Eviction Court is Not Cool (No Matter How Much You Like Legal TV)

“Settle matters quickly with your adversary who is taking you to court.  Do it while you are still together on the way, or your adversary may hand you over to the judge, and the judge may hand you over to the officer, and you may be thrown in prison.”

Jesus Christ (Matthew 5:25)

 

My wife and I have been watching the old legal TV show, The Practice, lately.  What an exciting show!  Bobby Donnell thundering at witnesses in court, Jimmy “The Grunt” Berlutti bumbling through cases, and Eugene Young intimidating opposing counsel makes for some entertaining television.  It almost makes being in court a “cool” experience where justice can be cajoled and won- a battle of righteous gladiators!

 

But in reality, going to court for an eviction is not that cool.  It’s a last resort.  Most of the time, it is a result of poor tenant screening, poor management of expectations, and poor management of life circumstances.  It’s a property management failure.  It’s costly, time and energy consuming, and an overall negative experience.  It’s a game of losers, played by losers; no one is a “winner” (besides the attorneys).

 

How can it be avoided? 

 

Let me preface this by saying that players in the rental game will have to evict a tenant and go to court at some point.  No matter how well the items below are managed, there will be some life event (job loss / illness / etc.), some expectation not met (“the air coming out of the AC is giving me headaches- replace it!”), or some sudden personality change that will necessitate it.  But I believe it can be avoided most of the time.

 

Here are four quick tips on avoiding tenant-related court visits:

 

1. Good tenant screening: I’d especially focus on the tenant’s ability to afford the rental by drilling down on their income (monthly cash flow) and the credit report (especially debt level and other current commitments).  We all want to fill properties quickly, but cutting corners on the money part puts everyone in a bad position when the numbers have little possibility of netting out.  Don’t be set out for failure at the beginning.

 

2. Set expectations upfront: Use a good lease and explain what the landlord is going to do and what is expected from the tenant, especially regarding the condition of the house and future repairs.

 

3. Manage life circumstances: Avoid setting eviction criteria in stone.  People have bad months.  Work with the tenant (within reason), but never go past 1 month due.  I’ve rarely seen tenants be able to get caught up being that behind.

 

4. Be nice: In my experience, no one wants to get kicked out of the house they are living in if it is not their idea; getting evicted is failure and life-altering.  However, if they want to exit, help them.  Someone else will want the house.  The first priority is getting the house back vacant; the money can be worked out at a later time.  Once the house is vacant, a new and better tenant can be found to get back to cash-flow positive.

 

Winning in court can feel “cool” in the moment, but cleaning up afterwards is definitely “not cool”.  Let the TV lawyers get the glory and try to stay out of court in real life.  Losing, especially at the hands of a sympathetic judge on some loophole, is even more “not cool”!

 

Happy Landlording!

“Big Apple’s” Effect on Charlotte Rental Prices: Anti-Trust or New Market Reality?

You are an apple farmer- a good one!  You know your soil, got the regular watering down, and are complimented often for how crisp and tasty your apples are.  You write a pretty good blog about them too.

 

On the business side, you price your apples the way your father did.  You factor in all your costs and then add your 50% mark-up; it usually comes out around $1.00/pound.  Your competitors are usually around that price as well.

 

But a new apple farmer, Big Apple, has come into town.  They have a lot of investment capital and are buying up apple fields everywhere.  They pay a good price for these fields; so many apple farmers have sold to them and looked for better pasture elsewhere.  Big Apple’s presence in the apple market hasn’t upset the cart because the public seems to have an insatiable appetite for apples.  And, truthfully, Big Apple can grow apples with the best of them- tasty stuff!

 

But they do things a bit differently on the business side.  They price their apples for $2.00/pound.  They can afford longer sales times and just wait for other apple farmers to run out of their apples.  They also extend credit to people who have not paid for apples in the past.  There is nothing shady going on; they don’t talk to other farmers about their pricing.  They just price at $2.00 and wait for an inevitable sale from a hungry public.

 

After some time goes on, you start to wonder why you can’t charge $2.00/pound for your apples too.  You’re not that brazen, so you start at $1.25/pound and then go up to $1.50/pound.  Other farmers independently follow suit.  Apple prices begin to go up and sales are impacted less and less (people like their apple fritters!).  It is now the “new normal” and it is understood that apples cost around $2.00/pound. 

