Who Pays Incidentals When Things Break? A Rental Home Dilemma

The Situation:

The tenant (Mitch) has received higher-than-average water bills for the past two months.  He calls his Charlotte property manager who sends out a plumber to investigate.  The plumber says there is a pipe cracked underneath the driveway that will cost $2,500.00 to fix. 

 

Mitch’s take on the situation:

“I just rent here.  My water bill is usually $60.00/month.  The last 2 months it’s been $150.00/month.  So, I’m out an extra $180.00 at no fault of my own.  I pay my rent on time every month and don’t have the budget to afford this.  If you ask me, the owner is lucky to have a tenant like myself that doesn’t cause any problems.”

 

Bottom line: Mitch requests a $180.00 reimbursement from the owner for excessive water expenses.

 

The owner’s take on the situation:

“$2,500????  The rent on this place is $1,050.00/month, so I’m looking at 2.5 months of rent down the drain.  How does a pipe crack happen under a concrete driveway??  And the tenant wants an additional $180.00?  Please let Mitch know that I didn’t burrow under his driveway a few months ago with a hammer and smash the pipe.  Let me get back to you on where I’m going to get the money to pay the mortgage and for this pipe leak.  I think there is assumption that because I’m the landlord, I have millions of dollars sitting around for this type of stuff.  Not true!”

 

Bottom line: The owner does not look at Mitch’s request (or the entire situation) favorably.

 

So who pays the incidental water expense? 

 

First of all, this is a bad situation for everyone, with the exception of the plumber.  The tenant has higher water bills at no fault of his own.  The owner has a broken pipe at his house (and an unhappy tenant) at no fault of his own.   

 

In life, things break.  And things sometimes break with no one at fault.  We’re in a society that expects 100% uptime on everything, but that is a fallacy in a world where things wear and rust out.  And when things break, there is cost and (usually) a mess to clean up.  And everyone expects some other party to pay for it (not me!!). 

 

So we have to go to the lease for guidance.  Most standard leases that I’ve seen say that unless there is “willful or wanton negligence” on behalf of the landlord, landlords are not responsible for incidental damage from things breaking.  (Note: I’m not a lawyer and don’t even play one on TV)

 

If the landlord sent someone to fix an issue in a reasonable amount of time, he should be in the clear from having to pay additional costs beyond the repair.  That’s not to say there may not be additional factors involved that may compel the owner (or tenant!) to offset the other’s financial outlay.  But, normally speaking, the lease seems to offer this protection to the landlord.

 

So, if you are the tenant, what to do?  If Mitch has renters insurance (which is a requirement of our leases), he has another venue to ask for relief from.

 

We’ve had other similar examples: a hot water heater leaking on to a laptop, food being ruined from a refrigerator breaking down, and others.  To the tenant, it is a loss of a computer or replacing spoiled food; to the landlord, it is buying or repairing a hot water heater or refrigerator.  Ugh!

 

Bottom line: When things break, it is not a good situation for anyone.  But realize that it is a part of life that is 100% guaranteed to happen to you many times.  Try to be civil and understanding when it does.  Neither party likes it!

 

Happy Landlording! 

 

Brett Furniss is the head property manager 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 for single-family homes, Uptown condos, and town homes in the Charlotte-Metro Area.  Contact Us Today!

Section 8 Offers “Free Rent”? 5 Reasons Many Landlords Still Choose Not To Participate

I saw an ad for a Section 8 speaker touting their government-sponsored rental assistance program as “Free Rent” for landlords.  I had to laugh.  As we’ve been told our whole lives, nothing worthwhile is free.  And the Section 8 program is not an exception to the rule.

For the uninitiated, the Section 8 housing program allows people who earn under a certain income to receive a housing voucher to partially subsidize or pay for their rent in full.  This seems like a boon for landlords.

The process looks like this: For the tenants, they need to scour rental home ads and find landlords who are willing to accept Section 8 vouchers.  For the landlords, they need to willingly accept them.  The problem is that many landlords choose not to accept them, which seems strange.  The landlords do not want government-guaranteed “free rent”??  Well, maybe free isn’t always so free…

A big misconception is that the tenants are the reason landlords hesitate to accept Section 8 vouchers.  To me, this is patently false.  Some of our nicest and best tenants use Section 8.  Really, on our rental applications for Section 8 tenants, we run them the way we typically do, but deemphasize income and credit score requirements as Section 8 has them partially backstopped. 

