Charlotte Property Management Weekly: 52 Consecutive Weeks of Writing- Some Random Thoughts on the Real Estate Industry

Writing a blog every week is hard! My hats are off to the people who write multiple times a week, and especially to those that do it every day- kudos!




My thoughts haven’t changed in the past year on the near future of short-term residential real estate (next 1-2 years). Rent-to-own and rent-to-sell (as well as short sales and working with serious investors) seem to be what the main growth areas will be.



As foreclosures continue to rise, banks will not even pretend to relax lending guidelines.



As the US economy sputters, FHA loans will not become more affordable or easier to get. It will actually be the opposite. Fannie and Freddie have lost and continue to lose a lot of money!



People, in general, have less money. For people disbursing it (banks, government, property managers), the pressure of delivering it is on much more than usual.



More real estate offices will close as technology and business realities (aka less revenue and customers) continue to hit. Office virtualization will continue to grow.



I don’t like the thought of owning a business in a downtrend industry. There, I said it. Being involved in high growth industries is much more exciting (and profitable). Property management is a good growth industry with steady income, but the margins are not close to those of brokerage. You live off of property management and vacation from the brokerage business.



The biggest market for rent-to-own and rent-to-sell prospects will continue to be $250K+ homes. These owners (especially those over the FHA maximum loan amount) need solutions for their homes!



Rental (and especially rent-to-own) tenants are plentiful in this market!



Other people are still the best source of blog material!



Is social media going to continue to trumpet it’s ROI in anecdotal format? Has anyone made any money on Twitter on a consistent basis? Let’s see the numbers, not hear stories!



On that token, one of my favorite quotes on social media is, “Conversation is king. Content is just something to talk about.” Twitter is a bit one-sided (aka no conversation), no?



Here’s to another 52 weeks…



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: Rent-To-Own- Just like Burger King for Buyers and Sellers

A lot of banks don’t like Burger King. Why do I say that? It’s simply because they don’t want you to “Have it Your Way.”




I’m obviously a fan of rent-to-own. It’s sort of a nice change from the rigid rules that mortgage underwriters make clients go through. For example, banks have rules like:



1. Must have 3.5% down and it must be meticulously sourced

2. Credit is now run the day of closing. Anything on that report that the underwriters don’t like will cause the loan to get kicked.



This has caused much client consternation. Some have been left in moving trucks in front of what they thought were going to be their homes; then the homes don’t close and they have to go back to their the old homes. I’ve heard that this isn’t a fun experience.



But, rent-to-own on the other hand, is really flexible. There are no rules that wouldn’t allow a tenant to move in. For example:



1. As long as they have the money, who cares where it comes from?

2. If the house is vacant, they could move in the next day (after a tenant screening)

3. If they need additional time to get qualified for a loan, the lease can be extended indefinitely

4. There is no reason for the seller to wait to make financial moves. As long as there is a signed lease, they can submit this to the bank and do what they want.



Rent-To-Own is like Burger King, for both the buyers and sellers. Both can “have it their way” when they negotiate the rent-to-own transaction.



So have fun and put together rent-to-own deals that benefit both parties. And, while you’re on a Burger King kick, get the French toast sticks while you’re there; they are really good!



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: Making Rent-To-Sell’s Story Sound like BP’s

The following are two descriptions of a $99.00 special on the same hotel suite on the Gulf of Mexico:




1. Come to our wonderful beach hotel on the Gulf of Mexico (get a suite at a discounted rate!). Yes, there is oil washing up on the beach and don’t think about eating the seafood. Please feel free to bring your own firewood as we will be burning BP’s management team in effigy at our nightly bonfire.



2. Our waterfront suites, which are normally $1K a night, are now heavily discounted and available immediately! Enjoy our two Arnold Palmer-designed golf courses, five-star restaurants, and five pools.



Which one sounds better?



Now read these two descriptions about the same service:



1. Instead of losing $2K a month on your mortgage, we can have a qualified tenant move in and make these payments for you! This is a net gain of $41K for you in their 18-month lease period! They are working with credit repair to buy your home within 18 months and are willing to put down $5,000 upfront (yours to keep). If they don’t buy your home, they’ll move out at the end of their lease. It’s a true win-win in these tough lending times.



2. Misery. Agony. It will definitely lead to eviction which means years of court battles that will make the OJ trial seem like a traffic ticket. Once the tenant moves in, your life will be drastically different. It’s like having another child; be prepared to be over to your old house weekly at 1 AM to fix the toilet. I feel I must present this offer to you, but I would highly recommend against it. Someone in my firm told me that these deals never work out. Even though there are still 19 other houses in your neighborhood for sale (including 3 foreclosures and 4 short sales), your house is the best and will get the $50K premium over what the other houses are selling for.



