Where to Invest in Real Estate in Charlotte?
As a property manager in Charlotte with investor clients, we are often asked where the best places are to buy local investment properties.
When I was a young real estate investor in 2004, I bought my first two investment properties on the same day from HUD. Both were relatively cheap and I figured they’d be easy to cash flow. I admittedly did not really know what I was doing.
One was a condo in a relatively contained area. The other was a house in what could be labeled a “war zone”.
I hated this house. If I was smarter, I would have outsourced the property management. One of the main issues is that it would just get broken into a lot. So every time it was vacant, I was praying that I didn’t have to have the windows and doors repaired again. The house was really old and somehow the utility bills were really high, which added to the vacancy pain.
One day I was stopping by the house and noticed a man with a shopping cart full of old window screens walking in the neighborhood. I didn’t give it much thought (like I said, it wasn’t a great area) until I reached the house and noticed something a little off about the (formerly) screened-in porch. I ran back to my car to find the guy with my screens.
He was still on the street. I pulled up behind him in my car and he kept walking. I got out and walked quickly to catch up to him.
“Excuse me, sir? I think you may have something that belongs to me.”
No response. He kept walking away at his measured pace.
“Yeah, I’m sure of it- those seem to be the window screens from my house up the block. Mind if I take those back?”
He stopped, turned around, grunted, and then lunged at me with a knife. Fortunately, he missed due to my cat-like reflexes (OK, not true) and the fact that he was drunk and slow (thank God!). He then kept walking away.
I followed him in my car and called the police. He smartly cut across a field and was never seen again.
As I left the scene with my tail between my legs, there was nothing left to do but go back to the house and re-shoot the front porch pictures. Then I logged into my computer and changed the rental ad copy from “Awesome House with Screened-In Porch!” to “Awesome House with Open-Air Porch!”.
Oh, how I hate(d) that house!
Fast forward approximately 13 years… the Charlotte press started fawning over this “new” area of Charlotte that was having all of this awesome new development. Price values were skyrocketing; it was the next big thing. As I clicked through to read further, the area they were referring to was very familiar… No way… The smart money wanted to be in the vicinity of “that house”.
A popular calculation is that 66 people are moving to Charlotte every day. The Charlotte-Metro population is set to go up 50% in the next ten years. And all of these newcomers need a place to live.
As a real estate investor, the short-term prognosis on where to buy in Charlotte is a crapshoot; an efficient market should have already built this into the current prices. However, due to population forecasts, the long-term prognosis of where to invest is much surer. “That house” (or any house in the city of Charlotte) will probably be a good investment you’ll love if it’s held long enough.
Happy Landlording!
Learn More“Unverifiable” Rental Tenants Can Be Like Rudolph and Save Your Christmas
“All of the other reindeers used to laugh and call him names. They never let poor Rudolph play in any reindeer games.
… then all the reindeers loved him, and they shouted out with glee (whoo-pee!). Rudolph the Red-Nosed Reindeer, you’ll go down in history!”
Rudolph the Red-Nosed Reindeer by Billy Gilman
Rudolph had a tough gig before becoming a legendary Christmas icon and saving Christmas one year. Piecing together various biographical sources on Rudolph, it is clear he had a privileged, yet difficult, childhood. Through his envied bloodline (the son of famed Donner and the beautiful doe, Mrs. Donner), he had both the connections and proximity to Santa to have a great life and career. But the dreaded red nose seemingly doomed him to a life of ridicule and parental shame leading to his estrangement from the North Pole elite. He found solace in the company of societal undesirables (among them a dentist!) before the serendipitous approach of uncommon foggy weather one Christmas Eve. Santa took a chance on him and it paid off in spades. The rest, as they say, is history.
When Rudolph was on the road with the undesirables, no one really knew his skills and upbringing (the bloodline, the advanced reindeer training, his untapped flight ability, etc.); they just knew he was sad, unwanted, and unloved. He couldn’t pull out his press clippings from his pockets (no pants) or pull it up on the internet (no Wi-Fi on the Island of Misfit Toys). And he didn’t really want to talk about his past, which recently included not even saying goodbye to his girlfriend, Clarice, the only one who really liked him for who he was (red nose and all). He only had his focus on the future as he was trying to find himself amidst new circumstances.