So, if the tenants are good, why not accept Section 8?  The 5 main reasons many landlords choose not to accept Section 8 vouchers:

1.  Too much paperwork.  It’s not easy for landlords, especially non-real estate professionals, to navigate the process.

2.  The governmental standards for housing are really high and your house will fail the inspection.  Slum lords (ex: the type of people who ask if tenants really need clean, running water) are not the only people that fail; almost everyone fails the inspections.  I can speak from personal experience, anecdotal evidence, and conversations with the inspectors.  I asked one inspector what percentage of homes passed their first time and he laughed.  “Seriously?  Zero percent.  I’m not kidding.”  He went on to say that his own house wouldn’t pass a Section 8 inspection.  Our latest fail report had paint splatter on a strike plate and a loose electrical outlet as reasons it failed.  When there are hundreds of items that the inspectors are looking for, you are behind the eight ball.

3.  Customer service is typically unresponsive.  I don’t really blame the employees.  The workload that is saddled on them is immense.  I asked an inspector the other day a question about a failed item on the inspection report and she exhaustedly told me she couldn’t remember- she conducts 15 different home inspections every day!  So, bottom line, getting anything accomplished with them takes a lot of time, energy, and follow-up.  

4.  Waiting is the hardest part.  We had a house that took 5 weeks to get an initial inspection.  So, for 5 weeks, we ate the rent and utilities as the house stood vacant.  There was no “free rent” or sympathy.  After the home inevitably failed, there was another 2 week wait for a reinspection.  The combined 7 weeks of non-recoupable utility and mortgage payments hurt.  So did the vandalism that occurred as the house sat empty. 

5.  Re-inspection failures and rent abatement really hurt.  So, let’s say you pass the initial inspection and the tenant moves in.  At the ten-month mark of the tenancy, there is a reinspection where the Section 8 inspectors look for housing violations.  We used to occasionally pass these, but that hasn’t happened in the past few years due to stricter regulations.  The inspectors will find new things that happened during the tenancy; sometimes they find things they missed on the first inspection.  Our latest fail was partially for a loose banister.

The problem with failing reinspections is that you are given one chance to fix the items.  They provide a punch list so it should be as simple as giving it to a handyman to fix, right?  Well, the descriptions detailing what is wrong are nebulous and getting the inspectors on the phone to ask them to remember your home and a specific issue is not likely.  The handyman does the best he can, but when it fails, you enter into the unfriendly world of rent abatement.

Rent abatement is how property managers get fired and cash flow becomes difficult.  It starts with the failed second inspection.  This letter comes a week after the inspection letting you know what items you failed.  You are instructed to fix the outstanding items and then schedule a final reinspection.  During this time, not only is rent deducted for the abated period while waiting for the final inspection (your bank account is debited the following month on the 1^st when payments are made), there is no rent paid for the coming month.  For example:

Your rent due is $900/month and your abated 2-week period costs you ($450).

On the first of the month after abatement, not only do you not receive the $900 due (and the tenant is still living in your rental home and the bank wants your mortgage payment), you are clawed back $450 (payable immediately).  This essentially puts you in the hole $1,350 (not counting the funds for the repairs on the home).  Cash flow becomes a big issue.  This is when “free rent” becomes “free rent” for the government.  You’re a great citizen to do this, but you don’t feel so great when this happens. 

If you pass on your final reinspection, you will get the $900 back the following month (the $450 is gone forever).  If you fail, your contract with Section 8 is terminated and the tenant is free to leave.   This presents a much bigger problem as the tenant usually doesn’t have money to pay rent, Section 8 is not paying you, and the tenant needs to enter the arduous, time-consuming process of finding a new Section 8-eligible home (while living rent-free in yours).

In closing, Section 8 can be a good program if you know it well and have repair people very familiar with their changing requirements.  However, “free rent” for landlords is a gigantic misnomer and is about as far away from the truth as you can get.  It can be intelligently argued that Section 8 vouchers are much more risky than working with non-subsidized tenants.  “Nothing is free” is the true mantra!  

