Ohio State Football Recruiting Similar to Great Tenant Selection?
“He has shown you, O mortal, what is good. And what does the LORD require of you? To act justly and to love mercy and to walk humbly with your God.”
(Micah 6:8)
“No Shoes, No Shirt, No Dice.”
Spicoli in Fast Times at Ridgemont High
Ohio State college football has been a dominant program for a long time. In the last 10 years, they have a record of 106 wins and 13 losses while winning 2 National Championships. This makes them one of the top programs in the country as they have set a standard of excellence few teams can match.
To have a perennially highly-successful football team, Ohio State has been able to get great players to come to their school; great players make great programs! But how does Ohio State determine what high school football players will actually become great college football players? What do players need to demonstrate?
Like every college football program, coaches will look at all the on-field performance measurables: how many yards, touchdowns, tackles, etc. each player had in high school. And then the physical measurables: how fast, big, agile, and strong each player is. And then there is mental aspect where players will take tests and answer questions showing off their “football IQ”.
These are all very important metrics and are heavily considered; the top recruits all grade very well on most or all of the criteria. But what gives players who measure out well in the criteria above the edge over one another? I remember reading something about that from former head coach Urban Meyer. He said that one of the most important things he looked at in recruiting was how the high school player played in the biggest games and versus nationally-ranked players in one-on-one match-ups; he was looking for what he considered true greatness. Did their performance ramp up to meet the challenge or was it pedestrian? Did most of the players noteworthy performances come against average teams or did their biggest, statistic-rich games come against the best players in the most high-profile games? Did they look forward to and excel in the most competitive situations and will their team to win? Coach Meyer believed that getting the types of players who had the ability to rachet their games up a notch was paramount to Ohio State winning national championships.
In property management, tenants are the big-time recruits! Landlords are looking for tenants who pay on time, maintain the rental homes well, and stay out of trouble. If landlords can secure great tenants, property management can be really easy! This is why great landlords spend considerable resources on tenant screening. We look at all the measurables of the “Big 4”:
- Employment & Income
- Past Landlord Reports
- Credit Check
- Criminal Background Check
Measurables tell most of the story and tenants who grade out highly in these areas can provide a solid program. But what about in situations when there are many tenants applying for one house? Who is the best one when all the measurables look good? Who is going to take care of the house? If some bad event happens, who is going to remain steady and still pay rent? Bottom line, how can great tenants be found?
These are tough questions. The right tenant roster can make or break a landlord. What to do?
I tend to pay extra attention to 2 things:
- Debt level (and the corresponding available credit): How extended is the tenant? Hard times: If there is a sudden job loss or car issue, can they absorb it?
- Past landlord reports: What did they think? Did they like the tenant or was the tenant difficult to deal with? How did the house look when they moved out? Would they rent to them again?
At the end of the day, Ohio State football and smart landlords are looking for great players. Great recruits win championships and profitably pay off rental houses. Pick wisely!
Happy Landlording!
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Don’t Be a Desperate Housewife (or Landlord), Just Push the Right Buttons
“Desperate times call for desperate measures.”
Hippocrates
Typing the word “desperate” makes me think of the old TV show, Desperate Housewives. The story centered on four suburban women who were neighbors. They found themselves making risky choices in order to look good, be fulfilled, and live the lives they thought would make them happiest. This made their lives hectic and drama-filled. And it also made it one of the most successful shows on TV for its 8-year run.
However, no one really wants to live the way they did; it may be entertaining to watch, but it’s not peaceful. Desperate is not desirable.
Desperation can elicit hopelessness and cause knee-jerk reactions:
I never think anyone is going to marry me! So I’ll lower my standards and date anyone and try to make it fit.
I don’t have any money and lots of debt. I’ll rob a bank.
We need to win a championship this year or the fan base will be calling for my head. I’ll trade away future draft picks, get a marginally better player now, and hope it works out.
We see it in all walks of life in many different situations. Desperate situations make people feel that they have little choice but to make hasty and risky decisions. And these decisions generate results that usually share one common trait- they are poor.
