Charlotte Property Management Weekly: Is the Section 8 Program Good for Landlords?

I was signing a lease with a Charlotte Section 8 tenant (the government subsidized rental program) a year or two ago and asked her if she liked the Section 8 program. She smiled and said, “Yeah, it’s a pretty good deal.” I laughed; when the government is willing to pay some (or all) of your rent, I guess it would be tough to answer any other way!




So, it’s a good deal for tenants. But is it a good deal for landlords?



I only have limited space, but here are the most pertinent and succinct pieces of advice I can offer to landlords to determine whether allowing Section 8 tenants to rent your properties is a good deal:



1. If your house is higher-end, Section 8 has limits on how much they are willing to pay based on the amount of bedrooms and whether utilities are included. This leads into point #2.

2. The rental rates aren’t that high. To see if allowing Section 8 tenants to rent your home makes sense, the cash-flow needs to be computed on a property-by-property basis. On some properties, the cash flow is good and should be recommended as a viable rental source. On others, it just doesn’t make sense.

3. The house will need to meet many government requirements and will be inspected to make sure it is up to snuff. If the house is newer and kept up, it will usually pass. If it is older, there are usually costs incurred to meeting these requirements; the question is if incurring these costs is worth it.

4. It’s a government program which always means two things: it isn’t fast and features many, many documents to sign.

5. Payment is guaranteed, but when mistakes are made (aka missing or incorrect payments), getting them corrected is usually arduous. See point #4.



And as a bonus, here is an answer to our most FAQ by far:



Q: If I allow Section 8 tenants to rent my house, am I just asking for my property to be torn up?



A: I haven’t seen this be the case. There is actually additional protection against a Section 8 tenant tearing up the home, when compared to a regular tenant. Let me explain. The Section 8 program has a huge tenant waiting list (no surprise there!). If a Section 8 tenant tears up the home (or does anything that violates the lease), there is an implied understanding that they can be reported to Section 8 and be removed from the program. The tenant cannot afford for this to happen!



Section 8 can be a great option for the right house. Use it wisely and selectively!



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 Options Available to Owners of Vacant Homes

As a Charlotte property manager specializing in lease options (rent-to-own and rent-to-sell), we get many calls from home sellers “exploring their options” about their vacant properties (unlike Obama, my puns are typically not intended). So, as a public service, I’ll run through the available options:




1. Strategic default (I think this is what it is being called): Stop paying the mortgage and taking the credit score beating like a man

2. Put the property on the market for sale: If the home is special and priced well, it will sell in some period of time. If not, eat the mortgage every month until the banks start lending again.

3. Rent the property out: Get most of the mortgage paid every month by the tenant. Keep a tenant in the property until the market comes back and then place the home up for sale.

4. Rent-to-sell the property: Put a rent-to-own tenant into the property who will pay the mortgage and potentially buy the home during their lease period.

5. Rent out the property and then put it on the market: In my experience, this leads to disappointed sellers and upset tenants.

6. Arson: Not recommended. And, no, this is not a service we offer!



All of these approaches obviously have pros and cons (like jail time). Depending on each respective person’s needs and tolerance for risk, each approach could be the appropriate one.



And to conclude the public service announcement, please contact your local property manager for further details.



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: Are You Practicing Insanity with your Home for Sale?

The definition of insanity is to do the same things over and over again and expect a different result. Is this what is happening with all the vacant homes still being listed for sale (that shouldn’t be)?




I’m not talking about occupied houses where the occupants would like to move, but don’t have to. I think they should have their houses on the market; they could get lucky. As the Lotto says, “You’ve got to be in it to win it!”



I’m talking about vacant homes that are sucking dollars out of the owners’ pockets month after depressing month. If you need general help in identifying these homes that shouldn’t be listed for sale, here are some obvious signs:



1. The house is listed $50K more than a comparable home in the neighborhood (regardless of condition)

2. The house has been on the market for a few months and has had few showings

3. The house has been on the market for a few months and has gotten no offers

4. It is not in tip-top shape

5. The home is in a neighborhood riddled with short sales and foreclosures

6. The neighbors that don’t have a “For Sale” sign in their yard feel left out



As we continue to see owners with expiring listing agreements inquire about rent-to-selling their home (opening their home to a rent-to-own tenant), I wonder why they were listed on the market in the first place. As my conspiracy-loving friend said, “It’s probably because if the real estate agent has the house listed for a regular sale, they’ll be first in line to list it as a short sale.” I seriously doubt this is how most real estate agents are conducting business, but some of the houses on the market make me wonder.



Most homeowners don’t want to default (and yes, a short sale is a default). And they don’t mind paying real estate agents if they are helping them achieve their goals of lifting the financial burden of the home off of them. The question is how. There are a lot of homes on the market for sale!



And there aren’t many qualified buyers out there. But… By logical deduction, that would mean that there are a lot of unqualified buyers out there; we can call them “non-qualifiers” (yuck!) or tenant-buyers (rent-to-own tenants). These rent-to-own tenants would love to occupy the vacant houses on the market and buy them at some point. Hmm… that sounds like a win-win for the owner and tenant-buyer.



