Landlords & Lease Renewals: Don’t be Like Spectrum!

First of all, this is not a blog of a Spectrum (formerly Time Warner Cable) hater.  I actually don’t have strong feelings either way about them.  I was a user of their internet and basic cable and was relatively happy.  The service worked decently and the price was reasonable.  I put my bill on auto-pay and lived my life.

 

Then about 6 months ago, I saw a change in my $20.00 basic cable bill (aka the cheapest plan where I get about 10 channels).  They started billing me $4.00/digital adapter (I have 2) for some cable boxes they made mandatory for me to use a year or two ago.  While $8.00 isn’t life-changing, I brushed up on my middle school math and computed it was a 40% increase.  That’s substantial in percentage terms.

 

Still, changing services is a pain.  I could eat a 40% increase ($8 is still $8, no matter how alarmingly you dress it up).  I was not pushing the panic button (thank you, hot Charlotte real estate market). 

 

But when that happened, I actually started looking at my Spectrum bill each month.  A few months later in the “Spectrum News” section on the front page of it (I didn’t previously know there was a “news” section I could be enjoying each month!), I see the following verbatim:

 

Your current promotion is ending, but your savings will continue.  As a valued customer, we have automatically extended your preferred rate.

 

(good so far…)

 

Important Billing Update:

Effective for your next billing statement, pricing will be adjusted for:

-          Starter TV Service from $20.00 to $23.89

-          Broadcast TV Surcharge from $7.50 to $8.85.  This reflects costs incurred from local Broadcast TV stations.

-          Digital Adapters from $4.00 to $4.99

 

Not good.

 

We’re up roughly another $4.00 on 10-channel TV, not to mention another $5.00 for internet service (not previously affected).  I don’t even need to do the percentage math anymore.  We’re above a 50% increase in less than 6 months on my lame cable TV plan.

 

Now, on general principle, I’m trying to leave Spectrum cable TV service due to a large increase which appears to be largely meritless.  So I fish out some $10-$20 antennas I bought from Amazon a year or two ago and see if I can make them work.  Viola!  They work like a charm after I put in a little more effort in this go-round.

 

I call Spectrum and cancel my starter cable TV service.  I won’t lie; it feels good.  Injustice was made right!  Then they tell me that my internet service is not only going up $5.00 next month, but because it’s not bundled with TV anymore, it is going up another $20.00.  Touché Spectrum!  I have to have internet service, so they may have won this battle.  But I am not a Spectrum cable TV customer any longer.

 

Unfortunately, now my resolve to rid myself of Spectrum in its entirety has built.  I wrack my brain for a solution.  Wait!  Who was digging up my front lawn 6 months ago to my son’s delight?  Google Fiber! They’re boasting $50/month internet service! So my dream of a “Spectrumless” home may become a reality next week.

 

But… my true thoughts on my mini-“SpectrumGate” are how sad and unnecessary it was.  I was fine being a Spectrum customer.  I paid my bill every month, they collected the money, and everyone was happy.  It just seemed to me that they got greedy were trying to stick it to me.

 

To be fair, I don’t know Spectrum’s economics.  They may be losing money on customers like me and it’s better for them to lose me than to keep me at a lower monthly fee.  Fair enough.  That’s business.

 

The purpose of this story is I see landlords use similar tactics on tenants during lease renewals.  The tenants pay their rent on time every month and take care of minor repairs on the rental home.  But when their lease is up, the landlords try to stick the tenants with a 10%+ increase and additional fees.  The tenants feel betrayed and don’t renew their leases on principle.  Both parties lose.

 

We’re in a rising real estate market, I get it.  But the grass isn’t always greener on the other side.  New tenants don’t always pay the rent on time and take care of the home.  Plus the fix-up and other vacancy costs could more than devour any surplus a higher rental rate from a new tenant might offer.

 

If you have good tenants and are making money, keep any rent increases between lease renewals within reason.  There is no reason to endanger the money flow.  Most tenants understand that landlord costs go up a little bit every year too.

 

However, if you are losing money and need to stop the bleeding, I get that too.  A rising market could finally bring a new tenant to get bring positive monthly cash flow back into play.  Business is business.

 

Happy Landlording!

Charlotte Section 8 Leases: Should I Renew Them?

“Enjoy Free Rent!”

(Former advertisement to entice landlords to put their houses in the Charlotte Section 8 program)

Q: My Section 8 tenant’s lease is set to expire next month.  Should I offer to renew it?

A: Maybe…

As a Charlotte-based property manager and real estate investor, I’m a huge proponent of renewing leases.  I think it makes unbelievable financial sense; there is no missed rent from vacancies, no fix-up and holding costs, no management costs for landing new tenants, and it provides the ability to raise rents to stay around market rate.  And it also saves everyone a lot of work.  Whew!!

It really takes a lot of chronic tenant wrongs for me not to recommend renewing a lease.  Besides situations where an owner wants to move into their property or sell it, I can count on one hand the number the tenants I’ve not recommended renewing.  If a tenant wants to renew at market price, I’m asking where I should send the new lease.  It’s typically a done deal.

So when I was asked the other day whether I’d recommend offering to renew a client’s Section 8 lease, my fingers naturally wandered to the “Y”, “E”, and “S” keys on my laptop.  Then they stopped and I felt my stomach cramp up.  Can I really recommend this for this property?  The issues:

1.  The rent is not close to market rate even after filling out the moderately arduous Section 8 paperwork for an increase every year.  The Section 8 paperwork says we can ask for a maximum 5% increase a year; we’ve only been getting approved at 2% increases ($800.00 rent turns into $816.00- woo-hoo!).  And this is after increases were frozen a year or two ago, while private market rents (aka non-Section 8) have been going up by 10-20% for the past few years. 

2.  Annual Section 8 inspections are a hassle and seem to always result in a “fail” for trivial issues.  A true example of a recent “fail”: “paint is peeling on the ceiling.”  In a non-Section 8 world, if peeling paint on a ceiling was bothering a tenant, they would be told they were free to grab the extra paint can in their garage and touch it up.  In a Section 8 world, that is a “landlord responsibility” and a handyman must be sent out or rent payments will go into “abatement”.  Abatement is a very bad place to be as no rent comes in and past payments are clawed back (which would never happen in the private sector).

Unfortunately, landlords and property managers have figured out that:

Less Money + More Expenses + Government Regulations/Paperwork = Bad Deal

It’s not just Charlotte.  In Austin, Texas, there was a law made (that was later repealed) that required landlords to accept Section 8 tenants.  A study the city commissioned said that 90% of Austin landlords would not accept Section 8.  Due to the fact that most landlords are investing in real estate to maximize their financial return, this is not surprising.

So as property managers whose job it is to maximize our clients’ ROI, we stopped recommending Section 8 as a source of new tenants several years ago.  As discussed, the financial numbers didn’t add up.  However, we did allow Section 8 tenants who wanted to stay to continue to renew their leases if they chose to.

But should we continue to recommend allowing renewals?  It really comes down to whether the owner wants to expend the funds to fix-up the property and take the hit of vacancy until a new, non-Section 8 tenant comes on board.  Some, including me, have continued to renew the Section 8 leases until the tenant decided to not renew and vacate;  and then, once vacant, go exclusively to the private market going forward.  But if the rent differential continues to grow between Section 8 and market rate rent, the auto-renewal policy will need to be revisited if the Section 8 tenants still want to extend their leases.    

It’s tough to disrupt rental continuity and I don’t usually recommend it, but it may ultimately pay to take a closer look at the numbers before rubber-stamping your Section 8 lease renewal!

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!