For landlords, they typically begin to feel desperate when their rental properties are vacant and they need tenants to move-in and start paying rent. Things look bleak as time rolls by and there has been:
- Financial bleeding: mortgage payment, management costs, utilities, lawn mowing
- Vandalism and/or squatting while vacant
- Only substandard applicants applying
It’s tough. There is pressure on landlords to accept the first person that has the deposit and first month’s rent to put down. “Just move in quickly, please!! We need this off the market to get the rent coming in!”
As a Charlotte property manager, we are not immune to this either. We get some version of this at times:
Aren’t you the professional?? Why is my property empty? What does your marketing look like? It doesn’t seem to be working, bud!! I could do better than this myself!
Desperation can take hold… And it takes discipline to stick to the fundamentals and not succumb to the pressure.
When a property has sat on the market for longer than expected, the key is not to panic! Slow down, take a breath, and push the right buttons:
If there are no showings of the property:
- Double-check the marketing, add/replace pictures, make sure the home is coming up in on-line searches. Then see if any showings happen. If not, go to step #2.
- The price is too high. Lower it ASAP. Prospective applicants are not seeing the value on-line versus other homes.
If showings are being generated:
- Ask people who have seen it why they are not filling out an application. It will usually come down to some cosmetic issue. Take care of the issue! Note: Some “cosmetic issues” are personal preference- if it is not a major flaw and only one or two people comment on it, it might not make sense to address it if it is costly. If almost everyone mentions it, it either needs to be fixed or the price needs to be lowered (or both).
I remember we had a large house on the market that “desperately” needed work. We did not want to pay for it (it was going to cost a lot to get to market shape) and we were hoping we could slide by with one more rental cycle before ordering the major (cosmetic) fix-up. We went a few months with several showings, but no approvable renters from those who filled out an application. Most non-applicants who visited the home cited a few issues they wanted addressed. What to do?
The easiest way path is to give in to the desperation, roll the dice, and approve a risky tenant. In contrast, experienced landlords will reject substandard tenants, double-check the marketing, fix any reasonable home repair issues, and lower the price. It’s better to wish you had a tenant than wish you didn’t.
Don’t fall for the feeling of desperation and press the panic button! Stick to the fundamentals and your future self will thank you for dodging the money/time/emotional sinkhole of the eviction process. Don’t let yourself become another desperate resident of Wisteria Lane!
Happy Landlording!
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Is Signing Zion Williamson a Worthy Tenant Placement Strategy?
“Therefore everyone who hears these words of mine and puts them into practice is like a wise man who built his house on the rock. 25 The rain came down, the streams rose, and the winds blew and beat against that house; yet it did not fall, because it had its foundation on the rock. 26 But everyone who hears these words of mine and does not put them into practice is like a foolish man who built his house on sand. 27 The rain came down, the streams rose, and the winds blew and beat against that house, and it fell with a great crash.”
(Jesus Christ in Matthew 7:24-27)
“…(Zion) Williamson and the team quickly agreed on a five-year rookie max extension worth at least $193 million. The new deal will kick in at the start of the 2023-24 season, and the figure could rise to $231 million if Williamson makes an All-NBA team or wins a major award next season. The No. 1 overall pick in 2019, Williamson’s career has been plagued by injuries and concerns about his conditioning. He missed nearly his entire rookie season after undergoing knee surgery, was shut down early in his second season with a broken finger and did not play at all last season due to a broken foot that required surgery and did not heal as quickly as expected.
When he has been on the floor, he’s been spectacular. In his second season, when he played 61 games, he averaged 27 points, 7.2 rebounds and 3.7 assists per game while shooting 61.1 percent from the field, and was named an All-Star. All of which is why, despite his injury history, the Pelicans were eager to extend him as soon as possible. At the same time, giving $193 million to a player who has been on the court just 85 times is a risky proposition.”
(Jack Maloney in CBSSports.com 7/29/22)
As stated above by Mr. Maloney, when Zion Williamson is healthy, he is a spectacular basketball player loaded with potential. With experience, he could even be much better!
If Zion was a healthy tenant, he’d be the dream of any landlord. He’d be paying above market rent, he’d keep the place spotless, the rent would come in early each month, and there would never be any outside complaints about him. He’d maintain the property flawlessly and even take care of minor repairs on his own (and on his own dime!). His uncle would be a world-class handyman who loved to stop in and help his nephew out with some free repairs and upgrades from time-to-time. He’d kick some courtside tickets to his favorite Charlotte property manager when the Pelicans came in to play the Hornets. And, to boot, Zion would love the house and want to rent it forever.
