Surprise Parties Should Be Fun & Managing Rental Home Expectations

 

“Frustration is a function of our expectations…”

(Stephen Covey)

 

You ever really look forward to seeing a movie?

 

Well, I have.  And several years ago, I was looking forward to seeing a movie that opened right before my birthday. 

 

I had a really long week, but just kept thinking of what it would be like for it to be Saturday and how I’d be feeling when I was watching this movie.  I’d be sitting in the air-conditioned theater, legs kicked up, eating popcorn, and enjoying a few hours of restful entertainment.  It was a dream in my mind to be sitting in that early showing. And being that it was going to be my birthday, there didn’t seem to be any obstacles to this unfolding like I had envisioned.

 

I had my birthday breakfast, my wife and kids left to run errands, and I was just killing time before the movie.  Then I heard a knock on the door.  It was my neighbor and he asked if I could help jump his wife’s car across the street at the recreation center. 

 

I quickly glanced down at the time on my phone.  I still had twenty minutes until I had to leave, so we hopped into my car and ran over to the recreation center.  I parked next to his wife’s car and he said that we needed to talk to her inside first.  I wasn’t sure why that was necessary, but I dutifully followed him.  He went down a hallway and then opened up a door to a room that I hadn’t been in before.

 

“SURPRISE!  Happy Birthday!”

 

I looked up and saw smiling friends and family all around this mysterious room filled with birthday streamers.  My wife was beaming, looking at me expectantly.  This should have been a really happy time, but my disappointed face said it all.

 

My perfect birthday plans had been foiled.  I was crestfallen.  This long-awaited movie wasn’t going to happen.

 

Expectations aren’t always rational, but they are very real.  My wife worked so hard at putting it together and people took time out of their day to celebrate my birthday; I should have been extremely thankful and had a massively happy day.  But my happiness was temporarily jolted.  I did not get what I expected and was feeling sour.

 

As Charlotte property managers, listing vacant homes for rent is somewhat straightforward.  We typically fix up and clean the homes before putting then on the market so everyone knows what to expect.  Prospective tenants are walking into a home that largely looks like it will when they move-in.  Rental home owners have already paid the fix-up costs.  Tenants could move-in immediately after rental application acceptance.  Everyone has relatively clear expectations on what is transpiring.

 

However, it’s not so clear when there are showings on an occupied rental home.  Prospective tenants see a home that is being lived in and this creates many potential questions: Is this home being painted after the current tenants move out?  Is the stained carpet being cleaned or replaced?  Are there any upgrades being done prior to move-in?  What items were brought by the tenant and will be removed, and what stays?  When will it be ready for me to move into?

 

The rental home owner also has questions: Can we avoid a full paint job when the existing tenants vacate?  Can the stained carpet stay?  How much of the security deposit can we use?  What are all these things going to cost?

 

The tenants and owners are asking the property manager for answers, but the property manager has questions too: What condition is the home going to be left in when the existing tenant leaves?  Is the tenant going to paint before move-out?  Are they any good at painting?  Will the stains come out of the carpet?  What will my final walk-through reveal about the house when everything is out?

 

Everyone has expectations.  Generally-speaking, the incoming tenants expect a nice-looking house with everything working when they move into it.  The exiting tenants expect to get most of their security deposit back.  The owner expects not having to pay a lot to fix-up the property for incoming tenants.  These don’t always gibe.

 

And when expectations are not met, people get upset.  Even on their birthday!

 

Many property managers and landlords don’t market occupied homes until they are vacated, partly to avoid issues like this.  It can seem like a great idea to get a jump on finding a tenant, but managing expectations while dealing with uncertainty can be challenging.

 

Smart landlords who do choose to go this route have conversations with all parties and try to set realistic expectations with all of them to avoid disappointing surprises.  As I’ve been told, surprise parties are supposed to be fun!

 

Happy Landlording!

3 “Insider Tips” When Buying Your First Rental Home

I got a call from a friend of mine from college, “Rich”, a few weeks ago.  After the prerequisite ribbing was completed (Do you have any hair left?  Is your Linked-In profile photo from your high school yearbook?  Are you still awful at basketball?), Rich got down to business:

“I’m thinking of buying my first rental home for investment.  Got any advice?”

Me:  “Ummm… have you looked at the blog I’ve been writing for the past 5 years entitled ‘Charlotte Property Management?’  It seems like all I do is spout out advice on this stuff.” 

