it habitable for a rental.  And the area wasn’t great.  But $8K?  Come on!  I had to do it.

 

I learned that every asset had a price.

 

I got a call recently from a prospective client who asked me if her home had a realistic chance of renting.  It was in a desirable area and she lived there currently, but the kitchen wasn’t redone and it had an older layout.  Did she need to sink $50K-$100K into it before it could go to market?

 

The answer, without even looking at it, was “yes” and “no”.  The real question was how much she wanted to rent it out for.  Would it rent for as much as the remodeled home down the street if it wasn’t renovated?  Probably not.  But depending on the rental price, someone would gladly take it.  There are 66 people on average moving to Charlotte every day who need a place to live!

 

Real estate, like anything, is a value proposition that has a suitable price.  A rental house priced at $3K/month may sit, but at $2K it may fly off the market.  Value is what matters.  Top conditioned homes will rent out the highest, while homes in poorer condition will rent out for less.  The market is relatively efficient. 

 

Happy Landlording!

Lease Renewals: Lock in the $2.00 NYC Breakfast!

 

 

 

 “If I can make it there, I’ll make it anywhere, It’s up to you, New York, New York…”

“New York, New York” by Frank Sinatra

 

I remember living in New York City (NYC) when I was first out of college.  All of the big buildings, happening things going on, the energy, the lights, so many people… it was amazing to behold.  It seemed like everything that was going on in the news was happening right around the corner from my apartment.  It was really cool.

 

But it was really expensive.  Everything cost so much, especially compared to college life.  After my first week of work, I went out with some colleagues and offered to buy the first round of drinks- big mistake! 

 

“That will be $90.00, sir.”

“No, I’m sorry… There must be some misunderstanding.  I only ordered 5 of them and we just got here.”

Weird look.  “Um, it’s $90.00 sir.”

(Gulp)  There goes this week’s money…

 

And that was 20 years ago.  I hate to see what things cost now.

 

However, there was one great deal in NYC- the breakfast food trucks.  You could get a coffee and a big bagel for $1.00 each.  I’d line up every morning before getting on the subway to lock it in before heading to work.  When an apple cost $4.00 at the bodega across the street, this was the way to go (maybe not health-wise, but you couldn’t beat the bang for your buck).

 

I remember one morning being in line behind an obvious tourist who looked like he had just gotten into town.  He asked the food truck proprietor how much a cup of coffee was and did a double-take:

 

“$1.00???  Seriously?  I’ve never paid $1.00 in my life for coffee!”

 

That’s when I knew this guy was about to have the worst vacation in his life.

 

I feel this way about rental rates in Charlotte.  I was recently going through our list of tenants with expiring leases and was struck on how much rental rates had gone up, especially those who were coming off of 2-year leases.  Rents have been climbing up for almost a decade, but have become more pronounced in the past two years.

 

As a landlord, this is great.  Higher rents equal more profits.  The question becomes how much more rent to ask for when existing leases are near their expiration and it’s time to offer the tenant the lease renewal terms.  Is the strategy to ask for market rate (probably 10-20% higher) or keep the increase on the lower end (5-10%)?

 

Generally-speaking (if it is a good tenant), I’m a proponent of keeping the increase offer on the lower end and trying to keep the tenant in the property.  Avoiding all the vacancy costs and keeping the cash coming in is usually the most profitable path, as well as the easiest.  I don’t like good tenants looking elsewhere as new ones are not guaranteed to work out as well.  However, if the tenant still decides to leave, then all bets are off and the house can be re-marketed at the higher market rate.

 

If I was a tenant in this scenario (once again, generally-speaking) with an offer of a lower than market rental rate on a lease renewal, I’d also look to stay and try to lock into a 2-year lease.  Looking at the competition for rental homes now as well as the higher prices, it should be close to a no-brainer.  It’s a win-win for both the tenant and landlord to keep near the status quo.

 

So while the New York City nightlife and dining choices are enticing, it’s probably best to enjoy the vacation and relish the $2.00 breakfast combo.  Good deals in this market are hard to find, so it’s probably best to lock them in without complaint!

 

Happy Landlording!

Predicting Presidents & Charlotte Real Estate Prices

 

There are people who are very interested in politics, especially in the US presidential election every four years.  “It’s the most important election of our lifetime!  Think of the children!”  I don’t fall into this camp.  However, I do like to try to predict who will win.

 

That doesn’t mean I’m any good at it, unfortunately.

 

I try to use “common sense” on who will win- ha, ha!  Below are the actual winners from the past few elections and my rationale at the time for why there was no way they could win:

 

2008: Barack Obama.  I was wrong.  I didn’t see how a community organizer with no experience running anything could win.  Plus, he shared his middle name with a top, evil dictator.

 

2012: Barack Obama.  I was wrong again.  The economy was in shambles and the “Great Recession” was on his watch.  I wasn’t sure that President Obama could effectively keep blaming former President GW Bush for the poor economy his entire term.