 

That is true until Big Apple decides that $2.50/pound is the new price.  Other farmers like where this is headed.  Big Apple keeps buying up fields at higher prices knowing they can just sell their apples for more.  Their investors cheer.  Other farmers (quietly) cheer as well.

 

The public can’t understand why apple prices keep going up and grumble to the local government.  The public realistically can’t keep buying apples at higher and higher prices!  But they need to eat and don’t have much choice.  The government tries to find some impropriety to call Big Apple on, but their business practices seem to be completely legal; it is the free market system at work.

 

So the government looks at other venues to make apples more affordable, especially for families that can’t afford them anymore.  They ask for tax dollars in bond offerings, try to buy fields of their own to sell their own, and ask corporations to assist charitably as well.  Though their intentions are noble, their methods will probably produce two unwelcome, unintended consequences:

 

1. An unsustainable business model to buy higher and higher priced fields to produce $1.00/pound apples when Big Apple (and other farmers) are buying fields sustained at $3.00/pound revenue
2. Subsidizing Big Apple’s (and other farmer’s) business models of higher and higher apple prices

 

So what is the answer to combat high apple prices?

 

This fictitious apple example is happening right now in the Charlotte market with rental housing.  The rental houses are “apples”, “Big Apple” is the big investment groups that have been buying up Charlotte homes and turning them into rentals for almost a decade, and the “other farmers” are landlords (and property managers, like me) who set rental pricing.

 

There is no anti-trust gamut going on that I can see.  As a property manager in Charlotte, our job (and duty) is to charge as much rent from our client’s properties as we can while mitigating risk.  And we don’t need to talk to anyone else to see what other properties are renting for; we have access to this information through the market and the Multiple Listing Service (MLS).  When other properties are priced higher and are rented, it does set the market to a new high (sort of like for NBA or NFL players whose contracts always seem to climb higher every year).

 

On the same token, I’ve been shocked to see formerly $700.00/month rental homes now going for $1,200.00/month.  I can understand why the public, whose wage growth has not been close to keeping pace with the rental increases (especially at the lower income levels), would be concerned.  I’m in the rental business; I communicate with tenants everyday.  It’s tough from their end and seems to be a new market reality that is going unabated.

 

I’d argue we are squarely in anti-trust territory without any illegal anti-trust activity (as presently defined).  It’s a great environment to sell apples in Charlotte, but not a great time to have to buy them.

 

Happy Landlording!

Where to Invest in Real Estate in Charlotte?

As a property manager in Charlotte with investor clients, we are often asked where the best places are to buy local investment properties.  

 

When I was a young real estate investor in 2004, I bought my first two investment properties on the same day from HUD.  Both were relatively cheap and I figured they’d be easy to cash flow.  I admittedly did not really know what I was doing.

 

One was a condo in a relatively contained area.  The other was a house in what could be labeled a “war zone”. 

 

I hated this house.  If I was smarter, I would have outsourced the property management.  One of the main issues is that it would just get broken into a lot.  So every time it was vacant, I was praying that I didn’t have to have the windows and doors repaired again.  The house was really old and somehow the utility bills were really high, which added to the vacancy pain.

 

One day I was stopping by the house and noticed a man with a shopping cart full of old window screens walking in the neighborhood.  I didn’t give it much thought (like I said, it wasn’t a great area) until I reached the house and noticed something a little off about the (formerly) screened-in porch.  I ran back to my car to find the guy with my screens.

 

He was still on the street.  I pulled up behind him in my car and he kept walking.  I got out and walked quickly to catch up to him.

 

“Excuse me, sir?  I think you may have something that belongs to me.”

 

No response.  He kept walking away at his measured pace.

 

“Yeah, I’m sure of it- those seem to be the window screens from my house up the block.  Mind if I take those back?”

 

He stopped, turned around, grunted, and then lunged at me with a knife.  Fortunately, he missed due to my cat-like reflexes (OK, not true) and the fact that he was drunk and slow (thank God!).  He then kept walking away.

 

I followed him in my car and called the police.  He smartly cut across a field and was never seen again. 