Rich: “Sure… I read it all the time, sometimes to my kids at night.  I meant any other advice for the special people in your life.” (wink, wink)

Me: “Oh, the “insider tips”?  Of course!  It will cost you, though!

I suppose “insider tips” means the advice from people that have been burned (or are getting singed monthly) on investing errors.  They now know better.

My top 3 insider tips for first time investors:

1.  Don’t buy in low-priced areas (aka places where you are buying the house for under $75K in Charlotte).

Common retort: “But I can get the house for $15K.  There is a tenant paying $400/month.  And I could buy 10 of them just like this one.  The cash flow would be insane!”

My response: Can you stomach getting calls that say any of the following:

a.  I just saw someone get shot in my driveway!

b.  The air conditioning unit got stolen again.  Should we order you another?

c.  I think my flooring is caving in.

Sadly, I’ve gotten these calls.  I (and my checkbook) didn’t enjoy taking them. 

2.  Hire a great property manager.  I know I’m biased, so I won’t expound on this.  Suffice to say, you don’t know what you don’t know.  And you may enjoy cost savings from not paying a property manager for years; then you make one mistake that wipes out all of the savings and you wonder why you were taking tenant clogged toilet calls at midnight for no long term financial benefit. 

And my top tip…

3.  Don’t get a mortgage; wait until you have the funds and then pay for the house with cash.  Or at least pay more than 50% with cash.

It’s a drain on cash flow when you need everything to go right to make money every month (or to break even).  Because things break (sometimes major things), tenants don’t always pay (but you better pay your bank!), and you will find yourself losing money.  Yes, your accountant will tell you that it’s great for your taxes, but it stinks in real life.  The purpose of investments is to make money.  Locking into an investment that consistently saps your cash flow is no fun.

Example: $1,000 rent - $850 mortgage payment – $100 property management fees – $250 HVAC repair = $200 loss (bad feeling)

Or

$1,000 rent - $0 mortgage payment (you paid with cash!) – $100 property management fees – $250 HVAC repair = $650 gain (good feeling!)

So, Rich, my insider advice in a nutshell is… Set yourself up in a wise, peaceful manner so you can enjoy and make money on your real estate investments!  Be disciplined now so your assets don’t become financial and emotional liabilities…  And don’t crack on my hoops game!

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 for single-family homes, condos, and town homes in the Charlotte-Metro Area.  Contact Us Today!

“When To Evict Or Not To Evict”, That Is The Question

"I'll gladly pay you Tuesday for a hamburger today…"

Wimpy

“I will have the rent for you next week- guaranteed!”

Late Tenants

As a property manager in Charlotte, collecting rent is obviously one of our main functions (in my opinion, the most important function!).  Our primary job is to create the most favorable ROI for our clients; we need to be taking rent in for this to be a reality.  When we are collecting rent on time and in full, all things are typically good with our owner clients.  If a tenant is not paying, things aren’t so grand.  And we like things to be grand with our clients!

When a tenant doesn’t pay, eviction is always a last resort.  It’s costly, time-consuming, and stressful.  And, to boot, the tenant will usually tell you they are going to have the money for you next week!  The mind games begin.  You can surely hold out until next week to get paid!

But then next week comes and there is a new excuse.  “My paycheck was shorted!”  That’s one when you don’t feel that badly about going the eviction route.  But when the tenants pull out the big guns like, “My mother is dying and I had to use the money for the rent to fly out to see her one last time (the last time I saw her 2 years ago, we said things we both regret- I couldn’t leave it like that).  I had no choice…  But I get a bonus next week from work and will pay you then!”  That’s tougher.

We get calls from home owners who have tenants who haven’t paid for 6 months.  Once they get that behind, they’re never going to get caught up. 

So what’s the answer?  At what point should eviction be filed?

First of all, bad things occur and many tenants are going paycheck to paycheck.  When a big expense (aka major car repair) happens, the money just isn’t there for that and the rent. 

But most people get paid twice a month (the 1^st and the 15^th).  Filing for eviction prior to the 16^th day of the month doesn’t allow you to get those funds.  So I believe filing for eviction on the 16^th is the earliest point in which it makes sense to do so.

If they aren’t able to make good by the 16^th, the next factor to look at is the tenant’s income from when you did the original tenant screening.  How much money do they make?  Is it even possible for them to come back from being a month overdue (their next paycheck)?  For some people, it’s just not possible. 