 

2016: Donald Trump: Wrong on this one too.  Where do I start on how I didn’t think his election was possible?  I mean he didn’t even think he was going to win.

 

2020: ???  Pollsters say Joe Biden is close to a shoo-in. 

 

Now let’s shift to Charlotte real estate.  When COVID-19 began to affect our lives in March 2020, people were understandably afraid.  Corporations began rapidly shedding jobs, the stock market tanked, and there was little optimism in the world. 

 

We had just put up a home for sale for a client that month (who really needed to sell) and we were concerned that COVID-19 would adversely affect the market.  We lowered the price and worked quickly to get it under contract before things got worse. 

 

However, the adverse effect on Charlotte housing prices never really happened; in fact, prices actually climbed and continue to climb.  We probably should have raised the price!

 

So why am I bringing up my poor predictive skills?

 

Sometimes it is more effective to forget the short-term noise of what is going on and stick to market fundamentals.  The market fundamentals for Charlotte are that 66 people on average are moving here every day and that number will probably increase as people flee big cities for more space.

 

There is also a housing shortage in Charlotte.  This has been exacerbated as people are “sheltering-in-place” and not putting their homes on the market.  The fundamental “supply vs. demand” rule takes effect and prices rise with scarcity.

 

Things can change quickly, but fundamentals and long term trends tend to move glacially or not at all. 

 

And political incumbent candidates usually win…

 

Happy Landlording!

COVID-19 Rent Collections: OK to Say “I Don’t Know”?

 

 

“Dewey Defeats Truman”

Chicago Daily Tribune headline on 11/3/48

 

“Even fools are thought wise if they keep silent, and discerning if they hold their tongues.”

Proverbs 17:28

 

My 6-year old son is tasked with completing school assessment tests this week on the computer.  It’s a stressful time for him!  Not only does he have to deal with new questions about numbers and words, he has to figure out how to use a mouse for the first time.  It’s a lot for a new, aspirant student.

 

My wife thinks some of the questions may be out of the scope of a Kindergarten-educated child.  “Three-digit subtraction questions?  Scandalous!  How could he know such things at this point?”

 

So he’s tackling an assessment question like:

 

Q.  What is 100 – 80?

1. 35
2. 20
3. I don’t know!
4. I really don’t know!  (Can I watch TV now?)

 

The truthful answers for him are clearly C or D (with a hard lean on D).  But for us educated folk who have been taking tests all our lives, we know at minimum we need to answer A or B.  Nobody gets any points for offering “I don’t know” on a test!  We only get points for knowing (or acting like we know and guessing correctly).  But we really should know stuff, right? 

 

Or maybe that’s the limitation with tests when we implement this methodology in real life.  With tests, there’s always one right answer that is evident if the data is studied and understood.  But reality can be very different. 

 

For example, take this COVID-19 situation for property managers.  We’re asked questions from clients like, “Do you expect tenants to pay rent next month?”  Or, more directly, “Will my tenants pay rent next month?”  As someone in the property management field for the past 16 years, I should be able to answer that question, right?

 

Well, I read the same articles that everyone else did with statistics from large apartment provider associations saying 33% of tenants didn’t expect to be able to make their rental payments this summer.  Wow!  1 in 3, that’s bad.  Then I received calls from a few of our tenants telling me about their job losses and wondering if any of our owner-clients would be offering “Free Rent” until things were back to normal.  Data was not promising, both empirically and anecdotally.

 

All of this must have meant that we were going to experience some rough times with the rental properties we manage in the Charlotte-Metro area, right?  So I jotted off letters every month this summer to our owner-clients telling them to expect some rental disruption.  I thought I knew what was going to happen and then I relayed this to our clients.

 

So what happened?  Everyone this entire summer paid (with the exception of literally 1 tenant who is moving out).  And the number of late paying tenants was half of what we usually have.

 

What do I know? 

 

What is 100 – 80?  Fortunately, I can help with that one.  But are tenants going to continue paying on time and in full next month?  I really don’t know.  (But I hope so!)

 

Happy Landlording!

Charlotte’s “Cinderella Homes” Meet the Fairy Godmother

“There is a time for everything, and a season for every activity under heaven: a time to be born and a time to die, a time to plant and a time to uproot…”

(Ecclesiastes 3:1-2)

As a long time Charlotte property manager, the growth of the city and its real estate here has been amazing.  I guess when you’ve been doing something for so long, you wind up telling stories about how things “used to be” which makes you sound old.  And maybe I am old as younger guys on the basketball court say (“you guard ‘old head’ (me) over there”) and my younger self would also have said “if you are doing something for 15-20 years, you’re probably old”.

Well, I’ll own it, so as an old man I might as well tell an old story.  I remember when I started investing in real estate back in the early 2000’s, there were these smaller, antiquated homes that people were always trying to get the public to buy.  The prices and stories were great- $10-$20K homes which would rent for $500-$600/month, great cash flow, and the possibility of great capital appreciation if the area became gentrified.  You could buy one on your credit card. 

