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Learn MoreCharlotte Property Management Weekly: When Tenants Want Out, Let Them Go: 3 Tips to Negotiating Early Lease Terminations
“Let my people go.” (Moses to Pharaoh)
Happiness. Everybody wants it. That goes for tenants, property managers, puppies, you name it. To accomplish it, sometimes a change of scenery is necessary. I mean, you want to go where everybody knows your name. And they’re always glad you came. Right?
Occasionally, we have tenants who are not happy with their home. They want to break their lease and move out immediately! Things are not fixed up the way they want, the neighbors are unpleasant, and work is too far away. Utility bills are too high, the building complex is too noisy, and their “party friends” found out where they were living.
Some tenants want to take this frustration out on their property managers (I’ll pause briefly for your feelings of sympathy/empathy). Unhappiness can be like gangrene, infecting everyone in its path. It’s not desirable, or necessary! I just want to write them a letter:
Dear Beloved Tenant,
Why so glum, friend? It seems like we’ve had a tough time connecting recently. All relationships have rough patches. We can get through this!
I’m sorry you are unhappy with the house. This happens! It’s tough to know exactly what is best when looking at a house for only a short time. I mean, over 50% of couples who are around each other everyday for years wind up unhappy and divorcing (remember the story you told me about that with your Aunt Cathy and the one-armed sailor?); sometimes our judgment when making long-term commitments isn’t what it should be! But take heart! I understand. We can talk through this!
I know threatening to not pay rent may seem like a good idea now, but it’s not a path that is good for anyone. If you really want to leave, we can work something out. Life is too short and you seemed like such a happy person when we first met (with your rhinestone-collared Shitzu in tow)! Oh, how we laughed as she frolicked! Let’s get you back to that place!
Sincerely,
Your PM
P.S. We need to hug soon. Please pet Mitsy for me.
Keeping unhappy tenants locked into their leases isn’t a “best practice”. It can actually be counterproductive and less profitable than letting them go!
It’s all about how the negotiation is handled. First, let’s establish the needs and concerns of each party:
1. The tenants want to move out. They’re concerned about facing legal and credit score consequences for breaking their lease.
2. The owner wants someone sending them money every month to pay for their home investment. They are concerned about vacancy, costs to get their property into market condition, and marketing costs for a new tenant.
So where is the win-win? Here are three tips in getting there:
1. The rental home goes on the market immediately. The tenant agrees to keep the home in immaculate showing shape and be extremely accommodating for prospective renters wanting to view it.
2. The tenant gives a 30-day notice to vacate and pays a 2-month lease termination fee. If the house is filled prior to 60 days, this falls to a 1-month lease termination fee that will be refunded to the tenant (incentives are important!).
3. The tenant is required to leave the home in move-in condition (including steam cleaning the carpets and a thorough cleaning). The security deposit is insurance of this. (Note: make sure this side agreement for early termination is in writing)
The owner should be kept whole financially with a new paying renter, and the tenant gets their freedom in 30 days with no consequences. A win-win situation is achieved.
Then we can all go back to being happy again. Cheers!
Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)
Learn MoreCharlotte Property Management Weekly: Rent-To-Own: Why Locking into a Home Price Today is a Brilliant Bet
“You want me to lock into a price today on a house that could be worth $30K less in two years? You’re crazy!” (Potential rent-to-own tenant)
Human nature is a funny thing. There is a herd mentality that seems to be so tough to break. If everyone is buying, then it is the time to buy. When everyone is selling, it is time to sell. When everyone is doing nothing, it is time to do nothing. And so on.
The shrewdest, and consequently, richest investors do the opposite. Examples:
1. “I buy straw hats in the winter.” (John Paul Getty)
2. “The time to buy is when there is blood in the streets.” (Wall Street Mantra)
So, basically, the idea is to buy low (and when no one else is) and sell high. That makes sense to me. Let’s see how this translates into rent-to-own deals being formulated today.