Note:  This is something I would strongly recommend paying strong attention to in the tenant screening process.  Watch the income to rent ratio- when it is too high, it makes you highly susceptible to negative events happening in a tenant’s life.  You ideally need to be less than 33% (examples: $3,000 monthly income and $1,000/month rent = 33% ratio.  $4,000 monthly income and $1,000/month rent = 25% ratio.  25% ratio would be much better!) 

    

If their income is too low, eviction should be filed right away.  However, if they make enough money to pay the rent by the 1^st of the following month and then get caught up sometime later that month (and express an earnest willingness to do so), then I’d wait.  It could be worth the gamble. 

But set hard, no-excuse deadlines at this point.  If you don’t have all of the money by the 1^st, you need to file for eviction to protect yourself.  After a month goes by with no rent, you can’t wait any longer (no matter how good the excuse is).

If the tenant really is going to have the money in another week like they claim, they can bring it to court and stop the eviction.  If not, you need to move on and take the loss.  There is really no excuse to go multiple months without full rental payments.

Timing evictions for maximum ROI is a judgment call.  But going past 30 days is a dangerous and usually unfruitful proposition!    

 

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 for single-family homes, condos, and town homes in the Charlotte-Metro Area.  Contact Us Today!

Security Deposit Dispersion: Should You Treat Long-Term and Short-Term Tenants Differently?

Scenario #1: Melissa has been in your rental home almost as long as you’ve owned it.  And it’s been a good ride!  It started out as a standard tenant-landlord relationship with formal calls for repairs and rent checks sent solitarily in the envelope.  But over the years, Melissa (now “Mel”) has really grown on you and vice-versa. 

It started when she had some tough financial times and asked for you to allow some late payments.  You assented and wound up having some deep conversations after the initial rental payment was discussed.  A few years later, the water pipe blew and ruined many of her things.  You promised to make it right; Mel paid her rent diligently and never complained about all the workmen coming in and out of the house for a few weeks.  She really could have!

Over the years, Mel started sending some pictures of her kids having major life events in with her rent check every few months.  Oh, how you looked forward to seeing what had become of her family.  You were so proud of them!  But now, with Michael, Jr. graduating at the end of the summer, Mel has told you that she needs to downsize.  And that means she’s moving out.

Mel has been a tenant for 12 years.  And you have to admit that your stomach has been in knots since that phone call.  On one level, you knew this day was inevitable.  On another, it’s almost like losing a family member. 

Scenario #2:  Wally moved into your Uptown Charlotte rental condo right after his internship at Goldman Sachs ended in Manhattan so he could take a job with Bank of America.  You knew Wally would never be Mel.  This condo was clearly a stepping stone for him to get used to the area and figure out where he wanted to live in Charlotte (or elsewhere in the world).   

Wally was very cordial and business-like when you met him to sign the 1-year lease.  “You’ll probably never hear from me!” he joked.  And he was right.  He set up his on-line bill pay and his rent checks showed up on time every month (sans any other correspondence).  And, expectedly, about 40 days prior to his lease expiration, you got an e-mail from him giving you his 30-day notice to let you know he was moving out. 

Two of your tenants are leaving and you’ll have to do two walk-throughs so you can disburse the security deposits.  Personal feelings aside, do you treat these 2 tenants differently from each other?

Absolutely.

Tenants should be charged for any damages beyond normal wear and tear.  The amount of normal wear and tear for someone who lived in a rental unit for 1-year versus 12 years is substantial. 

Fix-up expectations for a 12-year rental:

1.  Probable repainting of entire home

2.  Probable carpet replacement

3.  Professional cleaning

4.  Replacing miscellaneous worn out items throughout house

Likely charge to tenant: $0.00

If a tenant lives in your property for 12 years, that’s a lot of normal wear and tear.  It would be difficult to justify charging them anything (short of them detonating a bomb in your home prior to move-out).

Fix-up expectations for 1-year rental:

1.  Minor touch-up paint

2.  Carpet steam-cleaning (hopefully already performed by tenant prior to move-out)

3.  Professional cleaning

4.  Any damages beyond light wear and tear

Likely charge to tenant: That depends typically on how dinged up the walls and flooring are and if there are any major items of damage.  Tolerance for rental unit abuse is low.

Sorry, Wally, but you need to be really careful to keep things nice if you’re only sticking around a year.  But, Mel, you don’t need to worry so much and thanks for staying so long (I’ll miss you!); just because you moved away doesn’t mean you can’t keep in touch!

