Sometimes It’s Cheaper to Keep Her: Why You First Need Reserve Funds Before Renting Out Your Home
You tied up, you better stay tied up
Cause it’s cheaper to keep her, this is from T, who says
It’s cheaper to keep her, it’s cheaper to keep her
When your little girl makes you mad
And you get an attitude and pack your bags
Five little children that you’re leavin’ behind
Son, you’re gonna pay some alimony or do some time
That’s why it’s cheaper to keep her (Help me say it, y’all)
It’s cheaper to keep her (It’s cheaper to keep her)
(“Cheaper to Keep Her” by Johnnie Taylor)
Marriage can be the best thing in the world.
Marriage can be the worst thing in the world.
But breaking up is really hard on several fronts and is certainly never cheap.
Much like a bad marriage, we get calls from potential clients who want to break up with the houses they live in and rent them out to someone else:
“I’ve lived here for 20 years! It’s just time to move. And the hour commute each way to my new job is killing me!”
“This neighborhood has been going downhill for a long time. It’s time to get around a better class of folk. I’ll rent it until I can afford to sell it.”
“Things are breaking everyday in my house. Mentally, I feel like I may be next if I don’t relocate.”
And as a Charlotte property manager, we like it when people want to move. It keeps our doors open!
However, there is a difference between good and bad property management business. Good property management business makes potential clients aware that renting out their home costs money and that they should have access to a reserve fund (2-3 months of rent at least). Renting out a home can be costly upfront and things can get worse if things go wrong during the tenancy.
Wait- I thought investing in real estate makes people millionaires! I’m supposed to make money, not lose it. What costs money? And what can go wrong? Here’s a very partial list:
- Preparing the home for market (steam clean carpet & a professional cleaning at minimum)
- Vacancy costs (utilities, HOA fees, monthly mortgage, lawn service)
- Property management fees (Sorry! But well worth it! J)
- Things break (HVAC goes down, garage door breaks, etc.)
- Tenant stops paying and eviction is necessary
A good property manager will keep these costs to a minimum, but is never able to eliminate them entirely.
We sometimes get inquiries where there is an impression that as soon as there is a move-out there will be incoming rent covering the entire next month’s mortgage. That is never the case. And we don’t want to take business that puts our clients in untenable, stressful situations.
Don’t get me wrong; we’d love to rent out your house for you. But change comes at a cost! If there are not reserve funds available, as Mr. Taylor eloquently says, it is just cheaper to keep her.
Holding rental homes can be a great path to long term wealth, but can drain liquid resources (especially in the short term). If you want to break up, first make sure you are financially able to pull it off!
Brett Furniss is the President & Owner of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords & Home of $100 Flat Fee Property Management. BDF Realty utilizes their innovative Pod System for exceptional customer service in residential property management, home repairs, and home sales for single-family homes, condos, and town homes in the Charlotte-Metro Area. Contact Us Today!
Learn MoreWealthy Living Paycheck-To-Paycheck? More Pressure on Tenant Screening
When you hear the term “paycheck to paycheck” you probably think of low-income households struggling to make ends meet. That’s even the title of a new HBO documentary highlighting the plight of America’s working poor. But a new paper released at the Brookings Institution’s BPEA conference Friday finds that a sizeable number of wealthy households are living paycheck to paycheck, too.
“The Wealthy Hand-to-Mouth,” by economists at Princeton and New York University, finds that roughly one-third of American households — 38 million of them — are living a paycheck-to-paycheck existence. These are families who hold little to no liquid wealth from cash, savings or checking accounts. But a staggering two-thirds of these households are not actually poor; while they resemble poor families in their lack of liquid wealth, they own substantial holdings ($50,000, on average) in illiquid assets. Because this money is locked up in things like their houses, cars and retirement accounts, they can’t easily dip into it when times get tough.
Christopher Ingram (Washington Post 3/21/14)
When running tenant rental applications, property managers and landlords are largely looking for one thing: tenants who will pay on-time and in-full every month (while not committing felonies in between “House Damage” parties). We are looking at credit scores, criminal background checks, income, and landlord history. But is this sufficient?