Rudolph was a great reindeer; he just couldn’t prove it.
As Charlotte property managers, we get applicants who could be great tenants, but they can’t prove it. And we want to be sure they would be before we approve them to live in one of our client’s rental houses, but the applications sometimes don’t reveal much.
For example, on our four main tenant screening requirements, we may receive a prospective tenant application with the following information:
- Credit report: very little to no credit history
Tenant explanation: “I don’t like debt. I pay everything with cash.”
- Landlord history: scattered to none
Tenant explanation: “I lived with family or moved in with a significant other. I was not on a lease or a mortgage.”
- Criminal report: nothing comes up
Tenant explanation: “I’m an outstanding citizen!” (Kudos!)
- Income: no paystubs available
Tenant explanation: “I’m a small business owner or do work under the table.”
So what to do? Much like Rudolph, there’s very little information to go on. The tenant is basically “unverifiable”.
This is where it is easy as a property manager to punt and just reject the applicant. There are a lot of fish in the sea and a verifiable tenant will probably be in contact soon. Besides, there is a lot to lose. If the unverifiable tenant pays rent and everything goes fine, then everyone is happy. But if things go south, clients will understandably ask for details about the tenant screening. “What do you mean you accepted a tenant with no verifiable information? Remind me why I hired you???? Did you flip a coin on whether to approve them?”
So what to do?
- Verify everything you can. Get bank statements and W-2s. Money is usually traceable in some form.
- Collect 2 months security deposit and as much upfront rent as possible in certified funds.
- Ask a lot of questions and do Google searches. Unconventional tenants can require unconventional screening methods. What does their social media accounts say about them?
We’ve found some great, long-term tenants that other landlords have rejected due to them being unverifiable. We’ve also walked away from some that we just couldn’t get a good read on.
Santa gave Rudolph a chance, and Christmas was saved. It is sometimes wise to give unverifiables a second look so rent is coming in during Christmas on your rental home.
Happy landlording!
Brett Furniss is the head property manager of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords & Home of $100 Flat Fee Property Management. BDF Realty utilizes their innovative Pod System for exceptional customer service in residential property management, home repairs, and home sales for single-family homes, Uptown condos, and town homes in the Charlotte-Metro Area. Contact Us Today!
Learn MoreCharlotte Section 8 Leases: Should I Renew Them?
“Enjoy Free Rent!”
(Former advertisement to entice landlords to put their houses in the Charlotte Section 8 program)
Q: My Section 8 tenant’s lease is set to expire next month. Should I offer to renew it?
A: Maybe…
As a Charlotte-based property manager and real estate investor, I’m a huge proponent of renewing leases. I think it makes unbelievable financial sense; there is no missed rent from vacancies, no fix-up and holding costs, no management costs for landing new tenants, and it provides the ability to raise rents to stay around market rate. And it also saves everyone a lot of work. Whew!!
It really takes a lot of chronic tenant wrongs for me not to recommend renewing a lease. Besides situations where an owner wants to move into their property or sell it, I can count on one hand the number the tenants I’ve not recommended renewing. If a tenant wants to renew at market price, I’m asking where I should send the new lease. It’s typically a done deal.
So when I was asked the other day whether I’d recommend offering to renew a client’s Section 8 lease, my fingers naturally wandered to the “Y”, “E”, and “S” keys on my laptop. Then they stopped and I felt my stomach cramp up. Can I really recommend this for this property? The issues:
- The rent is not close to market rate even after filling out the moderately arduous Section 8 paperwork for an increase every year. The Section 8 paperwork says we can ask for a maximum 5% increase a year; we’ve only been getting approved at 2% increases ($800.00 rent turns into $816.00- woo-hoo!). And this is after increases were frozen a year or two ago, while private market rents (aka non-Section 8) have been going up by 10-20% for the past few years.
