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!

What Rental Home Repairs Should A Landlord Pay For?

Oh, home repairs…  One of the aspects of rental home investing that can really eat into a landlord’s financial return.  Landlords and tenants both want to have a perfect home, but debate on who should pay for it.  

In 10 years of practicing property management in Charlotte, I’ve found that the responses of who should pay for what repairs are unanimous (depending on what faction of people you ask):

Q:  Who should pay for broken stuff at the rental house?

A.  The owners!! (results tallied from 100% of the tenants)

Supporting testimony: “This house is a piece of garbage!  They are lucky I’m a great tenant and renting it.  I pay on-time every month; the least the owner can do is make some needed repairs around here.  I guess Ebenezer is too busy counting his money to remember the little guy living in one of the houses in his vast real estate empire.”

Contradictory facts:  House was lived in by owner prior to tenant move-in.  Everything worked fine.  Actual real estate holdings of owner are 2 houses.

B.  The tenants!! (results tallied from 100% of the owners)

Supporting Testimony: “The house was in perfect condition when the tenant moved in.  I lived there for 5 years and everything worked.  Now they want every little thing fixed?  Who cares if the screen door has a little rip in it?  It didn’t kill my family, but the tenant can’t live with a flea once in a while?  Please!  He doesn’t even have children!”

Contradictory facts: “Little rip” in screen would allow full grown vulture entry.  Perfectly conditioned homes would be violently offended at this owner’s shoddy home being placed in the same category as them.

    

And this is why property management can be challenging at times.

“To pay to repair or not to repair”, that is the question.  And it is one that has no clear-cut answer.  But, with that being said, there should be some methodology applied to make fair decisions.

My take on some parameters:

1.  The house must be kept at code.  Major systems (plumbing, heat, electricity, appliances) need to work properly.  This includes working air conditioning nowadays (I know the old-school hardliners just stopped reading).  I’m aware it used to be a luxury item, but that was a long, long time ago.

2.  If it worked when they moved in, it should work throughout their tenancy (some exceptions apply on really high-cost or not-being-manufactured-anymore items).  Example: a home was rented with a working gas fireplace.  The fireplace stopped working in the middle of the tenancy.  The manufacturer went out of business for the parts that were needed to fix it.  In my opinion, the owner is not responsible to pay $3K for a replacement fireplace for home that rents for $1K a month.

3.   If tenant negligence clearly causes something to break (example: a bottle cap found blocking a garbage disposal from working), the tenant should be billed back for the repair.  But a tie goes to the tenant.  Think of this as more of a criminal trial (where the tenant is innocent until proven guilty) than a civil trial (only requires a preponderance of evidence).  There is a higher standard of evidence required before a tenant can be billed back for a repair (it must be really obvious).

4.  Operational items need to be repaired; aesthetic items (aka how the house looks) do not.  It should be made clear to the tenant during the lease signing that the home looks the way it looks now and nothing will be done by the owner about it.

5.  Just because the tenant is renting the house, it does not mean that they will never spend money on the house.  Maintenance items are required (air filters, light bulbs, lawn care, etc.) and are not paid by the owner. 

This is obviously not a comprehensive repair policy, but it is a good start.  Good luck!

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!

Does It Matter If Your Property Manager Personally Owns Rental Properties?

When assessing property managers, does it matter if they personally own rental properties?  This question is on the same line of thought as:

1.  Are sports coaches better suited to coach if they were former players?

2.  Is it preferable to have a nanny who is a mother care for your children?

3.  Is it better to have former addicts speak at rehab clinics than clean-cut drug counselors?

You may be saying, “Whoa, Brett… could you come up with a better example in #2 above?  What percentage of your property management blog readership has gone through the thought process of having nannies taking care of their children?”

Fair enough. 

So, in short, the question is whether actual experience matters.  I would argue that it does in most cases.

As a Charlotte property manager who owns personal rental properties, I have several things that concern me from painful experience.  These may not have the same resonance with a property manager who has never personally dealt with the repercussions (aka writing big checks to other people) for the following:

1.  Vandalism/Damage: Is the house in a good enough area that it can sit vacant without being broken into?  Do I need to let the police know and put “No Trespassing” signs up?  Can I let some of the neighbors I know around the house keep an eye on it?  Nothing is worse than fixing broken windows continually when trying to show it for new renters. 

2.  Utilities: Am I going to be stuck with big utility bills when the house is vacant?  I’ve received large water bills (from running toilets) and huge electric bills (from prospective tenants turning the air conditioning down to 40 degrees when visiting the property) from empty houses.  In the back of my mind I’m weighing whether I need to keep the utilities on (based on the time of the year) or checking the home during showings to make sure things are kosher.

3.  Tenant Wear & Tear: After screening a tenant and talking to their former landlords, it seems like he/she would be a good payer.  On the other hand, it seems like he/she is careless and the house is going to need major cleaning and touch-up after he/she moves out in a year or two; this is going to cost big bucks and be a headache then.  I know the short-term expediency of having a tenant move-in right away is going to turn into pain later after they move-out.  I’ve written painful checks for these repair bills before.  My stomach churns thinking about it.        

4.  On-Time Rental Payments: I’ve got mortgages to pay on the properties every month.  I need to get the funds on time and in full so I can pay the bank.  It’s not acceptable to not actively collect late rent; late fees must be enforced to dissuade late payments and tenants need to be encouraged to be on time.  Unpaid days do matter! 

These are just a few of the things that I think would be difficult to understand if a property manager doesn’t own rental properties.  It’s one thing to read what not to do in a property management handbook and another to have to clean up messes with your own money.  Experience is a very good teacher… and a harsh one.

As a learned man once said, “It’s not that bad to die in a video game.  Just don’t try it in real life.”  

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!

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!