Noah’s Ark & Real Estate Investing: Can You Persevere?
Noah’s ark is a crazy story. God tells Noah, some ordinary guy, that He is heartbroken with how sinful mankind has become and is going to flood the Earth and start again. He tells Noah that he is going to spare him, his family, and all the animals if he builds an ark. Noah takes God at His word and builds the ark, gathers the animals and provisions, and loads the ark up.
Everyone knows it rained for 40 days and 40 nights, but Noah and his crew were safe because they were floating on top of this massive amount of water. The lesser talked about part of this story is that they did not walk out of the ark on Day 41 ready to repopulate the Earth; there was way too much standing water (they were floating above mountains, for goodness sake!). They were actually stuck on the ark for over a year before it was sufficiently dry enough to get out on land and walk around.
The children’s Bible I was reading my son surmised that it wasn’t boring because they had so much to do. They had daily routines to feed and care for all the animals, put out fires (so to speak), and take care of themselves and the ark. Wash, rinse, repeat. If anything was neglected, there were problems. Survival for mankind and the animal kingdom was at stake and duties needed to be carried out diligently or there would be dire consequences. The carrot was that if they kept to the plan, they would be free of the confines of the ark at some point and the whole beautiful world would be waiting for them to enjoy.
It reminded me of real estate investing.
Like the ark, rental homes require constant diligence. They need to be fixed up, repaired, and maintained. Tenants need to be acquired, serviced, and replaced. The mortgage, insurance, and taxes need to be paid. The HOA and government entities need to be catered to. These duties need daily attention; if they are neglected, the financial boat can start taking on water and sinking can become a real possibility.
The carrot of real estate investing is owning the property someday. As it rains (roof needs replacing, tenant evictions, tenants not paying because of a pandemic), it seems like that day is far off. Sometimes it seems like it would be better to abandon the ark and swim without it.
But persevering and waiting for the ark door to finally open to dry land has its benefits. Free cash flow, a higher net worth, and assets that can be liquidated for college tuition or passed on to children are great financial prizes.
But tending the smelly animals is a pain day-after-day (ever try to pick up after 1,000’s of animals?). The lightning is scary. The boat rocks a lot and causes sleepless nights and sea sickness. Some boards on the ark look like they are breaking down. Drowning is a real possibility. Why did I get on this thing to begin with? My friends who stayed behind at least seemed merry before the torrential downpour.
However, amidst the doubts and setbacks… there is belief that one day in the future the sun will come out, the water will recede, and the dove will return with a leaf clenched firmly in its beak. The remaining mortgage payments will be made, the appraised home value will be high, and the financial statement will be solid. Landfall will make it all worth it.
Noah persevered and he and his family were rewarded. Hang in there!
Happy Landlording!
Learn MoreRental Outcomes: Don’t Bust The Guy Breaking Into Your Car?
It was a sunny Sunday afternoon and I was in my car with my kids to get some exercise in. I wanted to shoot some hoops, so I convinced my kids they did too. It was on.
We parked behind a local school and walked over to where the basketball court was on the other side of it; there was also a small playground 50 yards behind the court. My son and I wanted to play basketball. My daughter also initially wanted to play until she didn’t… then she wandered over to the playground.
It became a volley of walking from the basketball court to the playground and then back again. “Dad! Come see this!” “Dad! Over here!”
On my sixth trip back to the playground, I realized that if I walked far enough into the playground, I could get the sight view past the school to see my car in the distance (which was completely obscured from the basketball court). And I saw a strange man walking suspiciously around my car. I say “suspiciously” because there were no other cars there. What was he doing? He was looking into my windows and did not know he was being watched. How suspenseful! And what to do?
I went through the options. I could yell and let him know I saw him. That would probably prevent any theft or damage to my car. Yawn & boring.
Or I could go (undetected) back to the basketball courts, stash my kids in the bushes, and then sneak around to potentially catch the stranger breaking into my car. Once he broke glass, I could ambush and subdue him; in a perfect world, I could handcuff him with the zip ties in the back of my car. Then I could call 911 and the Charlotte Observer letting them know that a “local hero” had one criminal on ice waiting for them- no charge.