Rent-to-own home transactions (aka lease options) have become in vogue in the past year or two since the banks stopped lending to a large part of the public. Lease options allow tenants to lease the property, while buying an “option” (aka the contractual right) to purchase the property at a locked-in price sometime in the future (typically anywhere from 1-3 years). So, in short, the rent-to-own tenants rent and can buy the property at a pre-negotiated price anytime during their lease period. It’s pretty simple.
The purchase of the option (cost: typically 1-5% of the home’s purchase price) is a sticking point for some tenants now; I would argue that it is the best, and most vital, part of the deal for people who want to be homeowners, especially now. Why? For a few thousand dollars, the tenant gets:
1. Peace of mind: the owner cannot sell the property out from under them, nor jack up the purchase price at the last minute
2. Financial flexibility: the option can be exercised (aka the tenant purchases the home), or not. So the house can be test-driven for a few years and the tenant can choose to buy it if they like the price of the home; if not, they can keep renting or move-out. Let’s take a quick poll: how many people who bought homes in the past 5 years wish that they bought an option (with the ability to walk away hassle-free from the house) instead of actually purchasing? Let’s see… a few thousand dollars to buy an option or the home value dropping tens of thousands of dollars minimum with no escape clause. Your call.
3. Home flexibility: the tenant can make upgrades, paint rooms, and basically make the home their own. They don’t have to ever move out, if they choose.
4. A brilliant bet on the housing market
What? What’s with point #4? Lease options equal a tenant bet? No, not just a bet, but a great bet. A brilliant bet.
The housing market is in flux. There has been a prolonged historical drop in home prices that is trending even lower. People are scared. The crowd is not buying homes. There is blood in the streets. Wait- could this be the time the great investors would be telling you to buy?
Of course. The housing market is really low. Through a lease option, rent-to-own tenants could buy an option to lock into a depressed home price today that would be exercisable for the next several years. And the option would cost only a few thousand dollars, and has a huge upside for profit when the housing market recovers.
Break away from the crowd! Use lease options for brilliant financial returns!
Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)
Learn MoreCharlotte Property Management Weekly: Why Can’t Property Managers Guarantee How Long it will Take to Fill a Vacant Property?
Question from client: “How long will it take for you to fill my home with a tenant?”
Answer from property manager: “It should be in the next month or two, but I obviously can’t guarantee that.”
Comment from client: “Okay, I completely understand. I wouldn’t want you to speculate about the result of an action that you do for a living and your company has executed repeatedly well for the past 19 years (according to your ad).”
Question from hungry patron: “When will my eggs be ready?”
Answer from waiter: “It should be in the next 10–20 minutes, but I obviously can’t guarantee that because I’m not the cook.”
Comment from client: “You lazy imbecile! I’m starving- shake a leg! It should take 2 minutes- tops! Tell your guy back there to skip a smoke break and crack a couple eggs!”
What’s the difference? Clearly, it’s customer expectations. In some industries the expectations are really high, and in others it’s low. It’s just the way of the world.
So why don’t property managers guarantee the time it will take them to fill a rental property? Is it because they can’t (obviously)?
If you’re an experienced cook, you know approximately how long it takes to cook something. You’ve got to track down the ingredients, mix them up, and cook them for some length of time. It can be estimated (within a few minutes) of how long this will take. The “Guaranteed 10-Minute Breakfast or It’s Free” promotion should be easy to execute without giving away the farm.
The same should go for a property manager, right? If they know:
1. What time of the year it is
2. How fluid the current market is
3. The condition of the home
4. The rental price
It should be enough information for a tighter estimate of when to expect. There are just not that many variables to consider and factor in! So why are there no guarantees then? And why is it “so obvious” that a property manager could never give one?
Q. When will this basketball game be over?
A. Sometime today, but I obviously couldn’t guarantee that
Dominos Pizza did the “20 Minutes Guaranteed, or it’s Free” delivery promotion for years and they were able to pull it off with many more variables to consider (traffic, events going on in the city, number of orders, employees not showing up to work, weather, etc.).
So why not property managers? Are filling a home time guarantees a matter of can’t, or won’t?
Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)
Learn MoreCharlotte Property Management Weekly: Rent-To-Sell Your Home? Best Time is Now
“Wow! How disingenuous! Could you think that because you create rent-to-sell transactions for living? Isn’t that like asking a barber if you need a haircut?”
At least that’s what I’d be asking as a reader. We live in a skeptical age, and that’s okay.
Let’s start with a story:
An average man meets a beautiful, energetic woman. He is taken. “If I could spend the rest of my life with her,” he thinks, “My life would be complete and I’d truly be happy! Just having her on my arm…” He knows he wants to marry her.
So why doesn’t he just ask her point blank? That answer is easy. She’d think he was crazy! She doesn’t know anything about him; and the one thing she knows is that he isn’t that attractive! There are much better suitors out there! So what does he do?
He courts her. He asks her on a date. He asks her on many dates. He buys her flowers, takes her to expensive restaurants, listens to her stories, compliments her, and tries to show that he is an amazing man. She doesn’t fall in love with him at first, but day by day, she grows fonder and fonder of him.
Then, sometime later in the future, when she is vested and knows (almost) everything about him, she professes her love. And, at that point, he knows he is close to getting what he has wanted since her first laid his eyes on her. He picks the right moment and proposes. And she says, “…Yes!”
I’ll take a short pause so you can collect yourself, grab some tissues, and kiss your spouse.
This story is just like rent-to-sell (okay, huge transition here!). Home owners want to sell their homes more than anything. Buyers are scarce and selling in a short time period for full price is almost impossible. Cheap flings (focus on “cheap”) are the rage as neighbors’ houses are being sold for half price (short sales and foreclosures). Home owners are desperate and have to give their homes away and accept the consequences of future damaged credit.
Home owners just want to sell their homes, much like the man just wants to get married. But, with this economy, the reality of that happening quickly on good terms is almost crazy. So what to do?
Rent-to-sell (placing rent-to-own tenants into vacant homes for sale) is the courtship process. These tenant-buyers get to live in the house, work on improving their credit scores, make the home improvements they want, and work on building up a down payment so that they can buy (when the time is right).
And why is it the best time now to rent-to-sell? This is simply because the banks will have to lend more money out in the future! This stagnant housing market is killing their earnings. They will need to find a way to jumpstart this part of the business by lending to responsible parties (aka like tenants who pay their rent on time for 1-3 years, have improved credit scores, and a nice down payment?).
The time to put rent-to-own tenants into vacant homes for sale (rent-to-sell) is now. When the tenants are ready to buy, the future market should be looking a lot better for successful (loan and sale) consummation!
Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)
Learn MoreCharlotte Property Management Weekly: “List to Last” Still True?
There are many sayings that become axioms as their wisdom becomes evident over time:
“Don’t throw good money after bad”
“The way to a man’s heart is through his stomach”
“Diamonds are a girl’s best friend”
In real estate, the wisdom for real estate agents was “list to last”; this means that the agents who want to last in the business should take a lot of sales listings (aka put houses on the market for sale). The rationale is that if an agent has a lot of houses on the market for sale or rent, it is probable that some of them will and they’ll make money.
Taking listings requires resources from agents. Agents need to take pictures, gather information, put the listing up on websites, take phone calls, and then pay for advertising. There is also the time expended fielding inquiries about the home, showing it to potential buyers, and giving status reports and tips to their seller clients. The more homes the agent has on the market for sale or rent, the more resources that are required.
And this isn’t a paid gig! The agents are working on faith that some of the houses will sell and they will be reimbursed for their expenses. Agents are putting themselves into position to be lucky. Fortunately, in the past, this usually worked out well.
Now, however, houses aren’t selling very swiftly. And more people than ever want to sell their homes. “List to Last” can be the fastest way to go broke. Agents that were salivating over the amount of listings they were personally accumulating are now singing a very different tune. Not only are they being sucked dry financially, the toll of anxious seller’s phone calls are sucking them dry psychologically.
“Why isn’t my home sold yet? You said you were different!”
“Why haven’t there been more showings? Why aren’t I seeing any offers?”
