Charlotte Property Management Weekly: Why Can’t Property Managers Guarantee How Long it will Take to Fill a Vacant Property?
Question from client: “How long will it take for you to fill my home with a tenant?”
Answer from property manager: “It should be in the next month or two, but I obviously can’t guarantee that.”
Comment from client: “Okay, I completely understand. I wouldn’t want you to speculate about the result of an action that you do for a living and your company has executed repeatedly well for the past 19 years (according to your ad).”
Question from hungry patron: “When will my eggs be ready?”
Answer from waiter: “It should be in the next 10–20 minutes, but I obviously can’t guarantee that because I’m not the cook.”
Comment from client: “You lazy imbecile! I’m starving- shake a leg! It should take 2 minutes- tops! Tell your guy back there to skip a smoke break and crack a couple eggs!”
What’s the difference? Clearly, it’s customer expectations. In some industries the expectations are really high, and in others it’s low. It’s just the way of the world.
So why don’t property managers guarantee the time it will take them to fill a rental property? Is it because they can’t (obviously)?
If you’re an experienced cook, you know approximately how long it takes to cook something. You’ve got to track down the ingredients, mix them up, and cook them for some length of time. It can be estimated (within a few minutes) of how long this will take. The “Guaranteed 10-Minute Breakfast or It’s Free” promotion should be easy to execute without giving away the farm.
The same should go for a property manager, right? If they know:
1. What time of the year it is
2. How fluid the current market is
3. The condition of the home
4. The rental price
It should be enough information for a tighter estimate of when to expect. There are just not that many variables to consider and factor in! So why are there no guarantees then? And why is it “so obvious” that a property manager could never give one?
Q. When will this basketball game be over?
A. Sometime today, but I obviously couldn’t guarantee that
Dominos Pizza did the “20 Minutes Guaranteed, or it’s Free” delivery promotion for years and they were able to pull it off with many more variables to consider (traffic, events going on in the city, number of orders, employees not showing up to work, weather, etc.).
So why not property managers? Are filling a home time guarantees a matter of can’t, or won’t?
Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)
Learn MoreCharlotte Property Management Weekly: Tenant Stories Often Raise Red Flags
“If you have to ask how much it costs, you can’t afford it.” Maxim of the Wealthy
“If you have to ask for a payment plan for the home’s security deposit, you can’t afford it.” Maxim of the Intelligent
We are approached by potential renters a few times a month with something like the following:
“We love this house! We want to take it! We would call our lives “complete” if we could inhabit this home with our children! We get goose bumps just imagining the daily ingestion of pure beauty that permeates from each nook of this stunning domicile. We have the first month’s rent ready to put down now! Where do we bring it? We will treat this house like our very own with weekly carpet baths and loving dustings!
But… The only problem is that we are a little short on the security deposit. Will the owner accept breaking this payment into 3 months? Let the owners know we are good for it and I will be praying that they be blessed this Sunday at each of the church services we regularly attend.”
Thinking like a property manager, how many red flags come up in this beautiful soliloquy? A few come to my mind:
1. Lack of funds: I dare to call this the number one tenant screening technique; this is the collection of the application fee, pet fee, security deposit, and the first full month’s rent upfront and in full. This really is the number one way to find out if they have cash on hand. If they can pay it, they probably have money. If they can’t, they probably don’t and won’t apply.
2. Offer of the security deposit in a payment plan: This ties into red flag #1, but there is another issue. If they don’t pay it upfront, you are left with absolutely no leverage to get it after they move in. You can’t evict them because they are paying rent. Please don’t take payment plans! I’ve done it a few times (because it seems so easy and the tenants seem so sincere…), but they rarely keep up with them. Moving is always more expensive than they realize and cash was already short. They won’t give you the money simply because they don’t have to. They duped you on the front end and will now avoid your calls and hollow threats.
3. Effusive praise over a rental home: I like it that you like it, but let’s not go overboard. When you tell me that you’re going to take meticulous care of it, that’s great; but I’ve never had a tenant tell me that they were planning to systematically destroy their rental before moving in.