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!

How Much Should I Fix Up My Rental Home for the Next Tenant?

The perfect scenario: 

You are lounging on a sunny, deserted beach with your loving wife by your side.  You have a cold drink in your hand as you marvel at the solitude and beauty of your surroundings.  The only sounds you hear are the waves gently crashing in front of you and the occasional fluttering of a seagull’s wings.  The sun subtly warms your skin before a timely breeze arrives to refresh you.  You grasp your wife’s hand as she lovingly reciprocates.  And you just filled your last rental property with a tenant.  Life is perfect.

But, wait… is that your cell phone ringing in your beach bag?  Who could be calling you?  As you reach for the phone, your wife aggressively removes her hand from yours.  “You better not answer that!  We haven’t been away together since Eli was born and I’m not going to have our vacation ruined by work calls!”  As your eyes refocus to the numbers on the phone, you realize it is the new tenant.  “I’ve got to get this,” you mutter as your wife disgustedly begins to turn her beach chair away from you.  You feign an enthusiastic greeting of “Hey Herb, what’s up?  How’s the place?” as your eyes plead forgiveness to your now emotionally-estranged wife.

Herb begins his 10-minute rant, “This place is a dump!  The whole house is filthy!  The cabinets and appliances are especially gross and the entire trim needs to be repainted.  The landscaping has been completely neglected and the yard is mostly weeds.  My wife and I have spent our first 48 hours here on our hands and knees scrubbing and aren’t even close to being done!  The air conditioning doesn’t even blow cold air.   How could anyone live in this place??”      

“Multiple tenants have managed to survive the experience in past 12 years I’ve rented it out,” you want to retort and then think better of it.  You turn your head to see your wife disgustedly heading back towards the resort while pounding feverishly on her iPhone, undoubtedly spewing Facebook hate (Subject: You). 

Herb is irate and you hear his wife trying to get into the action in the background.  Once Herb says his piece, you tell him you’re very sorry, you’ll have someone over to look at the air conditioning, and will send the cleaners back (“No need!  If they think the condition they left it in was clean, I don’t care to entertain their second act!”).

So this is bad.  You thought you had the rental home in good shape and the tenants are ripping it apart.  You look up at the resort and see your wife talking to the pool boy as she uncharacteristically is downing cocktails at 9 AM.  This was supposed to be a relaxing, loving vacation and things are going very wrong.

What could have been done to avoid this tenant situation?  Honestly, nothing.  No matter how clean a house is left, some tenants will say it is filthy.  Cleanliness is subjective. 

There is a relatively predictable spectrum of responses from tenants after they move-in:

1.  10% will be happy with whatever condition the home is in when they move-in

2.  10% will be unhappy with whatever condition the home is in when they move-in

3.  80% will be happy if the home is reasonably clean and touched-up when they move-in

So if things are reasonably clean, all major systems are working, and the house has been touched up, 90% of tenants will be happy.  And everyone likes happy tenants.

And what about the unhappy 10%?  It’s not a desirable situation, but there is a silver lining.  You will take heat on the front end from them; that is for sure.  And you won’t like it.  But there are 2 positive takeaways:

1.  There was nothing you could have done to avoid their unhappiness.  If you fixed your home up to such a pristine condition, it would crush the ROI on your investment property.  And if you are going to pay to fix it up that much, do it only once and sell it for top dollar.  Don’t do it every year.  The objective (I’m told) is to make money on investments.

2.  When the initially unhappy tenants vacate, they will probably leave your home in move-in condition for the next tenant!  This allows you to take the pain now to experience joy later.

So, to sum it up:

1.  Fix-up your home in a reasonable manner between tenants.  This means all systems working, touch-up paint (don’t repaint the house), steam cleaned carpet (don’t replace the flooring), and professional cleaning.

2.  Hire a property manager so you don’t have to answer the phone on vacation. 
3.  Go get your wife!

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!

#1 Way Landlords Can Increase Their Rental Home ROI: 4 Tips

Landlords always want to know how to make a better return (ROI) on their rental homes:

Can we raise the rents?

Can the pet fee be an annual expense?

Can we charge for air usage within the confines of the home?  (OK, I haven’t really heard the last question… yet)

As a Charlotte property manager who has been in the business for a while, there is one clear cut winner on how to maximize rental home ROI.  And this earth-shattering, nugget of wisdom is…

Keep your tenants.

