Landlords

Charlotte Property Management Monthly: Don’t Return Your Tenant’s Security Deposit Just Yet

 

As a Charlotte property manager, I am a big proponent of returning as much of the tenant’s security deposit to them as possible.  If the tenant took time to care for the property, did what they were supposed to do during their lease period, and paid all of their rent, they certainly deserve it back!  There is a reason property managers are required to put the security deposit into an escrow account; it is a reminder that the security deposit is not the landlord’s money, it belongs to the tenants.

 

However, that being said, I’m also a proponent of the “slow return.”  By NC law, the security deposit does not need to be returned to the tenant for 30 days.  And also according to the law, if the landlord is still figuring out repair costs and won’t make the 30-day deadline, they just need to notify the tenant that the payment will be delayed in writing and let them know the approximate cost of the repairs at that point in time.

 

Why would landlords delay the tenant’s security deposit return?  The most popular question asked (by far) when a tenant moves out is, “when can I expect the security deposit back?”  If you want to be a “cool” landlord, shouldn’t you just give it back after the walk-through?  You already know how much the repairs are going to cost (if there are any) and the tenant could use the money back.  You certainly want to be good to the tenants who were good to you, right?

 

Well, yes, but not exactly.  I recommend keeping the security deposit as long as possible.  Once it is given back, you really need to consider the tenant gone and their account closed.  You need to assume that you will never get any money from them again.

 

So?  They moved out already, right?

 

Yes, but…  Walk-throughs are an inexact science and sometimes things are missed.  Think about home inspectors; they are professionals that take hours doing a walk-through to write a comprehensive damage report and they still miss issues with the home.  I guarantee that landlords are not close to conducting several hour walk-throughs at the level of detail that they are (nor should they be).  Things get missed and that’s life.

 

However, you can provide yourself some extra time so missed things can get caught before it’s too late and you have to pay for it!  It may be one of the handymen working on your home that alerts you to new repair issues.  It may be a Realtor or marketing person who wonders why something looks off.  Or (usually) it’s the next tenant who moves in afterwards that lets you know what’s not up to par (and by the way, they want the issues fixed on your dime!).

 

Let tenants pay for damages they are responsible for.  And, unfortunately, the delay in returning the security deposit to them is a good way to ensure this happens.

 

Brett Furniss is the President & Owner of BDF Realty (Charlotte Property Management) which works with Charlotte real estate investors and homeowners 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 Monthly: Interested in Investing in Charlotte Homes? 3 Strategies & 1 FYI

 

As a Charlotte real estate investor and property manager for almost a decade, I’ve spoken to a lot of clients about buying Charlotte investment homes.  Many different clients have many different goals, but the goals typically fall into three camps (all cash flow, cash flow and equity, all equity).  Below are these 3 types of investment strategies and the residential houses used to achieve them:

 

1.  All cash flow ($10K – $50K priced homes): These homes make investors lick their lips.  “I could just put the house on my credit card or write a check!”  Yes, this is true and it has been done!  It’s nice that these homes will rent anywhere from $250 – $500 a month.  With home payments less than $150/month (figure taxes around $50/month and insurance around $35/month), vacancy doesn’t hurt too much.  The plan is to buy up a bunch of these homes, fill them with good tenants, and enjoy the cash flow!

 

The downside is that these homes are not in desirable neighborhoods and are barely liquid, even in great real estate markets; selling them to home owners (non-investors) is close to impossible, which allows for virtually no capital appreciation.  Vacancy costs don’t hurt that much, but the damage and theft expenses can add up quickly (you may see your home’s missing HVAC unit for sale on the street… Hint: buy it back!  It’s cheaper!).  “Good tenants” are tougher to find than with higher-priced homes.  Bottom line, this strategy is either high risk or high reward (if managed well) depending on what month you ask.  It’s a boat that goes up and down on the waves- buckle up!