But they were Cinderella homes before she met her fairy Godmother.  Many houses like this had been perpetually on the market for 10 years.  No one was taking them to the ball to dance the night way.  They were small, in bad/dangerous areas, and in serious need of major repairs.  The windows were boarded up and the feeling that your life expectancy was about to take a major dip was on your mind when you went to do a walk-through.  A friend of mine (much tougher then me) told me his strategy on owning a bunch of them:

I show up at my renters’ doorsteps each Friday evening when I knew they had been paid earlier in the day.  They would hand me cash for the rent and then I’d go on to the next house.  One time, I got ripped off when someone pulled a gun and took a few thousand dollars of rent from me.  Since then, I’ve been packing and I haven’t had a problem since.

Well, I haven’t spoken to this friend in several years, so I’m not sure if he is still among us.  But he sounded like a real man; my “smarts” (or arguably, my lack of courage) never allowed me to get too involved in buying many houses in that price range.  But I did succumb to allure of buying a few which led to some challenging situations throughout the years. 

Fast forward to 2019…  I’m getting letters, robo-calls, and text messages from random investors saying they want to buy these old houses with all-cash (no loans needed) and “as-is” (no repairs asked for).  Cinderella homes now seem to be the rage.  And they sell in the $100K range with no repairs.

So what to do?  The no-brainer answer seems to be to take the money and run.  An opportunity to unload these rental homes easily at a profit seems to be a gift horse that shouldn’t be looked at directly in the mouth area.

But then, on the other hand, you have that FOMO (Fear of Missing Out).  Values and rents in Charlotte keep rising as 66 people on average move into the region every day and that only seems to be growing, not abating.  Holding costs for these types of houses are relatively minimal with smaller mortgages (if applicable), low property taxes and insurance, and usually no HOA fees.  And most of these houses are located near Uptown which might mean they are primed for further future price and rent appreciation.  In this economy and market, the outlook for these homes looks pretty rosy.

At the time, it was not so obvious that the Prince should have chosen and married Cinderella.  He could have bypassed Cinderella and her difficult stepfamily and had his pick of the other princesses with less baggage and/or simply enjoyed a few more years of his bachelorhood.  And who knew that a momentary infatuation would last forever?

I guess the decision depends on one’s investment outlook.  A bird in the hand is worth two in the bush or more risk equals more reward?  The Charlotte market can’t keep going up indefinitely, can it? 

Sometimes it’s not clear on how to get to what “happily ever after” looks like in the rental home game.  Cash out, hold, or double-down?

Happy Landlording!

Does It Matter If Your Property Manager Personally Owns Rental Properties?

When assessing property managers, does it matter if they personally own rental properties?  This question is on the same line of thought as:

1.  Are sports coaches better suited to coach if they were former players?

2.  Is it preferable to have a nanny who is a mother care for your children?

3.  Is it better to have former addicts speak at rehab clinics than clean-cut drug counselors?

You may be saying, “Whoa, Brett… could you come up with a better example in #2 above?  What percentage of your property management blog readership has gone through the thought process of having nannies taking care of their children?”

Fair enough. 

So, in short, the question is whether actual experience matters.  I would argue that it does in most cases.

As a Charlotte property manager who owns personal rental properties, I have several things that concern me from painful experience.  These may not have the same resonance with a property manager who has never personally dealt with the repercussions (aka writing big checks to other people) for the following:

1.  Vandalism/Damage: Is the house in a good enough area that it can sit vacant without being broken into?  Do I need to let the police know and put “No Trespassing” signs up?  Can I let some of the neighbors I know around the house keep an eye on it?  Nothing is worse than fixing broken windows continually when trying to show it for new renters. 

2.  Utilities: Am I going to be stuck with big utility bills when the house is vacant?  I’ve received large water bills (from running toilets) and huge electric bills (from prospective tenants turning the air conditioning down to 40 degrees when visiting the property) from empty houses.  In the back of my mind I’m weighing whether I need to keep the utilities on (based on the time of the year) or checking the home during showings to make sure things are kosher.

3.  Tenant Wear & Tear: After screening a tenant and talking to their former landlords, it seems like he/she would be a good payer.  On the other hand, it seems like he/she is careless and the house is going to need major cleaning and touch-up after he/she moves out in a year or two; this is going to cost big bucks and be a headache then.  I know the short-term expediency of having a tenant move-in right away is going to turn into pain later after they move-out.  I’ve written painful checks for these repair bills before.  My stomach churns thinking about it.        

4.  On-Time Rental Payments: I’ve got mortgages to pay on the properties every month.  I need to get the funds on time and in full so I can pay the bank.  It’s not acceptable to not actively collect late rent; late fees must be enforced to dissuade late payments and tenants need to be encouraged to be on time.  Unpaid days do matter! 

These are just a few of the things that I think would be difficult to understand if a property manager doesn’t own rental properties.  It’s one thing to read what not to do in a property management handbook and another to have to clean up messes with your own money.  Experience is a very good teacher… and a harsh one.