Now which one sounds better?



It’s amazing to see how the same exact thing can either be desirable or non-desirable depending on what version of the story is heard.



Rent-to-sell often falls into this category. And rent-to-sell has a good story to tell.



Rent-To-Sell is simply allowing a rent-to-own tenant (who wants to buy your home) move-in and pay your mortgage every month. If they qualify to buy your home, they probably will. If they don’t, then they move out at the end of their lease.



Another way to explain this is that rent-to-own and lease options are the same things. “Lease option” is a combination of a lease (we know what this is) and an option (they have the exclusive right to buy your home while they live in it). Isn’t that reasonable?



I am an unabashed proponent of rent-to-selling vacant homes; I don’t see my optimistic view as idealistic. BDF Realty is a property manager; we place tenants (and rent-to-own tenants) all the time. Almost all of the tenants we place pay rent every month. Almost all of the tenants we place treat their homes with respect. Some of the rent-to-own tenants in our properties buy the home they are in before their lease expires; some don’t. This isn’t rocket science.



The thing that I’m pessimistic about is a vacant home that is on the market for months on end. That’s expensive and will bleed you dry.



So, maybe I’m a simple guy. Playing 36 holes and lounging by the pool all day for $99 a night sounds like a good deal.



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.

Charlotte Property Management Weekly: The Only Property Management Question You Need

Wow! Only one?




As a Charlotte property manager, we have potential customers contacting us everyday about managing their rental homes. Their questions typically boil down to two:



1. How much can my house rent for?

2. How fast will it take to fill with a tenant?



These two questions are not mutually exclusive.



This leads the property manager to ask the true follow-up question:



How fast do you want the property to be filled?



Duh, today or tomorrow would work! What type of question is that?



It’s the only question.



Here’s the logic: if you put the average Charlotte house up for rent for $100, we could have someone locked up today to rent it. Conversely, if you put your house up for rent for $10K today, it would take us years to fill with a tenant (if ever).



The equation is:

$100 Rent = Tenant move-in today

$10K Rent = Tenant move-in in 5 years

Today ($100) < How Fast you Want a Tenant to Move-in ($X.XX rent) < 5 Years ($10K)



If you want a tenant to move-in within 3 months, a good property manager should be able to tell you what price you should list your home for rent for ($X.XX). Chances are, you won’t be willing to accept the monthly rental price that would have your home filled within two weeks (nor would it be wise). But at least you would have the information to make the choice you want based on your needs.



With all other things being close to equal (marketing of the property, etc.) in an efficient rental market, rental price should determine how fast a tenant moves into your property. Speed is a function of price.



The only real question is, “How long do you want to wait for a tenant?”



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 #3)

3. The skills needed for selling a home have (and will continue) to trend to more of a solution-based, “cash now, sell later” approach; outright sales are becoming scarcer as there are less qualified buyers available in the market


Consumers are having a more difficult time selling their homes. More people want to sell, but the weak market is not allowing them to at retail prices. 50% of all sales in 2010 have been either short sales or foreclosures. Now that the Obama tax-credit has gone away, first-time home buyers will become an even smaller percentage of buyers; the trend that will continue is discounted home sale prices.


So what does this mean to real estate brokerage? It means that the promise of “list, market, wait, and hope” (then repeat) formula will continue to be a less effective one. Consumers are going to want more. They are going to ask questions like:

1. Why will your listing strategy work?

2. The definition of “insanity” is to do the same things and expect different results. What are you going to do differently?

3. I don’t want to ruin my credit through a short sale and want to stop hemorrhaging cash from an empty home. What else have you got?


This is where having a good rent-to-own or creative financing plan is place is paramount. And this is where a good property manager becomes even more important. Banks have made it clear that they consider most consumers “too risky” to extend credit (and this is before upcoming extensive Congressional regulation!). As the FHA (the savior of the market for the past few years) keeps losing billions of dollars, they are going to tighten standards as well. Uh oh!


But people need to do something now! As the oft-repeated Wall Street mantra says, “The market can remain irrational longer than you can remain solvent.” Where can sellers go to find a solution to ensure cash-flow on their vacant properties with the hope of selling them?


Property managers have been executing solutions in the rental and rent-to-own arena for years! While some real estate agents have seen the trend and have educated themselves in this arena, a good property manager has been analyzing credit and creating solutions for homeowners since they’ve been in business. They know how to screen tenants and have the infrastructure in place to ensure cash flow to home owners during tough real estate markets; and this market, unfortunately, is not close to returning to good and “normal”.


In short, having experience in creating “cash now, sell later” solutions for cash-strapped homeowners is becoming more valuable. And this is why a good property manager is more important then 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. You can contact him directly at Brett@BDFRealty.com.