Charlotte

Replace the Butter with Margarine and Nix the Washer & Dryer Please

 

Americans demand to have their food made-to-order.  We no longer live in a culture where you eat what’s put in front of you; rather if you don’t like an ingredient and would prefer to have other ingredients instead, it is deemed socially acceptable to make the food preparer bend to your individual whims.  Burger King based a multi-million dollar advertising campaign on (and trademarked the phrase) “Have It Your Way,” and now every restaurant does the same.  I feel for the workers in the restaurant industry who have to put up with all of us creating our own menus.

 

I read an article about how the French chefs despise American tourists even more now.  We walk into their 5-star restaurants, look at the menus (which we expect to be written in English), and have conversations like this:

 

American Tourist: How’s the escargot?

 

French Waiter: Magnifique!

 

Tourist: What are the snails cooked in?

 

Waiter: Excusez-moi?

 

Tourist: I mean, I’m trying to cut down on butter, so I’d prefer the chef uses low-fat margarine… butter is bad for the heart, you know.  And garlic gives me gas, so let’s cut that out too if it’s in there…  Try to keep the salt to a minimum.  And were these snails bred and treated humanely before bring cooked?

 

Waiter: Sacre bleu!

 

This thinking has permeated into real estate as well.  At BDF Realty, we were selling a house for one of our Charlotte property management clients.  An investor came on to the scene who loved the house and wrote a contract to buy it.  It was a great offer and we wound up accepting it with minimal negotiation.  However, the investor did have one demand that caught me off guard and was not negotiable- the washer & dryer needed to be out before closing.

 

Now, if the washer & dryer were on their last legs, I’d understand.  But our client had bought these about a year ago; it was a nice set that worked perfectly.  But the investor was adamant that they needed to go.  So, it made me ponder: why wouldn’t the investor want these as an asset for his future tenants?

 

I thought about the prospective Charlotte tenants who contact us to rent our houses.  Not many of them ask about a washer & dryer.  I don’t think we’ve ever had a deal fall through because a house didn’t have them.  We’ve had conversations with prospective tenants about the issue of moving the washer & dryer that was already in the house so they could use their own that they were bringing (that’s a pain!).  And having a washer & dryer in the house didn’t allow us to charge more rent.

 

Furthermore, I recall the repair requests we get from tenants who have washer & dryers our owners provide.  We send out appliance repair people that, at times, have cost our owners hundreds of dollars.  Sometimes the washer & dryers are not repairable and have to be replaced which costs our owners even more money and drains their ROI.

 

So, if tenants don’t act like they want washers & dryers and it costs our owners money to have and maintain them, maybe this investor was on to something?  He makes a compelling case to get washer & dryers out of rental homes and let the tenants fend for themselves.

 

Maybe it is smart to “have it your way” when you’re buying.  Experts do say that too much butter is bad for the heart!

 

Happy Landlording!

 

Brett Furniss is the head property manager 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 for single-family homes, Uptown condos, and town homes in the Charlotte-Metro Area.  Contact Us Today!

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Talk to Your Tenant: Win-Win is Better Than Lose-Lose, Right?

 

Years ago, there was a small, remote island that was relatively non-descript and unnoteworthy.  Then two multi-billion dollar pharmaceutical companies decided their business’s future hinged on acquiring it.

 

Why?  Its climate and soil composition was ideal to grow a certain tree that had revolutionary medicinal value.  The pharmaceutical companies needed to harvest and grow and lot of these trees and this was the only place where they could find the perfect conditions to do so.

 

So what happened?  These heavyweight industry titans went after each other to procure this island resulting in a bidding war (hundreds of millions for dollars over a nominal asking price), lawsuits, threats, and tons of bad blood.  After millions had been spent and not one tree had been harvested after a year, a level-headed senior executive suggested the use of a mediator.  People had their doubts because the companies were so tight-lipped about trade secrets; they wouldn’t divulge anything about their intended use of the trees.

