What Rental Home Repairs Should A Landlord Pay For?

Oh, home repairs…  One of the aspects of rental home investing that can really eat into a landlord’s financial return.  Landlords and tenants both want to have a perfect home, but debate on who should pay for it.  

In 10 years of practicing property management in Charlotte, I’ve found that the responses of who should pay for what repairs are unanimous (depending on what faction of people you ask):

Q:  Who should pay for broken stuff at the rental house?

A.  The owners!! (results tallied from 100% of the tenants)

Supporting testimony: “This house is a piece of garbage!  They are lucky I’m a great tenant and renting it.  I pay on-time every month; the least the owner can do is make some needed repairs around here.  I guess Ebenezer is too busy counting his money to remember the little guy living in one of the houses in his vast real estate empire.”

Contradictory facts:  House was lived in by owner prior to tenant move-in.  Everything worked fine.  Actual real estate holdings of owner are 2 houses.

B.  The tenants!! (results tallied from 100% of the owners)

Supporting Testimony: “The house was in perfect condition when the tenant moved in.  I lived there for 5 years and everything worked.  Now they want every little thing fixed?  Who cares if the screen door has a little rip in it?  It didn’t kill my family, but the tenant can’t live with a flea once in a while?  Please!  He doesn’t even have children!”

Contradictory facts: “Little rip” in screen would allow full grown vulture entry.  Perfectly conditioned homes would be violently offended at this owner’s shoddy home being placed in the same category as them.

    

And this is why property management can be challenging at times.

“To pay to repair or not to repair”, that is the question.  And it is one that has no clear-cut answer.  But, with that being said, there should be some methodology applied to make fair decisions.

My take on some parameters:

1.  The house must be kept at code.  Major systems (plumbing, heat, electricity, appliances) need to work properly.  This includes working air conditioning nowadays (I know the old-school hardliners just stopped reading).  I’m aware it used to be a luxury item, but that was a long, long time ago.

2.  If it worked when they moved in, it should work throughout their tenancy (some exceptions apply on really high-cost or not-being-manufactured-anymore items).  Example: a home was rented with a working gas fireplace.  The fireplace stopped working in the middle of the tenancy.  The manufacturer went out of business for the parts that were needed to fix it.  In my opinion, the owner is not responsible to pay $3K for a replacement fireplace for home that rents for $1K a month.

3.   If tenant negligence clearly causes something to break (example: a bottle cap found blocking a garbage disposal from working), the tenant should be billed back for the repair.  But a tie goes to the tenant.  Think of this as more of a criminal trial (where the tenant is innocent until proven guilty) than a civil trial (only requires a preponderance of evidence).  There is a higher standard of evidence required before a tenant can be billed back for a repair (it must be really obvious).

4.  Operational items need to be repaired; aesthetic items (aka how the house looks) do not.  It should be made clear to the tenant during the lease signing that the home looks the way it looks now and nothing will be done by the owner about it.

5.  Just because the tenant is renting the house, it does not mean that they will never spend money on the house.  Maintenance items are required (air filters, light bulbs, lawn care, etc.) and are not paid by the owner. 

This is obviously not a comprehensive repair policy, but it is a good start.  Good luck!

Brett Furniss is the President & Owner of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords & Home of $100 Flat Fee Property Management.   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!

“Will You Buy My Rental Homes Now?” Big Buyers Say, “Yes, But…”

The media is abuzz with news of springtime in the housing market!  Headlines trumpet:

 

Sales And Average Home Prices Are On The Rise Again!

 

Bidding Wars Are Back! 

 

Good times appear to be back in real estate land and you will soon see your local Realtors rolling around in the hottest and newest automobiles again (we don’t use the lowly term “cars”- that’s recession terminology).  Real estate school enrollment is up and the housing market is sizzling.  

 

And you’ve been holding on to your rental properties tightly, making the repairs, paying down the loan, and living the ups and downs of your tenants’ employment statuses for the past 6 years.  It’s been tough, but now it is time to get rewarded, right?  Based on news reports, it is time to sell your rental homes and make some dough.

 

Or is it?  As always, that depends.