 

As I left the scene with my tail between my legs, there was nothing left to do but go back to the house and re-shoot the front porch pictures.  Then I logged into my computer and changed the rental ad copy from “Awesome House with Screened-In Porch!” to “Awesome House with Open-Air Porch!”.

 

Oh, how I hate(d) that house!

Fast forward approximately 13 years… the Charlotte press started fawning over this “new” area of Charlotte that was having all of this awesome new development.  Price values were skyrocketing; it was the next big thing.  As I clicked through to read further, the area they were referring to was very familiar…  No way… The smart money wanted to be in the vicinity of “that house”. 

 

A popular calculation is that 66 people are moving to Charlotte every day.  The Charlotte-Metro population is set to go up 50% in the next ten years.  And all of these newcomers need a place to live. 

 

As a real estate investor, the short-term prognosis on where to buy in Charlotte is a crapshoot; an efficient market should have already built this into the current prices.  However, due to population forecasts, the long-term prognosis of where to invest is much surer.  “That house” (or any house in the city of Charlotte) will probably be a good investment you’ll love if it’s held long enough.

 

Happy Landlording!

Too Big of a Jump to NBA Competition (& Rent)?

What do former NBA players Jack Sikma, Devean George, Vern Mikkelsen, and Terry Porter have in common?

 

I’m a big basketball fan, but had only heard of 3 out of the 4.  And I had no idea what they had in common.

 

Answer: They all came to the NBA after playing at a Division 3 college.  That’s pretty hard to do.  It’s so hard, in fact, that they are the ONLY players to ever make it to the NBA from Division 3 schools.

 

Why is that?  The best high school basketball players have either gone directly into the NBA (ex: LeBron James) or gone via a Division 1 college (ex: Kemba Walker from the University of Connecticut).  The competition in Division 1 is fierce and players train year-round to compete.  And 99%+ of Division 1 players are not good enough to play in the NBA.

 

Division 3?  Though the players are very good if they are playing hoops in the park with you, most would probably have a hard time competing against a Division 1 player’s athleticism, size, and skill.  Those Division 1 guys are really good!  And multiply that by 100 for the guys who are good enough to play in the NBA.

 

So am I a Division 3 hater?  Not at all!  I can probably relate to them much more on the basketball court.  But when they have to try to play against NBA-caliber players, it’s just too much of a jump.  The NBA guys are stronger, faster, quicker, more accurate, have better basketball IQ, and jump a lot higher.  Most Division 3 players don’t stand a chance.  It’s like trying to compete against a perfect storm of genetics and work ethic.

 

I sometimes feel like I run into this situation with rental applications.

 

BDF Realty receives some applications from perfectly fine, average tenants.  They have decent credit scores, a few late payments from their prior landlord, and have some debt.  But we have to turn them down.  Why?

 

Because they are paying $900.00 in rent and want to rent a house that rents for $1,500.00.  With rising rents in Charlotte, this has become a more common situation.

 

We have to ask: if the tenant was late a few times at $900/month and apparently has consumer credit card debt that is being carried from month-to-month (aka living beyond their means), what is it going to look like when the rent jumps up to $1,500/month?  Where is that extra $600/month coming from?  It would require a lifestyle change that most people don’t want to and/or are unable to make.

 

It’s certainly not impossible.  But just like the aforementioned four Division 3 players being the only players to make the NBA, it is unlikely to work out.  The jump in rent is usually too great.

 

No one (tenant or landlord) wants a situation where it is a struggle to make ends meet.  Be cautious when accepting tenants who might not be equipped to make the big jump into the NBA.

 

Happy Landlording!

Fill Your Rental Home with Complainers?

As a property manager in Charlotte, we conduct a lot of rental house showings.  Typically afterwards, the tenant is either interested in the house and submits an application or is not interested and goes incommunicado with us.  Fair enough.

 

But sometimes we get an e-mail like below:

 

Hi BDF Realty,

 

I saw the rental house today and liked it.  However, I was wondering if the owner would be willing to address the following before I moved in (if I were to apply):

 

1. Clean the windows- interior & exterior
2. Replace the kitchen flooring (small rip in front of the stove)
3. Replace the light bulbs to LED
4. Replace 2 of the blinds that have cracks
5. Change the front lock because it sticks a bit
6. Paint the downstairs bedroom a neutral color (I prefer beige for my bedroom set)
7. Replace the vegetable drawer in the refrigerator (slight crack starting to form)

 

Etc., etc., etc… this list goes on for a page and a half filled with minor item after minor item.  It’s not exciting reading!  I don’t care to read anything that long unless it’s about one of my fantasy football players (7-3 this year so far- yeah!).