That would be awesome unless… the stranger was bigger than me, good at fighting, and also included kidnapping as part of his criminal repertoire. Then he might drive away in my car with my kids, and leave me bleeding on the pavement. That would be a major fail and one that would be difficult to explain to my wife.
Seriously, what outcome did I want? Though the hero thing sounded pretty good, I needed to get real for a minute. Despite the appeal of potentially getting a key to the city from Mayor Lyles, what was going to be the cost? Realistically, if all went close to best-case scenario (which it rarely does), I’d have a busted car window (that I’d have to pay for and deal with), be waiting a while for the cops to show up (with my knee in a guy’s back who is probably cussing me out), and be babysitting two young children at the same time. That did not seem like a great outcome, even with the best-case scenario.
To me, property management is about creating good outcomes for our clients; the best outcomes come from tenants who stick around a while and consistently:
- Pay the rent
- Maintain the property
- Get along with their neighbors
We recently got a call from the HOA of one of our condo units where they accused our tenants of unkempt living, namely having a unit so disgusting that bugs where infiltrating the homes of neighboring tenants. This was clearly a violation of #2 and #3 above. This was not good, if it was true. They wanted us to evict the tenants immediately (and if we didn’t, they were sending a Sheriff that night to do so).
Despite the sheer illegality and impracticality of such a threat (landlords wish it was this easy to evict bad tenants- “oh, just call the local Sheriff and have him go over the same day to remove them…”), what outcome did we really want? Did we want to remove paying tenants who never had any prior issues? Of course not. We wanted the tenants to correct any cleanliness issues, if applicable, and then continue to stay and pay rent.
So we contacted the tenants and explained what the HOA alleged. Then we let them know we’d be there for an inspection the next afternoon to ensure the HOA there was no issue. The tenants understood and said there was no problem with that.
The next day, our inspection showed a very clean unit. We thanked the tenants and reported the findings to the HOA. There haven’t been any issues since.
The desired outcome was to keep the tenants, not to try to play “gotcha” to catch them violating the lease. That would put ourselves in a position where we would need to make a decision that no one wanted to make- the costly removal of paying tenants.
Viewing issues from a desired outcome perspective, as opposed to the initial bravado impulse, can help make decision-making more clear. It may be “boring”, but “boring” property management is typically the most effective and keeps the checks coming.
Postscript: So I yelled something at the guy at my car and he left. My son hit some shots, my daughter hit the swings, and then we left (unscathed) in a non-damaged car. Yawn…
Happy Landlording!
Learn MoreProperty Management: Changes for the Better in 2021?
“Everything in moderation, including moderation.”
Oscar Wilde
“…The man who fears God will avoid all extremes.”
Ecclesiastes 7:18
Let me start off by saying I’m not a big clothes shopper.
I was minding my own business the other day at home and my phone buzzed. I looked down at an alert from Amazon Photos with the “From 10 Years Ago” tag; it was a photo of my beautiful wife and I on a date at a Panthers game (awww…).
Two things struck me:
- Look at that guy with his gorgeous, flowing mane of hair (what happened???)!
- The UNC sweatshirt and wooly I was wearing looked eerily familiar… When I glanced in the mirror, I realized I was currently wearing the same exact outfit. I tend to view these things from an optimist perspective (I still fit in my clothes- nice going! Carolina blue really has always really accentuated my eyes…) as opposed to reality (Buy some new clothes, cheapskate!).
OK, sometimes things should be changed; buying some new attire from time to time never hurt anyone.
And sometimes not changing things can hurt people. In 2020, COVID made changing certain in-person business practices necessary for safety reasons; this really accelerated the use of certain technologies in property management, especially self-showings, video virtual tours, and virtual lease signings. These methods have been used and adopted by many in the industry to varying degrees:
- Self-Showings: This is where a prospective tenant is able to access keys through a lockbox to show themselves a property without a company representative being present.
At first take, it seems risky to have strangers in a vacant home when they could just take desired pieces of the property with them when they leave. But this trend has been building and is now commonplace. I think a real estate agent provides limited value being on rental showings. Renters don’t need to be sold into making a decision. At the end of the day, they are taking time to look at rentals because they either want to or have to move; I don’t see a lot of rental home tire-kickers. They want to like the property and get it done with, as opposed to new home buyers who sometimes look for perfect.