 

2.  Both cash flow and equity (home price appreciation) ($90K – $140K homes): These homes are my personal favorite to invest in.  The tenants are typically stable and treat the homes well.  If the home is bought properly, they fill quickly and do appreciate in rising real estate markets.  These are moderate risk investments.  Vacancies and fix-up costs hurt more than the less expensive homes, but monthly positive cash flow can be in the $200-$400 range (if bought correctly).  These homes are more liquid and are appealing to both retail and investor buyers.

 

3.  All equity ($250K+ homes): These more expensive homes can be bought at great discounts because most real estate investors don’t hold them (too expensive) and most home owners don’t like buying major fixer-uppers.  However, buying a house $100K-$200K below retail value, fixing it up (gulp- maybe a $50K cost?), putting a renter in it to net out the monthly mortgage costs, and then flipping it when the subdivision the home is in stabilizes can be a very profitable venture (with time).  Utilizing this strategy requires a good cash reserve and patience to sit on the home before cashing it out.  The good news is that the tenants in these homes are typically very stable, pay on time, and will take care of them.  As the Tom Petty song goes, “the waiting is the hardest part.”

 

And the FYI:

Investors love multi-family units!  But multi-family homes (1 to 4 units) are not that prevalent in Charlotte.  I don’t know why more of them weren’t built (maybe due to cheaper land here?), but there are typically very few of them available for sale.

 

Charlotte is a beautiful, up-and-coming city with a growing population.  Whatever the strategy being used, the time to invest seems to be now!

 

Brett Furniss is the President & Owner of BDF Realty (Charlotte Property Management) which works with Charlotte real estate investors and homeowners 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 Monthly: Landlords- 5 Reasons Why Our Time Is Now

 

 

Wow!  Has it already been over five years already since the real estate market tanked?  TARP, the “new normal”, bailouts, CDO’s, and toxic assets were all the rage back then.  Home buyers disappeared, home sellers were really unhappy, and real estate prices dropped like a rock.  Renters were deemed the smart folks, and landlords, not so much.

 

It was a tough time for most people as the economy soured and landlords were no different.  Rental rates were relatively low, almost no one could get a mortgage to refinance, and people (landlords and tenants included) were losing their jobs.  This affected landlords in two ways.  First, if they lost their job, they still had to pay for their home and their rental homes.  And, secondly, if their tenant lost their job, they had to deal with that situation as well.  The uncertainty made for tough times for all involved.  Many landlords got out of the rental business either by choice or by economic necessity.

 

However, the times have changed in almost every way for the better now.  The rewards for hanging in there the last five years seem to have arrived and I’m seriously wondering if we are entering into a golden age for landlords.  Wait- What???  Why would someone vested in real estate for his livelihood make such an outrageous claim?  Well, let’s look at the facts on the ground:

 

1.  Rental rates keep on rising.  Love you, extra cash flow!

 

2.  Mortgage rates have dropped even lower making leverage really cheap.  Locking into low interest rates is fun!

 

So, higher rents coupled with lower mortgage costs equals bigger profits for landlords.  Sweet!

 

3.   Home prices are still low and seemed to have bottomed out.  For landlords with cash, they can pick up rental homes on the cheap that will immediately cash flow and be primed for a quick equity build-up when the market recovers.  There are undoubtedly still more sellers than buyers in the market.

 

4.  The rental market is healthy and homes are filling quickly with higher quality tenants.  Many great former homeowners who hit a rough spot are now clamoring to live in rental homes on the market today.  They pay on time and maintain the homes extremely well.  They know the drill and are great to work with!

 

5.  Being that it seems that home prices have stabilized (and with inflation coming at some point in the near future), home prices will begin to work their way up again.  So the landlords who have held on and been paying down their mortgages over the past five years, will be rewarded with equity (cash) in a liquid market.

 

So, as a landlord, you should be excited!  Our time is now!

 

Brett Furniss is the President & Owner of BDF Realty (Charlotte Property Management) 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 Monthly: Cash Flow Happens On Both Ends: After You Check Your Rental Comps, Do the “Bank Thang”

 

 

A property manager’s most important task is to maximize their client’s cash flow.  This includes looking at most of the inflows (good!) and outflows (bad!) of the property.

