Is Signing Zion Williamson a Worthy Tenant Placement Strategy?
“Therefore everyone who hears these words of mine and puts them into practice is like a wise man who built his house on the rock. 25 The rain came down, the streams rose, and the winds blew and beat against that house; yet it did not fall, because it had its foundation on the rock. 26 But everyone who hears these words of mine and does not put them into practice is like a foolish man who built his house on sand. 27 The rain came down, the streams rose, and the winds blew and beat against that house, and it fell with a great crash.”
(Jesus Christ in Matthew 7:24-27)
“…(Zion) Williamson and the team quickly agreed on a five-year rookie max extension worth at least $193 million. The new deal will kick in at the start of the 2023-24 season, and the figure could rise to $231 million if Williamson makes an All-NBA team or wins a major award next season. The No. 1 overall pick in 2019, Williamson’s career has been plagued by injuries and concerns about his conditioning. He missed nearly his entire rookie season after undergoing knee surgery, was shut down early in his second season with a broken finger and did not play at all last season due to a broken foot that required surgery and did not heal as quickly as expected.
When he has been on the floor, he’s been spectacular. In his second season, when he played 61 games, he averaged 27 points, 7.2 rebounds and 3.7 assists per game while shooting 61.1 percent from the field, and was named an All-Star. All of which is why, despite his injury history, the Pelicans were eager to extend him as soon as possible. At the same time, giving $193 million to a player who has been on the court just 85 times is a risky proposition.”
(Jack Maloney in CBSSports.com 7/29/22)
As stated above by Mr. Maloney, when Zion Williamson is healthy, he is a spectacular basketball player loaded with potential. With experience, he could even be much better!
If Zion was a healthy tenant, he’d be the dream of any landlord. He’d be paying above market rent, he’d keep the place spotless, the rent would come in early each month, and there would never be any outside complaints about him. He’d maintain the property flawlessly and even take care of minor repairs on his own (and on his own dime!). His uncle would be a world-class handyman who loved to stop in and help his nephew out with some free repairs and upgrades from time-to-time. He’d kick some courtside tickets to his favorite Charlotte property manager when the Pelicans came in to play the Hornets. And, to boot, Zion would love the house and want to rent it forever.
Cash flow heaven!
But what if, as his application suggested could happen, he got hurt and lost his job? Things could start going downhill quickly for Mr. Williamson (and his landlord):
Rent? Late and not paid in full. Eviction is probably required (NBA tickets now nixed)
Repairs/Maintenance? Not up to it
Outside Complaints? The lawn guy who is not getting paid stops the service. Air filters are too expensive now. The HOA and City are up in arms and threatening fines.
His Beloved Uncle? Now that Zion is hurt again, he doesn’t seem to come around…
But Zion? He still wants to stay in the house forever!
As a property manager in Charlotte, we get rental applications from people similar to Zion. They have a lot of potential and are willing to pay top rent, but their rental screenings show that they are susceptible to bad stretches of luck (which made some of their past tenancies bad landlord experiences…). The question is: are they just isolated events in their lives or a pattern? Is Zion Williamson going to continue to miss seasons with injuries or will he turn the corner? It’s impossible to predict. The New Orleans Pelicans apparently believe he will be healthy as evidenced by them handing him a $193M guaranteed contract.
So is the high risk, high reward strategy a good or bad one? I believe it depends who the landlords are and whether they can financially handle the downside.
Example: The institutional investors who have bought up thousands of houses in Charlotte seemed to have embraced the high-risk strategy. They list their rental homes for above market rent and then accept risky tenants who are willing to pay. Does it pan out? Well, I had read something that said one of the institutional investors had a 25% eviction rate; that’s super high (bad!). It also means that 75% of their tenants were able to pay the above market rent to them monthly (good!). So spread over enough houses, the excess rent may be able to pay for the evicted houses that face no incoming rent, court costs, and needed repairs. The math could work, even in their favor(!), when factoring in that they probably have faster tenant placement times due to less stringent tenant screening.
However, we work mostly with smaller investor-landlords (the “Mom-and-Pops”), where this strategy wouldn’t work well. One bad tenant could destroy their profit for the year, let alone two of them. We need “build on the rock” tenants, not “sand” tenants, because our property management clients need them to hold up in storms. So that has been the strategy that we have used. It requires more stringent tenant screening and sometimes a longer placement time. But we will feel it is the wise strategy for our particular client base.