Cash flow heaven!
But what if, as his application suggested could happen, he got hurt and lost his job? Things could start going downhill quickly for Mr. Williamson (and his landlord):
Rent? Late and not paid in full. Eviction is probably required (NBA tickets now nixed)
Repairs/Maintenance? Not up to it
Outside Complaints? The lawn guy who is not getting paid stops the service. Air filters are too expensive now. The HOA and City are up in arms and threatening fines.
His Beloved Uncle? Now that Zion is hurt again, he doesn’t seem to come around…
But Zion? He still wants to stay in the house forever!
As a property manager in Charlotte, we get rental applications from people similar to Zion. They have a lot of potential and are willing to pay top rent, but their rental screenings show that they are susceptible to bad stretches of luck (which made some of their past tenancies bad landlord experiences…). The question is: are they just isolated events in their lives or a pattern? Is Zion Williamson going to continue to miss seasons with injuries or will he turn the corner? It’s impossible to predict. The New Orleans Pelicans apparently believe he will be healthy as evidenced by them handing him a $193M guaranteed contract.
So is the high risk, high reward strategy a good or bad one? I believe it depends who the landlords are and whether they can financially handle the downside.
Example: The institutional investors who have bought up thousands of houses in Charlotte seemed to have embraced the high-risk strategy. They list their rental homes for above market rent and then accept risky tenants who are willing to pay. Does it pan out? Well, I had read something that said one of the institutional investors had a 25% eviction rate; that’s super high (bad!). It also means that 75% of their tenants were able to pay the above market rent to them monthly (good!). So spread over enough houses, the excess rent may be able to pay for the evicted houses that face no incoming rent, court costs, and needed repairs. The math could work, even in their favor(!), when factoring in that they probably have faster tenant placement times due to less stringent tenant screening.
However, we work mostly with smaller investor-landlords (the “Mom-and-Pops”), where this strategy wouldn’t work well. One bad tenant could destroy their profit for the year, let alone two of them. We need “build on the rock” tenants, not “sand” tenants, because our property management clients need them to hold up in storms. So that has been the strategy that we have used. It requires more stringent tenant screening and sometimes a longer placement time. But we will feel it is the wise strategy for our particular client base.
Zion is a great, generational basketball talent and all basketball fans want him to get healthy so they can enjoy watching him play. But not all landlords can afford to risk $193M to find out if he’ll even be on the court. Pick your tenant placement strategy accordingly!
Happy Landlording!
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“Oh, you know, COVID…”: Spotlighting Tenant Retention Amid Rising Costs
“I noticed you didn’t post a blog last month? I really missed it!!”
(Actually, no one said this…????)
I think one of the frustrations that I’ve had in the last year is how seemingly how every business underperforming service-wise or raising prices can be explained away easily by COVID or her offspring (shortages, inflation, sharp price increases, not enough employees, etc.). Examples:
My coffee cost $4.00 last week and now it is $5.50. Why?
“Oh you know, COVID… Prices of coffee in South America have spiked due to complications in the harvesting process and container price shipping increases.”
Why wasn’t the gym open this Monday when I showed up there?
(A sign with a partial explanation was posted to the locked front door on Monday and then Tuesday the front desk person offered more details)
“Oh, you know, COVID… Staffing is still really tough as no one wants to work anymore. Once people left the workforce, they just didn’t want to come back. You know, I think it’s mostly due to video games- guys just prefer to play them all day instead of going to work.” (Oh, really???)
Voicemails I run into frequently: “Due to recent events, call volume has increased creating longer than normal hold times.”
(I’d like to get an explanation on why this voice mail message is still there and has not changed in almost three years). But I can speculate… COVID?
I can be frustrated as a consumer, but understand it. I’m used to getting what I want at a reasonable price and in a reasonable time period and feel slighted when I don’t. Pretty much every business has raised prices and many have had hiring issues. It’s a fact that costs and wait times have skyrocketed whether I agree with the causation rationale or not.
Many landlords have experienced “Oh, you know, COVID…” conversations for the costs now associated with fixing up rental homes between tenants. All of the issues above coupled with a hot real estate market has led to sticker shock when these repair quotes come out. The cost of painting an entire house and replacing the flooring (as well as the myriad of handyman issues) has risen, especially when landlords compare prices 5-10 years ago (think double).