 

Cash Inflows: Rent from the tenants (typically the biggest or only inflow)

 

Cash Outflows: Repairs, management fees, & vendor fees

 

What is out of the property manager’s control, however, is typically the largest outflow for landlords- the financing of the property.  This is the mortgage payment that goes to the bank each month.  If this outflow can be sizably reduced, all other expenses (outflows) seem minimal.

 

So does that mean I need to start doing the “bank thang” (defined as giving up total control of your personal information and providing a ridiculous amount of documentation)?  Unfortunately, yes.

 

You may not like dealing with the banks again (I didn’t either!).  And you may think that the Fed is crushing the value of our dollar by printing money (I do too!).  But one of the positive results of the Fed’s “Quantitative Easing” we read about in the news is that it has pushed interest rates on mortgages to historic lows (for now).  And, as a landlord, you need to explore taking advantage of these low rates and minimizing your biggest outflow.  And that means having a conversation with the banks about refinancing options.

 

The three ways to deal with refinancing (from best to worst option):

 

1.  Read the mail the banks send you, especially the letters that come via UPS and FedEx.  I got a letter from Chase (one of my existing lenders) the other day via UPS that offered to reduce my interest rate from 6.875% to 4.25% on one of my rental properties.  I called them and it was legitimate (no closing costs and limited documentation needed).  This took my payment down 30% on this house.  That is a good outflow reduction!

 

2.  Proactively call the lenders who hold your home loans and see if they can do anything for you.  Mention government programs like HARP, HAMP, and HARP2.  Then hope they know what you’re talking about.

 

3.  Call a mortgage broker and ask them to look over your loans and see if they can refinance any of them with favorable rates.

 

Property managers can run rental comps to make sure their landlord clients receive the highest possible rents and try to minimize other costs.  But landlords, especially in this historically low interest rate environment, need to do their part to maximize cash flow.  And that means doing the “bank thang”!

 

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 Monthly: Incentives: Knowing Why the Chicken Crossed the Road & Why Fees are Good

Q.  Why did the chicken cross the road?

A.  There was bird feed there

B.  A coyote was chasing him

C.  He saw a hot “chick” on the median

D.  To get to the other side

Answer D is the response that makes this a legendary “joke” (somehow…).  Answer D is also very incomplete.  Everything happens for a reason; no one does things without some type of incentive being involved.  I mean, the chicken wouldn’t care about getting to the other side if he didn’t have a reason to do so.  What was its motivation?  What was the incentive the chicken was pursuing?  A, B, or C answers make much more sense to me in answering the “why” question!  They address the chicken’s needs:

A.  Hunger

B.  Safety

C.  Love (or lust)

In business, incentives usually mean money.  If 90%+ of businesses fail for lack of cash flow (lack of money incentives), then the ones that survive make sure they are getting enough cash incentives from their customers.  Obviously, this isn’t a one way street; the businesses are offering enough value in return so these payments are a win-win deal.

So now that is established, what can incentives tell you about a company?  Some charge for certain services, some don’t.  Why not just take the free services when they’re offered?  Cheaper, especially in tough economies, seems like the best way to go.  Right?

Well, incentives can be telling; company pricing and their fees can tell you what they believe they do well and what they don’t.  So, in terms of getting great results, paying fees can be very important!  Fees motivate companies to do what you want them to do.

Reading into incentives (aka company pricing) is interesting and generally informative.  Let’s look at examples of this from real estate and other businesses:

1.  When a tech company sells pricy software and then offers free support with it, I’d expect the software to be good and the support to have long hold times.  If support costs extra money monthly and can be cancelled at any time, the support will probably be pretty good.

2.  If you ask a friend to pet sit Fluffy as a free favor to you, your friend will probably be late and leave early; unfortunately, most friends will do the minimum required!  If you hire the most expensive pet sitter in town, chances are Fluffy will be treated like Benji on a movie set.

3.  If property management companies don’t charge you to sell homes under management, they are probably not going to actively seek to sell your home to the tenant.

4.  If you offer your real estate agent 7% commission, they will probably be incented to work harder to sell your home.  Many people will try to get their agent down to 5%, which is a complete misread of how incentives work.