As a learned man once said, “It’s not that bad to die in a video game.  Just don’t try it in real life.”  

Brett Furniss is the President & Owner of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords.   BDF Realty utilizes their innovative Pod System for exceptional customer service in residential property management, home repairs, and home sales (including Rent-To-Sell) for single-family homes, condos, and town homes in the Charlotte-Metro Area.  Contact Us Today!

Charlotte Property Management Monthly: Don’t Return Your Tenant’s Security Deposit Just Yet

As a Charlotte property manager, I am a big proponent of returning as much of the tenant’s security deposit to them as possible.  If the tenant took time to care for the property, did what they were supposed to do during their lease period, and paid all of their rent, they certainly deserve it back!  There is a reason property managers are required to put the security deposit into an escrow account; it is a reminder that the security deposit is not the landlord’s money, it belongs to the tenants.

However, that being said, I’m also a proponent of the “slow return.”  By NC law, the security deposit does not need to be returned to the tenant for 30 days.  And also according to the law, if the landlord is still figuring out repair costs and won’t make the 30-day deadline, they just need to notify the tenant that the payment will be delayed in writing and let them know the approximate cost of the repairs at that point in time.

Why would landlords delay the tenant’s security deposit return?  The most popular question asked (by far) when a tenant moves out is, “when can I expect the security deposit back?”  If you want to be a “cool” landlord, shouldn’t you just give it back after the walk-through?  You already know how much the repairs are going to cost (if there are any) and the tenant could use the money back.  You certainly want to be good to the tenants who were good to you, right?

Well, yes, but not exactly.  I recommend keeping the security deposit as long as possible.  Once it is given back, you really need to consider the tenant gone and their account closed.  You need to assume that you will never get any money from them again.

So?  They moved out already, right?

Yes, but…  Walk-throughs are an inexact science and sometimes things are missed.  Think about home inspectors; they are professionals that take hours doing a walk-through to write a comprehensive damage report and they still miss issues with the home.  I guarantee that landlords are not close to conducting several hour walk-throughs at the level of detail that they are (nor should they be).  Things get missed and that’s life.

However, you can provide yourself some extra time so missed things can get caught before it’s too late and you have to pay for it!  It may be one of the handymen working on your home that alerts you to new repair issues.  It may be a Realtor or marketing person who wonders why something looks off.  Or (usually) it’s the next tenant who moves in afterwards that lets you know what’s not up to par (and by the way, they want the issues fixed on your dime!).

Let tenants pay for damages they are responsible for.  And, unfortunately, the delay in returning the security deposit to them is a good way to ensure this happens.

Brett Furniss is the President & Owner of BDF Realty (Charlotte Property Management) which works with Charlotte real estate investors and homeowners 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 Monthly: Interested in Investing in Charlotte Homes? 3 Strategies & 1 FYI

As a Charlotte real estate investor and property manager for almost a decade, I’ve spoken to a lot of clients about buying Charlotte investment homes.  Many different clients have many different goals, but the goals typically fall into three camps (all cash flow, cash flow and equity, all equity).  Below are these 3 types of investment strategies and the residential houses used to achieve them:

1.  All cash flow ($10K - $50K priced homes): These homes make investors lick their lips.  “I could just put the house on my credit card or write a check!”  Yes, this is true and it has been done!  It’s nice that these homes will rent anywhere from $250 - $500 a month.  With home payments less than $150/month (figure taxes around $50/month and insurance around $35/month), vacancy doesn’t hurt too much.  The plan is to buy up a bunch of these homes, fill them with good tenants, and enjoy the cash flow!

The downside is that these homes are not in desirable neighborhoods and are barely liquid, even in great real estate markets; selling them to home owners (non-investors) is close to impossible, which allows for virtually no capital appreciation.  Vacancy costs don’t hurt that much, but the damage and theft expenses can add up quickly (you may see your home’s missing HVAC unit for sale on the street… Hint: buy it back!  It’s cheaper!).  “Good tenants” are tougher to find than with higher-priced homes.  Bottom line, this strategy is either high risk or high reward (if managed well) depending on what month you ask.  It’s a boat that goes up and down on the waves- buckle up!

2.  Both cash flow and equity (home price appreciation) ($90K - $140K homes): These homes are my personal favorite to invest in.  The tenants are typically stable and treat the homes well.  If the home is bought properly, they fill quickly and do appreciate in rising real estate markets.  These are moderate risk investments.  Vacancies and fix-up costs hurt more than the less expensive homes, but monthly positive cash flow can be in the $200-$400 range (if bought correctly).  These homes are more liquid and are appealing to both retail and investor buyers.

3.  All equity ($250K+ homes): These more expensive homes can be bought at great discounts because most real estate investors don’t hold them (too expensive) and most home owners don’t like buying major fixer-uppers.  However, buying a house $100K-$200K below retail value, fixing it up (gulp- maybe a $50K cost?), putting a renter in it to net out the monthly mortgage costs, and then flipping it when the subdivision the home is in stabilizes can be a very profitable venture (with time).  Utilizing this strategy requires a good cash reserve and patience to sit on the home before cashing it out.  The good news is that the tenants in these homes are typically very stable, pay on time, and will take care of them.  As the Tom Petty song goes, “the waiting is the hardest part.”