 

As the story goes, the mediator ironed out a deal within an hour.  All lawsuits were dropped, conversations turned from sharply bitter to excitedly collaborative, and the rivals eagerly bought the island together in joint ownership.   They were both in production within 6 months.

 

What happened?  Both pharmaceutical companies still needed the trees, but the first only needed the leaves the other only needed the bark.  Once this was discovered, both pharmaceutical companies were in business!  Adversaries became profitable allies.

 

It was a pretty simple solution, right?

 

Communication is important, especially in the property management business.  And, conversely, non-communication can be very expensive and time consuming!

 

A rental relationship can thrive with good communication and turn seemingly lose-lose arrangements like a tenant needing to get out of his lease into win-win situations.  Here are a few examples:

 

A tenant wanted to get out of his lease early due to a job loss during the spring and the owner wanted to sell.  This turned out well as the tenant paid an extra month of rent to terminate their lease and the owner had a vacant month paid for while the home was being fixed-up during an active spring/summer sales market.

 

Or a tenant was a landscaper and needed an extra month to vacate.  The owner wanted to sell immediately, but allowed for an extra month of renting.  For this negotiation, the tenant landscaped the yard for free before vacating.  This gave the tenant the time they needed, while saving the owner money for fixing up the yard.

 

These types of win-win negotiations are only possible when landlords and tenants talk and find out the best path forward together.  A good property manager makes sure that these issues are fleshed out and potential solutions are vetted thoroughly.

 

Anyone can take a hard line on a lease and impose their will legally.  But this is rarely the best and most profitable path.

 

As a postscript to the initial story, the big loser was the owner of the island.  Through incomplete information, the island owner almost achieved a huge, unnecessary payday.  In the property management sphere, the island owner is usually the lawyers who are paid to enforce the lease.

 

So talk to your tenant!  Good things can happen and can turn seemingly lose-lose scenarios into win-win.

 

Happy landlording!

 

Brett Furniss is the head property manager 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 for single-family homes, Uptown condos, and town homes in the Charlotte-Metro Area.  Contact Us Today!

 

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Do Your Rental Home Repair People Care? 2 Lessons Learned

 

 

“People don’t care how much you know until they know how much you care.”

Theodore Roosevelt

 

“We have met the enemy and he is us.”

Walt Kelly (Pogo)

 

When you’re in the property management business, many different things in houses will break.  It’s a sad reality, but it is also the reality that keeps property managers in business (so we keep our complaints to a minimum!).

 

Contrary to popular thought in Charlotte, we really don’t know everything (please laugh!).  So like most property management companies, we employ repair professionals to work on things that break (plumbing, roofs, appliances, HVAC, painting, etc.).  They are, in effect, an extension of us at BDF Realty.

 

So how do we know if the repair people we use are any good?  The simple answer is if things are fixed and tenants are not calling us to say their issue did not stay resolved.  And if the issue recurs (which happens to the best of them), how does the repair person handle it?  Do we get charged for another visit to the house?  Do these recurring issues happen often?  How long does it take for them to get back to do the repair again?

 

So skill-wise, we can figure out if a repair person is any good in a reasonable amount of time.  Let’s call those the hard skills.  But what about the soft skills?  Are they kind?  Conscientious?

 

Do they care?

 

That’s tougher.  We can’t go on every service call with our repair people.  And if they can’t at least fake being nice and caring during those calls, they weren’t going to last anyway.  So how can you tell if they care?

 

I’ve learned 2 lessons over the years:

 

1. If any tenants call to complain about a repair person, there is probably something wrong with the repair person. Two calls and there is definitely something wrong.

 

It takes time and effort to locate the property manager’s information, call them, and detail your experience without sounding like a whiner.  Most tenants don’t care enough unless something is really off.

 

Several years ago, I used a really nice, reasonably priced handyman to work on many of our homes.  When I would see him in person, he was sharp as a tack and would bend over backward to resolve issues.  But I started getting a few tenant calls about chronic lateness and “shady” people he was bringing with him to work on jobs.  We had to sever ties with him.  He’s still a nice guy, but he just didn’t care enough to show up on time and be professional.