5.  If a property management company charges a huge sign-up fee, but very little for procuring a tenant and managing the property, chances are they will be very motivated to sign you up.  They may be less motivated to procure the tenant and manage the property.

Generally-speaking, incentives (pricing) are an effective measure of the value that will be received for different services.  A $5 chocolate bar should be better than a $1 bar.  If you offer to pay one friend $50 to mow your loan and ask another to do it for free, guess which one you will see firing up his push mower first in your front yard?

So fees are good for consumers!  If you don’t make sure you are utilizing proper incentives for service providers, you’ll never know when (or if) the chicken will actually cross the road.

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 Monthly: Rental Home E-Harmony: What Tenant Is Perfect For Your Rental?

 

Dating web sites, like E-Harmony and Match.com, have grown in popularity and are apparently very effective; one in five people getting married met on-line, their advertising claims.  That’s pretty good! 

 

It can be even better for real estate.  Many polls conclude that 90%+ of home searches begin on-line!  Real estate web sites have the potential to be much better matchmakers! 

 

But the real test of effectiveness is how many leases are consummated (for lack of a better word) from this on-line home matchmaking.  And whether the landlords and tenants are happy with the union after move-in.  Much like the 4 out of 5 people who don’t get married from the dating sites, sometimes it doesn’t work out between the landlords and tenants.  Why not? 

 

Maybe this matchmaking could be much more effective if there was a lot more honesty going on from both sides of the deal? 

 

For example, on-line ads for homes tend to look like this regardless of what the home actually looks like:

 

Immaculate & cozy, this 3 BR / 2 BA stunner can make even the most choosy renter’s heart melt.  Beautiful home with too many upgrades to count.  Voted safest and best run neighborhood in Elmwood for 2 of the last 3 years (as reported by the Elmwood HOA Newsletter)!  Priced attractively at $1,200/month and is sure to go fast!

 

And if the renter had an ad?  It would read something like this:

 

Ideal tenants seek quiet abode for a loving family.  Our 8 dogs are trained in Vienna (on Vienna Drive in Lincroft, NJ, it turns out…) and have never soiled a single fiber of carpet.  Our rent is always paid on time and the only time the police come to our home is when we make them hot chocolate after they are done caroling in our neighborhood.  We love our landlords and they love us!

 

But what is the truth?  No tenants or landlords are filling out a 300-question survey where algorithms are going to match the tenant and house together.  Each of them is going to claim that what they offer is top of the line, no matter what the real truth is.  The problem for the landlord is that the tenant can see the home and make a determination if the rental ad is true, while the landlord must run an application and make a partially subjective decision on information gathered during the application process. 

 

So how can landlords get the type of tenant they want?  It really goes beyond the rental application.  Much like dating is about being the mate that you want to attract, rental homes are the same way.  What???

 

Generally-speaking, it’s a simple truth and goes like this:

 

If the rental house is in a safe area, priced economically, and immaculate, the chances rise exponentially that tenant it attracts will not be a criminal, be economical (buys things valued properly), and value cleanliness.

 

On the other hand, if the house is in a crime-ridden area, overpriced, and dirty, the tenant it attracts will more likely be involved in more shady dealings, spend recklessly (re: which may lead them into situations where they struggle to pay rent), and not care about the cleanliness of the home. 

 

So, in practical terms, should the spots in the carpet be cleaned out prior to going to market?  Yes, if the landlord wants a tenant who rents the home to care about spots on the carpet.  What about cleaning the appliances?  Only if the landlord cares about attracting tenants who care about clean appliances.  Should the highest rent possible be asked for?  Only if the landlord wants a tenant who doesn’t conduct research on their biggest expenditures which may signal their overall financial shakiness.

 

Much like humans, homes attract suitable mates.  Good-looking people marry other good-looking people.  Clean people rent clean houses.  Financially responsible people don’t lock into overpriced rental homes.

 

What type of renter will your rental home naturally attract?  Or more importantly, turn off? 

