Charlotte Property Management Weekly: Why Can’t Property Managers Guarantee How Long To Fill A Vacant Property?

Question from client: “How long will it take for you to fill my home with a tenant?”


Answer from property manager: “It should be in the next month or two, but I obviously can’t guarantee that.”

Comment from client: “Okay, I completely understand. I wouldn’t want you to speculate about the result of an action that you do for a living and your company has executed repeatedly well for the past 19 years (according to your ad).”



Question from hungry patron: “When will my eggs be ready?”

Answer from waiter: “It should be in the next 10–20 minutes, but I obviously can’t guarantee that because I’m not the cook.”

Comment from client: “You lazy imbecile! I’m starving- shake a leg! It should take 2 minutes- tops! Tell your guy back there to skip a smoke break and crack a couple eggs!”



What’s the difference? Clearly, it’s customer expectations. In some industries the expectations are really high, and in others it’s low. It’s just the way of the world.



So why don’t property managers guarantee the time it will take them to fill a rental property? Is it because they can’t (obviously)?



If you’re an experienced cook, you know approximately how long it takes to cook something. You’ve got to track down the ingredients, mix them up, and cook them for some length of time. It can be estimated (within a few minutes) of how long this will take. The “Guaranteed 10-Minute Breakfast or It’s Free” promotion should be easy to execute without giving away the farm.



The same should go for a property manager, right? If they know:

1. What time of the year it is

2. How fluid the current market is

3. The condition of the home

4. The rental price



It should be enough information for a tighter estimate of when to expect. There are just not that many variables to consider and factor in! So why are there no guarantees then? And why is it “so obvious” that a property manager could never give one?



Q. When will this basketball game be over?

A. Sometime today, but I obviously couldn’t guarantee that



Dominos Pizza did the “20 Minutes Guaranteed, or it’s Free” delivery promotion for years and they were able to pull it off with many more variables to consider (traffic, events going on in the city, number of orders, employees not showing up to work, weather, etc.).



So why not property managers? Are filling a home time guarantees a matter of can’t, or won’t?



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: Your Rental Home Wants You to Wait Until It’s Ready

Every client we’ve ever had has wanted as little vacancy time for their rental as possible. Zero days are optimal; every day after zero winds up costing them money in utilities, mortgage payments, and maintenance. Not wanting to lose any money leads to a mentality of getting the home on the market as soon as possible, regardless of condition and resident situation.




So some clients want us to put their homes on the market prior to them being ready for occupancy. What I mean by this is that the home has not been completely repaired and there are still personal items in the house. They (or their current tenants) also are within the process of moving.



The rationale, by itself, is sound. The greater the length of time the house is on the market, the greater amount of potential tenants that can see it. If more potential renters see it, the law of large numbers would dictate that someone at some point would love it and want it.



However, does this really work? I would argue it doesn’t. Huh? Why’s that? Isn’t it common sense?



Simply, the American consumer’s mind works differently now. There is an inundation of information being flung at them on a constant basis. Most of it is ignored; however, there are some marketing messages that get through (like a rental listing). If the consumer takes the time and makes an inquiry to visit the property, there is typically one shot to get them. Their attention span is limited.



This one shot means that the house has to look perfect. This visit needs to conclude with the prospective tenant loving the house. If they see or feel something they don’t like, it will probably turn them off and they will want to find another home. And there are many other rental houses on the market that look very similar. The competition is fierce!



So why does this matter? Maybe the diamonds in the rough that aren’t turned off by the home’s uncleanliness will be unearthed and they’ll take it. It’s certainly possible. But are renters who don’t care about the condition of the home desirable? If so, there may be disappointment when move-out time arrives and the home doesn’t look so great. Clean people typically want clean homes.



The other main reason is that once the marketing of the property begins, momentum is started. The rental is on the top of all the searches from rental websites, people who are waiting for a rental are told about it by their property managers, and it is fresh. This is when things typically happen for an average rental home- the first two weeks. Interested calls, inquiring e-mails, and subsequent showings come quickly. They need to be harnessed and converted into applications and security deposits.



But when the rental house isn’t up to the task, momentum is stunted. Interested, potential renters see the property in less than ideal shape and compare it to better kept homes on the market. The home loses out. Or the current tenant in the home is packing boxes to move and glares at the renter who is interrupting their evening after work. The house looks horrible and the vibe is bad. Potential renters flee to the next home. Can you blame them?