Zion is a great, generational basketball talent and all basketball fans want him to get healthy so they can enjoy watching him play. But not all landlords can afford to risk $193M to find out if he’ll even be on the court. Pick your tenant placement strategy accordingly!
Happy Landlording!
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Steve Martin, Roxanne & Tenant Identity Issues
In the timeless appeal of romantic comedies, one of the tried-and-true story lines is the ugly guy who tries to get the really beautiful girl who is out of his league. I was thinking of the movie, Roxanne (with Steve Martin and Daryl Hannah), and realized bringing up that reference was probably on par with bringing up Ben-Hur with Charleston Heston at this point- it’s like how long ago was that??? But humor me…
In Roxanne, Darryl Hannah is the beautiful bombshell and Steve Martin is the smitten, huge-nosed fire chief who does not feel worthy to pursue her. A much better-looking, witless firefighter expresses interest in Hannah and Martin decides to help him; he gives him romantic ideas and poetic things to say to woo her. Hannah loves it and the romance is on. Of course, the subterfuge can only work for so long until it is discovered and then… (you’ll have to get the VHS to find out the dramatic ending!). But, suffice to say, the ruse did not help either of them with their relationship with her in the aftermath.
Outside of Hollywood endings, lying about one’s identity is not typically a long term, winning strategy. And as a property manager in Charlotte, we are seeing a lot of prospective rental tenants misrepresent themselves on their applications (right now, I’m applauding myself for my diplomacy in that last statement). Okay, to be more direct, some applicants are outright lying. And this may be the worst that I’ve seen in my twenty years of screening tenants. It’s high quality “fakery”- doctored paystubs, friends as landlord references, other people’s information being offered (with better credit & criminal reports), etc.
Why? I believe it is a combination of much higher rental rates and inflation. Housing and regular living expenses cost much more and this has eroded the financials of many prospective renters; debt levels have increased, credit quality has declined, and landlord reports have less nice things to say. So, it makes it harder to have prospective tenants pass muster on screening criteria.
The thing is, at its core, good tenant application screening is designed to protect everyone (especially tenants!). I don’t know how many times I’ve given some version of this stump speech:
Listen, we want to approve you as a tenant. We easily get paid the majority of our fees to place tenants, not turn them away. But prospective tenants with similar incomes have a tough time making it work at this rental price coupled with their other monthly obligations. Then when rental payments inevitably aren’t made, it creates a bad situation for everyone: the owner doesn’t get the money, which forces us to use available avenues to secure the money, and then it creates a lot of all-around stress. No one wants that- trust me, we do not want to chase you. So, let’s avoid it and find a less expensive rental house for you.
Of course, most people don’t like to be told “no”, no matter how nicely or well-meaning the message might be. So, they try to avoid the “no” by submitting falsified information making their application appear stronger.
How do we figure out what tenant information we receive is true and what is manufactured? As President Reagan famously said, “trust, but verify.” And verify. And verify. And verify.
As landlords, we need to ask a lot of questions, especially now. Call landlords and wait to get them on the phone. Is the information the same as what is stated on the application? Call the employers and do the same. Is there a potential fraud alert on the credit application? Do the paystub calculations for taxes and deductions pass an eye test? Request bank statements to confirm the money flow.
It takes more time. And applicants do not always like the increased scrutiny- and they’ll tell you this! But there is a lot at stake. Since the CARES Act, evictions take more time and a wrong applicant can be very costly. Take the upfront time to avoid the backend headaches.
Steve Martin and his young accomplice had Daryl Hannah fooled… up to a certain point. Smart and thorough landlords need to make sure that certain point is prior to handing the keys over!
Happy Landlording!
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“Oh, you know, COVID…”: Spotlighting Tenant Retention Amid Rising Costs
“I noticed you didn’t post a blog last month? I really missed it!!”
(Actually, no one said this…????)
I think one of the frustrations that I’ve had in the last year is how seemingly how every business underperforming service-wise or raising prices can be explained away easily by COVID or her offspring (shortages, inflation, sharp price increases, not enough employees, etc.). Examples:
My coffee cost $4.00 last week and now it is $5.50. Why?