Rising rents after fix-up will eventually offset these increased costs, but it is still painful to look a $10K+ repair bill and know that the person writing that check is going to be you. So, how can this be avoided?
It can’t be avoided forever. However, there is the strategy of kicking the can down the road as long as possible. This can be accomplished through an intentional effort in tenant retention. The basic rationale is that if tenants don’t move out, most repair costs (cosmetic, that is) can be avoided until after their tenancy is eventually over.
So how do landlords accomplish tenant retention? There are books written about this, so I’m not going to go into all the creative ways people have thought up of: giving free flat screen TVs to the tenants when they sign a multi-year lease, delivering chocolate chip cookies on their birthdays, having a monthly rent credit incentive where some of the money is forfeited if tenants move-out prior to a set number of years, etc. The advice below is for a landlord who is more a “nuts and bolts” person and doesn’t bake very well.
The great news is that the cards are stacked in the landlord’s favor right now so most of what I propose is being done by others already. The landlord’s job is just to keep the rental rate reasonable on lease extension offers. That’s it. I’m not even saying to not raise the rent at all; just don’t be greedy. That’s the only thing the landlord has to do right now as a decent tenant retention strategy.
Very few people like to move. Landlords should continue to perform normal landlord activities in a timely manner so tenants do not have some explicit reason why it is imperative for them to leave the house. And be pleasant. Then wait. The heavy lifting is already being done by the big institutional landlords who own houses nearby and are raising the rents up 25%-50%. When tenants see the advertised rental rates of homes on the market and then see their reasonable lease extension rate, most will stay put.
If the tenant still leaves, then biting the bullet on fixing up the property may be an unfortunate reality. But the silver lining is that the house can now be advertised at the higher market rate (thank you again, big institutional landlords!) which will reduce the time on the ROI.
Best of luck keeping your good tenants around and avoiding the “Oh, you know, COVID…” expenses on your rental home for as long as possible.
Happy Landlording!
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Rental Roomies & Higher-End Homes a Win-Win?
“Many hands make light work.”
(Old English Proverb)
I remember back to my college days in sunny Arizona when I had to figure out where I was going to live my sophomore year. Most of my friends were thinking of staying in the student housing in the dormitories for Year 2. I had virtually no experience with rental properties and wasn’t sure what to do.
I talked to my Dad about it (I learned early it was always smart to run my plans by my financial backer first). He didn’t really have any input on where I lived; I was the third child and he was much more pragmatic. “I’m paying XX dollars for your housing- just let me know in what bank account it should go. So, in that brief exchange, I had my financial backing and freedom to choose where to live.
Some of my friends got similar commitments from their parents and we were house hunting! Of course we were all-in on finding a house with a pool (common in hot Phoenix) and hot tub (more rare, but not insurmountable). We found a 4 bedroom house with both, plus lemon and lime trees in the backyard to boot. It came to $1,200.00/month (which was high back then for Phoenix and definitely over market rate).
But… split between 4 guys it was $300.00/month which was a third of my Dad-provided housing budget. I now had extra funds to play with. We, as a group, were overpaying, but I was psyched! I was paying much less than if I was living on my own or with one other roommate.
I’m seeing a similar play in the rental market as prices continue to rise. Some of our higher-end rentals are (smartly) getting taken by groups of young professionals.
First, as a point of reference (according to Rent.com), the average one-bedroom apartment in Charlotte in April 2022 costs $1,513.00/month and the average two-bedroom is $1,730.00/month.
If we chop that into per person, we can calculate roughly $850 – $1,500 per person. When that is multiplied into a 4 or 5 bedroom home or townhome, you can equate that to a $3,400.00 (low end) to a $7,500.00 (upper end) rent spend- and that’s going off of averages. Obviously, some people spend more than that on their housing.
As good of a strategy it is for tenants to decrease their rental costs, it is also a good one for landlords. Purchasing lower-priced housing in Charlotte has been very competitive for years, but most investors typically avoid higher-end housing. However, by buying higher-end housing and marketing to roommate situations, it could allow for good cash flow. Relatively-speaking, there is just not that much higher-end housing available for rent in the Charlotte market. Really nice, feature-rich houses could go fast and for top dollar.