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 Monthly: 5 Crucial Expectations to Set Verbally With Your Tenants at Lease Signing

I’m a big believer in setting expectations in relationships; it seems to make things go more smoothly. If you know clearly what you’re supposed to do and I know what I’m supposed to do, there is less opportunity for hurt feelings and animosity. A beautiful, life-long relationship can blossom! (Cue the romantic music…)




This is why many married couples say the first year of marriage is the hardest. There is no book of set expectations for each partner; it’s created on the fly. The idyllic vision of married life begins to fade quickly when real life is thrust upon them. Who pays the bills? How many days are you staying out late with your buddies? You want me to iron the clothes? These fun questions need to be addressed and expectations of conduct need to be negotiated so both spouses are (mostly) satisfied. There is no marriage contract that explicitly spells this out.



Fortunately, a landlord-tenant relationship is governed by a set of rules known as “the lease”; this should theoretically make things easy! A lease is a perfect way to express your expectations to your tenant. That sounds good, but how come there often seems to be hurt feelings and bickering in leasing relationships? From the landlord’s perspective, the tenant should read the contract and follow it to the letter, right? If the tenants did everything the lease said, there would be no issues. So, of course, the issue lies with bad, rebellious tenants.



Wrong. The problem is a society who doesn’t have the time to read anymore. You are in the minority that you have made it past the Twitter-restricted 180 characters and are on to the fourth paragraph of this blog. Congrats! Pat yourself on the back!



And the standard lease is not exactly a page turner! It is legal jargon with no cool pictures or diagrams that goes on for page after long page…



If you want your tenant to know what you want them to do, you must verbally tell them. They will remember what you say and will usually act accordingly. Your leasing relationship will be the better for it! Guaranteed.



Tell the tenants what you expect (the Cliff Notes version please!) and what you are going to do for them (and won’t do for them!). The five most important things I make sure I cover with tenants in our lease signings:



1. The date the rent is due (the 1st of the month), the day it is late (it must be RECEIVED by the 5th of the month), and the day eviction is filed (the 16th) if we don’t hear from them and work something out. I also mention the late, bad check, and eviction fees that would be due in each scenario.



2. Where their security deposit is, what it is for, when it will be returned (within 30 days after move-out), and under what conditions some of it may be withheld.



3. Explaining that aesthetically the home is “as is”. When things stop working (HVAC, plumbing, etc.), what the repair process is and how it is handled.



4. I explain the 3 keys to a good tenancy: paying your rent on time, getting along with your neighbors, and keeping the home in good shape (including standard maintenance).



5. How early lease terminations are handled. Life happens and this is how you can get out of your lease and keep your credit intact. (Note: We ask that a 30-day notice be given along with 2 months of rent as a lease termination fee, in addition to the rent due up to the vacancy date)



6. Bonus item message to give for property managers: “We are not the owner of this home. We are the messenger. We don’t always like being the messenger, because messengers get shot sometimes. You don’t need to shoot us. We’d actually really appreciate it if you didn’t.”



This isn’t a comprehensive list, but it is important to remember that attention spans are not endless. These five points should be helpful in having a great relationship with your tenant!



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: 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: If You Can’t Sell, Rent: 3 Steps to Get a Great Tenant

Rental homes are in a full-on, undeniable uptrend! A recent real estate article headline blared, “Property Managers Set to Rule the World! 1.8M new tenants to enter the rental pool in the next two years.” Exciting stuff for us stodgy property managers!




While this leads to raised glasses (no plastic cups- they’re actual glass now!) in the property management industry, it is unwelcome news for homeowners trying to sell their homes. The math is easy to calculate: there is roughly the same amount of people moving into homes every year. So if 1.8 million more of them are now renting, there are 1.8 million less of them buying.



So people with homes they can’t personally live in anymore have to do something. The “selling the house and moving on” thing isn’t working for most due to an uncooperative real estate market. Some are letting their houses go back to the bank via the foreclosure route. It’s not a great option in terms of stress and credit damage, but it does solve the problem. Others are going the rental and rent-to-sell route to fill their homes. Some might argue that this is more stressful than the foreclosure route!



But why is it stressful? It boils down to one thing- the tenant. If you get a great tenant, they pay on time, care for your home, and don’t bother you. If you get a bad tenant, you never get paid on-time, enjoy a myriad of excuses for this non-payment, wind up in costly eviction proceedings, and are rewarded with a busted-up house at the end.