 

The homes that are in bidding wars where buyers are making above asking price offers are typically in high-price, highly desirable areas, which are not where most rental homes are (it’s OK- those homes are tough to get to cash-flow on a long-term basis anyway).  But what about the average rental homes that we hold in our portfolios?  Can we sell them now?

 

One type of buyer that is very active in the market now says, “Yes, but not for the price you want.  But not so off the mark that you won’t consider our offer.”

 

This type of buyer is the big institutional investors (Big Buyers) who are invading the local real estate markets armed with tons of cash.  They employ some real estate agencies to find affordable homes for sale, send lowball offers (typical haircut of 30% from what I’ve seen), and snap up the ones that accept. 

 

I view this positively.  Besides the obvious disadvantage of below asking price offers, they bring a lot of advantages.  They pay all cash (it’s so nice when financing snags doesn’t crush deals in the last minute), close quickly, don’t ask for closing costs, and don’t ask a lot of questions.  They are really easy to work with; the deals happen rapidly and easily.  The only real question is if the price is acceptable to both parties.

 

So how does this work in practice?  Here are 3 examples on 2 houses we listed for sale (some details have been changed slightly):

 

House #1: On market for $89K

 

First big buyer (BB #1) offers $55K

We counter at $94K

BB #1 doesn’t dignify our counter offer with a response

 

BB #2 offer on house #1: $70K

The same day we receive word we have another offer coming in

We inform the BB #2 of the other offer and ask if they would like to submit their best and final offer

BB #2 responds that $70K is their final and best offer

We let them know the other offer was accepted and theirs was declined

 

House #2: On market for $105K

BB #3 offers $85K

We counter at $104K

BB#3 comes up to $90K

We counter at $100K

They come in at $95K final offer

Offer accepted at $95K

 

The BB’s are looking to accumulate properties and are not looking to nit-pick on repairs.  Sure, if something is majorly flawed, they will ask you to fix it and/or cancel their offer.  But the small repair requests that are typically negotiated by owner-occupants aren’t asked for; the BB’s just fix it up themselves.  As stated previously, when the price is agreed upon upfront, the deals typically fall into place easily.

 

To sell or not to sell?  That is the question.  But, for average rental homes, be thankful it is now an option!

 

Brett Furniss is President & Owner of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords, managing single-family homes, condos, and town homes in the Charlotte-Metro Area.   BDF Realty’s services include property management, home fix-ups, and home sales, including Rent-To-Sell (“When You Need a New Solution to Sell Your Home”).  His newest book is 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!) which is available on-line now. 

Charlotte Property Management Weekly: Maybe You Shouldn’t Fix Up your Rental Home?

The “Golden Rule” was an excellent idea as soon as Jesus said it; our lives would be so much better if we followed it all the time. But it’s not such a smart philosophy to follow it with rental homes. Let me explain.




There are many well-intentioned investors who believe that the “Golden Rule” should apply to their rental properties. “Do unto others as you would have them do unto you.” Through the years, I’ve heard:



1. “I like granite countertops. I imagine that tenants would also like to have them in my $75K townhouse that rents for $550 monthly.

2. “Once the tenant moves out, get started on the new paint and carpet please. I would want everything spotless and new.”

3. “Should we include all utilities in the rental price?”



Americans don’t want average homes for themselves; they want distinguished trophy homes without any flaws. Unfortunately, trophy rental homes with bells and whistles don’t make money; average homes do. So the key is to keep your rental home average and undifferentiated? That doesn’t sound like good marketing, does it?



Don’t get me wrong, these would be very nice improvements that would make the rental move faster. My issue lies with 2 things:

1. The ROI

2. The way to effectively market the increased value in the internet age



The question should not be “Would the tenant like these improvements?” Of course they would! Who wouldn’t?



Rather, the questions should be:

“Will the tenant pay for these improvements with increased rent?

“Will the market allow us to raise rents to cover and profit from these expenses?

“Can we effectively communicate this increased value in our marketing?”



The first problem is the ROI. In short, if you pay $2K to install granite countertops, how much extra rent can you charge? The answer is between slim and none. And slim just left the building. The reason? If your home is priced out of the market, no one will go look at it. And if they don’t go look at it, they can’t see how awesome your improvements are. Pictures only go so far.