 

2. If the repair person is treating us poorly, chances are they are doing the same to the tenants.

 

Recently, we had a repair person work on an issue at a vacant home for us.  We gave him the lockbox code so he could get in and do the work.  The next day we were at the property and found the house key in the lockbox, broken in half.  We called the repair person and he said he had broken the key in the lock and forgotten to call us about it.

 

To me, that’s sort of a big deal, but not the key breaking per se.  I will be the first to tell you that things happen.  As Charles Swindoll said, “Life is 10% of what happens to me and 90% of how I react to it.”  I’m not going to give someone a hard time over things breaking; truthfully the lock was tough and anyone could have broken a key in it.  But not thinking it was important enough to let me know immediately about?  I have to ask, “Does he care?”

 

Having repair people that care matters.  Being a property manager who cares is important too.  And the two are exactly the same to the tenants we serve.

 

Happy Landlording!

 

Brett Furniss is the head property manager 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 for single-family homes, Uptown condos, and town homes in the Charlotte-Metro Area.  Contact Us Today!

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Who Pays Incidentals When Things Break? A Rental Home Dilemma

 

 

The Situation:

The tenant (Mitch) has received higher-than-average water bills for the past two months.  He calls his Charlotte property manager who sends out a plumber to investigate.  The plumber says there is a pipe cracked underneath the driveway that will cost $2,500.00 to fix.

 

Mitch’s take on the situation:

“I just rent here.  My water bill is usually $60.00/month.  The last 2 months it’s been $150.00/month.  So, I’m out an extra $180.00 at no fault of my own.  I pay my rent on time every month and don’t have the budget to afford this.  If you ask me, the owner is lucky to have a tenant like myself that doesn’t cause any problems.”

 

Bottom line: Mitch requests a $180.00 reimbursement from the owner for excessive water expenses.

 

The owner’s take on the situation:

“$2,500????  The rent on this place is $1,050.00/month, so I’m looking at 2.5 months of rent down the drain.  How does a pipe crack happen under a concrete driveway??  And the tenant wants an additional $180.00?  Please let Mitch know that I didn’t burrow under his driveway a few months ago with a hammer and smash the pipe.  Let me get back to you on where I’m going to get the money to pay the mortgage and for this pipe leak.  I think there is assumption that because I’m the landlord, I have millions of dollars sitting around for this type of stuff.  Not true!”

 

Bottom line: The owner does not look at Mitch’s request (or the entire situation) favorably.

 

So who pays the incidental water expense?

 

First of all, this is a bad situation for everyone, with the exception of the plumber.  The tenant has higher water bills at no fault of his own.  The owner has a broken pipe at his house (and an unhappy tenant) at no fault of his own.

 

In life, things break.  And things sometimes break with no one at fault.  We’re in a society that expects 100% uptime on everything, but that is a fallacy in a world where things wear and rust out.  And when things break, there is cost and (usually) a mess to clean up.  And everyone expects some other party to pay for it (not me!!).

 

So we have to go to the lease for guidance.  Most standard leases that I’ve seen say that unless there is “willful or wanton negligence” on behalf of the landlord, landlords are not responsible for incidental damage from things breaking.  (Note: I’m not a lawyer and don’t even play one on TV)

 

If the landlord sent someone to fix an issue in a reasonable amount of time, he should be in the clear from having to pay additional costs beyond the repair.  That’s not to say there may not be additional factors involved that may compel the owner (or tenant!) to offset the other’s financial outlay.  But, normally speaking, the lease seems to offer this protection to the landlord.

 

So, if you are the tenant, what to do?  If Mitch has renters insurance (which is a requirement of our leases), he has another venue to ask for relief from.