So how do you get a great tenant? Let’s define a great tenant first. They:



1. Pay on time and in full every month

2. Respect the home (aka like keeping it clean and undamaged)

3. Get along with the neighbors, the HOA, and you!



To get someone like this, there are 3 steps to follow:



1. Gather information: Order credit and criminal background checks, verify income and employment (request copies of the tenant’s last two paystubs and call the employer), and call the tenant’s past two landlords. You’ll want to ask the prospective tenant, employer, and past landlords as many questions as it takes to get a comfort level of what type of person wants to rent your home:



a. “Mr. Prospective Tenant, it is a pleasure to speak to you again! I never tire of your hilarious tales of amazing coincidences, which seem to be your hallmark. The honeymoon beach story with your two ex-wives somehow being on the same beach as you and your soon-to-be third ex-wife? Priceless! Now, why didn’t you pay your light bill in 2008? Why is there a collection account with Macy’s? What would your last landlord say about you?”



b. “Mr. Employer, if I may humbly ask, is Mr. X’s employment part-time, full-time, or contract work? How long has he been working there? Is he in good standing?”



c. “Mr. Landlord, your azure eyes must have been killing the ladies for years! At a risk of wasting your precious time with my inquiries that are so well beneath you, would you rent to this tenant again? Why or why not? How many times have they paid late? What did the house look like when they moved out? Is your superior intelligence a product of extensive domestic schooling, a plethora of renowned international boarding schools, or ‘Good Will Hunting’-like genetics?”



2. Analyze the data collected. Does the prospective tenant have stable employment? Do they make enough money to afford the rent and their other expenses realistically? What about if there is a slight bump, like a big car repair- can they still afford the home? Do they pay other people they commit to pay? What did their last landlord think of them? Would I feel unsafe renting to them if I had to give them bad news? Am I being overly optimistic about their merits or am I making a solid business decision?



3. Make the call. If they pass the smell test, approve them and move forward. If your gut is telling you to pass on their application, then pass! There is more than one fish in the sea.



There are many great tenants out there! Get a lot of data on the applicant, analyze it objectively, and make the decision on whether to approve them. It will work out most of the time!



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 Weekly: The “Additional Security Deposit” Letter Exchange

Dear Property Manager,

I am very interested in the rental house you have listed! I think it will be perfect for our family. However, when you asked me for an additional month of security deposit, it made me concerned. Money doesn’t grow on trees these days and I thought the rental ad said you only needed one month down. We also have to come up with the first month’s rent and pet fees, so you’re talking about a pretty big sum already. I’ll be honest, I just don’t have it.



I explained our situation to you. The economy had turned against us, but we’re past it! My wife is employed again and getting you the rent will be no problem. Haven’t you ever had anything happen to you before? Have a heart! We’d take great care of the home, but just need the security deposit reduced. My business is booming so things will be fine! Don’t worry! You’ll get your money!



So what do you say? Can you help me out?



Sincerely,

Mr. Tenant



P.S. My wife thought you looked exquisite in your emerald blazer! It’s a bold move to wear it in 97 degree heat, if you ask me, but it’s better to look good than feel good, right?



Mr. Tenant,

Thank your wife for the kind words about my blazer. Typically they run the air conditioning at 40 below (so I try to stay prepared), but it didn’t work well when we moved outside. Emerald has sort of grown on me as I’ve gotten older. I think it complements my eyes, but opinions sometimes vary. You know, you make a call on the outfit every morning and sometimes you hit it out of the park and sometimes you whiff. Truth be told, I’d settle for hitting singles in the clothing department!



As for the request for additional security deposit monies, I understand your concern. Let me explain our rationale.



I understand you hit a rough spot a year ago; that happens. It’s obviously not just you; we see applications like this everyday. We also rent to a lot of people who have hit rough spots before! It’s not a deal-killer.



But there are other mitigating factors. Let’s look at your credit application and income. Your scores are obviously not good, but I’m not overly worried about that. There looks to be some recent 30-day late payments on power bills and cable. Your current landlord said that you had a few late payments as well during their lease (at an amount less than you would be paying now). You gave us your business bank statements to show your income, but it’s not clear how much of that actually makes it to you. This information collectively gives me pause about your financial condition.



My job as a property manager is to mitigate risk for our client, the owner of the home you want to rent. I personally think you would be a great tenant; anyone who compliments my wardrobe is good in my book! But if something happened to you that turned into a decent size expense, I can’t say with much certainty (with the information we have) that your lease wouldn’t be at risk. If an extra thousand dollar deposit is a deal-killer from your end, what would happen if your car stopped running next week? You obviously would need to fix that first to get to work. The owner of the home would be left waiting for their payment. And we wouldn’t be doing our job well.