But what about the agent? We need a win-win-win. That’s the part where we know that clients are willing to pay for value. An agent just needs to sell the created value and put a price on it. It shouldn’t be too hard; a client who stops losing thousands of dollars a month will happily pay a fee and thank you afterwards.



Wouldn’t you?



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. He is also the author of 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: What’s the Difference Between “Rent-To-Own” and “Rent-To-Sell”?

Another popular question I hear from prospective clients is:




PC: “What’s the difference between rent-to-own and rent-to-sell?”



Us: “There is none!”



PC: “Well, if that’s the case, why don’t you eliminate the whole “rent-to-sell” terminology? I’ve heard of rent-to-own, but this rent-to-sell thing is new to me.”



Well, it’s a matter of perspective. A rental tenant who aspires to be a buyer would use rent-to-own as the correct terminology. Example:



“I want to rent-to-own this house. This means I’m going to rent the house, work on my credit until I can buy it, and then buy the darn thing before my lease is up!”



Most people get this part of it pretty easily.



Then there is rent-to-sell. This hasn’t been in the limelight until the past year or two, but has been picking up a considerable amount of steam in this poor economic environment. Now as more sellers have vacant homes sitting on the market and qualified buyers are nowhere to be found, they need a new solution to sell their homes.



So the sellers market their homes as rent-to-sell. They want renters to lease out their houses, make their monthly mortgage payments, and then buy them sometime during their lease period. If they don’t, that’s okay. They can then just rent-to-sell them again when the tenants move out.



To simplify, buyers rent-to-own (I want to rent and then buy the house) and sellers rent-to-sell (I am willing to rent my house out and let the tenant buy it). It’s that simple.



A more advanced example: A rent-to-own tenant would be looking for home sellers who would be willing to rent-to-sell their home to them. The rent-to-own tenant would lease the property, build their credit and down payment up during their lease period, and buy it from the home seller. Then the home would be considered “rent-to-sold.”



Yes, terminology can be confusing at times. But as more consumers and real estate agents are learning in this economy, knowledge of rent-to-own and rent-to-sell is imperative to housing liquidity.



Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. You can contact him directly at Brett@BDFRealty.com.

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

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




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



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

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



So which is the right answer?



It really depends on your answers to these 3 questions:



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

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

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



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



Is your home among the best of the best?



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



Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. You can contact him directly at Brett@BDFRealty.com.

Charlotte Property Management Weekly: When Will Rental Rates Rise?

Every property owner I’ve ever met (including yours truly) wants to charge the highest rent possible. Every tenant wants to pay as little rent as possible.




Sorry, there is no huge revelation here. This is pretty much the way any market works. The girl who sells cans of peas wants you to buy them for $100/can, and you want to buy 3 cans for a dollar.



This is what a free market is all about. What are buyers and sellers willing to accept price-wise?



Then supply and demand are thrown into the mix. If the girl is selling the peas for $100, and five other people are selling them for a dollar, the $100 price is not going to fly. But let’s say the pea market heats up (it becomes the rage in Europe) and the $100 girl is the only one who has peas to sell now. You come home and your wife tells you she is dead set on serving her famous pea soup with a side of pea pilaf for your anniversary dinner. Now, $100 may seem like a great deal!



The same is true of the rental market. When the economy is great (and especially when properties are in a hot geographic area), rental prices are able to rise because homes are snapped up as soon as they go on the market. The supply of homes is low and demand is strong.



Conversely, when the economy and real estate market are slow, the rental market suffers. The people who can’t sell their homes put them on the rental market, which join the many homes that are already on the rental market. This creates a glut of homes (increased supply).



With many rental houses to choose from (low demand), much like the many sellers of peas example, the prices must be lower. This has happened for the past few years. To be competitive and fill their properties, sellers have had to drop their rental prices.



Which leads to the question we really care about: When can we raise the rents to my properties? In short, soon. Why is that?



Many investors and home owners are sick of losing money every month on their rental properties. Some can no longer afford to be in the real estate investment game. As national sales numbers have shown, short sales and foreclosures continue to dominate the market. Many home owners are letting their houses go and this activity is a growing national trend.



As banks continue to take growing losses on bad loans, they will loan out even less. A recovery is not imminent; defaults will continue to abound.



However, in terms of the rental market, short sales and foreclosures will accomplish 2 things:

1. Removing rental homes from the market as owners let their investments go back to the bank (lower supply)

2. Adding foreclosed homeowners to the tenant-pool who now need to rent (increased demand)



The rental market will recover much sooner than the housing market (which is years away). I believe early 2011 will bring rental price increases, after years of holding the line or being reduced. The market is shaping up to reward the investors who hang on during this difficult period with higher rents and lower vacancies.



So, hang in there! Rentals will be back in 2011 and, in the meantime, “pea mania” has not hit the States and are still available on the cheap.



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.