And the FYI:

Investors love multi-family units!  But multi-family homes (1 to 4 units) are not that prevalent in Charlotte.  I don’t know why more of them weren’t built (maybe due to cheaper land here?), but there are typically very few of them available for sale.

Charlotte is a beautiful, up-and-coming city with a growing population.  Whatever the strategy being used, the time to invest seems to be now!

Brett Furniss is the President & Owner of BDF Realty (Charlotte Property Management) which works with Charlotte real estate investors and homeowners 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 Monthly: Landlords- 5 Reasons Why Our Time Is Now

Wow! Has it already been over five years already since the real estate market tanked? TARP, the “new normal”, bailouts, CDO’s, and toxic assets were all the rage back then. Home buyers disappeared, home sellers were really unhappy, and real estate prices dropped like a rock. Renters were deemed the smart folks, and landlords, not so much.




It was a tough time for most people as the economy soured and landlords were no different. Rental rates were relatively low, almost no one could get a mortgage to refinance, and people (landlords and tenants included) were losing their jobs. This affected landlords in two ways. First, if they lost their job, they still had to pay for their home and their rental homes. And, secondly, if their tenant lost their job, they had to deal with that situation as well. The uncertainty made for tough times for all involved. Many landlords got out of the rental business either by choice or by economic necessity.



However, the times have changed in almost every way for the better now. The rewards for hanging in there the last five years seem to have arrived and I’m seriously wondering if we are entering into a golden age for landlords. Wait- What??? Why would someone vested in real estate for his livelihood make such an outrageous claim? Well, let’s look at the facts on the ground:



1. Rental rates keep on rising. Love you, extra cash flow!



2. Mortgage rates have dropped even lower making leverage really cheap. Locking into low interest rates is fun!



So, higher rents coupled with lower mortgage costs equals bigger profits for landlords. Sweet!



3. Home prices are still low and seemed to have bottomed out. For landlords with cash, they can pick up rental homes on the cheap that will immediately cash flow and be primed for a quick equity build-up when the market recovers. There are undoubtedly still more sellers than buyers in the market.



4. The rental market is healthy and homes are filling quickly with higher quality tenants. Many great former homeowners who hit a rough spot are now clamoring to live in rental homes on the market today. They pay on time and maintain the homes extremely well. They know the drill and are great to work with!



5. Being that it seems that home prices have stabilized (and with inflation coming at some point in the near future), home prices will begin to work their way up again. So the landlords who have held on and been paying down their mortgages over the past five years, will be rewarded with equity (cash) in a liquid market.



So, as a landlord, you should be excited! Our time is now!



Brett Furniss is the President & Owner of BDF Realty (Charlotte Property Management) 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 Monthly: Cash Flow Happens On Both Ends: After You Check Your Rental Comps, Do the “Bank Thang”

A property manager’s most important task is to maximize their client’s cash flow.  This includes looking at most of the inflows (good!) and outflows (bad!) of the property.

Cash Inflows: Rent from the tenants (typically the biggest or only inflow)

Cash Outflows: Repairs, management fees, & vendor fees

What is out of the property manager’s control, however, is typically the largest outflow for landlords- the financing of the property.  This is the mortgage payment that goes to the bank each month.  If this outflow can be sizably reduced, all other expenses (outflows) seem minimal.

So does that mean I need to start doing the “bank thang” (defined as giving up total control of your personal information and providing a ridiculous amount of documentation)?  Unfortunately, yes.

You may not like dealing with the banks again (I didn’t either!).  And you may think that the Fed is crushing the value of our dollar by printing money (I do too!).  But one of the positive results of the Fed’s “Quantitative Easing” we read about in the news is that it has pushed interest rates on mortgages to historic lows (for now).  And, as a landlord, you need to explore taking advantage of these low rates and minimizing your biggest outflow.  And that means having a conversation with the banks about refinancing options. 

The three ways to deal with refinancing (from best to worst option):

1.  Read the mail the banks send you, especially the letters that come via UPS and FedEx.  I got a letter from Chase (one of my existing lenders) the other day via UPS that offered to reduce my interest rate from 6.875% to 4.25% on one of my rental properties.  I called them and it was legitimate (no closing costs and limited documentation needed).  This took my payment down 30% on this house.  That is a good outflow reduction!

2.  Proactively call the lenders who hold your home loans and see if they can do anything for you.  Mention government programs like HARP, HAMP, and HARP2.  Then hope they know what you’re talking about.

3.  Call a mortgage broker and ask them to look over your loans and see if they can refinance any of them with favorable rates.