With rental homes, it’s more about quality time on the market and less about total time. Make sure the rental home is ready and most inviting when the most people want to look at it!



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: 3 Approaches to Fixing Up a Rental Home

We sometimes take over management of homes that have been treated in, diplomatically-speaking, less than desired regard. It’s frustrating for the owners (and the property management company), especially in difficult economic times when cash is scarce.




The purpose of this article is not to talk about the root cause of this destruction (usually poor tenant screening), but rather the options available when faced with a rental home in bad shape.



It comes down to 3 potential approaches:



1. Total Fix-Up: This is when everything is fixed so the home is in tip-top shape. New carpet, new paint, new everything! The upside to this approach is that the home will command top rent and a top tenant, while the downside is that it will demand top dollar to be spent by the owner. ROI on a 1-year rental with this approach is debatable.



2. Partial Fix-Up: This is when the most pressing demands of the house are met. The house is cleaned well, the walls are touched up with paint, and the carpet is steam-cleaned. The goal is to make the house look like a good rental, not a show home. The upside to this approach is that it is much less expensive and will entice a good renter, while the downside is that it will not command top rent and the tenant will usually not be a neat-freak (we love neat freaks!!).



3. No Fix-Up: This is when the home goes to market “as is.” Little to nothing is done to fix the home aesthetically and the tenant is asked to “have an open mind” and the property is listed as a “handyman’s special.” The upside to this approach is that repair costs are low and the home can be put on the market immediately. The downside is tough. Rents have to be lowered considerably, the quality of tenant suffers, and the house will be in even worse shape (think catastrophic) when the tenant moves out (evicted or otherwise).



So which is the best approach? The answer is the universal response in business school to any question- “it depends.” At different times and situations, each approach is appropriate. Many times this answer is dictated by finances. I mean, if you have no extra money, you are forced to use approach #3, right? And if your rental home has gotten to the point that it is absolutely disgusting, you probably have to opt for approach #1 at some point.



Generally-speaking, I’m a fan of approach #2. I try to stretch #2 as long as possible before I’m faced with the decision that the house has to go to approach #1 (or #3). Once I’m at that point, my preference is approach #1 (if finances allow).



The approach chosen for home fix-ups is a huge component on their ROI. One size does not fit all (as some are wont to do). Choose carefully (and profitably!)!



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: Delayed Rental Walk-Throughs Cost Everyone Money

Unfortunately, I’m yawning as I’m writing the title of this article. I’m not sure how to jazz it up a little (maybe “Lindsey Lohan falls for property manager during rental walk-through! Then she heads back to rehab.” I’m intrigued at least.




That would be a nice segment into this! Instead, coming in a close second in terms of excitement, I’ll give the definition of the walk-through so we’re all on the same page: A walk-through is simply visiting a rental property after a tenant moves out and assessing the damages. Then, one would deduct the damages from the tenant security deposit and mail the tenants the check.



I figured I’d write on this topic after a friend told me he’s still waiting for his rental security deposit back 7 weeks after move-out. Yes, a property manager holding it this long (without a written explanation) is illegal in North Carolina, but that’s not the point. It just doesn’t make any sense financially.



Let’s look at the stakeholders when a walk-through is not done in a timely manner:



1. Tenant: He wants his money back! He now thinks unfavorably of your property management company and is actively plotting his revenge against you (sad, but true).



2. Rental home owner: He is footing the bill everyday the property remains vacant; vacant properties are generally tough to fill if they are not cleaned up and put on the market (requires a walk-through…). If owners are withheld cash for long periods of times, they tend to find property managers who disburse it to them on more regular intervals.



3. Property manager- this is the primary loser in this game for many reasons.



First of all, there is the oft-cited statistic that the #1 reason why 90% of businesses fail is due to lack of cash flow. And vacant houses don’t typically bring in any cash flow; however, they certainly have the potential to! Let’s look at the revenue that a vacant house can bring in. The fee list includes (but is not limited to):



1. Fixing the home up fees

2. Application fees from tenants

3. Tenant procurement fee

4. Monthly management fee

5. Potential brokerage fee if the house is also on the market for sale



None of the above money-making happens until a walk-through occurs.