- Annual Section 8 inspections are a hassle and seem to always result in a “fail” for trivial issues. A true example of a recent “fail”: “paint is peeling on the ceiling.” In a non-Section 8 world, if peeling paint on a ceiling was bothering a tenant, they would be told they were free to grab the extra paint can in their garage and touch it up. In a Section 8 world, that is a “landlord responsibility” and a handyman must be sent out or rent payments will go into “abatement”. Abatement is a very bad place to be as no rent comes in and past payments are clawed back (which would never happen in the private sector).
Unfortunately, landlords and property managers have figured out that:
Less Money + More Expenses + Government Regulations/Paperwork = Bad Deal
It’s not just Charlotte. In Austin, Texas, there was a law made (that was later repealed) that required landlords to accept Section 8 tenants. A study the city commissioned said that 90% of Austin landlords would not accept Section 8. Due to the fact that most landlords are investing in real estate to maximize their financial return, this is not surprising.
So as property managers whose job it is to maximize our clients’ ROI, we stopped recommending Section 8 as a source of new tenants several years ago. As discussed, the financial numbers didn’t add up. However, we did allow Section 8 tenants who wanted to stay to continue to renew their leases if they chose to.
But should we continue to recommend allowing renewals? It really comes down to whether the owner wants to expend the funds to fix-up the property and take the hit of vacancy until a new, non-Section 8 tenant comes on board. Some, including me, have continued to renew the Section 8 leases until the tenant decided to not renew and vacate; and then, once vacant, go exclusively to the private market going forward. But if the rent differential continues to grow between Section 8 and market rate rent, the auto-renewal policy will need to be revisited if the Section 8 tenants still want to extend their leases.
It’s tough to disrupt rental continuity and I don’t usually recommend it, but it may ultimately pay to take a closer look at the numbers before rubber-stamping your Section 8 lease renewal!
Brett Furniss is the head property manager of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords & Home of $100 Flat Fee Property Management. BDF Realty utilizes their innovative Pod System for exceptional customer service in residential property management, home repairs, and home sales for single-family homes, Uptown condos, and town homes in the Charlotte-Metro Area. Contact Us Today!
Learn More3 “Insider Tips” When Buying Your First Rental Home
I got a call from a friend of mine from college, “Rich”, a few weeks ago. After the prerequisite ribbing was completed (Do you have any hair left? Is your Linked-In profile photo from your high school yearbook? Are you still awful at basketball?), Rich got down to business:
“I’m thinking of buying my first rental home for investment. Got any advice?”
Me: “Ummm… have you looked at the blog I’ve been writing for the past 5 years entitled ‘Charlotte Property Management?’ It seems like all I do is spout out advice on this stuff.”
Rich: “Sure… I read it all the time, sometimes to my kids at night. I meant any other advice for the special people in your life.” (wink, wink)
Me: “Oh, the “insider tips”? Of course! It will cost you, though!
I suppose “insider tips” means the advice from people that have been burned (or are getting singed monthly) on investing errors. They now know better.
My top 3 insider tips for first time investors:
- Don’t buy in low-priced areas (aka places where you are buying the house for under $75K in Charlotte).
Common retort: “But I can get the house for $15K. There is a tenant paying $400/month. And I could buy 10 of them just like this one. The cash flow would be insane!”
My response: Can you stomach getting calls that say any of the following:
- I just saw someone get shot in my driveway!
- The air conditioning unit got stolen again. Should we order you another?
- I think my flooring is caving in.
Sadly, I’ve gotten these calls. I (and my checkbook) didn’t enjoy taking them.
- Hire a great property manager. I know I’m biased, so I won’t expound on this. Suffice to say, you don’t know what you don’t know. And you may enjoy cost savings from not paying a property manager for years; then you make one mistake that wipes out all of the savings and you wonder why you were taking tenant clogged toilet calls at midnight for no long term financial benefit.
And my top tip…
- Don’t get a mortgage; wait until you have the funds and then pay for the house with cash. Or at least pay more than 50% with cash.
It’s a drain on cash flow when you need everything to go right to make money every month (or to break even). Because things break (sometimes major things), tenants don’t always pay (but you better pay your bank!), and you will find yourself losing money. Yes, your accountant will tell you that it’s great for your taxes, but it stinks in real life. The purpose of investments is to make money. Locking into an investment that consistently saps your cash flow is no fun.
