Tying the Knot with Your Tenant?
“What the true proverb says has happened to them: ‘The dog returns to its own vomit, and the sow, after washing herself, returns to wallow in the mire.’”
(2 Peter 2:22)
“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)
“Frustration is a function of our expectations.”
(Stephen Covey)
Relationships can be a funny thing. I remember hearing some version of this soliloquy about a friend’s boyfriend years ago:
“John” can be a really sweet guy and make me laugh! He brings me to cool places and, at times, makes me feel like the most special girl in the world. He is ruggedly handsome and is a really good athlete. He seems to be a big animal lover and is loving on his dog constantly (which is really cute!!). He sees us being together forever.
But… he can also be really cold. He can’t keep down a job and would get really angry at his co-workers and bosses in the past few places he’s worked. He is really unpunctual and forgets about me when he’s around his guy friends. His family has largely alienated him and I’m not sure he cares about anyone but himself (and his dog).
He asked me to marry him and I said “yes!”
Wait- what?? Congratulations???
We have a version of this courtship in Charlotte property management with lease renewals.
A tenant and landlord signing their first lease could be viewed like a couple dating. The tenant can see how the landlord treats them, how quickly inquiries are responded to, and if their business is handled competently. On the other side, landlords can see if the tenant pays on time, follows the rules of the lease, and cares for the house. It’s a two-way street.
When the first lease is near its expiration date, both sides have a decision to make on whether to keep the lease going. Do they like each other? Is the price right? Does renting this home for another year sound appealing?
With a renewed lease, most things for the next year would probably be the same. Any large behavioral change from either party would not be expected; even when people promise they will change some behavior, they tend to regress back to the mean at some point. What happens during the first year of the lease is going to be close to what is happening during the second, third, or tenth year of the lease. From a landlord perspective, the question to ask is whether the status quo is acceptable.
If tenants pay late in 6 of the 12 months in the first year, the chances are they will be late as often in the new lease. If the tenants are trashing the house in the first year, they are probably not practicing good housekeeping in the second. Fortunately, the inverses are also true.
Renewing the lease and keeping a tenant is much cheaper and easier than fixing up a house and finding another. But having peace with a rental home should not be minimized. If late payments or communication issues cause landlords consistent unrest and anger, a lease should not be renewed; it’s not worth it. However, if the business decision is made to renew a lease to a tenant who is not fully meeting the lease standards, expectations of future performance should be recalibrated. The correct expectation should be more of the same.
Much like tying the knot with “John” after knowing his flaws, lease renewal decisions should be made in light of the respective tenant’s known behavior. Everyone wants positive change, but it can’t be relied on. Smart landlords become fully aware of who they are tying the knot with before signing on to extend their lease for another year!
Happy Landlording!
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Blackjack & Making Lease Extension Offers: You Gotta Hit or Don’t Hit
Blackjack is a classic gambling game pitting card players versus a dealer. The goal is to have the card players’ hands total 21 or as close to 21 as possible, while not going over 21. As the game unfolds, if the card holders’ hands stay under 22, they will be compared to the dealer’s hand (if he stays under 22); whoever has the higher total wins the hand. It can be both exhilarating and frustrating!
The main conundrum for the card players is whether to request an additional card (“hit”) to pad their point totals. The upside is that the closer the players get to 21, the stronger their card hands become and the more likely they are to win. The downside is that if any of the players get over 21, they automatically “bust” (lose) and their bet for that card hand is immediately forfeited.
At casinos, it is not uncommon to hear players loudly talking about their decisions on hitting on their card hands:
“I knew I shouldn’t have hit. I would have won! Ugh!!”
“Yes! I got the King I needed to hit 21. Great hit!”
“No hit for me. Dealer is going to bust!!!”
Both hitting and staying put (taking no cards) can be the right strategy depending on how the cards land. But if a wrong decision is ultimately made, there is no way players can change their minds afterwards. Once players take a card (or don’t and “stay”), their decision is cast and they need to wait to see what happens. There are no “do-overs”.
As a Charlotte property manager, this reminded me of giving lease extension offers to existing tenants.
From a landlord perspective, landlords want to charge the highest rent possible and have the tenant re-sign their lease at that rate. From the tenant perspective, the tenant wants to stay and pay the least rent possible or move to another rental unit that serves their needs better (this could mean lower price, better or different location, different size unit, etc.). Both sides have some disparate interests that need to be rectified before a new lease extension can be signed.