Based on the article above, prospective tenants that we once thought looked great on paper may be riskier than we thought. For example, a house renting for $2K/month may draw the following applicant:
Married couple
Husband makes $96K/year
Wife stays home with 2 children
No criminal record besides 2 speeding tickets in the last 5 years
760 & 720 credit scores
Owned a home in their old town which they sold to move here for a job
They look like great candidates! But let’s dig deeper with a back-of-the-napkin calculation when we delve into their credit report and specifically, their monthly cash inflows and outflows:
$8,000.00 Salary
less taxes (approx 40%): ($3,200)
2 car payments: ($1,000)
Rent: ($2,000)
Utilities ($300)
Student loans ($200)
Private school (children) ($600)
Credit card balances ($100.00 minimum payment)
Car insurance ($250)
Food??
Activities??
Gas??
With $7,650.00+ in estimated monthly expenses, making $8K/month turns out to be tight. If something happens unexpectedly (sickness?) or job loss (just moved here for a job), this could get bad in a hurry. We know cash flow will be insufficient to cover the rent, so the question becomes how many assets do they have? And how liquid are those assets?
And then the line of questioning turns into “Do we know? Did we even ask?”
At the end of the day, the rental application can’t really devolve into a mortgage application-like colonoscopy. It’s too painful for everyone involved and takes too much time.
The good news is that a run-of-the-mill credit report is pretty thorough. The credit report screening starts with looking where cash flow is going monthly and then factoring in the other common monthly expenses (car insurance, gas, utilities, cell phones, etc.). If large credit card balances are present, it’s probably indicative that their expenses are more than their incomes. Using a back-of-the-napkin look at their income and monthly expenses (coupled with alarm bells for any large credit card balances) will give a good idea of how risky the applicants are. If there is sufficient cash flow left over each month, approve them and move on. If it looks to be too close for comfort, ask more questions. Ask for more documentation of assets. And then reject the application or ask for a bigger security deposit.
Applications are about present qualifications, but also about future vulnerabilities. Few things always go perfectly for everyone; this is real life we are talking about! And if things don’t add up, it would behoove you to get to the bottom of it as opposed to just taking the path of least resistance. High income and credit scores may not be grounds for fast track application approval anymore. Times change and we need to change with them.
Happy tenant screening!
Brett Furniss is the President & Owner of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords & Home of $100 Flat Fee Property Management. BDF Realty utilizes their innovative Pod System for exceptional customer service in residential property management, home repairs, and home sales for single-family homes, condos, and town homes in the Charlotte-Metro Area. Contact Us Today!
Learn MoreFighting With Tenants: Are the Colorful Stories Worth It?
“Don’t knock the weather. If it didn’t change once in a while, nine out of ten people couldn’t start a conversation.” (Kim Hubbard)
I sometimes feel that the same could be said of landlords about their rental tenants. Landlords love to tell stories about how they outsmarted their tenants in their latest dispute. And, conversely, renters love to do the same.
Example:
Landlord: So my tenants say they want to paint a room… they can’t even change a light bulb without calling me, and they want me to trust them to paint my house? Yeah, right!
Envious Landlord Friend #1: (excitedly) So what did you say to them?
Landlord: I told them I would graciously allow them to paint (self-congratulatory pause), but would need to see their handiwork afterwards; if it’s not up to snuff (and, as you know, I have high standards!), I would reserve the right to fix their painting and take the cost from their security deposit. And if a drop of paint even hits the carpet, I let them know I’d add some new carpet and padding to their tab. (smug laugh)
EL Friend: Wow! You really laid down the law!
Landlord: In cases like this, you don’t have a choice; business instinct just takes over. I mean, the last time I was inspecting the house, I saw the tenant’s daughter coloring a picture… her crayon scrawls were completely outside the lines! I hope this isn’t passed down in the genes!