Example: $1,000 rent – $850 mortgage payment – $100 property management fees – $250 HVAC repair = $200 loss (bad feeling)
Or
$1,000 rent – $0 mortgage payment (you paid with cash!) – $100 property management fees – $250 HVAC repair = $650 gain (good feeling!)
So, Rich, my insider advice in a nutshell is… Set yourself up in a wise, peaceful manner so you can enjoy and make money on your real estate investments! Be disciplined now so your assets don’t become financial and emotional liabilities… And don’t crack on my hoops game!
Brett Furniss is the President & Owner of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords & Home of $100 Flat Fee Property Management. BDF Realty utilizes their innovative Pod System for exceptional customer service in residential property management, home repairs, and home sales for single-family homes, condos, and town homes in the Charlotte-Metro Area. Contact Us Today!
Learn MoreWhat Rental Home Repairs Should A Landlord Pay For?
Oh, home repairs… One of the aspects of rental home investing that can really eat into a landlord’s financial return. Landlords and tenants both want to have a perfect home, but debate on who should pay for it.
In 10 years of practicing property management in Charlotte, I’ve found that the responses of who should pay for what repairs are unanimous (depending on what faction of people you ask):
Q: Who should pay for broken stuff at the rental house?
A. The owners!! (results tallied from 100% of the tenants)
Supporting testimony: “This house is a piece of garbage! They are lucky I’m a great tenant and renting it. I pay on-time every month; the least the owner can do is make some needed repairs around here. I guess Ebenezer is too busy counting his money to remember the little guy living in one of the houses in his vast real estate empire.”
Contradictory facts: House was lived in by owner prior to tenant move-in. Everything worked fine. Actual real estate holdings of owner are 2 houses.
B. The tenants!! (results tallied from 100% of the owners)
Supporting Testimony: “The house was in perfect condition when the tenant moved in. I lived there for 5 years and everything worked. Now they want every little thing fixed? Who cares if the screen door has a little rip in it? It didn’t kill my family, but the tenant can’t live with a flea once in a while? Please! He doesn’t even have children!”
Contradictory facts: “Little rip” in screen would allow full grown vulture entry. Perfectly conditioned homes would be violently offended at this owner’s shoddy home being placed in the same category as them.
And this is why property management can be challenging at times.
“To pay to repair or not to repair”, that is the question. And it is one that has no clear-cut answer. But, with that being said, there should be some methodology applied to make fair decisions.
My take on some parameters:
1. The house must be kept at code. Major systems (plumbing, heat, electricity, appliances) need to work properly. This includes working air conditioning nowadays (I know the old-school hardliners just stopped reading). I’m aware it used to be a luxury item, but that was a long, long time ago.
2. If it worked when they moved in, it should work throughout their tenancy (some exceptions apply on really high-cost or not-being-manufactured-anymore items). Example: a home was rented with a working gas fireplace. The fireplace stopped working in the middle of the tenancy. The manufacturer went out of business for the parts that were needed to fix it. In my opinion, the owner is not responsible to pay $3K for a replacement fireplace for home that rents for $1K a month.
3. If tenant negligence clearly causes something to break (example: a bottle cap found blocking a garbage disposal from working), the tenant should be billed back for the repair. But a tie goes to the tenant. Think of this as more of a criminal trial (where the tenant is innocent until proven guilty) than a civil trial (only requires a preponderance of evidence). There is a higher standard of evidence required before a tenant can be billed back for a repair (it must be really obvious).
4. Operational items need to be repaired; aesthetic items (aka how the house looks) do not. It should be made clear to the tenant during the lease signing that the home looks the way it looks now and nothing will be done by the owner about it.
5. Just because the tenant is renting the house, it does not mean that they will never spend money on the house. Maintenance items are required (air filters, light bulbs, lawn care, etc.) and are not paid by the owner.
This is obviously not a comprehensive repair policy, but it is a good start. Good luck!