Also, there is a lot of talk about the vital importance of working capital; this is the money that is in your bank account that funds day-to-day business operations. Experts say to collect money faster from clients and pay vendors slower in order to keep this account flush (because without money in it, you’re essentially out of business).



If this is the case, it behooves property managers to conduct walk-throughs as soon as the tenant moves out! It pushes up the earning of cash flows from vacant homes and makes customers happier.



I mean, why wait seven weeks to start getting paid when you can get the cash now?



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: Another Ploy in Rental Home Fraud

At this point, most people are aware of the rental scam where a prospective tenant answers your ad and:




1. Loves your house and wants to move in soon

2. Asks you if you will accept a year in rent upfront (duh- yeah!) by certified check (double yeah!!)

3. Then they send you several thousand dollars more than the one year rent (by accident…) and asks you to send the balance to Texas via Western Union

4. After sending the balance (real money) to their Western Union account, your bank notifies you that their certified check was from a bank that doesn’t exist (fake money)

5. You’re out a tenant and a couple thousand bucks



This scam was highly successful and snagged many people. A warning about this scam is included in most rental websites; that’s how successful it was!



Perhaps the next “big thing” in rental fraud is high-jacked rental house ads. We just started managing a property and were surprised when potential tenants started contacting us about a different Craig’s List ad on the same house (at a much lower rental rate); they were wondering which of the Craig’s List ads for this rental house was legitimate.



Below is the content of the e-mail response from the fraudulent guy after a potential expresses initial interest (Note: the real rental rate for this house is $1,300 - $1,400/month):



Thanks for your response and interest in my house. Calvary greetings to you, also to your household (sic).






The house is very much available and it is a large 3 bedrooms and 2.5 bathrooms house. Which was formally occupied by me and my wife before we left for Nigeria for a pastoral duty, we left for a volunteer mission together with other missionaries for a development program with the aim of developing the people of west Africa physically and spiritually as God as directed us. We wanted to sale the house initially but we later changed our mind after we discovered that we wouldn't be spending more than 3 years here in Africa. So I contacted the agent back and requested for my keys and documents. Later we decided to have the house rented out, we would have give the same agent this job also but the truth of the matter is that the agent would want to handle it professionally and the occupant may not be able to reason along with him later. If you notice, you will discover that the price we are offering is far below standard price, this is enough for you to know that we are not after the rental fee but the absolute care for the property.






So as you know where the house is located at XXXXXXXXXXX which my family and I have spent so much time and money to maintain it up till its standard. We have been trying our best to make the house as clean as possible, because am a clean person and we don't like dirt around our surroundings and also the Bible says cleanliness is next to Godliness.






So we are looking for a well-behaved, clean and honest tenant to rent out our house too. So will like you to give us your word and promise us that you will take good care of our house so that we will be happy when we come to visit you in the future... We accept short or long-term rent and month to month also.... All the utilities are included in the rent... Pets are allowed. So kindly get back to us with this information below.






RENT APPLICATION FORM


Full Name_________________________________________________


Home Phone_____________________


Date of Birth_________________________________


Other Phone ________________


Current Address __________________________________________________


Reasons for Leaving_Foreclosure___________________________Rent $__________Phone ( )____________


Are you married________________Yes____________


How many people will be living in the house____________________________


Do you have a pet___________Yes_________________


Do you have a car___________Yes_________________


Occupation____________________________


Your Exact move in date____________________________


How soon can you make the deposit payment________________________


How soon do you want to receive the keys and documents of the house________________________






Looking forward to hear from you with all this details so that I can have it in my file in case of issuing the receipt for you and contacting you. Await your urgent reply so that we can discuss on how to get the document and the key to you, please we are giving you all this base on trust and again I will want you to stick to your words, you know that we do not see our self's yet and only putting everything into God’s hand, so please do not let us down in this our property and God bless you more as you do this. I am looking forward to hear from you.


Best Regards


Note: the Rent is $800 and security deposit is $700






Total Move-In Cost: $1,500


Pastor XXXXXXX


Please call me at +234-704-147-8446 or 011-234-704-147-8446



Be careful! Cyberspace can be a dangerous place!



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: Importance of Getting Paid from Rentals in the Next 5 Years

“Go to where the money is.” (Business Axiom)




According to an article in Barron’s this month, the future of the real estate market is in rentals for the next five years. Most real estate agents are hoping this news is akin to the Bush White House claiming the existence of Iraqi weapons of mass destruction (WMD); hopefully, it is just another example of faulty American intelligence.