Property managers can run rental comps to make sure their landlord clients receive the highest possible rents and try to minimize other costs.  But landlords, especially in this historically low interest rate environment, need to do their part to maximize cash flow.  And that means doing the “bank thang”!   

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 Monthly: Everyone Loves Pets (Except Landlords): 3 Reasons Maybe They Should Too

“Oh, did you see Fluffy.  He’s so cute!  He’s practically part of the family.”

(Most pet owners)

“Pets in my house?  Never!”

(Most landlords)

Almost everyone loves pets.  Some people are dog people.  Some are cat people.  And some like the more interesting kinds, like birds and snakes.  Pet enthusiasts are a multi-billion dollar business segment; and those billions don’t count the home rental income from tenants who crave those fenced-in backyards and pet doors.

However, landlords are the one minority group that typically despises pets.  They’ve heard the horror stories of urine-soaked flooring, smells that just never seem to go away, and shredded interiors.  “I’m not going to allow that to happen in my house!” thousands of landlords have told property managers throughout the years.

But maybe going in the complete opposite direction of this conventional wisdom is the best way to maximize ROI? 

Here are the top three reasons why landlords should consider welcoming pets into their rental homes:

1.  It’s much easier to place tenants!  From personal experience in Charlotte property management, tenants have pets 50%-75% of the time.  I really don’t think this is an exaggeration!  Property managers turn away so many prospective (great) tenants when pets are not allowed.  This crushes ROI as it slows the property being occupied, turns away better tenants, and commands lower rents as a smaller pool of tenants are being courted.

2.  Non-refundable pet fees are free money.  Tenants will pay extra for their furry (and non-furry) animal friends to be in the house.  The bigger the house, the bigger the pet fee the tenant will pay.  The more pets they have, the more pet fees they will pay.  Try to charge per child for big families and see how that is received!  But, with pets, it is industry standard. 

Furthermore, there is nothing that says that pet fees have to go towards cleaning up for the pet; this is what the security deposit is for!  The pet fee is merely paying for the right to have a pet in the home- nothing more. 

3.  It is important to have a realistic view about pets and the potential damage they cause.  Have pets caused costly damage to rental homes in the past and will they continue to do so in the future?  Yes.  Flooring, especially carpet, is the usual casualty when pets go rogue.  And new carpet isn’t cheap.  Now, with that being said…

Tenants who like and can afford nice homes typically like to have clean places that their friends and family can visit.  It is embarrassing to most people to have visitors into their home if it reeks of pet urine and there are visible pet feces ground into the carpet.

With lower priced rentals in questionable neighborhoods, the carpet is typically a goner anyway.  So instead of fighting this, rip up the carpet after the current tenant moves out, replace it with linoleum, and allow pets!  As my friend who invests in lower price rentals says, “Carpet?  What’s that?”

Allowing pets often makes for a better ROI.  Maybe landlords should consider showing pets more love!

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 Monthly: You Want A Good ROI On Your Rental Home? Hire A $600 Maid!

As a Charlotte property manager for a good nine years now, I’ve seen a lot of rental homes come and go; some rented quickly and some didn’t.  Most of the houses weren’t perfect, but almost all of the houses that rented quickly had one thing in common- they were really clean.  And you may be surprised on how many really dirty homes are on the rental market!

“Cleanliness is next to godliness” is the popular axiom, and it’s also a heck of a differentiator in the rental home business.  The #1 secret of renting a home quickly is making sure it is really clean.  That’s it.  If you can get someone to look inside the home and it is really clean, the closing ratio is 80%-90%.  I’m not joking.  If the cleanliness does not meet the tenant’s expectations, it is the top thing property managers hear about.

But how clean is clean?  Is a $150 baseline cleaning job sufficient or is a $600 cleaning job necessary (where every surface is touched by a great team of maids and one could ice skate on the floors after eating off of them)?  That’s a tough question.  Every tenant has a different idea of what is “clean”. 

Rental homes are about ROI.  So the real question is, “Is $600 a good investment that will procure a higher rental rate?”  Most owners are not going to be happy paying $600 to clean a home that they don’t live in, when they would never pay $600 to clean a home that they do live in!  But is it smart to do it anyway?

Renting out homes isn’t rocket science.  It’s about the value proposition each house makes versus the other houses on the market.  For example, if you go to the grocery store and see that regular bread is $1 a loaf and the whole wheat bread is $2, which do you pick?  If you don’t see value in paying an extra $1 for whole wheat, then you’ll pass and buy the regular loaf.  If a clean house is renting for $1,500 and a dirty house is renting for $1,400, which do you pick?  It’s that simple.  And a lot of people will pay extra for the value of a really clean home.

Before landlords have a heart attack and think that it is necessary to get a $600 cleaning job on all their vacant rental homes, I’ll give the caveat that it isn’t always prudent.  The higher the value of the home, the nicer the cleaning job should be.  This also works from a ROI perspective.  If a really clean house allows the market to charge an extra 5% a month of rent (which isn’t unreasonable), then:

1.  $1,000/month home becomes a $1,050.00/month home.  On a one-year lease, that’s an extra $600 annually.  A $600 cleaning probably isn’t warranted (0% ROI), but a $300 cleaning would deliver a nice ROI (100%).