“Oh you know, COVID… Prices of coffee in South America have spiked due to complications in the harvesting process and container price shipping increases.”
Why wasn’t the gym open this Monday when I showed up there?
(A sign with a partial explanation was posted to the locked front door on Monday and then Tuesday the front desk person offered more details)
“Oh, you know, COVID… Staffing is still really tough as no one wants to work anymore. Once people left the workforce, they just didn’t want to come back. You know, I think it’s mostly due to video games- guys just prefer to play them all day instead of going to work.” (Oh, really???)
Voicemails I run into frequently: “Due to recent events, call volume has increased creating longer than normal hold times.”
(I’d like to get an explanation on why this voice mail message is still there and has not changed in almost three years). But I can speculate… COVID?
I can be frustrated as a consumer, but understand it. I’m used to getting what I want at a reasonable price and in a reasonable time period and feel slighted when I don’t. Pretty much every business has raised prices and many have had hiring issues. It’s a fact that costs and wait times have skyrocketed whether I agree with the causation rationale or not.
Many landlords have experienced “Oh, you know, COVID…” conversations for the costs now associated with fixing up rental homes between tenants. All of the issues above coupled with a hot real estate market has led to sticker shock when these repair quotes come out. The cost of painting an entire house and replacing the flooring (as well as the myriad of handyman issues) has risen, especially when landlords compare prices 5-10 years ago (think double).
Rising rents after fix-up will eventually offset these increased costs, but it is still painful to look a $10K+ repair bill and know that the person writing that check is going to be you. So, how can this be avoided?
It can’t be avoided forever. However, there is the strategy of kicking the can down the road as long as possible. This can be accomplished through an intentional effort in tenant retention. The basic rationale is that if tenants don’t move out, most repair costs (cosmetic, that is) can be avoided until after their tenancy is eventually over.
So how do landlords accomplish tenant retention? There are books written about this, so I’m not going to go into all the creative ways people have thought up of: giving free flat screen TVs to the tenants when they sign a multi-year lease, delivering chocolate chip cookies on their birthdays, having a monthly rent credit incentive where some of the money is forfeited if tenants move-out prior to a set number of years, etc. The advice below is for a landlord who is more a “nuts and bolts” person and doesn’t bake very well.
The great news is that the cards are stacked in the landlord’s favor right now so most of what I propose is being done by others already. The landlord’s job is just to keep the rental rate reasonable on lease extension offers. That’s it. I’m not even saying to not raise the rent at all; just don’t be greedy. That’s the only thing the landlord has to do right now as a decent tenant retention strategy.
Very few people like to move. Landlords should continue to perform normal landlord activities in a timely manner so tenants do not have some explicit reason why it is imperative for them to leave the house. And be pleasant. Then wait. The heavy lifting is already being done by the big institutional landlords who own houses nearby and are raising the rents up 25%-50%. When tenants see the advertised rental rates of homes on the market and then see their reasonable lease extension rate, most will stay put.
If the tenant still leaves, then biting the bullet on fixing up the property may be an unfortunate reality. But the silver lining is that the house can now be advertised at the higher market rate (thank you again, big institutional landlords!) which will reduce the time on the ROI.
Best of luck keeping your good tenants around and avoiding the “Oh, you know, COVID…” expenses on your rental home for as long as possible.
Happy Landlording!
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Good Landlords & the Golden State Warriors: A Deep (Vendor) Bench Matters
The Warriors won the NBA title this month in an exciting series versus the Boston Celtics. Steph Curry, the star of the team (and local Charlotte product!), won NBA Finals MVP and fellow starters Andrew Wiggins and Klay Thompson played well. But one of the major reasons they were able to pull off a series victory was the play of their bench. Less heralded Warrior’s players- namely Jordan Poole, Kevin Looney, and Gary Payton, Jr.- gave the team great minutes while the starring players weren’t on the court. “Strength in Numbers” was the team’s slogan during the regular season and it continued in the playoffs leading to an NBA Championship.