Brett Furniss is the President & Owner of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords & Home of $100 Flat Fee Property Management. BDF Realty utilizes their innovative Pod System for exceptional customer service in residential property management, home repairs, and home sales (including Rent-To-Sell) for single-family homes, condos, and town homes in the Charlotte-Metro Area. Contact Us Today!
Learn MoreCharlotte Property Management Monthly: Don’t Return Your Tenant’s Security Deposit Just Yet
As a Charlotte property manager, I am a big proponent of returning as much of the tenant’s security deposit to them as possible. If the tenant took time to care for the property, did what they were supposed to do during their lease period, and paid all of their rent, they certainly deserve it back! There is a reason property managers are required to put the security deposit into an escrow account; it is a reminder that the security deposit is not the landlord’s money, it belongs to the tenants.
However, that being said, I’m also a proponent of the “slow return.” By NC law, the security deposit does not need to be returned to the tenant for 30 days. And also according to the law, if the landlord is still figuring out repair costs and won’t make the 30-day deadline, they just need to notify the tenant that the payment will be delayed in writing and let them know the approximate cost of the repairs at that point in time.
Why would landlords delay the tenant’s security deposit return? The most popular question asked (by far) when a tenant moves out is, “when can I expect the security deposit back?” If you want to be a “cool” landlord, shouldn’t you just give it back after the walk-through? You already know how much the repairs are going to cost (if there are any) and the tenant could use the money back. You certainly want to be good to the tenants who were good to you, right?
Well, yes, but not exactly. I recommend keeping the security deposit as long as possible. Once it is given back, you really need to consider the tenant gone and their account closed. You need to assume that you will never get any money from them again.
So? They moved out already, right?
Yes, but… Walk-throughs are an inexact science and sometimes things are missed. Think about home inspectors; they are professionals that take hours doing a walk-through to write a comprehensive damage report and they still miss issues with the home. I guarantee that landlords are not close to conducting several hour walk-throughs at the level of detail that they are (nor should they be). Things get missed and that’s life.
However, you can provide yourself some extra time so missed things can get caught before it’s too late and you have to pay for it! It may be one of the handymen working on your home that alerts you to new repair issues. It may be a Realtor or marketing person who wonders why something looks off. Or (usually) it’s the next tenant who moves in afterwards that lets you know what’s not up to par (and by the way, they want the issues fixed on your dime!).
Let tenants pay for damages they are responsible for. And, unfortunately, the delay in returning the security deposit to them is a good way to ensure this happens.
Brett Furniss is the President & Owner of BDF Realty (Charlotte Property Management) which works with Charlotte real estate investors and homeowners 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 Monthly: Interested in Investing in Charlotte Homes? 3 Strategies & 1 FYI
As a Charlotte real estate investor and property manager for almost a decade, I’ve spoken to a lot of clients about buying Charlotte investment homes. Many different clients have many different goals, but the goals typically fall into three camps (all cash flow, cash flow and equity, all equity). Below are these 3 types of investment strategies and the residential houses used to achieve them:
1. All cash flow ($10K – $50K priced homes): These homes make investors lick their lips. “I could just put the house on my credit card or write a check!” Yes, this is true and it has been done! It’s nice that these homes will rent anywhere from $250 – $500 a month. With home payments less than $150/month (figure taxes around $50/month and insurance around $35/month), vacancy doesn’t hurt too much. The plan is to buy up a bunch of these homes, fill them with good tenants, and enjoy the cash flow!
The downside is that these homes are not in desirable neighborhoods and are barely liquid, even in great real estate markets; selling them to home owners (non-investors) is close to impossible, which allows for virtually no capital appreciation. Vacancy costs don’t hurt that much, but the damage and theft expenses can add up quickly (you may see your home’s missing HVAC unit for sale on the street… Hint: buy it back! It’s cheaper!). “Good tenants” are tougher to find than with higher-priced homes. Bottom line, this strategy is either high risk or high reward (if managed well) depending on what month you ask. It’s a boat that goes up and down on the waves- buckle up!