2.  $2,000/month home becomes a $2,100/month home.  That’s an extra $1,200 annually.  A $600 cleaning job would be warranted if it produced a ROI of 100%.

Besides the empirical ROI dollar figures, there are also the soft numbers to consider.  Clean tenants who take care of rental homes like to move into really clean, rental homes.  And guess what?  Most of them are turned off by dirty homes and won’t move into them.  The tenants who are willing to move into dirty homes usually are not concerned about the condition of the homes like the clean tenants are.  So which type of tenant do you want to attract to your rental home?

With rental homes, ROI is king.  And a $600 maid service can push you further into the black!

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 Monthly: Top 4 Opportunities for Owners in a Hot Rental Market

As a Charlotte residential property manager, we are seeing the rental market really heat up!  There are fewer buyers and more renters; this causes rental prices to go up and vacancy rates to go down.  In the home sales market, sales prices and activity continue to stagnate making it a less ideal time to sell.  The laws of supply and demand are in full effect!

We are also seeing an uptick in inquiries about purchasing the rental homes we have in inventory when they are vacant and on the market.  Unfortunately, the dollar figures for the offers to purchase are not overly appealing.  Buyers are still bargain hunting.

So what does this mean strategy-wise to an owner of a rental property?  It means there is a lot of flexibility available on the rental side to improve financial positioning.  The top 4 opportunities in this hot rental market for rental home owners are:

1.  Raise rents: Rental comparables are rising.  Make sure you are receiving market rate rent on lease extensions.

2.  Lock-in security: If security is the #1 goal, offer to extend existing leases at the same rate for longer periods of time.  Explain the good deal you are offering the tenants.

3.  Fix up vacant properties and raise the rent: If you have a vacant rental property that is in marginal to bad shape, it is time to make the investment to fix it up.  The market will reward you for this work with higher rents that will pay for the repairs. 

4.  Ride the hot rental market out and then sell: Enjoy the higher rents and subsequent increase in cash flow while the getting is good.  Wait until your home’s value appreciates to the price you want before putting it on the market for sale.  If your house is on an amortizing mortgage, even better!

As a wise man once said, “Don’t fight the trends, ride the trends.”  Use this hot rental market as an opportunity to make more now and later!

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 Monthly: Stick It Out or Play the Field? Long Term Vs. Short Term Leases

In property management, one of the things we discuss with new clients is their goals.  Are they planning on keeping the property long term or are they looking to sell it at the first opportunity?  Do they want to move back into it at some point?  How much flexibility do they need?  What is their risk tolerance?

We want to make sure that we are enacting strategies that fit what clients are trying to achieve.  They aren’t all in the same life situations.

It’s the same thing in the dating world.  Some are looking to get hitched.  They want to be seriously dating in an exclusive relationship on the way to marriage.  They want someone on a long term basis who they will be with through the thick and the thin.  This type of dating allows for greater security and a lasting partnership.  However, it is a difficult one to leave without very hurt feelings and does not always allow you to see the best that the partner has to offer.

Other people are looking for “fun”.  They want to meet as many people as possible and continually upgrade who they are going out with.  This is a strategy that entails a lot of dates, work, and stress.  The swinging singles would also argue that it also includes a lot of excitement, the ability to always see the best of the other person, with little actual commitment from their end; when something better comes along (or any other reason, including none at all), it is understood that they are gone.

Leases are the same.  Some owners want to have the security of a payment coming in every month.  They are willing to sign a multi-year lease for the current market rent, with no rent escalators built in.  They want their tenants to be there for a while and be happy.  To this end, they often will make home improvements for the tenants.  They know they will be holding on to the property long term and are willing to make some sacrifices to keep tenants for the same time period.

Some owners like flexibility and the ability to always get the market rent (or more) for their home.  They entertain weekly or monthly leases where they know they can demand a premium for the short lease period.  Sometimes there are big events (like the upcoming Democratic National Convention in Charlotte) that they know they could get the equivalent of several months rental payments for renting out for only one week!  They also have family and friends that come into town often and they like to have an open place for them to stay. 

There are certainly downsides to short term leasing!  There are no recurring rental payments guaranteed to come in every month, which is a financial risk.  There are many opportunities for the bevy of new tenants that go in and out to damage the place.  There are also increased payments to the property manager for fixing up, marketing, and procuring tenants so often.  These need to be covered by the excess rent that is hopefully commanded.

Long term versus short term leases is much like the old argument of risk versus reward.  Short term leases provide higher highs and lower lows, while long term leases are a moderate investment path that should provide consistent, average returns.  The question is what the owners’ goals and needs are and this can certainly change many times during the relationship with the property manager.

For most property owners, the long term leases are the most economical option for their investment homes.  However, one size does not always fit all and short term leases can provide a nice bump in income!   