For now, it’s a good deal for all, much like my college housing. Tenants get better housing at a lower price and investors get less buying competition and the ability to charge higher rents. It could be a rare win-win in the current investment housing market.
Happy Landlording!
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Good Landlords & the Golden State Warriors: A Deep (Vendor) Bench Matters
The Warriors won the NBA title this month in an exciting series versus the Boston Celtics. Steph Curry, the star of the team (and local Charlotte product!), won NBA Finals MVP and fellow starters Andrew Wiggins and Klay Thompson played well. But one of the major reasons they were able to pull off a series victory was the play of their bench. Less heralded Warrior’s players- namely Jordan Poole, Kevin Looney, and Gary Payton, Jr.- gave the team great minutes while the starring players weren’t on the court. “Strength in Numbers” was the team’s slogan during the regular season and it continued in the playoffs leading to an NBA Championship.
This is also applicable for landlords utilizing the vendors they have to do maintenance and repairs on their rental homes. I got a call last week from someone interested in our property management services. When asked what prompted the call, she said that her handyman had gone back to the workforce; this left her without anyone she trusted to do the work on her rental home in a timely, well done, and reasonably-priced manner. I could empathize.
When COVID hit, many people who had little time to make home improvements suddenly became very interested in their homes. Part of it was being home and seeing many of the issues their homes had that they had ignored. Some of it was just making improvements so they could enjoy their home as they were around much more. Either way, it led to vendor demand to increase which led to scarcity of vendor availability and price increases. This hit property managers as well. The advantage swung to vendors as they had more work than they could handle, putting them in a position to refuse jobs and not call prospective customers back. This trend continues now.
The good news for experienced property managers is that most have a deep bench of vendors. While we use many of our “stars” regularly to service our homes (and have for years), it is helpful to have a list of secondary vendors who are proven to do good work. Going to Google as sudden needs arise and hoping that a vendor is going to provide tenants a good experience is not ideal. It is far better to incorporate new vendors on a regular basis on smaller jobs to ascertain if they meet expectations. Cultivating a good vendor list is an asset that makes a property manager’s job much easier and keeps owner clients and tenants happy.
Though property managers have a built-in advantage of managing large number of homes which can make working with them attractive (repeat business), smaller landlords can also build good vendor lists by:
- Being courteous with vendors and trying to make things easy for them
- Paying quickly and in full
- Providing pictures and details upfront of what needs to be done so they can minimize trips and maximize their revenue
- Working with their schedules and only accelerating issues that are truly time-sensitive
- Providing referrals to them from friends and family that need similar services
- Writing 5-Star Google reviews (when warranted)
The Warriors would arguably not have gone far in the playoffs and won a championship if they did not allow their bench players to play meaningful minutes and make them feel like a valued part of the team. Smart landlords should do likewise and use secondary vendors on occasion so they are in the fold and can be utilized when the need arises.
Happy Landlording!
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As Landlords (Temporarily) Rejoice, Renting Still Has Its Merits
“Every cloud has a silver lining” & “The grass is always greener on the other side”
(Popular Axioms)
I’m not sure I’ve ever read an article that talked about the “joys of renting.” I’m sure it exists somewhere. Maybe it’s because I’m saturated with a bunch of real estate industry communications that always tout “the dream of homeownership” and how everyone should strive for it. I’m bombarded by banter like, “There’s no feeling like stepping over the front door threshold for the first time and knowing that you own the home”*.
* As my uncle likes to point out, it must be the warm feeling that comes from knowing that your bank actually owns most of it.
The way home prices and rents have shot up, the pro-homeownership articles seem to have a lot of merit! After sorting through all the mail and texts from investment groups hungry to buy homes, it is sometimes shocking to see what prices they are offering. It makes me think, “I don’t think I have much money, but these people are telling me I’m sort of rich…”
But as a veteran of leaner landlord times when rent barely covered the mortgage (and often went negative when repairs and vacancy happened) and it was hard to sell a house, life wasn’t always so rosy. I often thought of how renters had it pretty good in many respects:
- No fear of a $10K repair call at any moment
- If something major breaks, call the landlord and let him deal with it
- If you want to live somewhere else at any time, just move. No fuss, no muss.
That all holds true today.