However, there obviously needs to be some controls in place (avoiding the “open-barn” theory). It’s important to know who is going into the house and have some concrete, confirmed contact information that can be given to the police if something goes awry. Done properly and moderately, self-showings are efficient and allow renters to view homes on their own schedule. It can work really well.
- Video Virtual Tours for Rentals: I’m still not on the bandwagon on this one. I really want people to visit the rental in-person so they can make sure it is right for them. If someone wants to buy a home from across the country sight unseen, that is fine with me (we live in America, right?); they can spend their money anyway they choose to. But if they wind up disliking the home after purchase, they have no one to complain to. With rentals, they can complain to their landlord for a year or more. No thanks!
I want to provide enough information for people to decide if they want to see the property (pictures, accurate property information, price, etc.). But I’m still not convinced that videos can replicate being there. I also want to be cautious abut adding an expense to our owners to get a tenant we may wind up in a forced bad relationship with (“I don’t like the neighborhood”, “The building is too loud”, or “You purposely videoed away from the wall in the dining room to hide the scuff marks.”).
- Virtual Lease Signings (E-signing Documents): I like this trend, to a point. We’ve used it for a few years for lease extensions with existing tenants and paperwork for our owner clients who needed to add properties. Since COVID, we have even started to e-sign the lease documents prior to meeting the tenants at the property to give them the keys as a precaution.
However, I think this trend has gone too far. It seems like it is a ready excuse not to talk or meet. I like to meet with the tenants and review the lease in-person. There is value to attaching a person with a (masked) face. If we’re going to the property to get our sign and lockbox anyway, why not (safely) say “hello”?
Anyway, in property management and in life, change isn’t always good or always bad- and it often does not need to be wholesale! Treading moderately with new technologies can be the best path forward.
So I think that means I can still wear the sweatshirt and wooly as long as I mix in some new pieces of clothes occasionally, right?
Happy Landlording in 2021!
Learn MoreRenters: It’s Not You, It’s Me…
In the annals of relationship-ending conversations, there are many flavors:
Reflective: I think I may hate you
Cooperative: We just don’t complete each other
Corporate: We need to divest
Dramatic: “This” (hands motioning in a circle around both parties) isn’t working for me!
Conditional: We need to either work harder at this or start seeing other people
Non-Committal: I’m not sure about us
Cold: You are altogether awful! Leave me alone forever.
Soft Approach: It’s not you, it’s me!
When a relationship has to end, it’s hurtful, and usually to both parties. People put themselves out there and are vulnerable. It’s tough. And there’s no good way to part ways, even when it has to be done.
In a less personable way, it’s the same situation between renters and property managers.
Renter: This rental house on-line looks enticing!
Property Manager: Come and see it in person!
(later)
PM: Did you like it?
Renter: It smells and is way over-priced! If you think it is the “best house on the street”, you may be as dumb as you look.
PM: Fortunately, I’m not that dumb… I’ll notate your response as “not interested at this time”.
But when the tenant response is favorable…
Renter: I love it! I’ll fill out a rental application!
PM: Woo-hoo!
(later)
PM: Your results are in and things look really good. But, unfortunately, you’re not approved. Thanks for applying.
Renter (confused): What???
PM: We’ll, it’s not you, it’s me!
Renter: Seriously??
Sadly, yes.
The problem is that in Charlotte’s hot real estate market, property managers can get 10-15 different applications for certain homes (typically single family homes $1,300.00/month or less). This makes it tough to pick a tenant. Some of the applications have undisclosed evictions and can be weeded out quickly, but several of them are usually really good. If we had five of the rental house, we could fill them all. But we only have one. And that creates unhappiness for the parties who are not approved for the house, even when they are very “dateable”.
It truly is me, not you. It’s nice to be landlord in this Charlotte market from a vacancy perspective, but we can certainly understand the renter frustration of not getting a house with normally acceptable credentials. It’s tough!
Happy Landlording!
Learn MoreYou Want the Truth in a Hot Real Estate Market?