 

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 “Additional Security Deposit” Letter Exchange

Dear Property Manager,
I am very interested in the rental house you have listed! I think it will be perfect for our family. However, when you asked me for an additional month of security deposit, it made me concerned. Money doesn’t grow on trees these days and I thought the rental ad said you only needed one month down. We also have to come up with the first month’s rent and pet fees, so you’re talking about a pretty big sum already. I’ll be honest, I just don’t have it.

I explained our situation to you. The economy had turned against us, but we’re past it! My wife is employed again and getting you the rent will be no problem. Haven’t you ever had anything happen to you before? Have a heart! We’d take great care of the home, but just need the security deposit reduced. My business is booming so things will be fine! Don’t worry! You’ll get your money!

So what do you say? Can you help me out?

Sincerely,
Mr. Tenant

P.S. My wife thought you looked exquisite in your emerald blazer! It’s a bold move to wear it in 97 degree heat, if you ask me, but it’s better to look good than feel good, right?

Mr. Tenant,
Thank your wife for the kind words about my blazer. Typically they run the air conditioning at 40 below (so I try to stay prepared), but it didn’t work well when we moved outside. Emerald has sort of grown on me as I’ve gotten older. I think it complements my eyes, but opinions sometimes vary. You know, you make a call on the outfit every morning and sometimes you hit it out of the park and sometimes you whiff. Truth be told, I’d settle for hitting singles in the clothing department!

As for the request for additional security deposit monies, I understand your concern. Let me explain our rationale.

I understand you hit a rough spot a year ago; that happens. It’s obviously not just you; we see applications like this everyday. We also rent to a lot of people who have hit rough spots before! It’s not a deal-killer.

But there are other mitigating factors. Let’s look at your credit application and income. Your scores are obviously not good, but I’m not overly worried about that. There looks to be some recent 30-day late payments on power bills and cable. Your current landlord said that you had a few late payments as well during their lease (at an amount less than you would be paying now). You gave us your business bank statements to show your income, but it’s not clear how much of that actually makes it to you. This information collectively gives me pause about your financial condition.

My job as a property manager is to mitigate risk for our client, the owner of the home you want to rent. I personally think you would be a great tenant; anyone who compliments my wardrobe is good in my book! But if something happened to you that turned into a decent size expense, I can’t say with much certainty (with the information we have) that your lease wouldn’t be at risk. If an extra thousand dollar deposit is a deal-killer from your end, what would happen if your car stopped running next week? You obviously would need to fix that first to get to work. The owner of the home would be left waiting for their payment. And we wouldn’t be doing our job well.

If you have something that addresses these concerns, please send this information over so we can consider it! We make money by filling properties, so we want to approve you! We just have to protect our clients first.

I hope this letter clears the air. Thank you for your interest in our home and I hope we can work together in the future.

Sincerely,
Your Property Manager

P.S. On your suggestion, I’m wearing a short-sleeved cotton blend shirt today, no jacket. It feels good- thanks for the suggestion!

Learn More

Charlotte Property Management Weekly: The Cheap Rental Home Game: A Saga of Ups & Downs- 10 Tips for Survival

Cheap rental homes remind me of buying electronics off the street.

Street Urchin: “$50 Bucks! Flat screen television for $50! Why are you even thinking about it? This is a great deal- CHEEP!!”

My mind (definitely thinking about it): “Hmmm… I need a flat screen, but this thing is either stolen or a piece of garbage. But, if it’s not (and his uncle really died and bequeathed it to him), this is a great deal!”

My mouth: “OK, I’ll give you forty-five for it.”

This is the type of deal I see people making to buy homes for as little as $10K. It’s really a gamble, but can be a lucrative one if it works out. I mean, the ups can be great!

For example, a $20K house’s payments come to approximately $130/month (believe it or not, there are no HOA fees to worry about!). The home can rent for $400. That’s a positive cash flow of $270/month, which is not bad! With a $100K credit line, this could equal 5 homes. I like the math, $270 multiplied by five homes equals $1,350/month. That’s a monthly return of 13.5%. Oh yeah! So the flat screen works and works well! I’ve got a great television and an even better story of my tough negotiating tactics to match.