EL Friend: Ha, ha! I can’t wait to get a rental property so I can have clever stories to tell at parties like you!
And from the tenant perspective:
Tenant: My landlord is crazy! I want to paint a room and she is giving me the 3rd degree!
Tenant’s Non-Envious Friend: Well, two can play that game; call her about changing a light bulb again the next time she goes on vacation…
Tenant (laughing): Right! And I have a feeling my toilet may be stopped up around midnight sometime this week…
TNE Friend: Too funny! But are you sure you want her back in the house after the weird way she kept staring at your daughter last time?
The landlord-tenant relationship is like any other relationship. If the landlord chooses to be vindictive and disrespectful, it will usually become a two-way street producing unnecessary stress and anger. And, sadly, it is usually a more expensive venue to take as house maintenance is then often ignored by the tenant and leases are not renewed.
But what if landlords choose peace and harmony? It’s certainly more profitable! But I know it’s not as sexy and it can make landlord party stories sort of boring:
Landlord: I sent my tenants a Ruby Tuesday gift card for renewing their lease again!
Non-Envious Landlord Friend: Hmmm… that’s great, really great.
And
Tenant: A gift card! How thoughtful of her! I need to remember to pick up air filters on our way to Ruby Tuesday’s tomorrow because it’s about time to install new ones.
Envious Tenant Friend: I wish my landlord showed that he appreciated me…
There’s a reward for being nice! Unfortunately, it’s not payable by great stories. But all is not lost! The weather changes all the time so there’s always something to talk about at parties.
Brett Furniss is the President & Owner of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords & Home of $100 Flat Fee Property Management. BDF Realty utilizes their innovative Pod System for exceptional customer service in residential property management, home repairs, and home sales for single-family homes, condos, and town homes in the Charlotte-Metro Area. Contact Us Today!
Learn MoreMarch Madness: How to Pick a Great Bracket & Great Rental Tenants
Everybody loves March Madness. Even property managers! Chances are the only repair calls will go to the cable television companies if their television screens start to flicker.
But now the hard part starts; trying to predict who will win each game of the NCAA tournament. Picking a perfect bracket is tough; no one did it last year after millions of entries. The odds are seriously stacked against getting them all right. And, inexplicably, it’s even tougher if you’re a serious college basketball fan! The men’s college basketball fanatics, who watch all the games year round and know that Duke should absolutely kill Mercer, wind up picking the wrong team to win. Meanwhile, the clueless non-fans who turn on Mercer Street to go to work everyday and choose Mercer to win, wind up getting the pick right. Go figure!
To make good picks, fans rely on statistics and past performance versus other opponents. And then they look at other, intangible signs. Are their players healthy? Are they experienced or are the teams filled with unproven freshmen who might wilt in the big game? How did they do against big teams during the year? How about fast teams that like to run? How well are they playing now?
Much like fans, property managers are tasked to pick the best tenants when they get many applications for the same rental property. Some, like Kentucky this year, seem to fall in the “no-brainer” category. Great credit scores, great landlord history, make plenty of money to afford the rent, and stay away from trouble with the law. They don’t seem to have any weaknesses and look to be a shoo-in for application approval.
But what about if Kentucky’s starting center gets hurt and can’t play? Or in the rental game, you read about a company starting layoffs in the department where your “no-brainer” tenant has worked for the last 10 years. Is that a cause for concern? Yes, but how much so?
That’s a judgment call. Kentucky has enough other talent to steamroll most teams on most nights even without their center. And the prospective tenant could be just fine as she has plenty of cash reserves and a robust Rolodex where she could get hired anywhere in town with a quick phone call. Or she might be in real trouble as she was living paycheck-to-paycheck and hasn’t updated her resume since college.
The other prospective tenants aren’t as polished (lower credit scores and income), but have dual incomes in disparate industries. Would they be better bets? How does a property manager know who to give the approval to?