“It depends on what the meaning of the word ‘is’, is.”
Former President Bill Clinton
“What is truth?”
Pontius Pilate
I was talking to a client the other day when he mentioned buying a house to live in. He was currently renting and wanted to find a place he could settle and begin to grow roots with his growing family. He had owned houses before and was ready to get into the real estate ownership game again.
However, we discussed that buying a house in Charlotte (and probably across the country) is difficult now. If a home for sale is priced competitively, it usually has multiple offers as soon as it goes on the market. In addition, home prices have escalated. Even with low interest rates that would keep his payment down, he didn’t want to overpay as he was afraid it would take a long time to see any capital appreciation. It was a conundrum- Continue renting or buy?
There was another option he wanted to talk about. He had found a nice house that was in a great area that he thought was priced right. It had been languishing on the market for months and the only reason he could see that it hadn’t been snapped up was that it had a shared driveway. So his question was, “Do people really hate shared driveways that much?”
I didn’t know. At first take, sharing was good. Sharing is caring. How much time do we really spend in the driveway anyway? Surely not enough to be priced $75K below the other nearby houses and not be under contract, right? I never thought that much about sharing a driveway. It would be a nice opportunity to know the neighbor better; maybe share cars occasionally if his was parked in front of mine (especially if his was nicer!).
So what’s the true value of an independent driveway versus a shared one? I told him I didn’t think it should matter that much.
But… at the end of the day, it didn’t matter what I thought the truth was. The truth was the market. The truth was that in the midst of an extremely hot real estate market, this home with a shared driveway was not sold. And I wasn’t sure why this fact would change in a colder real estate market. Bell bottoms may come back into fashion, but I’m not sure about communal driveways on higher end homes.
One thing that I have to come to realize in real estate (and other goods) is that the market is rarely wrong. It happens sometimes and the people who bank on it can make a killing (see multi-billionaire hedge fund manager, David Tepper, the owner of the Carolina Panthers). But usually, the market is the economic truth- it’s efficient and self-corrects quickly.
I had read something a broker wrote (if I remembered where I’d read it, I’d give him the shout-out) about pricing homes that are $500K or less in this hot market. He said something to the effect that if the home was still on the market two weeks after it was listed for sale, the price needed to be reduced. I’d largely extend this to the rental market as well.
A rental home may look like it is worth $2,000/month, but if it is marketed properly and there are no showings or takers, it’s not worth $2,000/month. And let’s be clear, I’m not saying that, the market is.
It’s hard to tell what the truth is sometimes. But in real estate, the market is one of the biggest truth-tellers out there.
Happy Landlording!
Learn MorePredicting Presidents & Charlotte Real Estate Prices
There are people who are very interested in politics, especially in the US presidential election every four years. “It’s the most important election of our lifetime! Think of the children!” I don’t fall into this camp. However, I do like to try to predict who will win.
That doesn’t mean I’m any good at it, unfortunately.
I try to use “common sense” on who will win- ha, ha! Below are the actual winners from the past few elections and my rationale at the time for why there was no way they could win:
2008: Barack Obama. I was wrong. I didn’t see how a community organizer with no experience running anything could win. Plus, he shared his middle name with a top, evil dictator.
2012: Barack Obama. I was wrong again. The economy was in shambles and the “Great Recession” was on his watch. I wasn’t sure that President Obama could effectively keep blaming former President GW Bush for the poor economy his entire term.
2016: Donald Trump: Wrong on this one too. Where do I start on how I didn’t think his election was possible? I mean he didn’t even think he was going to win.
2020: ??? Pollsters say Joe Biden is close to a shoo-in.
Now let’s shift to Charlotte real estate. When COVID-19 began to affect our lives in March 2020, people were understandably afraid. Corporations began rapidly shedding jobs, the stock market tanked, and there was little optimism in the world.
We had just put up a home for sale for a client that month (who really needed to sell) and we were concerned that COVID-19 would adversely affect the market. We lowered the price and worked quickly to get it under contract before things got worse.
However, the adverse effect on Charlotte housing prices never really happened; in fact, prices actually climbed and continue to climb. We probably should have raised the price!