4. I like it that you’re into church: But I wonder why you’re telling me this when you’re applying for a rental home?
Red flags don’t mean you need to wave a white one. Be diligent in your screening process and the right tenant will come along!
Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)
Learn MoreCharlotte Property Management Weekly: Why Rent-To-Sell is “Hot, Hot, Hot” in Today’s Cold Real Estate Market
Q: Why do robbers rob banks?
A: Because that’s where the money is
Q: Why have home sellers shifted their vacant homes from “for sale” to “rent-to-sell”?
A: Because that’s where the future buyers are
It’s really that simple. I probably sound like a broken record, but I still see vacant homes trying to sell for full market prices. And it’s just not working. Let me repeat: it’s just not working.
My old economics professor always said that the lottery was a tax for people who didn’t pay attention in math class. He meant that the odds of winning are so astronomical that buying a ticket is just a waste of money.
In a way, I feel the same about most vacant homes. Let’s look at the math:
Find the number of houses that sold in your region last year (let’s call this number “X”). Now compare X with what the home sales numbers were annually in the past 5 years. X is comparatively low. That is obviously not good news for home sellers. Unfortunately, home sales have trended downward (and are expected to continue to do so).
Now take X and cut it in half. What? Unfortunately, half of X is distressed home sales (foreclosure, REO, short sale, etc.). This “half of X” gives us the true number of people who are now shopping for your home (if it is listed for sale at close to full value). That’s not good.
So the math is basically saying that there are way fewer (way, way, way fewer!) home buyers out there for houses that are not distressed.
Note: For non-math majors (and lottery enthusiasts), you can also gather this information informally; just ask “How’s the sale process going?” to anyone who has their non-distressed home currently on the market for sale. They may respond with a half-laugh, menacing glance, or a choice word (not a nice one).
Then ask anyone who is trying to get a home loan the same question. You’ll probably get a similar response.
So many vacant homes are for sale. And many buyers can’t get a loan to buy your house. How could a win-win situation be created here?
This is why the rent-to-sell method of home selling is hot. Or, if you prefer to stick with the old song, rent-to-sell is “hot, hot, hot.”
How does rent-to-sell work? Buyers, who can’t qualify for a loan now, rent your home for 1-3 years until they qualify. Then they buy it at market price when the real estate market has rebounded. This solves the problem of home sellers eating the mortgage on a vacant home every month and buyers not having a place to call their own.
Rent-to-sell can be a great solution to escape the cold, expensive reality of a vacant home that isn’t selling!
Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)
Learn MoreCharlotte Property Management Weekly: Lessons Learned from Holding Expensive Rental Homes Way Too Long: Why 1 -5 Years is Ideal
I wanted to share a dilemma I’ve had with an expensive rental home I’ve kept. But before I start, a good place to begin is my overall philosophy on “expensive versus cheaper rental homes”:
Expensive rental homes are ideal and appreciate greatly (cha-ching!!) in rising real estate markets, yet are more expensive to maintain, cash flow every month, and pay the mortgage during vacancies. Cheaper rentals are the opposite; they don’t tend to go up in value much, but are much cheaper to fix up, maintain, and positive cash flow every month.
And without further ado, here’s my personal tale of dealing with my big, expensive rental home:
It is a really nice home! When the economy and real estate market were soaring, my paper net worth (cue laughter) was awesome! Comparable sales in the subdivision kept going up which made me look like a genius with my home investment (I bought a pre-foreclosure at a great discount).
As a property manager, I put this home up for rent-to-sell and rental to a number of tenants over the years. The cash flow more than covered the mortgage and I was pretty happy with myself. The tenants kept the home in relatively good condition so maintenance and upkeep was minimal. I was living the real estate high life as prices in the subdivision continued to go up, and up, and up!
However, there was always normal “wear and tear” on the property. And as the years rolled by and tenants moved-in and out, the minor damages started to add up. Then it came to a point when I realized that the home needed to be updated, as tenants and buyers started turning their noses at it when it went on the market. So I mentally knew it was probably time to pay the piper; unfortunately, the costs started disturbingly revealing themselves (new paint, new carpet, new appliances, etc.). For larger homes like this one, it became clear that real money ($10-$20K) would need to be expended. What wasn’t clear was where this money was supposed to come from.