 

We’ve had other similar examples: a hot water heater leaking on to a laptop, food being ruined from a refrigerator breaking down, and others.  To the tenant, it is a loss of a computer or replacing spoiled food; to the landlord, it is buying or repairing a hot water heater or refrigerator.  Ugh!

 

Bottom line: When things break, it is not a good situation for anyone.  But realize that it is a part of life that is 100% guaranteed to happen to you many times.  Try to be civil and understanding when it does.  Neither party likes it!

 

Happy Landlording!

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“Unverifiable” Rental Tenants Can Be Like Rudolph and Save Your Christmas

 

 

“All of the other reindeers used to laugh and call him names.  They never let poor Rudolph play in any reindeer games.

 

… then all the reindeers loved him, and they shouted out with glee (whoo-pee!).  Rudolph the Red-Nosed Reindeer, you’ll go down in history!”

Rudolph the Red-Nosed Reindeer by Billy Gilman

 

Rudolph had a tough gig before becoming a legendary Christmas icon and saving Christmas one year.  Piecing together various biographical sources on Rudolph, it is clear he had a privileged, yet difficult, childhood.  Through his envied bloodline (the son of famed Donner and the beautiful doe, Mrs. Donner), he had both the connections and proximity to Santa to have a great life and career.  But the dreaded red nose seemingly doomed him to a life of ridicule and parental shame leading to his estrangement from the North Pole elite.  He found solace in the company of societal undesirables (among them a dentist!) before the serendipitous approach of uncommon foggy weather one Christmas Eve.  Santa took a chance on him and it paid off in spades.  The rest, as they say, is history.

 

When Rudolph was on the road with the undesirables, no one really knew his skills and upbringing (the bloodline, the advanced reindeer training, his untapped flight ability, etc.); they just knew he was sad, unwanted, and unloved.  He couldn’t pull out his press clippings from his pockets (no pants) or pull it up on the internet (no Wi-Fi on the Island of Misfit Toys).  And he didn’t really want to talk about his past, which recently included not even saying goodbye to his girlfriend, Clarice, the only one who really liked him for who he was (red nose and all).  He only had his focus on the future as he was trying to find himself amidst new circumstances.

 

Rudolph was a great reindeer; he just couldn’t prove it.

 

As Charlotte property managers, we get applicants who could be great tenants, but they can’t prove it.  And we want to be sure they would be before we approve them to live in one of our client’s rental houses, but the applications sometimes don’t reveal much.

 

For example, on our four main tenant screening requirements, we may receive a prospective tenant application with the following information:

 

1. Credit report: very little to no credit history

Tenant explanation: “I don’t like debt.  I pay everything with cash.”

 

2. Landlord history: scattered to none

Tenant explanation: “I lived with family or moved in with a significant other.  I was not on a lease or a mortgage.”

 

3. Criminal report: nothing comes up

Tenant explanation: “I’m an outstanding citizen!”  (Kudos!)

 

4. Income: no paystubs available

Tenant explanation: “I’m a small business owner or do work under the table.”

 

So what to do?  Much like Rudolph, there’s very little information to go on.  The tenant is basically “unverifiable”.

 

This is where it is easy as a property manager to punt and just reject the applicant.  There are a lot of fish in the sea and a verifiable tenant will probably be in contact soon.  Besides, there is a lot to lose.  If the unverifiable tenant pays rent and everything goes fine, then everyone is happy.  But if things go south, clients will understandably ask for details about the tenant screening.  “What do you mean you accepted a tenant with no verifiable information?  Remind me why I hired you????  Did you flip a coin on whether to approve them?”

 

So what to do?

 

1. Verify everything you can. Get bank statements and W-2s.  Money is usually traceable in some form.
2. Collect 2 months security deposit and as much upfront rent as possible in certified funds.
3. Ask a lot of questions and do Google searches. Unconventional tenants can require unconventional screening methods.  What does their social media accounts say about them?

 

We’ve found some great, long-term tenants that other landlords have rejected due to them being unverifiable.  We’ve also walked away from some that we just couldn’t get a good read on.