So why am I bringing up my poor predictive skills?
Sometimes it is more effective to forget the short-term noise of what is going on and stick to market fundamentals. The market fundamentals for Charlotte are that 66 people on average are moving here every day and that number will probably increase as people flee big cities for more space.
There is also a housing shortage in Charlotte. This has been exacerbated as people are “sheltering-in-place” and not putting their homes on the market. The fundamental “supply vs. demand” rule takes effect and prices rise with scarcity.
Things can change quickly, but fundamentals and long term trends tend to move glacially or not at all.
And political incumbent candidates usually win…
Happy Landlording!
Learn MoreCOVID-19 Rent Collections: OK to Say “I Don’t Know”?
“Dewey Defeats Truman”
Chicago Daily Tribune headline on 11/3/48
“Even fools are thought wise if they keep silent, and discerning if they hold their tongues.”
Proverbs 17:28
My 6-year old son is tasked with completing school assessment tests this week on the computer. It’s a stressful time for him! Not only does he have to deal with new questions about numbers and words, he has to figure out how to use a mouse for the first time. It’s a lot for a new, aspirant student.
My wife thinks some of the questions may be out of the scope of a Kindergarten-educated child. “Three-digit subtraction questions? Scandalous! How could he know such things at this point?”
So he’s tackling an assessment question like:
Q. What is 100 – 80?
- 35
- 20
- I don’t know!
- I really don’t know! (Can I watch TV now?)
The truthful answers for him are clearly 3 or 4 (with a hard lean on 4). But for us educated folk who have been taking tests all our lives, we know at minimum we need to answer 1 or 2. Nobody gets any points for offering “I don’t know” on a test! We only get points for knowing (or acting like we know and guessing correctly). But we really should know stuff, right?
Or maybe that’s the limitation with tests when we implement this methodology in real life. With tests, there’s always one right answer that is evident if the data is studied and understood. But reality can be very different.
For example, take this COVID-19 situation for property managers. We’re asked questions from clients like, “Do you expect tenants to pay rent next month?” Or, more directly, “Will my tenants pay rent next month?” As someone in the property management field for the past 16 years, I should be able to answer that question, right?
Well, I read the same articles that everyone else did with statistics from large apartment provider associations saying 33% of tenants didn’t expect to be able to make their rental payments this summer. Wow! 1 in 3, that’s bad. Then I received calls from a few of our tenants telling me about their job losses and wondering if any of our owner-clients would be offering “Free Rent” until things were back to normal. Data was not promising, both empirically and anecdotally.
All of this must have meant that we were going to experience some rough times with the rental properties we manage in the Charlotte-Metro area, right? So I jotted off letters every month this summer to our owner-clients telling them to expect some rental disruption. I thought I knew what was going to happen and then I relayed this to our clients.
So what happened? Everyone this entire summer paid (with the exception of literally 1 tenant who is moving out). And the number of late paying tenants was half of what we usually have.
What do I know?
What is 100 – 80? Fortunately, I can help with that one. But are tenants going to continue paying on time and in full next month? I really don’t know. (But I hope so!)
Happy Landlording!
Learn MoreLost in Translation: Landlords Are Not “Pants”
“OK… but do we rock?”
(Opus from “Bloom County” after reading his band’s confusing review in Rolling Stone)
I remember back when I was in college and I had the opportunity to be a student-athlete abroad in Merrie Olde England. I thought the new scenery shouldn’t be that hard to figure out being they spoke English over there. But I didn’t account for some of their slang that as a “Yankee” I wasn’t privy to.
I was on the American football team and we had a pretty mediocre record. In our defense, we only had about 20 guys, so most of us were playing offense, defense, and special teams. We had some good players so we were able to keep the score close for most games (and win some of them), but exhaustion would set in during the fourth quarter due to our lack of depth; this would sometimes doom us.
Very few fans (aka only our friends) showed up for these fake “football” games (aka not soccer). So I really didn’t know if anyone cared or thought we were any good. However, someone pointed out that an article had been written about the team, so I was anxious to read it (was I mentioned in it???). I was in the computer lab later that day and found it.