There is no right answer. Much like picking a bracket, some of it comes down to raw data and past landlord performance. But some of it comes down to the experience of selecting tenants for many years. I wish I had it down to a perfect science and could put it in a training manual (that I could sell for millions of dollars…). But no matter how good a property manager is, no one can get them right all the time. As my 3rd grade teacher said emphatically, “that’s why pencils have erasers!”
So, what to do? The right answer is closer to reviewing the raw data thoroughly and then looking for other signs. Do they have a pattern of paying people on time? Did their past landlords have good things to say? Do they make enough money to afford the property with some excess funds still available if their car breaks down or they face unemployment? Have they recently attempted to hurt anyone seriously (I’m half-kidding on this one)?
As for other signs… how did they sound on the phone? Did they get the application materials back to us in a timely manner? Are they pleasant to talk to? Were they forthcoming and truthful with everything asked in their application? Did they return our calls in a timely fashion? Were they evasive in any way? There’s a certain feel involved.
The other signs are tough to quantify. But that is when picking good tenants turns from a science into an art form. And that’s when the experienced know in their gut that Lehigh has a chance to take down Duke, even though they are a huge underdog. And that North Carolina, despite an up-and-down season, seems to be peaking and can take it all this year.
Picking tenants and the NCAA brackets isn’t as easy as picking all the favorites. Experience counts.
Good luck with both and enjoy the tournament!
Brett Furniss is the President & Owner of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords & Home of $100 Flat Fee Property Management. BDF Realty utilizes their innovative Pod System for exceptional customer service in residential property management, home repairs, and home sales for single-family homes, condos, and town homes in the Charlotte-Metro Area. Contact Us Today!
Learn MoreTenants Love Rental Showings?
Continuing with the theme from our last blog, below is another letter (this time from a tenant) entitled, “I’m Lonely, Please Send More Visitors.”
Dear BDF Realty,
I was disappointed to give my 30-day notice to vacate the other day. You guys are the greatest property managers (BDF side note: Wow! Thanks!) and it will be depressing to leave the rental home. I mean really depressing.
But much to my joy and amazement, I started getting calls from your showing service saying that people wanted to come to MY house to see it! Here I am, bored at home with no reason to get out of the house, and I start getting call after call with people who want to set appointments to come over!
I mean here was my typical schedule before I gave my notice to vacate:
8 AM – 8 PM: bored at home-nothing to do
8 PM – 10 PM: “Arrow” comes on TV, followed by “The Flash” (Wednesday’s only)
BUT…after giving my notice:
7:40 AM: need to clean home before a Realtor showing
8 AM: leave home while Realtor shows property
8:15 AM: return home
8:45 AM: leave home for showing
9:00 AM: return
11:30 AM: leave home
11:45 AM: return
And that’s just the first morning! I can’t wait to see how many people wind up stopping in when all is said and done. I feel like the President!
Thanks again!
Lonely
Okay, I’ve yet to get a letter like this and never expect to. Tenants dislike rental showings for good reason. Who wants strangers trudging through their homes? Then having the expectation to keep the home clean while packing up boxes to move? And then being asked to leave the home during the showings (that they are paying to live in, nonetheless!)? I wouldn’t!
So why would tenants be asked to do this?
For several reasons:
- Usually it is a condition of occupancy that they sign on for in a proper lease
- It allows other renters to find a home for their families too. The tenants were probably looking at some inhabited rentals during their rental home search. This could be viewed as renter common courtesy.
- Being a team player for the owner with a slight mix of sympathy/empathy. Vacancy costs money. The less time the rental home sits vacant, the less financial and emotional strain on the owner. Maybe they are renting out their house in another state and can empathize?
Of course, to make it work for everyone, there are common courtesies that should be exercised. A 24-hour notice should be honored. If there are guests visiting or a child is sick, there should be leniency in allowing the tenant to cancel showings. And I believe in giving the tenant final approval on scheduling showings; “It’s not a good day” is a valid excuse on occasion, though this shouldn’t be abused. And no one should EVER just show up on the doorstep expecting to get in.
We’re all people and no one really likes allowing strangers into their home. However, if done respectfully, all parties (tenants, owners, and property managers) should be able to live with them.