This is also applicable for landlords utilizing the vendors they have to do maintenance and repairs on their rental homes. I got a call last week from someone interested in our property management services. When asked what prompted the call, she said that her handyman had gone back to the workforce; this left her without anyone she trusted to do the work on her rental home in a timely, well done, and reasonably-priced manner. I could empathize.
When COVID hit, many people who had little time to make home improvements suddenly became very interested in their homes. Part of it was being home and seeing many of the issues their homes had that they had ignored. Some of it was just making improvements so they could enjoy their home as they were around much more. Either way, it led to vendor demand to increase which led to scarcity of vendor availability and price increases. This hit property managers as well. The advantage swung to vendors as they had more work than they could handle, putting them in a position to refuse jobs and not call prospective customers back. This trend continues now.
The good news for experienced property managers is that most have a deep bench of vendors. While we use many of our “stars” regularly to service our homes (and have for years), it is helpful to have a list of secondary vendors who are proven to do good work. Going to Google as sudden needs arise and hoping that a vendor is going to provide tenants a good experience is not ideal. It is far better to incorporate new vendors on a regular basis on smaller jobs to ascertain if they meet expectations. Cultivating a good vendor list is an asset that makes a property manager’s job much easier and keeps owner clients and tenants happy.
Though property managers have a built-in advantage of managing large number of homes which can make working with them attractive (repeat business), smaller landlords can also build good vendor lists by:
- Being courteous with vendors and trying to make things easy for them
- Paying quickly and in full
- Providing pictures and details upfront of what needs to be done so they can minimize trips and maximize their revenue
- Working with their schedules and only accelerating issues that are truly time-sensitive
- Providing referrals to them from friends and family that need similar services
- Writing 5-Star Google reviews (when warranted)
The Warriors would arguably not have gone far in the playoffs and won a championship if they did not allow their bench players to play meaningful minutes and make them feel like a valued part of the team. Smart landlords should do likewise and use secondary vendors on occasion so they are in the fold and can be utilized when the need arises.
Happy Landlording!
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Retired Boomers & Seasoned Tenants: Needing People Who Get Things Done
“The information learned while attending college is meaningless to employers; the college degree itself is the prize. It shows you were smart enough to figure out how to graduate.”
(My late brother, Gregg Furniss)
My wife and I were coming back from a weekend trip recently and stopped in for a “quick” bite to eat at a roadside Wendy’s. Oh, I was psyched to take down my chocolate Frosty.
We were waiting in line inside the restaurant and started to talk to some older gentlemen behind us. I had my UNC sweatshirt on and they were making some small talk about the upcoming basketball game that night. They were nice guys, probably retired, as they seemed to have no issue with the 20-minute wait.
Me, on the other hand… I tried to game the system and quicken things up. I popped out the Wendy’s app on my phone and ordered from there, hoping to just nod at the cashier and pick up our order when we eventually got to the front of the line. But, as it turned out, things didn’t pan out as expected…
Cashier: Welcome to Wendy’s! How can I help you?
Me (smartly): I ordered on the app (and picked up a free large French fry for doing so too) and already paid for it. It should be under “Brett”.
Cashier: Oh… mobile ordering hasn’t worked in weeks. Can I take your order?
Me: But I already paid…
Cashier: Oh? You’ll have to figure out how to cancel your order.
Me: It already ran my credit card. How does one cancel the order when the app says it’s already in my “order history”?
Cashier: Not sure.
Me: OK… I guess we’ll order and pay again (and forfeit the free fries for mobile ordering…)
And when we finally got the food, the order was wrong. From a customer perspective, it was a fail. However, anecdotally-speaking for current retail establishments, this seems to be par for the course due to COVID-related employment shortages.
I thought of those older guys behind me. They seemed to be smart (they’re UNC fans!) and unemployed. And I’d argue underutilized. I wanted to make a passionate plea- we need you guys!
When Boomer-bashing became in vogue recently, it was largely unfounded. These guys (and gals) helped build this country. They’ve got skills we’re sorely lacking right now (especially on the retail front)- they have a track record of getting things done! Every time I’m getting frustrated trying to buy stuff in person, I’m thinking I want to fill out an application and help the establishment do things right.