 

Santa gave Rudolph a chance, and Christmas was saved.  It is sometimes wise to give unverifiables a second look so rent is coming in during Christmas on your rental home.

 

Happy landlording!

 

Brett Furniss is the head property manager 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 for single-family homes, Uptown condos, and town homes in the Charlotte-Metro Area.  Contact Us Today!

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The Miami Heat Big 3 & Your Property Management Maintenance Team

The Charlotte Hornets opened up the NBA season the other night against the Miami Heat.  For NBA fans, this is exciting stuff!  The Hornets hope to replicate some of the past success of the Heat, while the Heat are looking to find success again.

How well have the Heat done in the past 5 years?

2011: Eastern Conference Champions

2012: NBA Champions

2013: NBA Champions

2014: Eastern Conference Champions

2015: Missed playoffs altogether

So things were rolling from 2011-2014.  Making the NBA Finals every year (and winning twice!) is unbelievable excellence.  How did they achieve this?

It started with the Heat picking up two great players, LeBron James and

Chris Bosh, in free agency after the 2010 season.  When they paired them with Dwayne Wade, their existing All-Pro, they had the talent to take on anyone in the NBA.  And through hard work, they bonded together and had immediate success.

Along with the “Big 3”, the Heat had a good bench of role players, which changed often from year-to-year.  But as long as Bosh, Wade, and King James were pulling the scoring load, the Heat’s role players were able to offer enough support to make them champions.

The Heat’s success also translates into winning property management maintenance.

90% of property maintenance issues with rental homes can be handled by another kind of “Big 3”:

1. HVAC company: Air conditioning and heat are a big deal for tenants. Having a reliable and timely HVAC company on call is huge.

2. Plumber: Sanitation, leaks, and hot water heaters are also very important.

3. Handyman: For the “miscellaneous”- Broken windows, doors, drywall repair, paint, power washing, gutter cleaning, etc., etc.

If the maintenance “Big 3” are intact, the rental home should be in good hands for landlords.  They will handle most of the on-going issues.

But never underestimate the role players; they are called less often, but play vital roles.  Vendors such as pest companies, roofers, electricians, painters, house cleaners, carpet cleaners, lawn care, and others are important to have on your team as well.

So what, you may ask, happened to the Heat in 2015?  King James left the team as a free agent to go back to play for his hometown Cleveland Cavaliers.  Bosh and Wade both missed many games due to injuries.  And the remaining, healthy role players around them couldn’t shoulder the load themselves without them.

Having the “Big 3” is important to property maintenance success.  If one is lost, making sure a worthy replacement (Kevin Durant to the Heat in 2016?) is imperative!

Happy landlording!

Brett Furniss is the head property manager 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 for single-family homes, Uptown condos, and town homes in the Charlotte-Metro Area.  Contact Us Today!

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Do You Want to Rent Your Charlotte Rental Home to Anthony?

Who needs a house out in Hackensack

Is that all you get with your money

It seems such a waste of time
If that’s what it’s all about
Mama if that’s movin’ up
Then I’m movin’ out
I’m movin’ out

 

“Movin’ Out (Anthony’s Song)” by Billy Joel

People move out and relocate for many reasons- a new job, real love (isn’t that sweet!), real love that really isn’t (not so sweet), the need for new scenery, the need to get out of town (Jack Bauer fleeing the US for the UK in Season 9 of 24), Anthony getting out of Mama’s house, etc…

And most of them, like Anthony, need to find a place to live.  So property managers get rental applications from out-of-town folk and need to screen them.  It seems like it would just be business as usual.  But there are more factors to consider.

We’ll start with the basics:

1. Credit check: Anthony saves his pennies, so I’m optimistic.
2. Criminal check: He seems frustrated, so we’ll have to see on this on.