However, the supporting information for a rental uptrend (as well as brokerage to be on a continued, extended downtrend) is pretty compelling; if this is what is going to happen, then anyone in the field of residential real estate needs to start thinking about how they are going to operate in this type of future. And then think about how they are going to operate in a rental-dominated market.



And let me clarify. When I say “how to operate”, I mean “how to make money” and “how to stay employed in the real estate industry.”



With rentals, this means creating:

1. Quantifiable value

2. Your fee structure

3. A narrative to explain why you should earn your fee



So what does this look like? What is the quantifiable value of a rental tenant? What is my fee? What story (narrative) am I telling to back up my fee? An example:



If I bring a tenant paying $2K/month and they sign a 2-year lease, I just created $48K (24 months X $2K/month in rent) in future cash flows for you, Mr. Owner (this is the quantifying the value). What is this worth? 10%. Why? How about because that is what the commercial agents charge for leasing fees (the narrative)? If so, that’s a $4,800 commission to you.



A tried and true business model in any industry is to take a percentage of the money you bring in. It works for hedge funds (they take 20% of the money they earn for their client off the top), real estate firms, and any other commissioned salespeople.



So, to recap:



1. How much money are you bringing in to your client? (total quantified value)

2. What percentage of it is your fee? (your value)

3. Why? (the narrative)



Those that adapt will survive!



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: Solving the High-End Home Sales Stagnation with Rentals and Rent-To-Own

Realtors everywhere are breathing a sigh of relief with the upswing in home sales in April and May. Things seem to be picking up a little, they have some money in their pockets, and there appears to be a light at the end of (what has been) a very dark and long tunnel of diminished sales activity.



Though, with the end of the tax credit, it looks like the roadrunner might have just lathered some white paint on the wall ahead as pending home sales are dropping fast.


Owners of higher end homes in Charlotte, defined here as over the FHA maximum of $304K, never really saw this light. They have beautiful homes that are priced relatively low (much too low they would say- and I would agree!). Their houses are still are not selling and the monthly nut on them is just sucking the life out of them. Unfortunately, banks are now requiring so much more (700 credit scores and 10% down minimum) from potential buyers of these homes that there can’t be a fluid market.


So where does that leave them?


Most of the owners of these homes don’t want to go the foreclosure or short sale route. They also don’t like the fact that they know their homes have value that the market won’t recognize at present. Their sterling credit scores and reputation with their former neighbors mean something. They are just not willing to walk away when they can still afford the monthly payment, as unsettling as paying it every month is.


Many are realizing that they need a solution to get them past the next few years. They are starting to explore rental and rent-to-own options. They’ve heard the horror stories that people tell about renters, but they can also do basic math.


What do I mean by that?


Let’s take an $800K home, for example, and say the monthly cost is $4K. The current market value is $600K. They can rent it for $3K. We’ll assume a 2-year lease.


Not rented:

1. Loss of $4K+ (monthly payment, utilities, other holding costs)

2. Maybe sell it for $600K sometime during the time it is on the market vacant


The math: If not sold, they are looking at a loss of $100K+ in 2 years (24 months X $4K + holding costs) OR (if sold) a $200K potential “loss” on the sale


Rented:

1. $1K loss per month ($4K - $3K) on monthly rent versus their costs

2. Assume (medium-to-bad case of irresponsible renters): $15K of damages when the tenants leave (if they don’t buy)


The math: Loss of $39K ($1K X 24 months + $15K damages) if they don’t buy OR the realization of market value (around $800K depending on what the home appraises for at the time of sale) in a year or two if the tenant buys (through a rent-to-own scenario).

So, the results look like this:

Keeping their home vacant on the market: $100K - $200K loss
Renting or Rent-To-Selling their home: >$39K loss


Is it any wonder why the rental or rent-to-own option is gaining traction for higher-end homes in this economy?

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: The Top 3 Reasons Why Good Property Managers Matter More Now (Reason #2)

2. Tenant selection is getting harder

I remember when we first starting offering property management services, there was a large property management company in Charlotte that had very simple tenant screening criteria:


1. Their income must be 4X rent at minimum

2. They must have good landlord history

3. They have 600+ credit scores


I thought, “Wow! They must have some pretty good tenants if they keep those standards. If they can deliver a tenant within a reasonable time frame, it would definitely be worth using them!”