In a down economy, the expensive home becomes a weight wrapped around your neck; it’s much like the old Mighty Mouse cartoons where every episode had someone (something?) locked in a weighted treasure, sinking to the bottom of the ocean (of financial ruin). It’s tough! The clear answer is to sell the home, but stomaching the “investment” of all of this money to fix it up, waiting months (minimum) before it is sold at a depressed price, while paying the (expensive) mortgage every month is certainly not ideal. It’s also a question of remaining solvent while this selling process drags on.
That’s life, right? Suck it up! But maybe there are some lessons to be learned from this experience when buying an expensive investment home:
- Always buy at a significant discount (preferably in a down economy, like now)
- Target to sell it in 1-5 years, or before a significant fix-up investment is required
- Selling it should be the ultimate, short-term goal. First, try to flip it if it is feasible. If it’s not, try the rent-to-sell method of selling (placing a rent-to-own tenant into the property who is targeted to buy it in 1-3 years); sell it to them, or put it on the market when they move out.
- Don’t be greedy. Making money instantly is better than losing money perpetually.
Buy low, sell high, and don’t get caught fixing up expensive homes! Keeping cheaper rental homes for long-term investments is less risky, less stressful, and easier on the wallet in the long-term; use expensive rentals for a short-term (1-5 years) bounce in income.
Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)
Learn MoreCharlotte Property Management Weekly: Why Your First 2 Weeks of Dating are Exactly Like the First 2 Weeks Your Rental is Listed
Early impressions can be very telling. In relationships, they can save you a lot of time and heartache.
For example, when you first start dating someone, the first 2 weeks really are pivotal. One really wrong move and it is over, right? So, it is important to pay attention and try to figure out how to stand out (in a good way…). It’s also important to figure out what they really think of you, as they usually won’t tell you outright. Do they think your nervous tic is endearing or pathetic? When you bring up your issues, are they full of concern or pity for you? Do they plan to keep you around or jettison you when something better comes along?
Here are some potential early impressions and what they really mean:
1. “She hasn’t laughed at any of my jokes. However, her over-the-top cackles at the 16-year old valet’s tasteless joke, and then the waiter’s corny repartee, seem to mean that she is straight-faced with me only. I think she cracked a smile when I told my tried-and-true “dog-napping” story (10-minutes of absolute hilarity, if you ask me), but it could have been a result of the 12 text messages she had sent and received during its duration.”
Translation: You are really unfunny (to her, at least) and she is seeking more entertaining companionship elsewhere. Save yourself money and abort this relationship (before she drives off with the valet).
2. She is mesmerized by my every word. She can recall what I said last week in the greatest detail. She tells me that I am the greatest at everything. When I was fired yesterday, she swore that was incontrovertible proof my company didn’t deserve me. She says I’m smart to keep a belly because the winter months are coming and it is actually “sexy.” Hollywood actors and models are “fake”; she likes me because I’m “real.” My annoying idiosyncrasies are “cute” and I’m “untraditionally handsome.”
Translation: Carpe Diem! She likes you. Strike while the iron is hot and lock her up while she is still in this momentary fog!
So, early impressions from dating are good indicators of relationship success. The same is true of the signs received from the first 2 weeks your home is on the rental market.
1. No one is responding to the rental ads about my home. If your home had feelings, it would be locked in a bedroom alone eating bon-bons and watching “Bridges Over Madison County” right now.
Translation: The home is priced too high, the pictures in the ad are either non-existent or awful, there is potentially no contact information contained in the ad, the ad copy is off-putting, or a combination of the above. Fix and repost the ad.
2. I’m getting a lot of showings, but no one is applying.
Translation: The home is either priced a little too high and/or its condition does not back up what is presented in the ad.
3. I’m getting deluged with showings and applications.
Good! But your home is probably priced too low.