“Are you any good? How much money are you spending to advertise my property? You are just one of those agents who puts the home on MLS and then sits back to collect the commission, aren’t you?”
“List to (Not) Last” or “List to Leave (the Business)” may seem more apropos axioms. Amassing home listings that don’t move is both financially and mentally taxing. So what to do?
One word- Prequalify. In a world of limited resources, agents need to expend their resources judiciously. They need to know with a high degree of certainty that they can execute a transaction for a client. This is already commonly done by buyer agents who won’t show properties to clients who aren’t prequalified by a bank to purchase. This needs to be the norm on the sell side as well. That means not accepting every listing opportunity (gasp)!
Specialized firms do this everyday. Auction firms take listings that they know they can sell; if the client isn’t willing to (or can’t) take whatever offer that comes, they don’t expend their resources to put it on the block. It’s the same with short sale firms. If a client isn’t willing to let their credit get shredded, they typically won’t walk through the firm’s doors. Clients prequalify themselves.
General brokerage has a “come one, come all” message; prequalification of clients is done at the individual agent level. And, to have staying power in the real estate business, it’s important that it actually happens!
Listings are still vital to the business of real estate agents, but they need to be homes the agents know they can sell or rent. So, in the new normal, the axiom should read, “List (the Homes You Can Actually Transact) to Last!”
Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)
Learn MoreCharlotte Property Management Weekly: What Does it Take to Sell a House in this Market?
Most of the calls for our rent-to-sell program (rent-to-own tenant placement into vacant homes for sale) are about addressing one primary need; unfortunately, that need is not for our rent-to-sell program (per se)! The need they are addressing is selling their home as quickly (and for as much money) as possible. If a company existed that could do this consistently, they would be inundated with business (and profits)! It would be like owning the only service station with gas in city limits.
Every real estate company says they can sell a home quickly and profitably for a variety of reasons:
“We have an 11-point marketing program for new home buyers!”
“I’ve forgotten more about Google search engine optimization than my competitors have ever known combined. Your house will be on top of the search engines!”
“My astrological sign is telling me that whatever I touch will sell. Like ‘Tommy Boy Sr.’, I could sell a ketchup popsicle to a woman in white gloves!”
Alas, most of these claims have limited validity in terms of their actual effectiveness. What really works in this economy is having:
1. A special, unique house in a desirable area that people really like
2. One of the lowest prices for sale on the block
These are the two extremes of the spectrum of houses for sale. One end has great, unique homes offered at full price; the other end has abandoned (or trashed) homes offered at fire sale prices (foreclosures, auctions, short sales, etc.).
What about the millions of houses for sale in the middle of the spectrum? That is, regular homes that can’t be severely discounted by the owners?
That is the million dollar question. As of now, there are no sure-fire ways to sell regular houses within 90 days and for near full price. For these homes, selling is largely a waiting game depending on a degree of luck.
How are regular houses being sold? After all, some do sell everyday somewhere in the world!
These sales are usually happening due to a relaxation of one of the two major contract terms- time or money. This type of trade off is necessary to make sales happen.
To sell within 90 days (time), the price (money) has to be lower than other comparable homes for sale. To sell for full price (money), the time needed to sell must be much longer (think years!).
For owners of vacant, regular homes that can’t discount steeply (and don’t want to eat their mortgage every month), we are recommending the rent-to-sell method of selling. Rent-to-sell is creating a market of willing buyers and willing sellers and putting them into lease option (aka rent-to-own or lease purchase) relationships. Or said more simply, rent-to-sell is placing wanna-be buyers (people who can’t qualify for a bank loan right now) into the homes of wanna-be sellers (owners who have their vacant, regular homes languishing on the market). The wanna-be buyers then rent the home for sale until they can buy it.
So how do you sell a regular home in this market? The answer is to either give in on price (huge cut) or time (rent-to-sell). It’s that simple.
What trade off are you willing to make to sell your home?
Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)
Learn MoreCharlotte Property Management Weekly: Rental Homes Don’t Need to “Dress” Well?