But as a Gen Xer, I’m in the thick of it. I’ve got a job, two young kids, and don’t have the time to take it on. But our country has millions of unemployed, well-enabled potential workers on the sidelines. We need you, retired Boomers! Help us! Your wisdom and leadership would make a world of difference. You’ve worked for years in different environments and persevered. You could help train up broken places of business and be helping co-workers and society in general. You got things done and we are in a place where we need people to do just that. And it could be fun!
Experience counts. And it counts with rental tenants too.
When looking at rental applications, there are a lot of schools of thought on what to look for to secure the best tenants. We look at credit scores, criminal background, income, employment, and landlord history. But as someone who has done this for a while, landlord history trumps everything. Do they show a pattern of paying on-time and staying around for a while?
For example, if a prospective tenant has rented somewhere for 6 years and has largely paid a comparable rental rate on time, my expectation would be that they would continue to do so in one of our rental homes. Unless there was something completely out of whack in the other screening checks, I’d take them in a heartbeat. Low credit score? If they’ve gotten the rent paid for 6 years straight, they’re probably a good bet.
Generally-speaking, most of our owner clients want tenants who are longer term, do small repairs on their own, maintain the property well, and pay regularly. These seasoned tenants typically have rented for years and know how to be good occupants. They ask for help when needed, but understand the game. They take care of their end and we take care of ours. Everyone wins.
As a society, we need good employees. As a property manager, we need good renters. People with a history of accomplishment are valuable.
Happy Landlording!
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Rental Homes: You Break It, You Bought It?
“The “Pottery Barn Rule” is an American expression alluding to the policy of “you break it, you bought it” or “you break it, you remake it”, by which a retail store holds a customer responsible for damage done to merchandise on display. It generally ‘encourages customers to be more careful when handling property that’s not theirs.’”
Wikipedia definition of the “Pottery Barn rule”
I think every parent has there own story on this concept. My version comes in “Hobby Lobby” when my young son smashed a glass Christmas vase while “admiring” it. I was within a 50-yard radius (which apparently puts me in the “bad” or “absentee parent” category); I heard the crash and prayed no Furniss was involved. I wasn’t so fortunate.
The next step was to ‘fess up to a cashier or store manager. As I searched the available employees up front, I was left with the strategic decision of who to approach:
- The 17-year old (does he look apathetic or one that would stick me with store policy?)
- The middle-aged woman (does it look like she might sympathize/empathize? Or is she the type that makes an example of a parent who prioritizes reading “Calvin & Hobbes” ornaments over watching his kids on the other side of the store?)
The downside of either was $17.99 + tax and a stern look. The upside was getting off with a warning. I approached the front gingerly and dutifully offered to pay.
“Don’t worry about it! It happens all the time!”, the middle-aged woman cheerfully chirped. “Chip! Go clean up aisle 5.” The 17-year old gave me a look and grabbed a broom. Mercy won out.
One of the hardest things of being a property manager is the security deposit dispensation after a tenant moves out. Homes are rarely left in perfect shape which leaves the owner paying a bill to get the rental home back in market shape. The question that is left is how much of the bill should the tenant shoulder and how much falls under “normal wear and tear”, which is legally permitted.
The problem is that nothing in a house costs $17.99! Things are expensive. Steam cleaning a carpet costs a few hundred dollars; if the carpet needs to be replaced, it’s now in the realm of thousands of dollars. The costs are similar for painting- touch-up can be much less versus a full paint job, but it’s still in the several hundred dollar range.
Very few tenants ‘fess up and offer to replace the carpet or paint the house after they vacate. In fact, most say that the “place was like that when they moved in” and not getting their full security deposit back is nothing short of an injustice. Property managers tend to utilize pictures/videos and tenant-filled out “move-in inspection reports” to document what the home looked like prior to home occupation. These are helpful to ascertain the truth.
Regardless, costs can be high if a home is not taken care of. And if not, there can be a large degree of sticker shock when a tenant receives a bill for repairs that runs in excess of their security deposit. How could this happen?
The components of homes are expensive. And someone needs to fit the bill. The assumption can’t be made that the landlord pays for everything short of a wall being knocked down. “Normal wear and tear” cuts both ways. Abnormal wear and tear is costly and the tenant is legally responsible for it.
It is a win-win when a landlord can return a non-docked security deposit to a tenant- trust me! Then no one needs to shell out funds to repair folks and a house can be turned over for another family to move into; this is the most desirable and profitable outcome for all involved.