The income check seems straightforward; people make what they make.  But figuring out how much free cash flow is available can be muddled if the prospective tenants have financial baggage where they are coming from.  For example, are they homeowners?  That’s another house payment they are responsible for, and one that could rival where available funds would go if things got tight (pay for the house they own or pay rent for the one they don’t?).  If they make enough to afford two house payments, that’s great.  But most people don’t and it adds a layer of risk.  Renting out or selling their out-of-town homes is an uncertain thing and can provide short and long term cash requirements.  However, Anthony lives with Mama, so he’s good there with no extra house payment.

The employment screening also adds a potential issue.  Unless the prospective tenant is in largely the same work position with the same boss at the same company, there is uncertainty on how things will pan out.  When a prospective tenant has been in a job for a year or two, it shows they can get along, handle the job, and fit into the corporate culture.  New jobs in new cities are a step into the unknown.  And that creates a greater amount of risk.  Is Anthony transferring to Charlotte with a position with the same grocer or does he hope to latch on with the local Harris Teeter?  This adds some uncertainty to his application.

A quick caveat: “Risky” doesn’t necessarily mean bad.  When I think of our best all-time tenants (sigh… love you guys!), many of them were relocators with the “issues” described above.

So what to do about Anthony?  His credit score will be a big indicator.  If he is in the 700-800 range, this tells me he knows how to handle his finances well and can make things work through potential adversity.  If it’s in the 500’s, I’m more nervous.

And cash is king.  How much in liquid assets does Anthony have?  He can send bank/brokerage statements that can prove he has funds to fall back on or tide him over until he’s up and running in Charlotte.

Anthony may want to get out of the Tri-State area, shun Hackensack, and come to Charlotte, but smart landlords will want to check Anthony’s application closely.  He may still need to stay in Mama’s house for a little longer to save more money, line up a job in Charlotte, and pay his bills on time to improve his credit score.

Brett Furniss is the head property manager 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 for single-family homes, Uptown condos, and town homes in the Charlotte-Metro Area.  Contact Us Today!

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Property Management Wisdom: Pass That Peace Pipe With Your Tenant

If you’re feeling mad as a wet hen,
Mad as you can possibly get, then
Pass that peace pipe, bury that tomahawk
Like those Chichamecks, Cherokees,
Chapultepec’s do.
That cold shoulder never solved a single complaint.
When you’re older, you’ll wipe off all of that war paint.

(Hugh Martin – Pass That Peace Pipe Lyrics | MetroLyrics)

https://www.youtube.com/watch?v=wCNa-AT9hOQ&feature=player_embedded

Blessed are those who find wisdom, those who gain understanding,

for she is more profitable than silver and yields better returns than gold.

She is more precious than rubies; nothing you desire can compare with her.

Long life is in her right hand; in her left hand are riches and honor.

Her ways are pleasant ways, and all her paths are peace.

Proverbs 3:13-17 NIV

When I was a younger property manager starting out in Charlotte, I was all about the letter of the law (or in this case, the lease).  “Follow it, or else!”  “According to section 7.6, you are in breach of contract!  Better get a lawyer!”  “No payment yet?  I’m sick of excuses!”

Property management can turn you into an ugly person.  It’s really set up in a way that promotes divisiveness.  Property managers are in one corner sparring for the owner’s (their client’s) interests.  The tenant is fighting to protect their interests.  Who pays to replace a burned out light bulb?  You do!  No!  The thing was already burned out when I moved in!  You should pay!

What I’ve found over the years is that being a stickler and jerk isn’t effective.  It’s bad policy, both professionally and personally.

Through the years (much like King Solomon’s advice above), I’ve found the wise path is to take actions that promote pleasantness and peace, whenever possible.  It’s more profitable and much less stressful!

To keep the peace, keep the following in mind:

1. When e-mails start getting negative, stem the tide and pick up the phone. The game of “who is smarter/snarkier” in e-mails with your tenant is a game of LOSERS played by LOSERS.  If you must, save your “clever writing” for a novel (or your property management blog).

2. “Seek first to understand, then to be understood.” (Stephen Covey). We argue about problems.  Problems need solutions.  Listening to the tenant’s needs and thoughts provides more information to formulate peaceable solutions with.  Enough said.