If you have something that addresses these concerns, please send this information over so we can consider it! We make money by filling properties, so we want to approve you! We just have to protect our clients first.



I hope this letter clears the air. Thank you for your interest in our home and I hope we can work together in the future.



Sincerely,

Your Property Manager



P.S. On your suggestion, I’m wearing a short-sleeved cotton blend shirt today, no jacket. It feels good- thanks for the suggestion!



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 Weekly: The Cheap Rental Home Game: A Saga of Ups & Downs- 10 Tips for Survival

Cheap rental homes remind me of buying electronics off the street.




Street Urchin: “$50 Bucks! Flat screen television for $50! Why are you even thinking about it? This is a great deal- CHEEP!!”



My mind (definitely thinking about it): “Hmmm… I need a flat screen, but this thing is either stolen or a piece of garbage. But, if it’s not (and his uncle really died and bequeathed it to him), this is a great deal!”



My mouth: “OK, I’ll give you forty-five for it.”



This is the type of deal I see people making to buy homes for as little as $10K. It’s really a gamble, but can be a lucrative one if it works out. I mean, the ups can be great!



For example, a $20K house’s payments come to approximately $130/month (believe it or not, there are no HOA fees to worry about!). The home can rent for $400. That’s a positive cash flow of $270/month, which is not bad! With a $100K credit line, this could equal 5 homes. I like the math, $270 multiplied by five homes equals $1,350/month. That’s a monthly return of 13.5%. Oh yeah! So the flat screen works and works well! I’ve got a great television and an even better story of my tough negotiating tactics to match.



But then, there are the down times. The house is cheap and old, and things start breaking down. The tenants (savvy to the system) call the city’s code enforcement department, who find a lot more stuff that’s not at code. The landlord is required to fix them (or face fines) which eats into the return. Several of the tenants think that requests for rent are merely suggestions; they promise payment, but it never comes (even after thousands of dollars in repairs are done). Evicting them is a double-whammy as no rent is coming in and the attorney fees are going out. The house becomes vacant and vandals begin to smash windows; neighborhood kids start using the home as a party pad. After filing ineffective police report after police report, it’s clear that the police don’t want to be in the neighborhood unless absolutely necessary. Then again, neither does the landlord.



So now “you get what you pay for” begins to ring true. The flat screen has stopped working and has somehow completely shot the electric system of my condo. A detective from the police department has left a business card on my door. Unfortunately, I threw away my old television set (“Good riddance, 20th Century!” I said…) and am now forced to read a lot more.



So how do people make money off of cheap homes? Well, the margin is there so some savvy investors have figured it out. A guy I used to work with told me his system:



1. Thoroughly inspect to see what’s broken and on the verge of wearing out. Include this in the upfront cost of the home.

2. Leave the home broken up until someone moves in. Then repair it.

3. Never have carpet in the house; always use vinyl or a hard surface that cleans off well for flooring.

4. Get tenant referrals from good existing tenants

5. Find out when pay day is and show up in person on that day. Accept cash and carry a gun.

6. Find a handyman who lives in the community to take care of the needed maintenance/repairs.

7. Understand that evictions and losses are part of the game sometimes. There will rarely be months where something doesn’t happen. It’s not upsetting, it’s business.

8. The homes will probably never go up significantly in value and will be difficult to impossible to sell on the market. This is purely a cash flow play.

9. Buy these homes in bulk and spread the gains and losses across many homes.

10. Make enough cash flow to hire someone else to do the dangerous duties (aka visiting the properties).



Cheap homes are meant for the savvy investor with a system, not the guy looking for a deal on an inexpensive set on the street. A steel stomach doesn’t hurt either!



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 Weekly: Too Many Repair Requests? 5 Methods To Stop The (Cash Flow) Bloodshed

As a property management company, we work to maximize the cash flow of our clients. Period. We don’t have a problem admitting that.




Sometimes things break in rental homes and that decreases the cash flow our clients receive. They don’t like it, and we don’t either. However, it is part of the game (pardon my street talk), so it is a necessary expense. Sometimes.



Normally if a repair policy is explained to tenants properly at the lease signing, there aren’t any problems. The landlord is responsible for operational issues; that is, if there isn’t any evidence of negligence by the tenant (if there is, the “Sorry if you smashed your toilet because your girlfriend dumped you for being volatile, but the bill goes to you…” message is sent). Then the easy stuff (changing light bulbs, air filters, etc.) is taken care of by the tenant. It’s simple stuff and everyone gets along grandly.