But an initial offer to extend the lease (tendered usually by the landlord) must be made. And the question is what price should be asked for. There are usually no “do-overs”. The price offered is going to be what the tenant ultimately makes a decision off of. Whatever it is, it needs to be strong and not wishy-washy. Wishy-washy can create problems:
Landlord: Good morning, Mr. Tenant! Your lease is up at the end of next month and I wanted to see if you were looking to sign for another year.
Tenant: I was thinking about it. What are the terms?
Landlord: Well, I was going to raise the rent $200. How does that sound?
Tenant: Not that good. I thought I was overpaying now.
Landlord: How about no rent increase. Will that work?
Tenant: I’m not sure. I need to talk to my wife and think about it. We’re going in the right direction, though!
Landlord: How about $200 less than you are paying now. Would that work?
Tenant: Now you’re talking! That’s more in line with what I think this dump is worth. I’ll get back to you.
Landlord: How about $300 less?
This can create a slippery slide.
Much like Blackjack, landlords need to look at their situation and decide how much risk they want to take on with potentially losing the tenant they already have in place. Then they need to make the offer (hit) and wait to see what decision the tenant makes. Sometimes, the offer doesn’t matter because the tenant was going to vacate regardless. But often, the price is the motivating factor on whether the tenant decides to stay.
Smart landlords will think hard about how much they will raise the rent (hit) or whether they will offer it at the same rate (stay). There is no middle ground- you gotta hit or don’t hit! They know that once that card is played, there is little chance to do it over and take it back.
Happy Landlording!
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High-Tech Taco Joints & Missing Landlord Reports: Do People Matter?
I went to a newly-opened Mexican restaurant the other day to meet a friend for lunch. When we entered, I was expecting a nice hostess to say “hello”, take us to our table, and hand us some menus. Instead, we were greeted with some imposing automated ordering machines. I looked at my friend and asked him if he knew what to do. He shook his head “no” and then stepped forward to start pecking at the screen.
Meanwhile, a manager saw these inquisitive middle-aged men jabbing their fingers into the machine and saw that we may need assistance. She dutifully came over and began to give us a tutorial on how one would go about ordering. I told her we had never been there before and wanted to know what she would recommend. She looked at me quizzically and seemed to recommend that I get with the program and push the screen enough times properly to actually order something. Fair enough.
The prices seemed pretty high for standard taco fare (couldn’t I buy 3-4 large pizzas for this?), but we were past that point. The machine already had a nice tip in mind for me, automatically applied it to the bill, and was prompting me to just tap a credit card and get moving. As my card registered with a beep, I was prompted to enter my cell phone number. When I complied, a text message buzzed with the order number (telling me to pick up a table marker with the corresponding number), my receipt, and a link to sign-up for some restaurant points system.
The manager brought us our drinks and told us our food would be out shortly. One minute later, the tacos were on the table. We ate. The manager came back out and asked us how the food was. I told her it was fine. She then made a heartfelt plea for a 5-star Google review. I was non-committal, but she showed me how easy it was to access the review page by asking for my phone and pressing a card with a Google logo against it. Nothing happened. Once she discovered that I was an unenlightened Android phone user, she gave up and told me to visit their website when I had time.
For a tech person, this restaurant may have been nirvana. It took the people component largely out of the restaurant experience. For me, it was a sure sign of the downfall of western civilization. These types of restaurants are not my thing.
I guess I should have done my own investigation and saw what this new place was about before I went. It had a non-corporate name, but my friend told me they had locations all over the place in other states. He had asked around and done his homework!
To the real estate front… this situation made me think about how few landlord reports we get asked for nowadays when our tenants vacate. We used to regularly get other landlords contacting us to ask to see what type of tenants they were for us; there was an importance to it! Like homework, it wasn’t something that anyone really liked to do- it takes effort to pick up the phone, track down the past landlords, send the required information consent forms, get the questions answered, and look into housing gaps in a landlord history. But, to me, it might be the most valuable tool we have to assess incoming tenant quality and identify red flags. Past landlords will largely tell you how it is.
Like the restaurant business, property management has always been a people business. If tenant assessment is only done on a spreadsheet level, important (re: costly!) things can be missed. Asking around and digging in further than a credit score and criminal report can pay big dividends. Upfront effort can lead to the long-term benefits of finding a great tenant for a smooth tenancy.
High-tech taco joints and algorithm property management can sound good on paper. But smart landlords (and restaurant owners) know that old-fashioned, low-tech people interactions can prove to be the most vital component of repeat business and successful leases.
Happy Landlording!
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