That’s it.  If they stay and sign long term leases, landlords avoid a litany of costs: vacancy, fix-up, utilities, lawn care, potential vandalism, property management tenant procurement and marketing fees, potential non-paying tenant moving in… and that’s just off the top of my head.

Wise landlords want to do everything they can to keep their tenants.

Here are 4 tips to keep them:

1.  Think about not raising the rent.  I’ve heard of some landlords who do not raise the rent EVER for as long as their tenants stay!  That seems extreme to me, but I can see the rationale. 

2.  If #1 (no rental increases EVER) doesn’t work for you, cap the annual rental rate increases at 5%.  Or offer to raise the rent 5% on a 1-year lease while simultaneously offering to extend the lease at a lesser rental rate for a multi-year lease.  (Incentives really work!- part 1)

3.  Pay your property manager for extending your tenant’s lease.  This will align their interest with yours.  We have a client who proactively offers us $400.00 to extend his tenants’ leases.  I think he has a great understanding of where his ROI comes from.  (Incentives really work!- part 2)

4.  (Most important) Execute the normal blocking & tackling of property management.  In other words, do what you’re supposed to do.  Make needed repairs in a timely fashion, don’t be a jerk, and set proper expectations and meet them.  Remember: Moving is a pain; don’t make your tenants feel they need to because their rental situation is unbearable.

There are many other tips on how to keep rental tenants (give them rental anniversary gifts, free months of rent for renewing, etc.).  However, it is not disputed that tenant retention is the #1 component of achieving a good ROI.  As the old song goes, “It’s cheaper to keep her!”

 

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!

3 Tips for Effective Rental Home Inspections

What’s going on in my rental home and how does it look? 

Typical Landlord Query

You do want to know, but you don’t want to know.  It’s one of those paradoxes in life.

If you do want to know, it’s important to have some type of methodology.  Here are 3 tips to making the most of your rental home inspections:

1.  Spot checks won’t lead to lease extensions.  And, in the South, they may get you shot.  Being that I usually don’t prefer it when people show up unexpectedly at my door (even people I really like!), most tenants are not going to like it if a property manager shows up unannounced (they might not even like the property manager- I’ve heard this happens sometimes…).  Prior to tenant move-in, let the tenants know what type of inspection schedule you are likely to keep (annually, bi-annually, quarterly, monthly (gasp!)) so expectations are set in advance.  Don’t feel the need to schedule the inspection when they have company in town; it can be a good idea to give the tenants at least a week notice of your visit.  And the tenants don’t need to be there, but make sure they muzzle their pets.  Don’t undervalue injury-free inspections!

2.  If you ask for nothing, don’t be upset when you get it (and you usually will!).  Smart property managers want the tenants to know exactly what they plan to look at.  But isn’t that like giving students the answers to the test beforehand?   Yes!!  Having the home in good condition is the desired test effect (even if they have to cram for the test).  We send them the exact checklist we are going to fill out a week before we visit.  This checklist lets them know we’re looking out for unapproved animals, dirty air filters, smoke smells in the house, cleanliness, lawn care, that our keys work, functional smoke & CO detectors on each home level, and any other things that really stick out (we provide ourselves a little latitude to comment on items not on our checklist).  Then we snap 4+ pictures (no bedrooms) and e-mail the filled-out checklist and pictures to the owner.

3.  If no one is keeping score, no one cares.  Sharing the inspection results with the tenants is paramount.  They need to know that the property manager is paying attention and cares how they treat and maintain the home.  We send them the exact, filled-out checklist we had used on their home.  We let them know what corrective actions need to be taken and ask them to get back to us when they do correct any issues.  However, the first thing we do is compliment them on the items that are correct.  We want the tenants to know we appreciate the things they are doing right, prior to asking them to correct the items they could be doing better.

In short, schedule courteously, announce beforehand what will be inspected, share the results, and praise/correct accordingly.  Rental home inspections, when thought out well, can be a positive experience for both the property manager and tenant (and the home itself!). 

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!

The #1 Question Tenants Ask When Vacating: Give Them the #1 Answer

“When will I get my (full) security deposit back?”

This is the #1 Question property managers get asked when tenants vacate.  And this is the #1 opportunity to get the house back in the condition you want.  Make sure you take it!