4. Real estate agents don’t respond to my follow-up calls and e-mails after they show my home.
Translation: Your home does not back up what is in the ad; typically, it is dirty and might look like a college fraternity house or an early 1800’s boarding home. They are upset that they wasted their time (and gas) to visit your home and look bad in front of their clients.
5. Your home gets a decent amount of interest and a good application is submitted and accepted within 30 days.
Translation: Your home was priced and marketed appropriately. Bravo!
Though early impressions are never 100% full proof, they are usually on point. Paying attention to them and making adjustments early can save you a lot of headaches, heartache, and money!
Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)
Learn MoreCharlotte Property Management Weekly: #1 Way to Fill Rental Homes Quickly
As homes for sale sit and rentals continue to gain prominence in the residential real estate market across the country, concerned owners are wondering how to best fill their rental properties quickly. So are property managers.
“Everyday my house is empty costs me money! Besides the mortgage payment, it’s the other things that are absolutely killing me- utilities with this unusually cold and snowy winter, HOA dues rising, you name it. I need someone renting (or buying) my home!” is a common lament from homeowners with a vacant home on the market.
As a real estate investor and property manager in Charlotte, I feel your pain. I don’t like vacancies anymore than you. But there is a simple way to make your home attractive. And it addresses the most heard complaint, by far, that I hear about houses and why prospective tenants pass on them. And just what is this revelatory nugget?
Cleanliness. That’s it. Houses are typically not clean. Actually, it’s not that they are not clean technically. It’s that they are not clean enough. Prospective tenants want to see sparkle. They want to see their unblemished reflections coming off of stainless steel. They want to be able to eat off the floors. They want to lap cool spring water out of the toilets (well, I may be pushing it now…). The point is that they really like the houses to be much cleaner than they would normally keep them.
Recently, we switched to a different cleaning service that was more expensive. I would never think of adding expenses to our owner clients (especially in this economy), but I felt that our homes were not standing out as the rental market continued to get more and more crowded.
And it worked. I noticed our rate of conversions of visits to completed applications went up dramatically. This has gone on for months. Thorough, deep-cleaning was more effective than lowering the rental price. This has been especially effective for our rent-to-sell program where people want to fall in love with the house they are potentially buying.
I would challenge you to give it a try. When a house has been on the market for a while and has been getting visits (but no completed applications), resist the urge to lower the price and just pay the dollars to give the rental home a thorough scrubbing (or do it yourself, though I recommend professionals). See if it works!
Cleanliness is next to godliness, the saying goes. Reap the benefits of a shorter courting period with prospective tenants!
Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)
Learn MoreCharlotte Property Management Weekly: Groupons & Free Property Management
I’m a big (recent) fan of these “Groupons.” What a great deal for consumers! Groupons are like regular coupons, except on steroids; they offer discounts of 50%+ to use at local businesses. I am impressed and now a big supporter.
Early last week there was a groupon for one of the top restaurants in Charlotte offering $60 worth of food for $25. What a great deal! I bought one and used it the next night. It was as advertised; we ordered the food, got the check, and gave them the groupon coupon (I’m a poet and don’t even know it). They took $60 off the bill and we left without any police following.
As a consumer, I was pleased. Make that very, very pleased. However, as a business owner, my stomach turned. Why would this great restaurant agree to take such a huge price concession? Are these the type of patrons they want to attract? Why are they trying to compete on price? That’s for McDonalds and Wendy’s, for crying out loud!
I always came from the school of marketing that believed that business differentiation is achieved on 3 playing fields: quality, customer service, and price. As a business, you pick the two you want to be good at. Most (sustainable) businesses are very good at one, few are very good at two, and none are very good at three. It’s impossible to do; I challenge you to name one business that competes at all 3 (customer service, quality, and price) very well. This is what this great restaurant was trying to do (albeit it was a promotion and not normal business operations)!
I’ve seen a similar promotional tool offering months of free property management for new customers. I can certainly understand the logic as we (supposively) are in a “new normal” that everyone is talking about. Customers are price conscious and free is always better than paying, right? So most customers will gravitate towards this type of deal; it’s just like the groupon I loved, right? Or is it different?