2. Both cash flow and equity (home price appreciation) ($90K – $140K homes): These homes are my personal favorite to invest in. The tenants are typically stable and treat the homes well. If the home is bought properly, they fill quickly and do appreciate in rising real estate markets. These are moderate risk investments. Vacancies and fix-up costs hurt more than the less expensive homes, but monthly positive cash flow can be in the $200-$400 range (if bought correctly). These homes are more liquid and are appealing to both retail and investor buyers.
3. All equity ($250K+ homes): These more expensive homes can be bought at great discounts because most real estate investors don’t hold them (too expensive) and most home owners don’t like buying major fixer-uppers. However, buying a house $100K-$200K below retail value, fixing it up (gulp- maybe a $50K cost?), putting a renter in it to net out the monthly mortgage costs, and then flipping it when the subdivision the home is in stabilizes can be a very profitable venture (with time). Utilizing this strategy requires a good cash reserve and patience to sit on the home before cashing it out. The good news is that the tenants in these homes are typically very stable, pay on time, and will take care of them. As the Tom Petty song goes, “the waiting is the hardest part.”
And the FYI:
Investors love multi-family units! But multi-family homes (1 to 4 units) are not that prevalent in Charlotte. I don’t know why more of them weren’t built (maybe due to cheaper land here?), but there are typically very few of them available for sale.
Charlotte is a beautiful, up-and-coming city with a growing population. Whatever the strategy being used, the time to invest seems to be now!
Brett Furniss is the President & Owner of BDF Realty (Charlotte Property Management) which works with Charlotte real estate investors and homeowners 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 Monthly: Investment Confessions of a Property Manager- 4 Takeaways
Many property managers first get into the property management business because they own investment properties and are already managing them. “Why not add a few more? The infrastructure is already in place!” This rationale brought me into this exciting world of property management.
Becoming proficient at investments is an ever-evolving process. It takes a lot of easy education (reading the investments guru rags) and hard education (making costly mistakes with leveraged property investments).
This current economy has really put investment decisions I’ve made in the past 8 years under the microscope. In a hot real estate market, investment decisions have a lot of leeway to succeed. The converse is also true in a bad economy and leads me to ask questions like: Did the properties I bought maintain value (relatively speaking) or did I misread the area? Do renters want to live in these homes when much more choice became available? Can I sell any of these investment homes in a flat or declining real estate market?
Tough questions. And, unfortunately, some tough answers.
When I look at my investment decisions, I’ve come away with these 4 takeaways:
1. Cash (flow) is always king. Properties always cost more in terms of vacancy, repairs, and fix up than expected. I remember an investment guru telling me, “If you need to pull out a calculator when analyzing a real estate deal, the deal isn’t good enough to buy.” Amen to that. When declining rents hit, I was hit hard as well.
One effective tool I’ve used is to liquidate some 15 and 30-year mortgages into interest-only. This has dramatically helped cash flow on my property portfolio. When the economy improves, interest rates will rise and I may need to pay the piper. But then I can look at refinancing or selling the investment homes in a rising real estate market, as opposed to selling in a buyer’s market.
2. Buying cheap isn’t always good. For a while, I loved telling the story about buying a home on my credit card. Not anymore. The problem is the home isn’t in a great area (making it tough to rent or sell) and has needed significant fix-up funds through the years. Sometimes there is a reason why homes can be bought on the cheap.
I like to defend this decision by saying, “At the time I bought it, it was a great deal in a transitional area on the rise.” I must have missed the newsflash at the time; in an overheated real estate market, almost every area is considered “on the rise”. This reminds me of two sports quotes that seem apropos:
a. “Having ‘potential’ means that you haven’t accomplished anything yet.” I never read any articles on Michael Jordan’s potential, but rather about his performance.
b. “Yeah, he has great talent. But there are a lot of talented people in prison.”
3. I like a well-rounded real estate investment strategy; it does the body good. We get many calls from prospective clients looking for options on what to do with their properties. I’m with you! Options are good! Good options are even better!
My idea of a well-rounded real estate portfolio consists of this:
A. Nice, expensive homes that will rise when the market comes back. Cash flow won’t be great, but will generate a nice chunk of cash when the market goes up. Then they need to be sold!