If the home is on the newer side and maintained, there just aren’t that many maintenance calls. Most people want their homes to operate properly (“hey, it’s nice to have the dryer dry clothes in less than 3 hours, so maybe I’ll clean the lint filter occasionally”), so they do the small things to keep it that way.



However, there are some tenants that seem to discover an awful lot of problems that they want the owner to fix. And when they are compared to other tenants, their identity becomes painfully obvious. The calls and the e-mails of their problems continue month-after-month. It gets to the point that everyone involved with managing the property has the tenant’s contact information memorized (“Oh, 704-xxx-xxxx? Mrs. X must be calling from work today.”) Sometimes, the repair requests are a string of bad luck and legitimate; often the tenant is trying to take advantage of the landlord’s altruism and is under the impression they don’t have to lift a finger because someone else will take care of them.



Repairs really hurt cash flow. But if the repairs aren’t done, unhappy tenants also hurt cash flow by trying to use their seemingly one point of leverage (holding back rent) to get what they want done. So what to do?



Before getting to some techniques to ward off unwarranted repair requests, I want to first iterate that almost all tenants (that I’ve worked with, at least) are reasonable with their repair requests. Most have busy lives and can’t be bothered will illegitimate claims. It’s not a huge problem on a whole. I find that doing the repairs that are requested builds trust and keeps everything running smoothly. So requested repairs should usually be done.



For the tenants that abuse the repair system, here are the top techniques to stop the illegitimate request flow:



1. Recalibrate expectations on repairs: Before the next repair is done, a meeting should be set with all principals on the lease. The purpose of the meeting (or call) is to reexamine the lease and go over exactly what is covered by the landlord and what is not. Also, it is probably time to schedule a walk-through of the house to make sure the maintenance agreement is being followed.

2. Alert the repair vendors that fraud is suspected: Vendors who visit the home should be put on alert. They can provide information about what claims are legitimate. If a claim is due to non-compliance with the maintenance agreement or rough play, the tenant needs to be billed for the issue, not the landlord!

3. Push back: If it was your house, what would you be calling a repairman fix, and what would you be doing yourself? That question is a good start to figuring out what repairs may be unnecessary for the landlord to cover.

4. Keep at code: The landlord is responsible, by law, to keep the rental home at building code. Nothing more. What is being requested beyond that?

5. Relocation: Maybe it’s worth asking the tenants if they would be more comfortable in someone else’s home?



Though this issue isn’t overly common, it can be uncommonly expensive and will continually siphon cash flow. If you find yourself signing over the monthly rent to the handyman month-after-month, it may be time to try something new!



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 Weekly: David vs. Goliath: Punish Those with No Credit or Landlord History?

Everyone knows the biblical story of David versus Goliath. David, a young shepherd, takes his slingshot and takes out the menacing giant, Goliath, with one shot. Then he picks up Goliath’s sword and cuts off Goliath’s head with it, saving Israel from the Philistines as a result. Pretty good work for an amateur!




In the world of property management, “David”, the prospective tenant, is often put on the sideline per se. See, David will probably be a good renter, but it can’t be proven. He has no credit score (works at a restaurant and pays with cash) and no landlord history (besides Mommy, Daddy, and his undeserving ex-girlfriend). With no provable payment or rental history, he is the great unknown. To take Shakespeare into the rental world, “To rent or not to rent to him, that is the question.”



Our property management firm uses four criteria to screen tenants:



1. Credit report

2. Criminal background check

3. Landlord history

4. Income and employment verification



So, let’s play this out. We’ll go off the assumption that David is employed, makes enough money to afford the rental home, and isn’t a (known) criminal. We know that he has the money to pay the rent each month. But we still have no idea if he actually will.



Property managers are tasked with proving to their owner clients that they did their due diligence in the screening of prospective tenants that may rent their home. That’s obviously fair. But in a world of limited information, how can David get approved? The easy thing to do would be to reject the application due to having insufficient information to make a decision. This is a common practice in everyday life. For example, this issue was a big reason why President Obama was elected, right? President George W. Bush went to war against Iraq with insufficient information about WMD’s and look where that got him. Most Americans (see polling numbers) wish he had waited for more proof!



So application rejection is a warranted (and defendable) action; if the information isn’t there to make a well-informed call, it needs to be denied. This will cover the property manager if something bad happens, right?