Most tenants won’t “feel like the President” when dealing with multiple showings at their house, but even President Obama has to deal with things he’d rather not sometimes. It’s a necessary evil in the rental game.
Brett Furniss is the President & Owner of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords & Home of $100 Flat Fee Property Management. BDF Realty utilizes their innovative Pod System for exceptional customer service in residential property management, home repairs, and home sales for single-family homes, condos, and town homes in the Charlotte-Metro Area. Contact Us Today!
Learn MoreTenants with Pets: 5 Steps to Protect Your Rental Home
As a property management company in Charlotte, we sometimes get the most touching letters from owner clients. I’d like to share one of them entitled, “Pets in My Home Please!”
Dear BDF Realty,
Thank you for agreeing to manage our property; we’ve worked really hard to make sure our property is upgraded and clean for the new renter. The new paint and carpet really makes it show well! We know you’ll do a great job with it (BDF side note: thanks!).
We do have one small request. We are huuuuuge pet lovers. Could you make sure that you rent to a family that has as many pets as possible? The bigger the animals, the better! It wouldn’t seem right to have a nice, big house without housing as many of God’s creatures as possible. We’d consider reducing the rent for tenants who can prove they have a large and varied brood of animals. Thanks!
Regards,
Pet Lover
P.S. Not to be too picky, but we’d also like to give preferential treatment to those prospective tenants who have unneutered pets. The thought of them giving birth to a litter in our rental home just sends shivers of joy down my spine!
P.S.S. Think Noah’s Ark on land!
OK, this letter isn’t real. I’ve never had any owner clients who said they liked the idea of having pets in their rental homes. But if that’s the case, then why do almost all of them wind up accepting pets?
It’s simply because most tenants (easily over 50% in my experience) have pets. And most pets do not damage homes.
Let’s take a moment to acknowledge our fears with the following scenario. A nefarious and unkempt tenant has been breeding an even more nefarious and unkempt dog, with the scary moniker of “Gargoyle” (Gargoyle is a great student who has far exceeded his master’s nefariousness and unkemptness). They move into your rental home. Unfortunately, Gargoyle sometimes doesn’t allow himself to be walked and winds up doing his business in the house. Gargoyle is also crazily aggressive and enjoys chewing on all door beams and scratches the paint off the walls. After a year of making your home his lair, Gargoyle and the tenant move out to destroy another rental home…
What happens? After move-out, you (or your property manager) does a walk-through. The damage is clearly above normal wear and tear. Some walls need to be repainted, the carpet either needs to be professionally steam-cleaned or replaced, and some door beams need to be replaced. All of this is taken out the security deposit. In worst case scenarios, the damage is above the security deposit, and the tenant is sent a bill for the balance. And when you have a tenant who is known for his nefariousity, he may not pay it. Then court action to collect the balance would be necessary. It’s not ideal, but not catastrophic.
Fortunately, this is very rare. 99% of the time, if there are any pet issues, they can be taken care of with carpet steam cleaning and a professional cleaning, which usually need to be done after a tenant moves out anyway.
But how do you protect yourself from a Gargoyle experience? Try these five tactics:
- Collect a high pet fee upfront for the right to have a pet on the property
- Collect additional security deposit monies
- Screen the tenant thoroughly upfront. What kind of pet do they have? How big? Is it an aggressive breed? What did their past landlords say about them after they moved out? Was the property left in good shape or was it torn up?
- Put a clause in the lease that if any pet issues arise, the tenant can be asked to remove it within 48 hours
- Inspect the property early in the tenancy to see if the pet is doing any damage
For the most part, pet owners are responsible and will not adversely affect the rental home. Tenants have friends and family over to the house (like you) and would be embarrassed if their house was unsightly and reeked of pet.
Don’t let visions of Gargoyle mess with your head! Take the aforementioned steps to protect yourself and your pet issues should be minimal.