3. Real professionals come up with compromises that can work for both parties. This is where property management becomes art, as opposed to robotic, Draconian ruthlessness.  No one said property management has to be a zero sum game where one party loses and the other wins. He who lives by the sword, dies by the sword.

So, bury the hatchet and try to work issues out nicely.  Pass the peace pipe with your tenant and enjoy the rewards!

Brett Furniss is the head property manager 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 for single-family homes, condos, and town homes in the Charlotte-Metro Area.  Contact Us Today!

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Wealthy Living Paycheck-To-Paycheck? More Pressure on Tenant Screening

When you hear the term “paycheck to paycheck” you probably think of low-income households struggling to make ends meet. That’s even the title of a new HBO documentary highlighting the plight of America’s working poor. But a new paper released at the Brookings Institution’s BPEA conference Friday finds that a sizeable number of wealthy households are living paycheck to paycheck, too.

“The Wealthy Hand-to-Mouth,” by economists at Princeton and New York University, finds that roughly one-third of American households — 38 million of them — are living a paycheck-to-paycheck existence. These are families who hold little to no liquid wealth from cash, savings or checking accounts. But a staggering two-thirds of these households are not actually poor; while they resemble poor families in their lack of liquid wealth, they own substantial holdings ($50,000, on average) in illiquid assets. Because this money is locked up in things like their houses, cars and retirement accounts, they can’t easily dip into it when times get tough.

Christopher Ingram (Washington Post 3/21/14)

When running tenant rental applications, property managers and landlords are largely looking for one thing: tenants who will pay on-time and in-full every month (while not committing felonies in between “House Damage” parties).  We are looking at credit scores, criminal background checks, income, and landlord history.  But is this sufficient?

Based on the article above, prospective tenants that we once thought looked great on paper may be riskier than we thought.  For example, a house renting for $2K/month may draw the following applicant:

Married couple

Husband makes $96K/year

Wife stays home with 2 children

No criminal record besides 2 speeding tickets in the last 5 years

760 & 720 credit scores

Owned a home in their old town which they sold to move here for a job

They look like great candidates!  But let’s dig deeper with a back-of-the-napkin calculation when we delve into their credit report and specifically, their monthly cash inflows and outflows:

$8,000.00 Salary

less taxes (approx 40%):         ($3,200)

2 car payments:                       ($1,000)

Rent:                                       ($2,000)

Utilities                                   ($300)

Student loans                          ($200)

Private school (children)         ($600)

Credit card balances               ($100.00 minimum payment)

Car insurance                          ($250)

Food??
Activities??

Gas??

With $7,650.00+ in estimated monthly expenses, making $8K/month turns out to be tight.  If something happens unexpectedly (sickness?) or job loss (just moved here for a job), this could get bad in a hurry.  We know cash flow will be insufficient to cover the rent, so the question becomes how many assets do they have?  And how liquid are those assets?

And then the line of questioning turns into “Do we know?  Did we even ask?”

At the end of the day, the rental application can’t really devolve into a mortgage application-like colonoscopy.  It’s too painful for everyone involved and takes too much time.

The good news is that a run-of-the-mill credit report is pretty thorough.  The credit report screening starts with looking where cash flow is going monthly and then factoring in the other common monthly expenses (car insurance, gas, utilities, cell phones, etc.).  If large credit card balances are present, it’s probably indicative that their expenses are more than their incomes.  Using a back-of-the-napkin look at their income and monthly expenses (coupled with alarm bells for any large credit card balances) will give a good idea of how risky the applicants are.  If there is sufficient cash flow left over each month, approve them and move on.  If it looks to be too close for comfort, ask more questions.  Ask for more documentation of assets.  And then reject the application or ask for a bigger security deposit.