But, with rental homes, if you break it, you bought it. It may “happen all the time!”, but someone has to pay the piper and most home issues are not cheap to fix. Smashing a $17.99 Christmas vase is one thing, but see what the “Hobby Lobby” cashier says if your kids clip the branches of their $2K “Super-Deluxe” Christmas tree.
Happy Landlording!
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Comfort of Old Cars & Non-Perfect Rental Homes: Does Anyone Care?
“Champagne tastes with beer budgets.”
Common real estate agent lament
I drive an old car. And it has lots of miles (almost 300K!). I’m reminded of this from time to time:
“Dude, seriously? You’re driving that? Don’t you want to step things up a little?”
An old friend
“You thinking about buying a new car soon? I only ask because I’m looking to buy a car for my teenager and thought you might be interested in selling… How does it run?”
Pastor at my church when I saw him in the parking lot
I get it. Nothing looks like success more than a new, nice car. If you want people to think that you’re the “property manager to the stars”, you shouldn’t be driving a beater. Realtors especially lock into this mindset. A nice car means lots of closed sales. “You look good, you feel good, you sell good” as the old salesperson mantra goes.
But there are positives to driving a beater. First there’s an overall peace of mind (if it doesn’t breakdown). For example, when I take things out of my car, I don’t particularly care if it scratches the paint or rips the seat. When I walk out of the supermarket and someone has dinged my door, I’m OK. When my young kids spill something in the backseat, I’m not reading them the riot act. I’m cool. No worries.
There’s also the financial piece. There are no car payments. The taxes are low. Occasional repair bills are taken in stride as they are lower then having a new car. Insurance is lower with a “liability-only” policy. I’m not worried about additional miles detracting from the value of the car.
Most people don’t subscribe to my “peace of mind” thinking. They want to look cool. I’m OK with that, to a point.
I see a similar thought process play out in rental homes. As rental rates continue to rise significantly annually (in the Charlotte-metro area, newly offered rents increased 16.7% from September 2020 to now per CoStar), the tenant income levels needed to support the higher rents also need to rise significantly. But people’s incomes are not going up 15%-20%. This is where all the press about the lack of affordable housing comes from. Renters are becoming “severely cost-burdened” where over 50%+ of their incomes are going to housing costs. That’s a huge percentage (which many experts call a crisis).
What has contributed to this crisis? One factor is the decision a landlord is generally left with after their tenant moves out and they are preparing the house for the next tenant. Do they spend a lot of money to make the rental house look great (full paint jobs, new carpet, new appliances, etc.) or do they try to “let it ride” (minimal to no touch-up paint, steam clean carpets, entry level appliances, etc.)? I think with all the HGTV housing television shows, many owners decide to fully refurbish their rental homes. By employing this strategy, they are looking to get top rent when it goes back on the market.
This only works when tenants play along. Tenants need to be willing to sacrifice a higher percentage of their incomes for a nicer, updated home.
And they are! Even when they clearly can’t afford it.
When some of our clients “let it ride”, we accordingly price the house lower. The owner chooses to accept below-market rents to avoid a pricey fix-up bill. They play the long game; every year that goes by, they use the rents to lower their mortgage payment until it goes away (that’s when the landlord game gets a lot more fun!). And as a bonus for the tenants, they keep more of their money. They also get a lot more leniency on their security deposit deductions as the house is already worn, so any mishaps they inflict on the house aren’t so noticeable or costly when they move out.
But many tenants choose not to make this trade-off. “The carpet is stained! The walls have some scratches! The refrigerator is old!” Um, that’s why it is priced lower.
Most tenants don’t seem to care. Frankly, it’s shocking to me. I’ve expected more tenants to happily make the trade-off for the peace of mind it offers.
Old cars may not look cool, but they may allow for a cooler, more peaceful life. But if this line of thinking has little appeal, I suppose landlords need to give people the housing they want.
Happy Landlording!
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Do You See Property Management Like Michael Jordan?
“Sometimes when I consider what tremendous consequences come from little things, I am tempted to think there are no little things.”
(Bruce Barton)
“Catch for us the foxes, the little foxes that ruin the vineyards, our vineyards that are in bloom.”