Brett Furniss is the President & Owner of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords & Home of $100 Flat Fee Property Management. BDF Realty utilizes their innovative Pod System for exceptional customer service in residential property management, home repairs, and home sales for single-family homes, condos, and town homes in the Charlotte-Metro Area. Contact Us Today!
Learn MoreRenting My Home Out? What To Do, What Stays, What Goes, & the Lawn
As a property management company in Charlotte, we’ve fielded many different questions from homeowners who are contemplating renting their homes out to the public for the first time. Below are a few popular questions from them in our proverbial mailbag:
- What should I do to get my house ready for the rental market?
Make it look good.
Okay, that was the succinct answer for our busy clients; but it’s accurate. I visited a property recently that had sat on the rental market for months. When approaching the property, the lawn was not mowed, half the front shrubs were trimmed (and half were not), and a window was broken. Really, the sale was lost before any prospective tenants even set foot into the home.
So, make the house look good. But don’t go for broke doing it. Touch-up paint, normal yard maintenance, carpet steam cleaning, and a professional cleaning should be almost all that is needed in most cases.
- I’m moving out of my house and want to leave some things behind. Do I need to worry about the incoming tenant messing with my stuff?
Yes.
And I don’t mean to make tenants out to be bad people here. Chances are, 99.99% of tenants don’t care what is in the boxes in your attic and will never check. But Murphy’s Law dictates that the owners who decide to leave their original Picasso in the garage storage closet will find it missing when their tenants move out. Or the tenant’s kid’s name scrawled in crayon all over the canvas.
So, the rule of thumb is, if you care about something, don’t leave it in the house. Somehow, someway, it will be taken or defiled and you’ll kick yourself. If you don’t really care about the stuff, you can leave things (within reason) in the attic or another inconspicuous storage area. After all, it’s still your house.
- I LOVE my lawn. I work on it all the time and my neighbors fawn over how GREAT my landscaping is. The Charlotte Observer takes pictures of my house because their gardening reporter says my lawn “gives him hope in a dark world.” But, alas, I need to move out of town. If I leave detailed instructions, will the tenant take care of the lawn like I ask?
No.
And, please, sell the house instead so you (and the gardening reporter) are not rudely confronted with what a disinterested tenant will allow your meticulously manicured lawn to morph into.
However, if selling is not in the cards, then the advice to keep your sanity:
- Set very low expectations for your lawn’s upkeep (aka the lawn will be mowed approximately every 2 weeks- that’s it. And the gentle, mineral water feedings are over; pray for rain.) Unfortunately, there’s really not much a property management company can legally do if the lawn is kept at city code and doesn’t violate any HOA covenants. As a landscaping aficionado like you knows, we’re talking bare bones upkeep.
OR
- Start a landscape contract for a gardener to visit your home every 10 days and keep it to your specifications. You can try to include this (lawn care included!) as a selling feature in the rental ad (and increase the rent accordingly); however, it is typically tough to sell the value of included lawn care because few people read the rental ad copy in its entirety and then go a step farther to do the actual math to see if it’s a good financial deal versus other slightly less expensive rentals. You’ll probably take a small financial loss versus not offering lawn care, but will gain valuable piece of mind that your lawn is not suffering a slow, gruesome death.
And that’s all from the mailbag this time. Good luck!
Brett Furniss is the President & Owner of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords & Home of $100 Flat Fee Property Management. BDF Realty utilizes their innovative Pod System for exceptional customer service in residential property management, home repairs, and home sales for single-family homes, condos, and town homes in the Charlotte-Metro Area. Contact Us Today!
Learn MoreWhat is the Key to Marriage & Great Property Management?
I was in a marriage communication class this past Sunday at my church. And the leader began the class by loudly exhorting:
Who wants to have a GREAT marriage???
Everyone enthusiastically cheered and nodded assent. I quietly commented to my wife that a great marriage did, in fact, seem better than the alternative.