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 Monthly: Property Management Going Mobile: Mobile Websites and Apps “Must-Haves” Now?

I was out to dinner the other night in Uptown Charlotte and saw the typical 21st century young, urban couple. They were dressed stylishly, moved with grace, were good-looking, and barely talked or looked at each other the entire time I saw them at the restaurant. Were they:




A. In a fight?

B. Shy mutes?

C. Engrossed with their mobile phones?



Of course, and sadly, the most probable answer in today’s world is C. I have a difficult time with this! I want to say, “Buddy, wake up! You’re with a good-looking woman; I can’t believe I have to tell you to look up and talk to her, instead of texting your friend, Chuck! What’s wrong with you?”



So, being a grown man, I had to decide whether to cry about this newer phenomenon or accept it. After some internal wrangling, I’m happy to report that my righteous indignation has passed and I’ve accepted this digitally-inspired apathy towards fellow humans as the “new normal”. So what does this consumer love affair with mobile phones mean to property managers?



It means we better get in the game in the mobile realm. Regular websites have worked really well for a while, but change has come again. New renters are going to want to use their smart phones to search for rentals near them (aided by GPS), fill out rental applications, pay application fees, and put down deposits. They want the whole rental process available from their mobile phones.



What specifically does this mean? It means we better have mobile websites that allow them to do this; the mobile websites need to include only succinct information potential renters would want when on the go. It also means we need a mobile application (a custom company “app”) that customers can put on their devices so we own some real estate on their phones. Trends show that home internet connections are on the way of landline phones; the new battleground is the mobile phone. We need to be on as many as possible.



A mobile website is critical when consumers search for property management companies from their smart phones. Will yours come up? If it does, can consumers easily find rental homes, contact you (even text you!), and do everything you want them to do (like they can when you see them in your office or when they are in front of their home computer?)



An app is critical to sealing the relationship with customers. How can they remember you when they are on their mobile phones? Your app (with your company logo) sitting with the rest of the apps they use everyday is a good start. This is a good way to build mindshare and also to make it easy for your customers to contact you and refer you to their friends. Not an apps believer? Apps are set to be a $36B business by 2015- a lot of people use them and will be using them!



Change is hard, but the mobile revolution is not going away. If making a property management company last long term is the goal, mobile websites and apps are now “must-haves”!



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 Monthly: Renting Out Your Home Is Not For The Timid? 4 Reasons Not To Believe The Neighbors

Due to the tough home sales market, some home owners have been thrust into being “accidental landlords”. Their homes won’t sell for the prices they need, they have to move, and they can’t afford to keep them empty indefinitely. So, left with little choice, they will (reluctantly) start the process of renting their homes out.




They start with strong intentions, but then fear takes over! After research which includes talking to neighbors (who all have friends and long lost relatives in the “rental know”) and watching multiple episodes of “The Wire”, they are not sure they can go through with it. There’s so much uncertainty! And risk!



After many web searches, their definition of a “tenant” morphs into:



“A class of unruly persons, usually insatiable smokers, who have extensively studied the art of home destruction and rental payment evasion; commonly known as ‘slackers’ and ‘apathetic deadbeats’, renters have been known to spill drinks and never clean them up, loosen automobile oil pans so driveways become marked for life, and run surreptitious animal compounds (without signing a stringent pet policy disclosure).”



That’s scary!



So, what should fearful home owners do? I’d recommend a few deep breaths for starters. Then let’s look at some facts:



1. Roughly 35% of the population rents currently. Many of the nice places we go to regularly are rentals. I can confidently tell you that a third of the US population is not bent on home destruction. If you believe they are, sell everything you have and buy stock in Home Depot and Lowes.



2. You have lived in a rental at least once in your life (and probably work in one!) and you consider yourself a good, responsible person.



3. Everyone has a “bad renter” story because the “good renter” stories are boring. It’s like how no one talks about all the airplanes that take off safely everyday, everywhere in the world thousands of times; you only hear about the rare occasion when one plane doesn’t.



Example:

Jim: Hey, my tenant paid on-time and in-full yesterday.

John: That’s great (yawn).



4. Being in the business, I can tell you that most people have pride in their homes. They don’t want to be dodging evictions- they feel embarrassed when they can’t provide for their families. They want their home to look nicely- it’s embarrassing when guests and family come over and their place looks disgusting. That includes smoking indoors (people don’t like visiting homes where there is a smoke smell indoors and most parents want their kids to have healthy air to breathe as well) and out-of-control pets (will most self-respecting people accept living in pet filth?).



Are some tenants more meticulous than others? Of course! But the large majority of tenants are fine people who pay on-time and treat their rental homes with respect (this is especially true after professional tenant screening checks!). The tenants just want to live their lives in peace and have home repair issues addressed in a timely manner from time to time. Their lives are not about getting one over on the owners of the rental homes they live in; it’s just a place where they live for the time being.



Don’t believe the hype. And breathe. Even the timid can safely rent out their homes no matter what stories your neighbors tell you!



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!)