The second reason is that it is too hard to effectively communicate extra value in rental homes; attention spans are too short. People look for rental homes on the internet and are clicking between hundreds of them. The main things people are looking at are price, number of bedrooms and bathrooms, and the areas in which the homes are located in.



So as potential renters are clicking expediently through homes, they notice your home is listed at $1,500 and another similar rental is listed at $1,350. Guess which one they click on? Yes, the cheaper one.



"But I have electricity, lawn care and cable included! They would save money ultimately by taking my property instead of the one for $1,350!"  Yeah, that’s probably true. But to learn that, they need to read the house remarks thoroughly and be a math major (and also know the typical bills that utilities in your area run). That’s way too hard.



The “Golden Rule” worked because it was simple to figure out. To move your rental profitably, keep your rental pricing and improvements simple as well!

Charlotte Property Management Weekly: Better to Rent or List Your Home for Sale? 3 Question Litmus Test

This seems to be a FAQ these days. As a property manager in Charlotte, we get many calls from people asking themselves this question.




I didn’t think there was a one-size-fits-all answer to this, but I was corrected. It just seems to come down to who you ask. If you ask:



1. Realtors: “You should definitely put your house on the market! Interest rates are at all-time lows!”

2. Property Managers: “Nothing is selling in this market. You can either eat your mortgage every month as it sits or have a respectful renter pay it for you.”



So which is the right answer?



It really depends on your answers to these 3 questions:



1. If you wanted to live in the area your home is located, would you buy your home at the price it would be listed at? Take an honest look at comparable homes for sale in our area. If “yes”, list. If “no”, rent.

2. Does your house have a differentiator that would make it more appealing than cheaper, comparable houses (aka foreclosures and short sales)? If “yes”, list. If “no”, rent.

3. Can you stomach a possible rogue renter and locking into a negative cash flow for a year or two? If “yes”, rent. If “no”, list.



These questions make it easy and really boil down to a simple question:



Is your home among the best of the best?



If not, it’s like trying to sell your clothes retail when everyone else is having a 50% off sale. If your home is special and you can communicate this effectively in your marketing, then list your home for sale and be confident it will sell. If it is not, then you must rent until banks starting lending to the masses again.



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. You can contact him directly at Brett@BDFRealty.com.

Charlotte Property Management Weekly: 700+ Credit Score Tenants Not the Best Option for your Rental Home?

I was talking to a prospective Charlotte property management client the other day and he had only one criteria he really cared about. He wanted to make sure that we placed a rental tenant into his home that had 700+ credit scores. That was it.


I told him I didn’t think that was a good idea; it would reject a lot of better suited applicants. He told me I was crazy (in so many words).



Well, let’s do the whole Benjamin Franklin pro’s and con’s thing. Then we can make an educated decision.



First, the overall goal must be established. As a Charlotte property manager, we want to make sure that we maximize our client’s investments. Generally speaking, we define this as providing the most net cash flow to our owner clients. Most clients agree that we should be measured by how much money we put into their pockets.



Now for the pros of a 700+ credit score client. They will almost always:

1. Pay their rent in full and on-time

2. Leave the home in great shape when they move out

These are the two biggest concerns of our clients, so these are very good attributes.



Let’s now look at the cons. I could nitpick, but tenants with 700+ credit scores are pretty good to have. So, I just want to focus on one con:

1. They typically vacate after their initial lease expires



This one con crushes a client’s overall cash flow and ROI.



Most people who have 700+ credit scores buy homes immediately. The ones that don’t usually have a reason like they:

1. Are a mobile professional who will move with their company in 1-2 years

2. Are waiting for the right deal on the house they want (Guess what? The deals are here now!)

3. Just moved to town and will buy once they get to know the area



So a full year’s rent is secure, but then there will usually be a few months of vacancy and holding costs that have to be factored in after the 700+ tenant vacates.



The ROI might be better with a tenant with sub-620 scores (who can’t buy) and a solid landlord history? I’m thinking there is certainly a case to be made.



Tenants who stay for years are almost always a better investment than those that are one year and done. In conclusion, it may be time to rethink the “700+ credit tenant or no deal” strategy.



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. You can contact him directly at Brett@BDFRealty.com.