As I felt a sharp elbow in my rib cage, the class leader seized the building momentum with a slide showing a breakdown of a person’s average communication:
7% Verbal
55% Non-verbal (ex. aforementioned elbow to ribcage)
38% (the dreaded and infamous) Tone
So, how does this marriage advice fit into performing great property management? The keys is effective communication via verbal, non-verbal, and tone to your tenants.
To break it down:
- Verbal: Present the important points of the lease to the tenant in person. For me, the Big 3 items to communicate are:
- Pay rent on time and in full every month
- Maintain the property (cleaning, changing air filters, etc.)
- Get along with your neighbors
- Non-verbal: Make sure all important points are fully written out. The writing should be clear and concise; it should include a good lease and other things you care about (lawn care, handling repairs, etc.). If there is confusion with a tenant about anything in writing, re-write it so it doesn’t confuse the next tenants. Each cumulative year in the property management business should see a corresponding decrease of tenant/property manager misunderstandings (lack of properly communicated expectations is the root cause of most disputes).
- Tone (wasn’t this the subject of a Seinfeld episode?): Be nice. At the end of the day, it is a people business. As the Bible says, “If you live by the sword, you’ll die by the sword.” Though there are many advantages to taking the emotion out of the business and using a Draconian decision tree approach to management (ex: if they don’t pay by the 16th, we file for eviction every time), I personally feel that’s a poor methodology (both operationally and from a ROI standpoint). Emotion matters. Parents being able to provide a home for their families matter. Most people don’t take being removed from their homes through court order lightly; they just need some occasional compassion to get through rough patches. Be nice, to a point.
By using a confluence of verbal, non-verbal, and tone communication, you can manage your property well and have a great marriage to boot!
Brett Furniss is the President & Owner of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords & Home of $100 Flat Fee Property Management. BDF Realty utilizes their innovative Pod System for exceptional customer service in residential property management, home repairs, and home sales for single-family homes, condos, and town homes in the Charlotte-Metro Area. Contact Us Today!
Learn MoreShould I Sell My Rental Home?
From the mail bag… (aka a question I may have made up to write about)
Q: I have a few occupied rental homes and wonder if I should sell one of them now that the market seems to be improving. What are your thoughts?
- Oh, this is a surprising question from left field! And a great one! Kudos to you, mighty thinker!
It is a tough decision on whether to unload a rental property. If you decide it may be time to do so, the first thing is to establish whether you can by asking 4 questions:
- What is the realistic value of my property? Have your trusted real estate advisor run sales comparables and put your home’s value at the low end of the range for estimating purposes.
- How much will it cost to get my property in sales shape? In my opinion, there is a difference between getting a home in rental shape and sales shape. With a rental, you may get away with steam cleaning the carpet and touching-up the paint; with sales, there is a lower threshold for cosmetic issues which may mean replacing the carpet and repainting the house.
- Do I have the money to cover the mortgage and utilities while the rental home potentially sits vacant for months? Generally-speaking, showing a home effectively with tenants in it is tough.
- Do you have the money to pay the selling costs (Realtor fees, closing costs, less than full market offer, etc.)?
So, the math looks like:
Answer #1 – Answers #2, 3, and 4 = $$ (hopefully a BIG, positive number)
Then the question is: Is $$ above worth selling the property for?
If so, do it. If not, continue to hold the rental until the market and your mortgage balance improves further.
However, there is a scenario that skews the math and lets you skip cost items #2 (home cosmetic fix-up) and #3 (home vacancy costs), and eliminate or reduce #4 (selling costs in terms of Realtor fees)…
- OK, I’ll bite. What is the scenario?
- When the tenants in your rental home want to buy it for themselves.
This is the #1 question to ask if you think you may want to sell your rental homes. ALWAYS ask the tenants first. If they do want to buy it, get them in touch with a mortgage broker and see if they qualify.
If they qualify, this is a win-win exit strategy. The tenants get to start building equity in a home that they already love. And you, the owner, get to avoid much of the costs and uncertainty of selling your rental home.
And what if the tenants proactively ask you if you are willing to sell your rental home to them when you’re not quite sure you are ready? You want to think REALLY long and hard about it. These opportunities don’t come up that often and you need to make sure that it is something you really don’t want to do.