 

In my early, inexperienced years of being a property manager, I may have composed a letter back to them that would read something like this:

 

Dear Prospective Tenant,

 

Thank you for your (dis)interest in our rental property.  After a careful review of your requests, here is what we are willing to do in regards to each of them (answers correspond to the numbers in your email):

 

1. Nothing
2. Nothing
3. Nothing
4. Nothing
5. Nothing
6. Nothing
7. Nothing
8. – 93. Nothing

 

Thanks again for your (dis)interest!

 

Love-

BDF Realty

 

P.S. From my experience, courtship doesn’t work like this.  We have the property.  You don’t have the property and may want to live there.  You should be selling us on you, not asking us to do a lot of marginal stuff instead.  Just sayin’…

 

P.S.S. There’s this thing called “new construction” you may want to look into. 

 

However, this is almost always not the best tact to take.  Landlords actually should want these tenants.

 

What????  Repairs cost money!  Why spend it on non-operational stuff?

 

I’m not saying to offer to do everything.  But definitely offer to do some things.  Some people would call these prospective tenants “annoying” or “complainers”.  A different, nicer moniker would be to call them “meticulous”.

 

And in my experience, “meticulous” tenants keep and leave your place in great shape; dare I say in “meticulous” shape!  There are usually improvements made during their tenancy (that they pay for), rent is always on time (or early), and everything is in perfect order.  We really like these people after the first few months and then don’t want them to ever leave.

 

There is some pain on the front end.  However, once they get situated, the back end is awesome.  Bring those complainers on!

 

Happy Landlording!

Losing 20% of Your Clients and Finding Joy in Serving



“If anyone forces you to go one mile, go with them two miles.”

Jesus Christ (Matthew 5:41)

 

At the beginning of 2015, we (BDF Realty) lost almost 20% of our clients in a space of four months.  That’s substantial.   And fast!

 

It was for a variety of reasons: some owners wanted to sell their homes, some were unhappy, some wanted to move back into their rental houses, some were foreclosed on.  It wasn’t just one thing that we could try to correct.

 

I had just had my first child and was wondering what was going on.  I prayed to God repeatedly wondering why this was happening.  “What am I doing wrong?  What is the issue?  What are You trying to teach me through this?”

 

After about six weeks of praying with no answer, I ran into the Bible verse above.  “If anyone forces you to go one mile, go with them two miles.”  It stuck in my craw.

 

I thought about my recent interactions with clients.  They were asking me to do things that I didn’t want to do (probably out of laziness).  I made up excuses or came up with charges for doing the work, hoping the tasks would go away.

 

I came to the realization that not only was I not going 2 miles, I was a probably pulling up a little short on the first mile too.

 

So I brainstormed and came up with a list of approximately 15 things I remembered that I had avoided doing for clients.  Note: there was a reason I didn’t want to do these 15 things- they were a big pain(!) and were non-revenue producing.  That’s a hard combination to get motivated for.

 

Fortunately/Unfortunately, when you lose so many clients, you tend to have a lot more free time at work.  So I started working to complete the list.  It took me about 3 weeks, but it begrudgingly got done.  Then I contacted the clients and told them that I took care of their issues (at no charge).

 

Our clients were very grateful.  It felt sort of good; actually, it felt really good.  It was nice to feel appreciated.

 

Property management can be a thankless job.  Most of the communication is centered on people that are unhappy that something went wrong.

 

“My toilet is broken!”

“My AC has been out for 2 days and I have a baby!  Don’t you care?”

“Why is this repair so much??”

“Where is the rent?”

 

But there also is an unmistaken joy in serving, a blissfulness for going beyond what is asked for or expected.  This experience awakened me to make me a happier (and more effective) property manager.  Work was more fun!

 

As a postscript, we didn’t lose any more customers that year (thank God!).  But I don’t think we added many either.  And even at a reduced revenue rate, my new son did continue to eat (and hasn’t stopped…).