Now, flash-forward to today. If they are using these criteria to find tenants, good luck! People that pass these criteria are usually called “buyers”, not “renters”. There are certainly some renters of this caliber, but they are becoming a smaller percentage of the rental tenant pool by the day. I imagine this company had to lower their standards so the majority of their rental inventory didn’t sit vacant.


Should they have lowered their standards? What? Wouldn’t that make their eviction and non-payment rate skyrocket?


Not necessarily. Traditionally, this could be considered a “lowering” of standards; however, in today’s market, I would argue that it is understanding, collecting, and interpreting tenant data better. Tenant selection has become more of an art and less of a science.


And this makes it much harder! For example:

A. Does a bankruptcy, eviction or foreclosure mean an automatic application rejection?

B. What ratio of income to rent is appropriate? Does this change for each individual?

C. How much should job history be considered? Should we be looking at it on a company or industry basis?

D. If both tenants work for the same company (and both incomes are necessary for them to be eligible for the home), should the risk model change?


For the past few years (and continuing now), credit scores, housing, and employment have been on the rocks for many consumers. Does this make them all bad renters? How do you tell?


You hire a good property manager and let them worry about it! In today’s uncertain environment, they are much more important today than ever!


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. For a FREE look into his new 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!) go to www.RentToOwnAgentGuide.com.

Charlotte Property Management Weekly: Which is Better? Colts or Saints? Sale, Rental, Rent-To-Own, or a Combination?

“I’ll always do what’s in my client’s best interest.” (Dutiful Charlotte Realtor)

“…That new technologies replace existing ones because they are cheaper and more consumer-friendly.” (Harvard professor Clayton Christensen on “disruptive technologies”)

“…The Indianapolis Colts opened as a four-point favorite to beat New Orleans in the Super Bowl.” (Yahoo Sports, 1/24/10)

Super Bowl time is here which means there will be rampant speculation about which team is better. Most people from Indianapolis don’t think there is anyway Peyton Manning will let them lose, while New Orleans fans think that destiny is on their side. Of course, no one knows exactly who is right, but that doesn’t stop them from arguing about it non-stop for two weeks.

One way to try to figure out who will win is to look how they played in the regular season and equate this to who has the advantage if the game is played a certain way. For example:

1. If it is a great weather and a lot of points are scored, the Saints should have the edge. (The Saints were the #1-ranked team in total offense this year and the Colts were #9)
2. If it is a defensive struggle, the Colts should win. (Colts were #18 in total defense, while the Saints were #25)
3. If the weather is bad and teams need to run the ball, the edge goes to the Saints. (The Saints were #6 in total rushing and the Colts were #32)
4. If there is a lot of passing, the Colts should have the slight edge (The Colts were #2 in passing while the Saints were #4)

The point is that different circumstances will favor a certain team’s strengths, thereby giving them the advantage.

The same methodology can be used when helping a client figure out the best strategy to market their home. If the:

1. Client needs to sell immediately and can afford to wait: Sale
2. Client wants to sell but cannot afford to wait long: Sale and rent-to-own marketed concurrently
3. Client wants to hold the property as a long-term investment: Rental
4. Client is ambivalent; they just want to move: Sale, rental, and rent-to-own marketed concurrently
5. Client wants to sell and has plenty of equity in the property to sell (owner-occupied): Sale
6. Client can sell if they receive a market offer: Rent-to-own
7. Client does not have enough equity to sell: Rental or short sale
8. Client wants to sell and the home is vacant: Rent-to-own

Just as different game situations favor a certain team’s strengths, different client needs favor different sales methods. One size does not fit all! Great agents know this and strategize accordingly- that is why their clients love them!

My prediction: Saints 31, Colts 21. Happy picking!

Brett Furniss is the President & Owner of BDF Realty, “Charlotte’s Most Innovative Property Management & Investment Company”specializing in rent-to-own (lease options) and rent-to-sell homes. You can follow his Twitter thoughts on the Charlotte real estate market by clicking on http://Twitter.com/BDFRealty. He is the author of the FREE E-Manual entitled “How to Rent-To-Sell Your Own Home” (http://www.RentToSell.com/RTS-Book.html) which details how to get the most potential buyers to your home in this challenging real estate market.