(Song of Solomon 2:15)
A while ago, I was talking to a family member I don’t get the opportunity to converse with very often. It turned out he owned an out-of-state rental property that he was self-managing and he began to tell me about it.
Family Member: So things are going great! I have a long term tenant who makes her $800.00 rental payment like clockwork every month; she even has it direct deposited into my account on the 1st!
Me: (talking): Reliable long term tenants are awesome. Congrats!
Me (thinking): $800 a month? Could that possibly be close to the going rate in this crazily appreciating housing market?
FM: And I don’t even have to think about the house. If she needs something repaired, she calls. If not, I never hear from her.
Me (talking): Low maintenance tenants are great. Congrats!
Me (thinking): No on-site inspections ever, not even a heads up from a repair vendor you work with regularly that can let you know if they see something awry? Are the air filters being changed? Animals in the house? Smoking indoors?
FM: And it’s a total win-win relationship! She doesn’t use the all the space, so she rents out some of the rooms on Airbnb for extra cash.
Me (talking): I guess that ensures she can make rent each month. Congrats!
Me (thinking): If you are allowing this, are you getting a cut? That seems like a lot of risk as the homeowner for (what sounds like) no compensation. Do you know who is coming in and out of your home? Is there any type of insurance being utilized if a renter is an axe murderer and takes out a few neighbors or starts cooking meth in the house? And is there consideration for all the people rolling through adding additional wear & tear to the home?
When you’ve done something as a vocation for a while, your thinking gets warped and can really make you sound like a wet blanket.
I imagine it’s like telling Michael Jordan you put up a shot in a pick-up game at the park. He sees a different game than a weekend player. He might ask:
Where did you shoot from? How much space did the defender give you? Did you jab step? Was there a lane available to drive to the basket? Where were your teammates? Should you have passed it out instead? What was the score at the time? Who was sliding back on defense to cover your man if your opponent threw a long pass down court off of a rebound? What type of loft did you get on the release of your shot- was there potential for a long rebound? Did you feed the ball to your big man inside first?
Whoa! I thought basketball was supposed to be fun? That sounds like school with an aggressively tense teacher. I mean, do these small details really matter anyway?
I think so. When I’m flying, do I want my pilot checking the wind direction or knowing what to do if geese get in the plane’s path (kudos, Sully!)? Or if my daughter is going to the doctor, do I want a licensed professional who knows what questions to ask and what tests to run to head off any larger health issues? Of course! One missed detail could bring dire results.
Michael Jordan won six NBA Championships by being detailed-oriented (and really good, of course!). In the same way, it’s imperative to have a property manager who is experienced enough to ask the right questions and be uptight on the details (even if it makes for awkward conversations with family members sometimes).
Happy Landlording!
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Lease Renewals: Lock in the $2.00 NYC Breakfast!
“If I can make it there, I’ll make it anywhere, It’s up to you, New York, New York…”
“New York, New York” by Frank Sinatra
I remember living in New York City (NYC) when I was first out of college. All of the big buildings, happening things going on, the energy, the lights, so many people… it was amazing to behold. It seemed like everything that was going on in the news was happening right around the corner from my apartment. It was really cool.
But it was really expensive. Everything cost so much, especially compared to college life. After my first week of work, I went out with some colleagues and offered to buy the first round of drinks- big mistake!
“That will be $90.00, sir.”
“No, I’m sorry… There must be some misunderstanding. I only ordered 5 of them and we just got here.”
Weird look. “Um, it’s $90.00 sir.”
(Gulp) There goes this week’s money…
And that was 20 years ago. I hate to see what things cost now.
However, there was one great deal in NYC- the breakfast food trucks. You could get a coffee and a big bagel for $1.00 each. I’d line up every morning before getting on the subway to lock it in before heading to work. When an apple cost $4.00 at the bodega across the street, this was the way to go (maybe not health-wise, but you couldn’t beat the bang for your buck).
I remember one morning being in line behind an obvious tourist who looked like he had just gotten into town. He asked the food truck proprietor how much a cup of coffee was and did a double-take:
“$1.00??? Seriously? I’ve never paid $1.00 in my life for coffee!”
That’s when I knew this guy was about to have the worst vacation of his life.