Cash is king and the purpose of investments is to make money. Two well-worn adages come to mind:
A bird in the hand is worth two in the bush.
AND
Buy low, sell high!
Happy investing!
Brett Furniss is the President & Owner of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords & Home of $100 Flat Fee Property Management. BDF Realty utilizes their innovative Pod System for exceptional customer service in residential property management, home repairs, and home sales for single-family homes, condos, and town homes in the Charlotte-Metro Area. Contact Us Today!
Learn MoreSecurity Deposit Dispersion: Should You Treat Long-Term and Short-Term Tenants Differently?
Scenario #1: Melissa has been in your rental home almost as long as you’ve owned it. And it’s been a good ride! It started out as a standard tenant-landlord relationship with formal calls for repairs and rent checks sent solitarily in the envelope. But over the years, Melissa (now “Mel”) has really grown on you and vice-versa.
It started when she had some tough financial times and asked for you to allow some late payments. You assented and wound up having some deep conversations after the initial rental payment was discussed. A few years later, the water pipe blew and ruined many of her things. You promised to make it right; Mel paid her rent diligently and never complained about all the workmen coming in and out of the house for a few weeks. She really could have!
Over the years, Mel started sending some pictures of her kids having major life events in with her rent check every few months. Oh, how you looked forward to seeing what had become of her family. You were so proud of them! But now, with Michael, Jr. graduating at the end of the summer, Mel has told you that she needs to downsize. And that means she’s moving out.
Mel has been a tenant for 12 years. And you have to admit that your stomach has been in knots since that phone call. On one level, you knew this day was inevitable. On another, it’s almost like losing a family member.
Scenario #2: Wally moved into your Uptown Charlotte rental condo right after his internship at Goldman Sachs ended in Manhattan so he could take a job with Bank of America. You knew Wally would never be Mel. This condo was clearly a stepping stone for him to get used to the area and figure out where he wanted to live in Charlotte (or elsewhere in the world).
Wally was very cordial and business-like when you met him to sign the 1-year lease. “You’ll probably never hear from me!” he joked. And he was right. He set up his on-line bill pay and his rent checks showed up on time every month (sans any other correspondence). And, expectedly, about 40 days prior to his lease expiration, you got an e-mail from him giving you his 30-day notice to let you know he was moving out.
Two of your tenants are leaving and you’ll have to do two walk-throughs so you can disburse the security deposits. Personal feelings aside, do you treat these 2 tenants differently from each other?
Tenants should be charged for any damages beyond normal wear and tear. The amount of normal wear and tear for someone who lived in a rental unit for 1-year versus 12 years is substantial.
Fix-up expectations for a 12-year rental:
- Probable repainting of entire home
- Probable carpet replacement
- Professional cleaning
- Replacing miscellaneous worn out items throughout house
Likely charge to tenant: $0.00
If a tenant lives in your property for 12 years, that’s a lot of normal wear and tear. It would be difficult to justify charging them anything (short of them detonating a bomb in your home prior to move-out).
Fix-up expectations for 1-year rental:
- Minor touch-up paint
- Carpet steam-cleaning (hopefully already performed by tenant prior to move-out)
- Professional cleaning
- Any damages beyond light wear and tear
Likely charge to tenant: That depends typically on how dinged up the walls and flooring are and if there are any major items of damage. Tolerance for rental unit abuse is low.
Sorry, Wally, but you need to be really careful to keep things nice if you’re only sticking around a year. But, Mel, you don’t need to worry so much and thanks for staying so long (I’ll miss you!); just because you moved away doesn’t mean you can’t keep in touch!
Brett Furniss is the President & Owner of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords & Home of $100 Flat Fee Property Management. BDF Realty utilizes their innovative Pod System for exceptional customer service in residential property management, home repairs, and home sales (including Rent-To-Sell) for single-family homes, condos, and town homes in the Charlotte-Metro Area. Contact Us Today!
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