But then, there are the down times. The house is cheap and old, and things start breaking down. The tenants (savvy to the system) call the city’s code enforcement department, who find a lot more stuff that’s not at code. The landlord is required to fix them (or face fines) which eats into the return. Several of the tenants think that requests for rent are merely suggestions; they promise payment, but it never comes (even after thousands of dollars in repairs are done). Evicting them is a double-whammy as no rent is coming in and the attorney fees are going out. The house becomes vacant and vandals begin to smash windows; neighborhood kids start using the home as a party pad. After filing ineffective police report after police report, it’s clear that the police don’t want to be in the neighborhood unless absolutely necessary. Then again, neither does the landlord.

So now “you get what you pay for” begins to ring true. The flat screen has stopped working and has somehow completely shot the electric system of my condo. A detective from the police department has left a business card on my door. Unfortunately, I threw away my old television set (“Good riddance, 20th Century!” I said…) and am now forced to read a lot more.

So how do people make money off of cheap homes? Well, the margin is there so some savvy investors have figured it out. A guy I used to work with told me his system:

1. Thoroughly inspect to see what’s broken and on the verge of wearing out. Include this in the upfront cost of the home.
2. Leave the home broken up until someone moves in. Then repair it.
3. Never have carpet in the house; always use vinyl or a hard surface that cleans off well for flooring.
4. Get tenant referrals from good existing tenants
5. Find out when pay day is and show up in person on that day. Accept cash and carry a gun.
6. Find a handyman who lives in the community to take care of the needed maintenance/repairs.
7. Understand that evictions and losses are part of the game sometimes. There will rarely be months where something doesn’t happen. It’s not upsetting, it’s business.
8. The homes will probably never go up significantly in value and will be difficult to impossible to sell on the market. This is purely a cash flow play.
9. Buy these homes in bulk and spread the gains and losses across many homes.
10. Make enough cash flow to hire someone else to do the dangerous duties (aka visiting the properties).

Cheap homes are meant for the savvy investor with a system, not the guy looking for a deal on an inexpensive set on the street. A steel stomach doesn’t hurt either!

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: Is “Final Tenant Approval” Desirable For Landlords?

As I was thinking about this question the other day, I had a flashback to my high school history class. The first thing I learned from this trip down memory lane was that it is indeed possible to daydream about hours of daydreaming.

The second thing I learned was the strange applicability of our class’s discussion on democracy in regards to approving prospective tenant applications. The question was whether a true democracy (everyone makes the decisions) or a representative democracy (“experts” were voted in to make the decisions) was better.

The effectiveness of a true democracy was illustrated by a story that Aristotle told. It goes something like this:

You’re on a big cruise ship with 100 other passengers. Everything is going fine until it is clear a major storm is on the horizon. The ship is about to navigate a tight channel where it could easily be dashed upon the rocks if steered incorrectly. Any wrong move would spell imminent disaster for all the passengers. What to do?

A true democracy would offer a vote to everyone on the ship to determine which way to steer the rudder (“Raise your hand if you think we should steer right. Okay, after the final count of hands, the ‘Lefts’ have it.”). Aristotle said he’d prefer to rely on the captain and his crew to make that decision. This discourse lead to our founding fathers (many years later) settling on a representative democracy as America’s form of government; a true democracy sounds better, but wouldn’t work as well in practice. The captain, due to his experience and expertise, would know best.

Tenant selection is one of the most important duties a property manager performs for landlords. Tenants make or break (unfortunately, literally sometimes) a rental property. They will pay and treat the property well, or they won’t. Knowing who they are as people and their background greatly mitigates this risk. This is why the front end tenant screening by a property manager is so vital. And experience in tenant selection counts!

Some landlords want to be hands-on in this process. I don’t have an issue to this prior to going to market. But if the hands-on treatment is expected to go on for the duration of the tenant selection process, there is little need for a property manager. I would recommend posting a few rental ads and going the “do-it-yourself” route. This works for some people. It also (potentially) saves money, but greatly increases the risk.