I would argue that good property management is much different than having a meal in a nice restaurant. Sure, discounts on both are nice. But you can eat at a restaurant and leave after paying for the meal, no strings are attached. The restaurant knows that you will only come back (and pay their regular prices!) if you really enjoyed their food, staff, and overall experience. If there is some bite-back of any kind (aka food poisoning), you would never come back.
However, with free property management, you are signing a minimum of a one-year contract. You are like the Huey Lewis song, “Happy to be stuck with you.” But it’s fine because you’re not paying anything, right? Well, that’s true for the first few months anyway. Or is it? What about if the property management company does something that costs you a bunch of money, like places a destructive, non-paying tenant into your home? Then the few hundred dollars of savings from “free” property management won’t be so free. Costs of eviction, non-payment, and fix-up can really add up!
The point is that if the property management company you are looking into is offering you months of free property management (or other “groupon-like” discounts), you may want to look at what that means to their quality and customer service. No company is good at all three, and quality and customer service cost money to implement and execute! Good people are not cheap! And relationships bought cheaply are usually just that.
Saving money is great on one-time deals, like buying a great, name-brand shirt or an expensive meal from a great restaurant! But be wary when saving a few bucks initially means entering into a long-term, contractual relationship!
Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)
Learn MoreCharlotte Property Management Weekly: Charlotte Headlines Say Real Estate Market is on Rebound? Or Not?
“There are no facts, just interpretations.” Friedrich Nietzsche
On a whole, I like honesty. I like it when people tell me what they really think (within reason). And if they don’t have anything interesting or worthwhile to say, omission works well for me too. I like things clear and easily understood.
So it came to my chagrin when I was reading a headline of an article this week that blared, “N.C. foreclosure sales drop 42%.” Wow!! 42%? That’s almost half! Is the job market trending up in our southern paradise? 2011 must be when the US economy really rebounds led by the Tarheels of North Carolina! Charlotte is ready to do its part! This must mean that home price stabilization is around the corner and real estate will start picking up and lead our country to another streak of prosperity!
But wait… I really hadn’t heard anything about the local real estate market getting noticeably better; rather I’ve continued to hear the opposite. Homes sales in Charlotte have continued to dwindle (I read another headline saying that Charlotte home closings were down 23% in 10/10 when compared to 10/09!). Well, I guess that has nothing to do with people actually staying in their homes. So less foreclosed homes equals better capitalized consumers, which equals more consumers with jobs, which equals a better economy, which equals a more robust (and rising!) real estate market? Cool!
And then I actually read the article. The 42% foreclosure decrease was due to the halting of foreclosures due to questionable bank procedures. That explains it! So, this statistic is artificial and misleading. We’ll soon see a headline in the coming months saying that foreclosures are up 42%+ to make up for the halted foreclosures now.
And now that I think about it, our firm did have some closings that were held up because of this foreclosure freeze. So what does that mean about the 23% decline in home sale closings statistic compiled from 10/10 (when compared to 10/09)? Does that make that statistic artificial and misleading as well?
The clearest answer is “yeah, probably.” Who can figure out what’s going on? Maybe this is what Wall Street legend, Peter Lynch, was talking about when he said, “The man who studies macroeconomics for 15 minutes a year wastes 10 minutes.” There are too many moving parts to get a true picture of reality!
It’s like the rock band that labors through the reading of their 2,000 word concert review in Rolling Stone magazine and only wants to know one thing: “Do they think we rock?” I just want the same type of clarity from the headlines I read.
Are things getting better or worse?
Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)
Learn MoreCharlotte Property Management Weekly: Pricing Rental Homes- List Above, At, or Below Market Value?
I have to admit, pricing rental homes is an issue that I struggle with. As a property manager in Charlotte for the past 6 years, I really should have a good grip on the right approach; however, I’m still constantly debating myself over the correct way to do it. And my therapist says this self-banter does not mean that I’m crazy.
So… it is safe to say that pricing is an inexact science. It is simply impossible to know what the optimal dollar figure is for any product or service. For example, let’s say you are a manager at The Gap (with the traditional logo intact). You put 5 sweaters on the rack for sale at $50 each. It takes 5 days and they all sell. Is this good? Was $50 the optimal price?