Applications are about present qualifications, but also about future vulnerabilities.  Few things always go perfectly for everyone; this is real life we are talking about!  And if things don’t add up, it would behoove you to get to the bottom of it as opposed to just taking the path of least resistance.  High income and credit scores may not be grounds for fast track application approval anymore.  Times change and we need to change with them.

Happy tenant screening!

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 for single-family homes, condos, and town homes in the Charlotte-Metro Area.  Contact Us Today!

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March Madness: How to Pick a Great Bracket & Great Rental Tenants

Everybody loves March Madness.  Even property managers!  Chances are the only repair calls will go to the cable television companies if their television screens start to flicker.

But now the hard part starts; trying to predict who will win each game of the NCAA tournament.  Picking a perfect bracket is tough; no one did it last year after millions of entries.  The odds are seriously stacked against getting them all right.  And, inexplicably, it’s even tougher if you’re a serious college basketball fan!  The men’s college basketball fanatics, who watch all the games year round and know that Duke should absolutely kill Mercer, wind up picking the wrong team to win.  Meanwhile, the clueless non-fans who turn on Mercer Street to go to work everyday and choose Mercer to win, wind up getting the pick right.  Go figure!

To make good picks, fans rely on statistics and past performance versus other opponents.  And then they look at other, intangible signs.  Are their players healthy?  Are they experienced or are the teams filled with unproven freshmen who might wilt in the big game?  How did they do against big teams during the year?  How about fast teams that like to run?  How well are they playing now?

Much like fans, property managers are tasked to pick the best tenants when they get many applications for the same rental property.  Some, like Kentucky this year, seem to fall in the “no-brainer” category.  Great credit scores, great landlord history, make plenty of money to afford the rent, and stay away from trouble with the law.  They don’t seem to have any weaknesses and look to be a shoo-in for application approval.

But what about if Kentucky’s starting center gets hurt and can’t play?  Or in the rental game, you read about a company starting layoffs in the department where your “no-brainer” tenant has worked for the last 10 years.  Is that a cause for concern?  Yes, but how much so?

That’s a judgment call.  Kentucky has enough other talent to steamroll most teams on most nights even without their center.  And the prospective tenant could be just fine as she has plenty of cash reserves and a robust Rolodex where she could get hired anywhere in town with a quick phone call.  Or she might be in real trouble as she was living paycheck-to-paycheck and hasn’t updated her resume since college.

The other prospective tenants aren’t as polished (lower credit scores and income), but have dual incomes in disparate industries.  Would they be better bets?  How does a property manager know who to give the approval to?

There is no right answer.  Much like picking a bracket, some of it comes down to raw data and past landlord performance.  But some of it comes down to the experience of selecting tenants for many years.  I wish I had it down to a perfect science and could put it in a training manual (that I could sell for millions of dollars…).  But no matter how good a property manager is, no one can get them right all the time.  As my 3^rd grade teacher said emphatically, “that’s why pencils have erasers!”

So, what to do?  The right answer is closer to reviewing the raw data thoroughly and then looking for other signs.  Do they have a pattern of paying people on time?  Did their past landlords have good things to say?  Do they make enough money to afford the property with some excess funds still available if their car breaks down or they face unemployment?  Have they recently attempted to hurt anyone seriously (I’m half-kidding on this one)?

As for other signs… how did they sound on the phone?  Did they get the application materials back to us in a timely manner?  Are they pleasant to talk to?  Were they forthcoming and truthful with everything asked in their application?  Did they return our calls in a timely fashion?  Were they evasive in any way?  There’s a certain feel involved.

The other signs are tough to quantify.  But that is when picking good tenants turns from a science into an art form.  And that’s when the experienced know in their gut that Lehigh has a chance to take down Duke, even though they are a huge underdog.  And that North Carolina, despite an up-and-down season, seems to be peaking and can take it all this year.

Picking tenants and the NCAA brackets isn’t as easy as picking all the favorites.  Experience counts.

Good luck with both and enjoy the tournament!

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 for single-family homes, condos, and town homes in the Charlotte-Metro Area.  Contact Us Today!

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