So, though it seems landlords have a better situation now, things change. Renting will always have merit and hot markets always turn sour at some point.
Homeowners and landlords are able to enjoy current market conditions (and they should!), but renters shouldn’t feel totally left out. Things always swing back and forth and renters always have some built-in advantages in any market that owners never get to enjoy.
But, for now, landlords should rejoice!
(Very) Happy Landlording!
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Rental Tenant Interviews: 3 Additional Questions To Ask
“Winning is not a sometime thing; it’s an all the time thing. You don’t win once in a while; you don’t do things right once in a while; you do them right all of the time. Winning is a habit. Unfortunately, so is losing.”
Vince Lombardi (former Green Bay Packers Head Coach)
With low unemployment numbers, job applicants seem to really have the upper hand in the hiring process now. The stories are interesting, if not shocking, to someone who remembers pleading for employment back in the day. I remember it being nerve-wracking going into interviews and then wondering how things went afterwards:
Did they like me?
I might have blown question #3; I hope that doesn’t sink me
How long should I wait to get a call back before following up?
Where’s a stamp to send a “thank you” letter for the interviewer?
My greatest weakness? Oh, sometimes I just work too long and hard and forget to eat…
But now, the onus seems to be on the companies. They need workers! They ask:
What kind of coffee would you like? We have lots of different kinds and sweeteners! Oh, you want Gatorade instead? No problem! I like your style already!
When did you say you could start?
Do you prefer a car service to work or did you just want to work from home?
Is this person going to show up or did we get “ghosted” again?
Fortunately, for property managers in Charlotte, the advantage is with the landlords (for the time being…). There are a smaller number of Charlotte-area rental homes available for prospective renters, especially those priced on the lower side. It is not uncommon to get many rental applications on the first day a rental home comes on the market. Tenants compete to secure these homes.
But with so many applications, how does one choose a winner?
Sticking with the basics is paramount- credit and criminal background checks, landlord history, employment/income verification. These are the backbone of finding the best candidate. However, there is often a lot of grey area left after finding out this basic information, especially when several potential renters have very similar background results. It can be tough to figure out who to approve.
So what to do?
There’s a common saying in human resources that the job interview begins at first contact; so what has the prospective tenant shown us so far in our dealings? Here are three questions that may be helpful in further assessing closely qualified candidates:
- Were they on-time (or early!) if we met them at the property?
- How long did it take for them to provide any documentation we needed to run their application? Did we need to ask several times?
- (And what I think is the most telling) Have they been pleasant to interact with?
As Coach Lombardi said, “you don’t do things right once in a while; you do them right all the time.” It’s a habit. Regular background checks will reveal much of the habits of applicants. We want tenants with good ones! And courtesy, responsiveness, and (especially) pleasantness are other habits that are invaluable to landlords.
Happy Landlording!
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Still Gotta Buy Cereal… Lease Renewal Discounting Opportunities
Grocery store prices have really gone up! Whether it’s due to inflation, the war in Ukraine, gas prices, Will Smith punching Chris Rock at the Oscars, or whatever explanation mega-corporations think the public will best swallow, it’s been sort of shocking how much more things cost percentage-wise.
This leads to an issue in my house. My son is a picky eater (following the youthful pattern of his old man, unfortunately…); finding things he is willing to eat is difficult. Fortunately, Honey Nut Cheerios have been on his acceptable list for a while now and are a go-to for at least 1 meal a day. But prices have gone up and substitute store brands don’t pass muster, so we are in a conundrum.
General Mills’ stockholders are pleased as we are forking over a dollar more per box. I’m somewhat positive their actual increased costs are a fraction of that, but “never let a crisis go to waste” has long been part of good business acumen. So we grit our teeth and pay it so the young tyke can survive.
Tenants are in a similar situation now. As their existing leases are coming up for renewal, they are finding that the rental prices offered to extend them are much higher than their current rate. This leads many to quickly try to locate the greener pasture of a cheaper rental home. But these homes are largely non-existent as most landlords have followed suit and raised their rental home prices as well. They find the rent they are currently paying is a huge bargain to what their new rate would be, but, unfortunately, also to what other homes are renting for. What to do?