You’ll never know! Maybe you could have priced them at $55 each and still sold them in 5 days. Then you would have really screwed up; retail has been a tough field to be in for the past few years and the extra $25 in profit would have really helped The Gap’s stock price! Or maybe the sweaters should have been priced at $45 and they would have sold in 1 day. In this scenario, the lower profit would have been offset by the larger saving in inventory costs. But then again, who knows? Maybe at $45 each, customers would have perceived the sweater’s quality to be less and they would’ve taken 10 days to sell. It’s tough to figure out!
With rental homes, the confusion is similar. Below are the 3 pricing options available to every property owner:
1. Price Above Market Value: This is good if prospects will actually visit the rental; they may just look at the other rentals listed at or below market value. However, if the prospect visits and says they will take the place if the rent is knocked down a bit, that’s fine! The price can still be at or slightly above market value and the prospect is ecstatic they can tell their friends that they got a great deal.
2. Price at Market Value: An average amount of prospects will visit the rental and someone will take it in due time. The only issue is if the prospect says they will only rent the home if $100 is taken off of the monthly rent amount. Now the owner must decide if they want to lock into a below-market rate for a year, or roll the dice and wait for another qualified prospect. (Note: Rent negotiators usually turn out to be good renters. Unqualified or barely qualified prospects rarely try to negotiate the rental price. That takes chutzpah! It’s like getting into a bar at age 17 and arguing over the prices of shots.)
3. Price Below Market Value: Prospects will flock to the house and applications should roll in. Some people will still try to negotiate rent, but being that so many people are interested, these requests can be quickly (and justifiably) rebuffed. Locking into below market rates isn’t great in terms of ROI, but does provide the piece of mind of an occupied property with a good tenant (you can be choosy!).
So what’s the right answer? It depends. I know that’s not an overly helpful answer, but I’m not trying to be evasive. There are many factors that need to be considered besides the obvious ones (risk tolerance and financial wherewithal of the owner). Here are a few to ponder:
- If the property is 1 of 15 rentals in a neighborhood, pricing below market value could be a good point of differentiation. Conversely, if the rental is the only one in the neighborhood, it may be wise to price above market value.
- If it is probable that a real estate agent will bring a tenant in on a property, the pricing should be above market value. The reason? They will probably look to negotiate the rent down. If the tenant will probably come in from an ad, pricing at or below market value is probably the best strategy because they will be focused on the list price.
- If a downturn of activity is expected because of seasonality (like the Thanksgiving holiday through New Years), it would probably be smart to price below market value for the first few weeks of November. Having an empty house in November and December is going to kill the ROI; a rental reduction upfront in November will definitely have a better total net return than a month or two of extra vacancy.
So the moral is that pricing rental homes ain’t easy. Different times and situations call for different strategies. One size rarely fits all!
Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)
Learn More
Charlotte Property Management Weekly: The Options Available to Owners of Vacant Homes
As a Charlotte property manager specializing in lease options (rent-to-own and rent-to-sell), we get many calls from home sellers “exploring their options” about their vacant properties (unlike Obama, my puns are typically not intended). So, as a public service, I’ll run through the available options:
- Strategic default (I think this is what it is being called): Stop paying the mortgage and taking the credit score beating like a man
- Put the property on the market for sale: If the home is special and priced well, it will sell in some period of time. If not, eat the mortgage every month until the banks start lending again.
- Rent the property out: Get most of the mortgage paid every month by the tenant. Keep a tenant in the property until the market comes back and then place the home up for sale.
- Rent-to-sell the property: Put a rent-to-own tenant into the property who will pay the mortgage and potentially buy the home during their lease period.
- Rent out the property and then put it on the market: In my experience, this leads to disappointed sellers and upset tenants.
- Arson: Not recommended. And, no, this is not a service we offer!
All of these approaches obviously have pros and cons (like jail time). Depending on each respective person’s needs and tolerance for risk, each approach could be the appropriate one.
And to conclude the public service announcement, please contact your local property manager for further details.
Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)
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