Or, let’s wait a minute. Hasn’t everyone been in this situation once in their life? Does a generation of new renters deserve to be shut out because property managers can’t figure out how to adequately assess their suitability to rent?



I don’t think so. I’ll approve David’s application if he:



1. Passes the aforementioned four screening methods that he can actually qualify for

2. Shows attentiveness and responsibility during the application process

3. Has the wherewithal and willingness to put down additional security deposit monies (this will mitigate the additional risk of insufficient application information)



Israel didn’t shut out David from saving them, even though he wasn’t an experienced soldier. Don’t automatically reject renters of unknown quality; most will turn out to be pretty good tenants!



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 Weekly: “Abe’s” Commercial Lease Negotiation Strategy Unveiled…

“I will get the lowest price per square foot for my new office lease.” (Charlotte Business Owner)




“I will not drop my initial offer for price per square foot for the new lease. It’s not worth it and I really don’t like this guy anyway.” (Charlotte Commercial Landlord)



“I will maximize this commission.” (Charlotte Commercial Real Estate Agent)


One deal. Three different parties. Three different motivations. Sounds like a movie trailer doesn’t it? Granted, not a great movie or anything, but maybe it’s 3-D so you’ll go and see it anyway.

This was the situation when I met a friend of mine at Dean & Deluca recently. “Abe’s” (yes, I realize the irony- it’s a fake name for our President known for honesty) office lease was expiring and he wanted to extend it. However, he knew this was the time to get a great lease rate as the commercial market is in a state of sheer awfulness. The real estate agent he just hired to represent him on the lease extension whole-heartily agreed. However, the landlord does not see why he needs to come down in price at all- his costs had gone up!

Abe broke down the situation for me:

Him: He wants to stay in the office. It’s close to where he lives, it has room for future expansion, he loves what he does, and his employees are happy with it as well. His business is growing and he (almost) salivates when he thinks about the result of his increasing sales cash flow mixed in with a sizeable reduction in fixed costs (if his rent is lowered in a new lease). He doesn’t want anything to do with the hassle of moving. He likes where his office is and wants to sign a fair, multi-year deal.

Landlord: He doesn’t really like Abe, besides the fact that Abe pays his rent on time every month. Though a third of the building he manages for a national commercial firm is empty, he is adopting a hard line on the price. He is offering a minor price reduction for a 3-year lease. He is still a few dollars off from what could be argued is current market rate. He also mentions that if Abe wants new carpet or painting, the rental price would have to go up.

Agent: He seems reluctant to negotiate with the landlord now because it’s more than a few months before the expiration of the lease. He’s confident that in his discussions with the landlord that he can get him to drop the price further if Abe can commit to a long-term lease. I asked Abe how the agent was compensated and he said the agent would get a percentage of the total size of the deal (monthly rent multiplied by the months in the lease agreement multiplied by his commission rate).

“So,” Abe says, “Let’s take a look at what’s on the negotiating table:”

1. Price per square foot

2. Length of lease

3. Improvements- carpet, paint, other?

4. Free months of rent- Abe heard other tenants nearby were being courted with this offer.

“At least with this information, we know where to start. I guess we’ll figure out soon enough where it ends up.”

Abe then began to detail his strategy. “The first thing is to align my agent’s interests with mine. I want to pay the lowest amount of money, while he gets compensated the most by having me pay highest amount. We need to revamp our commission structure; clearly our incentives are not aligned. So we either come up with a incentive structure that ensures he gets compensated the most when he benefits my interests the most. This also means he needs to understand where I stand on all the negotiable items. If not, we’ve got to part ways immediately.”

The second is to proffer some trial offers. What is important to the landlord? I really have no idea. I want to see what he is willing to easily give up in the negotiation. I assume he wants me to stay. The one thing you can usually be sure of is that no one is stupid enough to blatantly act against their own self interests. Why is he giving such a hard line on the rental rate? I want to know what his mandate from corporate is and what his commission structure looks like. I’m willing to lay most of my cards on the table and I’ll ask him to do the same.

At the end of the day, it would be an absolute tragedy if I left. It would be a pyrrhic victory- we’d both be losers.”

As Abe prepares to leave to meet his real estate agent, he picks up his folder of vacant commercial property listings (with their corresponding lower rental rates) off of the table.

“Wish me luck!”

His strategy sounded good to me. What do you think?

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,