Now, I’m not sure if the writer was trying to appear impartial, but I had a hard time figuring out what his take on us was. And then I wasn’t sure if he even understood what he was watching, as he used some soccer references to describe the action. He listed some good things about us and then list some bad things, and then vice-versa. Finally, at the end of the article, he gave his summation. “All in all, the Staffordshire Stallions are pants.”
“Pants”?? What the heck does that mean? I was at a loss. Do we rock? That’s what I wanted to know.
So I nudged the guy beside me and asked him what “pants” meant. He looked at me for a second, noticed my American baseball cap, and had pity. He said, ‘It means rubbish, complete rubbish.” Ouch.
For us to have a .500 record and beat some much bigger schools with 60+ players on their sidelines, I wasn’t sure how fair his assessment was. Some of our 20 guys hadn’t really even played before and were pressed into action. The article really could have been about how well we were doing despite the odds being stacked against us every game (and then how some “American saviors” were making their mark…).
I bring up this story because it reminds me of negative press landlords are taking for being against the eviction moratorium (not legally being allowed to file for eviction for non-payment) imposed now during COVID-19. The plight of affected tenants has been well-documented and no one wants this economic devastation. But to make landlords the villains is ridiculous.
I “know a friend” who manages a property where the tenant has not made a rental payment in 2020. My friend’s client still needs to make a mortgage payment, insurance, and property taxes every month without any offsetting revenue coming in. He provides a service where an agreement was made to pay him for it, and he is not getting it. And he has nowhere to go for help.
I’m not sure if any of our property management clients are multi-millionaires who are immune if no rent comes in on their rental houses. I get calls and e-mails from concerned owners when a tenant is late in paying or a repair seems on the high side. Most need the rents to keep their real estate investments afloat. I don’t know of any that are sitting on their yacht in the Mediterranean who rarely need to check a bank account!
Some of the criticism probably comes from people who just don’t understand the real estate investment game. On the other hand, I also understand (during tough times especially) that eviction is dirty word and can appear heartless.
But this is a situation that has been lost in translation. Landlords are not “pants” for wanting to receive their rental payments for providing houses for people to live in and making repairs to keep them functional. It makes sense for them to have the option of legal recourse to go to if things are not working out. They rock for trying to keep their obligations up-to-date during tough times.
In summation, the COVID-19 economic situation is “pants”, not landlords (or the 1998-1999 Staffordshire Stallions, for that matter).
Happy Landlording!
Learn MoreVirtual Life With Virtual Rental Home Showings?
“Ain’t Nothing Like The Real Thing, (Baby)”
Marvin Gaye & Tammi Terrell
I don’t think I’ve ever written on the same topic four months in a row, but COVID-19 has affected every facet of life so abruptly; it’s tough to avoid.
Everything in life has changed when you can’t be with other people and are scared (or not allowed) to go places. Some things have been enhanced (more time with your family in your home & no commute) and others have been limited or discontinued.
In the limited and discontinued space, compromises were made to replicate virtually what was lost physically:
“If we can’t meet in person, we’ll have an awesome Zoom.com meeting.”
“Let’s do drive-in church where we watch our pastor on a big screen from the church parking lot in our cars and honk when we like what he says.”
“Let’s watch world-renown artists sing in their homes instead of going to watch them live in a stadium.”
“With no live sports, let’s re-watch Game 7 of the 2016 NBA Finals or NASCAR’s iRacing where their drivers are essentially playing a video game from their homes. That’s awesome!”
“There’s no need to hold the new grandson when you can just FaceTime him and wave! It’s virtually the same thing.”
These compromises, though necessary, are certainly not the same thing; I’d say they are not even close. It’s like seeing a shadow of a person instead of the person. Or it’s like seeing a picture of the New York City as opposed to standing in the middle of Times Square. These compromises are largely ineffective, counterfeit replacements.
I remember in my early sales career when I tried to avoid the time and energy of meeting customers, my boss would always say, “You can’t fax a handshake.” (Note: in retrospect, I need to never give that example again as both of those things seem to be relics of the past and will make me sound really dated…) Nevertheless, the point is that there is immense value in seeing people, places, and things in person.