I feel this way about rental rates in Charlotte. I was recently going through our list of tenants with expiring leases and was struck on how much rental rates had gone up, especially those who were coming off of 2-year leases. Rents have been climbing up for almost a decade, but have become more pronounced in the past two years.
As a landlord, this is great. Higher rents equal more profits. The question becomes how much more rent to ask for when existing leases are near their expiration and it’s time to offer the tenant the lease renewal terms. Is the strategy to ask for market rate (probably 10-20% higher) or keep the increase on the lower end (5-10%)?
Generally-speaking (if it is a good tenant), I’m a proponent of keeping the increase offer on the lower end and trying to keep the tenant in the property. Avoiding all the vacancy costs and keeping the cash coming in is usually the most profitable path, as well as the easiest. I don’t like good tenants looking elsewhere as new ones are not guaranteed to work out as well. However, if the tenant still decides to leave, then all bets are off and the house can be re-marketed at the higher market rate.
If I was a tenant in this scenario (once again, generally-speaking) with an offer of a lower than market rental rate on a lease renewal, I’d also look to stay and try to lock into a 2-year lease. Looking at the competition for rental homes now as well as the higher prices, it should be close to a no-brainer. It’s a win-win for both the tenant and landlord to keep near the status quo.
So while the New York City nightlife and dining choices are enticing, it’s probably best to enjoy the vacation and relish the $2.00 breakfast combo. Good deals in this market are hard to find, so it’s probably best to lock them in without complaint!
Happy Landlording!
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No 5-Star Reviews? You Took an Oath
“You took an oath, if you recall, when you first came to work for me. And I don’t mean to the National Security Advisor of the United States, I mean to his boss… and I don’t mean the President. You gave your word to his boss: you gave your word to the people of the United States.”
(Admiral James Greer (James Earl Jones) in Clear And Present Danger)
“But Jesus would not entrust himself to them, for he knew all men. He did not need man’s testimony about man, for he knew what was in a man.”
(John 2:24-25)
Property management is a funny business. Sometimes you are the GOAT (Greatest Of All Time) and some days you are a goat. Some days you’re told you belong in the penthouse and other days, the outhouse. It’s like I tell my son we’re going to the pool (yeah!) or to work on his reading (Boo! Bad Dad!). Reactions vary based on the popularity of the decisions made.
We had a tenant who was very happy with a repair we made for her on behalf of the owner. She was so happy, that she went on to Google and wrote us a nice 5-star review. “You guys are really great. So responsive, Unequivocally good-looking. Manly, yet gentle. Sensitive, caring & responsive. No one better. Wowzers!” (that’s not a direct quote, but it was something like that, I think…) It was a very nice, unsolicited gesture. “Just doin’ our jobs, ma’am.” (with the accompanying hat tip and suppressed smile).
But fast forward 3 months later… the tenant has another repair request, but it can’t be approved. It’s something the lease says the tenant needs to take care of. When told of the bad news, there was no effusive praise for our wisdom in enforcing the lease properly. There was mostly silence with a touch of resentment. It didn’t taste nearly as good as the 5-Star Google punch she had served us last time. This tasted more like 1-Star lukewarm water served in a dirty ashtray.
And speaking of the 5-Star review, it was gone; she must have taken it down. Remanded to the deep recesses of cyberspace, it never graced our profile again. Its warmth was only with us for a brief season and then- poof- it vanished, nary a goodbye.
“Just doin’ our jobs, ma’am?”
Hey, I get it. You like us when we do stuff you want done. And dislike us when we don’t. People can be fickle.
At the end of the day, we’d love to be “5-Star” reviewed every time and do every repair asked for. And we’d love to approve every tenant that applies. But, alas, we took an oath (aka a signed a property management agreement) saying we would represent the client’s (the homeowner’s) interests. No, this doesn’t mean we don’t take care of the contractual repairs and impartially view applications, but it does mean that we need to keep in mind who we work for and how they want things done. Owners don’t tend to want to pay for unneeded or unwarranted repairs or have tenants with unfavorable past records placed in their rental homes.
At the end of the day, we really do want to please everyone, but we took an oath. “Just doin’ our jobs, ma’am.”
Happy Landlording!
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