The old answer would be to take this rental market and shove it! Become a home buyer! Build wealth! Get a fixed rate mortgage so that the monthly costs of the home would never go up! But the only thing harder than the rental market currently is the “for sale” market. Talk to anyone who has tried to buy a house in the past few years. Mission (almost) Impossible- and, if successful, you’re not buying a bargain!
So, again, what to do?
For tenants, it’s a tough situation. I’d recommend being qualified to purchase and then to scour deals for sale and rent; then look to see and apply/make offers on a lot of houses. A less stressful strategy would be to just batten down the hatches and wait things out until there is an inevitable housing market downturn. It’s the “stay put and stay solvent” strategy.
But, as a landlord, what is a good strategy on lease renewals? Landlords are in a good spot in today’s housing environment. I think there is a temptation to raise the rent to or above market rate to maximize cash flow. And then hope the tenant stays (and can afford it).
However, I’d offer a contrarian strategy of not putting existing tenants over a barrel. True, it might be difficult for them to find another place to live so there is an inherent advantage that wouldn’t be exercised. But if they have been good tenants who take care of the house and pay on time, I’d recommend pricing the lease extension rate 5-10% below the prevailing market rate for a vacant rental.
But why?
Several reasons:
1. Fix-up and vacancy costs will probably push the payback period to over a year. If the new tenant leaves after their 1-year lease expires, it’s a lot of activity to produce a loss.
2. When tenants examine the rental market (and they will!), they will see that the renewal terms are a relatively a good deal and will be more inclined to stay.
3. Good tenants are worth their weight in gold! Continual cash flow from good tenants pays down landlord mortgages and reduces wear on homes. And call me soft, but good tenants do deserve some type of positive consideration for keeping their part of the lease. It’s good business.
Higher prices are hitting different groups differently, but people still gotta have somewhere to live and afford cereal too. Housing discounts aren’t as ubiquitous as Cheerios coupons, so use lease renewal discounting as an opportunity to keep good tenants.
Happy Landlording!
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Rental Tenant Screening: If You Have to Ask… You Shouldn’t
“If you have to ask, you can’t afford it.”
JP Morgan
I recently had hernia surgery which went fine (thanks for asking!). It lasted about 45 minutes, was pain-free (while I slept), and the recovery seems to be complete. The process was smooth.
The issues I had were pre-procedure while trying to figure out how much it was going to cost. I had a choice- I didn’t have to get the surgery per se. I had some discomfort from time-to-time, but I think I had had the issue for around 25 years and there was no rush. So I was trying to time it right with my insurance so I could pay the least amount out-of-pocket as possible. My question was, “If I schedule the surgery next month, what would the approximate cost be?”
This was apparently a difficult question. “Sir, it depends if the anesthesiologist is in-network or out-of-network.” “Mr. Furniss, it is not the simple. If the surgeon finds further issues while he’s in your body, it could take longer and cost more.” I get it. It’s not an exact science. But if I ask my plumber how much it costs to fix my garbage disposal, he can give me a ballpark figure on what it usually costs. I just wanted to know what to expect if the doctor didn’t discover that several of my nearby organs were failing. You know, garden variety surgery cost figure stuff. It was a painful process and I never got the answer I was looking for.
“If you have to ask, you can’t afford it.” When the $32K bill came (before insurance), I guess the saying had some merit.
I bring up this story because I was thinking of some of the worst tenants we’ve ever had in our 20 years of being in the property management business. Most of them had some “red flags” on their applications. When we discussed what we found during our application screening process with the prospective tenants, they explained it in such a way that it was easy to sympathize. And, usually, the rental house had been on the market for a while and the owner was anxious to get it filled (we were too!). This led to approving some tenants far in the gray area.
These tenant approvals made me nervous in my stomach. When we met to sign the lease, I found myself asking some variation of the same question:
“You’re going to be great tenants, right?”
Inevitably, the answer was always the same. “Oh yeah, we’re going to be the best tenants you ever had! We’re going to pay on time every month, you’ll see. When you do your inspections, you’re going to think cleaning and lawn care people live here! All we were looking for was someone to give us another chance.”
And, predictably, they were not the best tenants we ever had.
And I started to realize that if I ever felt I had to ask that question, it was the clearest sign that we shouldn’t approve the application.
I learned the hard way that JP Morgan was on to something that was applicable in the property management field. “If you have to ask, you shouldn’t.”
Happy Landlording!
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