A Realtor friend of mine called me the other day and was talking about how “virtual” house buying (aka seeing a video of a house and making an offer sight unseen) was gaining enormous traction. And really, I have no problems from that from the sales-side.
Why? In NC, we are a caveat emptor (“let the buyer beware”) state; this essentially means that after you close on a property, there are no “take-backs”. Once the house is bought, it’s yours- it’s over even if after you move-in you decide you don’t like it for some reason.
With rental homes, it’s a different story. Back when we first started offering property management in Charlotte, BDF Realty would allow “sight unseen” rentals. Most of the time, it was fine. But there were a small number of people who decided they hated the house after they actually saw it in-person; this created problems. They had already signed a lease and had moved in their furniture when they decided they wanted to move. The reason was a problem with the neighborhood, or the size if the rooms when they were actually in them, or a number of things that would have been avoided if they had seen the rental home in person. But, unlike when a house is sold, there was someone they could complain to- the property manager.
Virtual rental home showings just can’t replicate what seeing a home in-person can. Sometimes just driving a neighborhood or stepping into a home will immediately eliminate it from consideration. We don’t want renters being forced to live in a home for a year if it is going to be a disaster from the get-go. That’s not good for anyone- the renters, owners, or the management company.
Virtual life has its limits. It’s wise to exercise caution on the rental home side with a virtual-only approach. There ain’t nothing like the real thing, baby!
Happy Landlording!
Learn MoreCredit Reports (YAWN) & COVID Tenant Placement
“Everyone has a plan until they get punched in the mouth.”
“Iron” Mike Tyson
The “sleep industry” (from bedding, sound control, “sleep consultants”, prescription pills, etc.) is estimated to be a $30B-$40B annual business growing by 8% year. That’s a lot of money going to something that should naturally be free; and, unfortunately, the inability to sleep seems to be an issue that keeps growing.
My father told me that a solution that always worked for him was to read textbooks. It made sense, but most adults (thankfully!) don’t have many lying around. However, if you’re in the property management arena, you do have a lot of credit reports you can read through that will have the same effect.
On a single rental application, it is possible to have 20+ pages per person. Every open and closed line of credit they’ve ever had in their lives is listed. It can be painful reading and sorting through them as the pages can begin to just run together…
Many property management companies outsource the application process. I get it! No one wants to read through the reports and try to put together how someone’s finances link to whether they’ll be a good tenant, especially when 10-20 applications are coming in per property. It’s arduous. That’s why it’s common for property management companies to have credit score minimums- for example, if you don’t have a minimum 600 credit score, your application will automatically denied.
There are a couple problems with that approach, in my opinion. The first is that if every landlord did that, there would be a lot of people in the streets who weren’t eligible to rent a house. That seems harsh, unfair, and inhumane.
The second is that a credit score alone is insufficient to gauge an applicant’s true financial strength. I think the level of debt to how much available credit they have is a huge indicator. A credit score rewards taking on debt to a certain extent as it measures whether debt payments are being made in a timely fashion; people with no debt (or utilized available credit) seem to have lower credit scores because there is less of a payment track record to go off of. Should people be penalized for that? I guess I have an “old-school” mindset where I think not having debt is preferable to the alternative.
Thirdly, I like to see cash flow and where it is going. I’ve had 700+ credit score applicants who have so much debt to pay off that after their monthly debt obligations (aka credit cards, financed cars, etc.) there is little room to pay rent and other niceties of life (like food).
This is where COVID and tenant placement comes in. How strong is the applicant? Can they pay when times are good and bad? Can applicants take a financial punch? COVID is a huge punch to almost everyone. But even putting COVID aside, a punch could be an unexpected job loss, big car repair, or some other major expense that life throws at everyone at some point. Can it be weathered?
That’s where I find the credit report to be an invaluable tool and a “must-read”. I always felt that the #1 responsibility of property managers is to keep the rents flowing to the owners. And property managers are only as good as the bench of good-paying tenants they have in their properties. How strong is the bench? Can it handle adversity?
COVID has and will continue to put things to the test. I think the practice of pouring that extra cup of coffee while poring over the credit reports will prove to be time well spent.
Happy Landlording! And Stay Safe!
Learn More