It reminds me of my favorite all-time television show, 24. Kiefer Sutherland (Jack) would only try to bandage people with life-threatening injuries in the field if it was an absolute emergency. Most of the time he would just send them to CTU’s medical clinic for treatment. And, at no point did he ask Chloe (from CTU’s IT staff) to give him pointers on bandaging the wound. He trusted the professionals.

And so should landlords. “Final tenant approval” can be used as a cop-out by property managers. If things go south with a tenant, “final tenant approval” makes it very easy for the property manager to say, “Well, you gave final approval for the tenant we placed, so what happened isn’t really my fault.” I even sometimes see property management companies advertise this “feature”, making it appear to be desirable! All I can say is that if my sister died on the operating table and the doctor came to me and said, “You know, I asked you for “final removal approval” on which part of her organ to cut out… you said ‘OK’…” I would be incredulous! I mean, what do I know about medical procedures? Why would he ask me what to do? I’m paying for his expertise!

True democracy may sound good, but a representative democracy works much better in practice. Let the “final tenant approval” come from the expert you hired!

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: “Free” Repair Quotes on Rental Homes Can Cost You Money

Everyone wants to save money! But to what lengths (and for what) does it make sense to find “deals”? It really depends on the urgency level of the need. Here are three scenarios of high, middle, and no urgency:

High urgency (nurse): “Your daughter needs the heart transplant now! Do we have your consent? …I don’t know how much it costs, sir… it will be itemized on your bill later, I suppose… No, there is no AAA discount on this procedure… I’ve never seen a coupon like that- it looks like you typed up ‘50% OFF’ and then wrote ‘Group-On’ on top of it… No, I suppose we don’t want to lose your business to a competitor… We’re losing her!! Yes, we do validate parking.”

Middle urgency (property manager): “The house needs one bedroom painted, the carpets cleaned, and the outside power washed before we can put it on the market… You said you want 3 quotes per repair?”

No urgency (sales clerk at Best Buy): “The new iphone detachable screen is really cool! You’re a loser if you don’t get one! We only have 10 million of these left, but when they’re gone, we’ll call our factory in China to make more… $199 for a screen to put on top of your screen (that already works) is a bargain. This is as cheap as it gets (until next week when ‘Detachable Screen Mini’ comes out). There is no discount; it’s under $200 bucks already, man! Go to another store then! …Fine, don’t call me crying when you are shunned socially and professionally for your weak iphone accessorizing…”

So the point of these scenarios is to illustrate that “high urgency” scenarios need to be acted on immediately, with no time to haggle. And “no urgency” scenarios allow time to shop vendors for price; time is on your side (yes, it is)!

But what about “middle urgency” scenarios? We run into these sometimes when tenants move out and the rental home needs to go back on the market. Houses need to be repaired, and some landlords want to quote out every repair multiple times to get the lowest price. This sounds reasonable, even prudent. The repairs do need to be made in a reasonable time, but not tomorrow or next week. Time is on their side (yes, it is?) to get repair quotes. Right?

Well, it’s a “middle urgency” scenario (not a “no urgency” scenario) because there are other factors in play. Every investment home has some combination of costs that accrue every day it’s vacant: mortgage payments, HOA fees, lawn care, utilities, property taxes, etc. For easy math, let’s say these come to $900/month. $900 split into a 30-day month is $30/day. This is a very real cost; the meter is running daily.

For this example, let’s say the initial repair quote comes in at $500. After getting 3 quotes per repair item, the repair quote is whittled down to $400. Congratulations- that’s a 20% savings of $100!

But, wait, is it really? Getting those additional quotes took 10 days. 10 days of vacancy multiplied by 30 days equals $300. So, to save $100, it cost $300. The net loss is $200, plus all the time and headaches it took to coordinate vendors and sort through repair quotes.

Unfortunately, this is not the totality of the loss sometimes. Empty homes are risky! Talk to any police officer and ask them whether they have any problems with vacant rental homes being broken into in this economy. If this happens, stolen appliances and break-in damages escalate the costs upward substantially. Remember: the longer the home is vacant, the higher the risk.

“Free” repair quotes can cost a lot! Don’t over-quote yourself into a financial loss!

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