Note: This is not a full-proof plan!  Some tenants have a completely different view of “clean” after they move out.  As in, “Though the carpets are stained now and the walls are marked up, it is in better condition then when we moved in.”  I get it: people can be temporarily delusional to further their own interests.  As in, “I didn’t know that the McDonald’s coffee would be hot because it didn’t have a warning on the cup, I swear.”

When I hear the #1 Question through property manager ears, it really sounds like they are asking, “What do I need to do to get my full security deposit back as quickly as possible?”  Fortunately, that is precisely the question we want them to be asking!

Getting a house back from the tenant in great condition is a win-win-win for all involved:

1.  Tenants: They get all of their security deposit back- yeah!  I root for all of our tenants to do this.

2.  Owners: They get a property that can immediately go back to market and requires minimal cleaning/fix-up costs.

3.  Property managers: They don’t have to take a lot of pictures, document repairs, compute repair costs, and then explain the damage costs to the tenants and owners.

So how is getting a house back in great condition facilitated?  The bottom line: You get what you ask for!  Ask the tenants (in specific terms) what you want them to do so you can give them their full security deposit back.  Examples include:

1.  Steam clean the carpets after vacating and leave the receipt as proof

2.  Put clean air filters in all the vents

3.  Clean out all the appliances, drawers, and cabinets

4.  Don’t leave any personal items in the house

5.  Put new batteries in the CO and smoke detectors

6.  Leave all copies of the keys, garage door openers, HOA passes, etc.

7.  Fill in wall holes and touch-up paint where appropriate

8.  Make sure the landscaping has been trimmed and the grass cut

If expectations are set, then (at least some of) the tenants will follow them.  And this will save some of the “I can’t believe how the tenant left the house!” laments.  And also cushion the tenant protests if some of their security deposit is held back.

We can’t expect the tenants to leave a home in “good condition”, when we don’t define what “good condition” means to us.  It’s a subjective term.

When tenants ask the #1 Question, they are listening very hard to your response.  Give them the #1 Answer.  Take this opportunity to detail how you want the property left (and providing a check-off sheet in writing is even better!) while they are focused.  Then add, “… so depending on how the property is left and how many repair quotes we need, it could take up to 30 days.  If it is left in great shape, you could get it in a few days!”

The #1 Question is good; it shows the tenants care.  Make sure you volley back the #1 Answer while you have their full attention!

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!

Putting Your Vacant Rental Home on the Market? 3 Steps To Be Prepared

The news has been all positive for home sellers.  And some of you have been ready to sell some of your rental homes for the last 5 years!  

 

The thought equation about selling your rental home looks like this:

 

Desire to Sell + Rapidly Improving Market + Now Vacant Rental Home = Time To Go To Market?

 

That is the big question.  If the answer is “I think so!”, here are the next steps.

 

Talk to your property manager and have them run some comparables on your property.  If it is determined that you have the room (difference between your rental home’s value and loan balance) to walk away from a sale with a profit (or an acceptable loss), you may decide you want to make a go at it.

 

If this is your situation, how do you prepare?   Here are 3 easy steps:

 

1.  Make sure you have the needed liquidity (cash) - Part 1: You’ll need to fix up your home to market standards.  This may include a new paint job, new carpet, professional cleaning, and any other needed repairs.

 

2.  Liquidity- Part 2: You should have a minimum of 4 to 6+ months of mortgage, HOA dues, lawn care, and utility payments at your disposal so everyone still gets paid during this time of vacancy.  Unfortunately, you won’t have a tenant making the payments for you while it’s vacant on the market.

 

3.  Decide what your boundaries are:

A.  What is the lowest price you are willing to sell for (your property manager can help you factor in what your selling costs are)?

B.  How long are you willing to wait to sell it before going back to the rental market?

 

Once these 3 criteria are considered and you are comfortable with them, it is time to go to market and trust the marketing prowess of your property manager.  Then a new equation emerges:

 

Fixed-up home + Competitive Price + Funds Necessary to Execute the Sales Strategy = Sales Success!

 

Selling a rental home is a process that takes time and money.  Successful execution depends on having the necessary resources and patience to see it through.  Good luck!      

 

Brett Furniss is President & Owner of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords, managing single-family homes, Uptown 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. 