Everyone knows that for a home to sell (especially in a challenging economy) it needs to look its best. Now does that logic apply to rental homes in terms of leasing them out?
Not from what property managers sometimes hear from rental home owners:
“It looks fine. It’s just a rental.”
“I’d live here with the place looking ‘as-is.’ I don’t think I’d want a prissy renter who couldn’t deal with a few minor issues and a little dirt.”
“The other property manager down the street said it was fine the way it was. You want me to spend how much to fix it up?”
I’ve heard the analogy that a house should “dress” like it’s dating when it’s on the market for sale, and “dress” like it’s married when on the rental market. I’m not sure if I’m more bothered by:
1. The connotation that spouses don’t try to look their best for each other once they are married
OR
2. That property managers have to resort to relationship analogies to get people to actually listen to them
That being said, I think there is a semblance of truth to the fact that homes for sale need to “dress” better than homes for rent.
But… there is a direct cost to this! And this is when “monthly rent versus value” arguments start. Let me explain.
When we are assessing what a rental house can rent for, we provide a range of rental prices (example: “Your house should rent in the “$1,100 – $1,300 a month range.”). We ask the owner to pick the price they want to rent it for. Well, duh! Everyone (except the morons) would pick the $1,300!
Well, after further thought, maybe not. There are drawbacks to marketing at the highest rental price when the rental house doesn’t match up to competing homes; drawbacks like the house staying vacant for a long, long time!
In order to command top rental dollar, the rental home needs to:
1. Have minimal flaws and look really good
2. Offer equal or more tangible value than similarly priced rental homes
So, if owners don’t want to spend the funds to have the house look immaculate and the house is not the same or a better value than similar rental homes, they may want to list it at a lower price (like $1,150). This will ultimately offer a better ROI as they won’t have to eat their mortgage payment and expenses for the many months it might take to rent it out (this happens when price is not correlated well with market value).
Unfortunately, the market doesn’t lie. With the internet, prospective tenants can find hundreds of rental homes that are all competing to get their attention and money. The market is efficient; rental homes that offer good value will get quickly snapped up, and the ones that don’t will sit.
The way a home looks is the most important criteria in how much a renter will pay each month in rent. If the home has “some minor issues and a little dirt”, there is value lost when compared to a fully functional, clean rental. The rental rate needs to be adjusted downward or the home will sit empty for months and months.
The bottom line is that good-looking homes offer more value, which will command a higher rental rate, and be vacant for less time. This generates more money for the owner. The converse is equally true. So “dressing” does make a difference!
Wait- it’s also true that a well-dressed person who looks their best at all times will generate more, and better-heeled, suitors…
Maybe there is something to this “dressing” relationship analogy after all?
Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)
Learn MoreCharlotte Property Management Weekly: Money Back Guarantee on Rental Homes?
A fact of life is that sometimes people are not happy with what they buy. Sometimes they buy fruit and it is not as sweet as they like. They buy bread and it is not fresh enough. They buy Charlotte Bobcats basketball tickets (prior to them trading away their best player for basically nothing) and the team is not good enough.
And so it occasionally goes for rental homes. People sign a lease, move in, and then decide that they do not want to stay there for a myriad of reasons. As a result, property managers sometimes receive e-mails like this:
Dear Sir/Madam,
We were excited about moving into this home but it is a complete disaster! We visited the property during the day prior to signing the lease and everything looked great. Little did we know that the next door neighbor slept during the day, and only did his animal sacrificing in the dead of the night! The screeching animals prevent us from getting any sleep and my 9-year old daughter is so traumatized she won’t even look at animal crackers anymore! We’ve had to take down our bird feeder to keep the neighbor from hopping the fence and our beloved outdoor cat has been relegated to an upstairs, windowless room. Help!
We need to get out of our lease immediately and are demanding reimbursement for all moving expenses, therapy sessions, and a pet security detail during the move.
Signed-
Moving Now (Unhappily)
P.S. We hate you.
