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!

New York City Living & Landlording: Count the Cost

“Suppose one of you wants to build a tower.  Won’t you first sit down and count the cost to see if you have enough money to complete it?”

Jesus Christ (Luke 14:28)

 

Shortly after I graduated college, I moved to New York City (NYC- aka the “Big Apple”).   “If I could make it there, I could make it anywhere.”  Wow!  It was definitely an experience.

 

Honestly, I was a little scared.  All the television shows and movies that had criminals crushing the common folk were in NYC.  I grew up in NJ, but my parents really never took me into the big city so I wasn’t sure what to expect.   The mafia and gangs could just be waiting for fresh meat to show up so they could take my lunch money every day.  Who knew?

 

Fortunately, my physical safety was never really threatened.  My issues were more on the economic side.  I wasn’t making much money; I was in a sales job and wasn’t selling anything.  My manager nicknamed me “rowboat”… because I had no sales (get it?).  The lack of cash inflow was tough.

 

And the cash outflow required was excruciating.  It was the $3.50 for a small apple at the corner bodega.  Then buying a round of 5 drinks after work that ran $90.00 (without tip).  I used to joke that it cost me $20.00 to cross the street.  Geez, it was an expensive place to live!

 

Good deals were hard to come by.  And breakfast at the food cart on the corner of my street was one of them.  $2.00 got you a large coffee (with milk and sugar) and a huge cinnamon raisin bagel with butter.  It was my go-to meal every morning that I’d take on the subway into work.

 

One morning, there was a couple in front of me in line at the food cart.  I could make out parts of their conversation; it was apparent that they were visiting from the Midwest somewhere.  When the man was placing his order I could see him getting agitated.  Then he said something that I’ll never forget:

 

“$1.00 for a cup of coffee???  I’ve NEVER paid $1.00 for a cup of coffee in my life!”

 

That’s when I knew that he was going to absolutely hate this trip to the big city.  I almost felt obligated to get him in a cab (and pay for it) so he could immediately return back home.  If $1.00 for a cup of Joe was cause for righteous price indignation, he was due for a heart attack later that day. 

 

He did not count the cost of what visiting New York City was going to do to him.

 

Unfortunately, the same can be said of being a Charlotte landlord. 

 

The investment real estate gurus preach that you will be a millionaire through rental homes!  Buy as many properties as you can!  This is the way that you build residual income that will last a lifetime for you and your children’s children!

 

They just don’t tell you that it is a cash-poor business.  All of the above can be true, but the trick is the ability to stay solvent for year upon year as things break and wear out.  All the financial models go out the window when a messy eviction happens or your HVAC unit needs to be replaced (just happened to me this month- the dreaded $5K phone call…). 

 

Carpet will not last forever and will need to be replaced.  The entire house will need to be repainted at some point.  Appliances only last so long. The roof too…

 

Long term real estate investment can be a wonderful, profitable endeavor (you’ll love your net worth!), but don’t let anyone fool you- it can and will cost you money.  So before diving in too far, count the cost.  A few miserable days in NYC can be remedied with an early flight home to your 25 cent coffee vendor.  Several broken-down rental homes saddled with mortgages in a buyer’s market is a little tougher to navigate out of.

 

Happy Landlording!