3 Reasons Why LeBron James Is Like A Superstar Tenant

 

“LeBron James Picks Heat; Cavs Owner Erupts”

(ESPN headline on 7/9/10 after “The Decision”)

 

When LeBron James, the best player in the NBA, chose to leave the Cleveland Cavaliers and sign with the Miami Heat in the off season before the 2010 season, it had big consequences for the rest of the league.  No one knew this more than Dan Gilbert, the owner of the Cavaliers.   His team, which had been one of the best teams in the league with James, was now left decimated and would wind up becoming one of the worst.

Gilbert was so upset that James left he couldn’t hide his disgust, disappointment, and anger in his letter to Cavalier fans.  "This was announced with a several day, narcissistic, self-promotional build-up culminating with a national TV special of his 'decision' unlike anything ever 'witnessed' in the history of sports and probably the history of entertainment.  Clearly, this is bitterly disappointing to all of us.  The good news is that the ownership team and the rest of the hard-working, loyal, and driven staff over here at your hometown Cavaliers have not betrayed you nor NEVER will betray you."

Gilbert’s reaction after losing his team’s superstar was raw, genuine, and understandable.

 

Good tenants are property managers’ superstars.  To be a successful property management company, superstar tenants need to stay put!

 

LeBron James is like a superstar tenant because he:

 

1.  Makes (property) management look good.  (Pays on time, takes care of repairs on their own, and get along with people in their community- no headaches)

 

2.  Brings more fans to the game to make the team more money.  (Happy owners bring referrals to the property manager)

 

3.  Makes winning look easy.  (“There never seems to be any issues and we’ve used this company for years!”)

 

4.  BONUS +1: Needs to be retained!

 

I can feel for Dan Gilbert.  As a property manager, I feel uneasy and disappointed when a good tenant leaves us to rent with another property management company too.  We are only as strong as the tenants on our team.  I want to make sure they know they are appreciated and that we want to keep them forever.

 

For organizations to be strong, they need superstars (like LeBron), be it in the NBA or a property management company in Charlotte, NC.  We should “erupt” too if someone poaches one of ours!   

 

Brett Furniss is President & Owner of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords, managing single-family homes, Uptown 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. 

“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. 

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!)

Selling Rental Properties: 3 Free Steps To Determine Whether You Should

There’s been a lot of good news of rising home prices coming from the Charlotte housing market, as well as the rest of the country. For real estate investors, this news is a mixed bag. There are less great buying opportunities for them, but their net worth is increasing. It also presents a good opportunity to turn their home assets into cash.




Making money on selling rental homes is a nice aspect of the investment real estate game. Buy low, sell high. When a real estate investor is able to do this, life is good! It makes all the repairs, waiting for late rental payments, and extra tax work worth it!



Let’s face it, there are two main joys of selling investment homes:



1. A good amount of cash is transferred into your pocket

2. The worry about your extra home is gone and given to someone else!



So if you have an investment property that you may want to sell, here are 3 free steps to make a quick determination on whether you should:



1. Determine the value of your home: Ask your property manager or friendly Realtor a realistic range of values for your home. Why a range and not a fixed number, you ask? Real estate pricing is subjective. If your home is in great shape and in a desirable section of the neighborhood, your home should sell in the top of the range. If it’s been beaten by years of tenants and little fix-up has been done, it will be in the lower range of the values. Estimate low for this exercise.



2. Estimate selling costs: Nothing creates a bigger vacuum of air on the phone when I explain that owners should factor in 10-15% in selling costs. After the initial scolding pause, they ask the requisite question, “What? How do you figure that, brother?”



This general estimate of 10-15% is computed by:



6% Realtor fees

1% Miscellaneous seller closing costs

3-8% Less than list price offer and seller concessions (typically paying for the buyer’s closing costs)



For example, Mecklenburg County (Charlotte) currently has an average offer acceptance of 92% of the list price (and this is on the rise from 90% from last quarter).



3. Find out your loan balance: For a general idea, just look at the loan balance remaining on the monthly mortgage statement. If you don’t get a mortgage statement, you’ll really like this exercise!



Once these 3 figures are retrieved, the math looks like this:



Value of home (be a pessimist!) – Estimate the cost to sell (say 12%) – Your loan balance = Profit (or loss)



For example, take a $100K house with a loan balance of $60K:



$100K (home value) - $12K (12% of $100K) - $60K (loan balance) = $28K (Profit!)



This is a general estimate of whether it is worth putting your home on the market to sell. Now you can decide whether this approximate dollar figure works for you.



Selling homes can be a very good thing for your wallet! Just use this simple exercise to see if it is worth doing at any given point in time.



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!)