No one likes getting letters like this. Believe it or not, property managers want tenants to be happy, almost as much as the tenants do; so do the owners of the rental homes (without exception in my experience)! It makes the job of securing payment from the tenant (and consequently paying the owner) a lot easier! No non-masochist property manager is trying to pull a bait and switch on anyone; I mean, guess who would be fielding unhappy calls daily for the life of the lease? It would not be worth it!
That being said, I believe that the right rental home exists for the right person. There is not a one-size fits-all rental home in existence. This truth is why tenants need to visit the property, talk to neighbors, and develop a comfort level with the home prior to signing a long term lease!
So back to the facts of the example situation: The property manager works for the owner of the property. The tenant wants out of the home. The owner needs to make a decision on what they want (or can afford) to do.
Let’s look at the money back guarantee possibility from the one who has to pay for everything (the owner). If the tenant is allowed to move out and is reimbursed expenses, the costs that will accrue to the owner are as follows (note: some costs are one-time and others are on-going):
1. Reimbursement of tenant moving expenses and miscellaneous
2. Turning and keeping on utilities
3. Monthly mortgage payment and HOA fees while rental is not under contract
4. Cleaning & repair
5. Preparing marketing materials (pictures, ad copy, and home information)
6. Advertising costs
7. Property management fees (Yes, sorry. The non-profit property management companies (aka www.PropertyManagerInYourState.org)) don’t seem to last.
8. Real estate agent commissions for bringing in the tenant
9. Monthly mortgage payment and HOA fees while under contract (the time the house is taken off of the market and the tenant is ready to move in- someone has to pay for this time…)
This turns out to be a lot of money! This is why money back guarantees on rentals are not financially viable!
At the end of the day, it’s not a good situation for anyone. The owner and tenant both feel they are getting bilked. So what to do?
The best solution is avoidance! Property managers and owners should represent the property as accurately and completely as possible. Tenants should go in expecting that they will be living in the rental for the life of their lease and should perform extensive due diligence accordingly.
Then, even without a money back guarantee, property managers can start getting letters with the postscript of “I love you” a little bit more!
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!)
Charlotte Property Management Weekly: Is the Section 8 Program Good for Landlords?
I was signing a lease with a Charlotte Section 8 tenant (the government subsidized rental program) a year or two ago and asked her if she liked the Section 8 program. She smiled and said, “Yeah, it’s a pretty good deal.” I laughed; when the government is willing to pay some (or all) of your rent, I guess it would be tough to answer any other way!
So, it’s a good deal for tenants. But is it a good deal for landlords?
I only have limited space, but here are the most pertinent and succinct pieces of advice I can offer to landlords to determine whether allowing Section 8 tenants to rent your properties is a good deal:
1. If your house is higher-end, Section 8 has limits on how much they are willing to pay based on the amount of bedrooms and whether utilities are included. This leads into point #2.
2. The rental rates aren’t that high. To see if allowing Section 8 tenants to rent your home makes sense, the cash-flow needs to be computed on a property-by-property basis. On some properties, the cash flow is good and should be recommended as a viable rental source. On others, it just doesn’t make sense.
3. The house will need to meet many government requirements and will be inspected to make sure it is up to snuff. If the house is newer and kept up, it will usually pass. If it is older, there are usually costs incurred to meeting these requirements; the question is if incurring these costs is worth it.
4. It’s a government program which always means two things: it isn’t fast and features many, many documents to sign.
5. Payment is guaranteed, but when mistakes are made (aka missing or incorrect payments), getting them corrected is usually arduous. See point #4.
And as a bonus, here is an answer to our most FAQ by far:
Q: If I allow Section 8 tenants to rent my house, am I just asking for my property to be torn up?
A: I haven’t seen this be the case. There is actually additional protection against a Section 8 tenant tearing up the home, when compared to a regular tenant. Let me explain. The Section 8 program has a huge tenant waiting list (no surprise there!). If a Section 8 tenant tears up the home (or does anything that violates the lease), there is an implied understanding that they can be reported to Section 8 and be removed from the program. The tenant cannot afford for this to happen!
Section 8 can be a great option for the right house. Use it wisely and selectively!
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!)