 

But a little over a year later, the phone started ringing a lot from prospective new clients.  I was grateful, but didn’t really know why it was happening.  After a few weeks, someone was about to list their rental property with us and asked for me to send him more information before he made a decision.  Then he called back and said, “Your reviews are great.  Don’t worry about it!  Just send me the contract.”

 

This happened before the business world was “review crazy”; honestly, I didn’t even know BDF Realty had on-line reviews at that point.  Apparently, the clients who I “begrudgingly” went back to do work for a year before wound up helping me out more than I ever did for them.

 

Especially in property management, I tell this story much more from a “find joy in serving” bend than a “method to recoup 20% of your clients who found pasture elsewhere.”  The second mile can be where the real rewards lie.

 

Happy Landlording!

 

Lavar Ball’s Bluster Won’t Sell Your Rental Home

“Ex-UCLA freshman LiAngelo Ball has no chance that he'll be drafted in June — and that was true before his shoplifting incident in China. ‘He's not on any of our scouting lists — even the extended lists,’ one GM told ESPN.”

Adrian Wojnarowski (ESPN Senior NBA Insider)

 

“Gelo is the best two-guard in the draft on the fact that he can shoot better than anybody in the draft.  He’s stronger than anybody in the draft.”

Lavar Ball (father of LiAngelo Ball prior to the NBA Draft where LiAngelo was bypassed by all 30 NBA teams in both rounds of the draft)

 

Sometimes fathers get carried away with how good their sons really are at sports.  And based on how outspoken Lavar Ball is, it is no surprise how bullish he was on his second son’s, LiAngelo’s, ability on the basketball court.

 

Many people dislike Lavar Ball because he is brash and speaks his mind.  He said he could beat potentially the greatest player in the history of the NBA, Michael Jordan, in a one-on-one game in his prime.  He is an unabashed, vocal supporter of himself and his sons.  And his sons definitely have basketball ability, though at differing degrees.

 

His first son, Lonzo Ball, was the second overall pick in the NBA Draft by the Los Angeles Lakers last year.  He proved to be the real deal.  He excelled in college for his one year at UCLA and had a promising rookie year in the NBA.  Some NBA scouts thought he was the best prospect coming into draft- an elite passer and competitor.

 

LiAngelo followed his older brother and also enrolled at UCLA on a basketball scholarship.  Unfortunately, he was arrested in China during a preseason trip with his UCLA teammates, and was suspended.  He later dropped out of school when the suspension did not go away.  He never played in a college game.

 

Lavar thought it was still a mistake that all the NBA teams passed on the chance to sign LiAngelo.  And he blasted them.  But the NBA scouts really have one job- to find the best players they can to help their organization win games.  And they unanimously agreed LiAngelo just wasn’t good enough.

 

Sometimes this type of scenario pervades rental home sales, especially rental homes that have been tenant-occupied for many years.  Landlords see other homes that sell near their rental homes and immediately slot theirs at the highest sales price.

 

Sometimes it’s justified.  However, often it is not.  The rental home is just sometimes not comparable.  Tenants have lived there and may not have taken care of the home.  The landlord might not have made any improvements to the home since it had become a rental and now it is dated with older parts (appliances, flooring, paint, etc.).  This is when the dearth of ongoing home investment can catch up.

 

And that’s fine.  I get it.  No one wants to spend money.  We hope that the house is good enough to sell “as is” too.

 

But buyers know what they like.  And when they enter a home that is priced at the top of the market and doesn’t compare to the updated and lovingly cared for homes also for sale, they will pass without making an offer.  And the home will sit on the market- unsigned like LiAngelo.

 

Despite Lavar’s bluster, the proof is in the pudding.  Is LiAngelo a good enough basketball player to compete and star in “The League”?  Is the rental home in good enough condition to catch buyers’ eyes and make them want to make the biggest investment in their lives for it?  Is there a “WOW” factor or is everything just plain?

 

We all want quick, high-priced sales.  But if the rental house can’t pass like Lonzo, it’s time to either lower price expectations (YMCA league?) or pay the money to make improvements to get to league standard. 

 

Can your rental home walk the talk?

 

Happy Landlording!