B. Cash flow properties that generate hundreds of dollars of positive cash flow a month. These will subsidize other properties that aren’t cash flowing. They probably won’t see any great amount of equity build-up (even in a rising market), but they will keep you solvent and smiling!
C. Long-term holds will be nice investment pieces for retirement. They are solid homes in solid neighborhoods that are really a mixture of the A & B properties above. They will give average cash flow and equity build-up, but should be easy to rent to good tenants for a long time.
4. The most important takeaway (by far) is to buy investment homes right (aka at a big of a discount as possible). This can cover up a whole lot of other mistakes. As another investment guru told me, “You make your money when you buy. Period.”
Best of luck with your real estate investing!
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 Monthly: Multiple Rental Offer Situations: Is Engagement The Same As Marriage?
So you’re walking down the street the day after successfully proposing marriage to your girlfriend, who now (you’ve been told) is to be referred as your “fiancée”. You’re happy and are convinced she was meant to be “The One”. But, wait; is that the beautiful Sasha Blue across the street? The girl of your dreams who always had those model boyfriends that put you permanently into the “friend” category? Is she looking at you? I think she is!
As you get closer, Miss Blue excitedly runs up to you. “Max, is that you? I was hoping to run into you! I finally got rid of that no-good Antonio! Wow… Is this the first time we are both single at the same time? How exciting! I’d love to catch up!”
As your heart races, your memory of getting down on one knee the night before is fading fast. Is it too late to run a reverse and go after Miss Blue? Engagement isn’t legally binding, is it? It’s a very interesting conundrum!
That is the same question that faces property management companies when multiple tenants apply for the same property at different times. At what engagement point prior to move-in is a tenant “locked” in and the property manager must forsake all other suitors?
Let’s look at a potential scenario: Tenant A applies for a property and is approved. They have not put a deposit down on the property yet. Tenant B sees the property the next day and loves it. They are a stronger applicant and are willing to pay more money per month. However, when talking with Tenant B, Tenant A puts down the deposit. Company policy is that whoever puts down the deposit first with an approved application gets the house. So, is Tenant B out of luck?
In most scenarios, yes. But there is a caveat. The property manager works for the owner. It is their job to get the best applicant that fits the home owner’s (aka their client’s) goals. Should the overall mandate to pursue what’s best for the owner trump company policy?
The easy answer is “of course!” The practical answer is yes and no- the solid, business school “it depends” response. On one hand, I don’t think it is reasonable to take a deposit from an approved tenant, keep the house on the market at a higher rate, and then renege on the agreement if another tenant appears that is willing to pay more. That could leave an applicant who dealt with the property management in good faith potentially homeless and dealing with the hassle of changing addresses, utilities, moving vans, and losing their piece of mind. This generates hate mail (rightfully so).
But, on the other hand, at what point is it reasonable to accept competing offers?
I believe that up until the tenant is told definitively that the home is theirs is a reasonable time to protect the owner’s interests. That may mean that if multiple applications come in (and even after deposits are put down), there is still time to review the applicants and decide which one is best for the owner. If the applicants are similar, then the first one who applied and put down a deposit should be given first dibs.
However, what about if the following applicant situations present themselves?
1. An applicant with a 600 credit score with average landlord history is approved and puts down a deposit before a 700 credit score applicant with great landlord history
2. 2 applicants are equal but one is willing to pay a higher monthly rent
3. 2 applicants are equal but one is willing to pay the year of rent upfront
4. One applicant is willing to move-in 3 weeks prior to the other
In these situations (if prior to giving “official” notice that the house is locked in for a certain tenant), then it is really imperative to choose the tenant that offers the best deal for the owner.
However, once official notice is given, I don’t believe it is ethical to offer the home to anyone else, regardless of the deal offered. The only way to supersede this is if the one tenant “buys out” the other in a separate negotiation. Money can make things happen!
So, if you asked to marry your fiancée, told her she was definitely “The One”, and gave her a ring, Miss Blue should be off limits. It may not be legally binding, but it’s the right thing to do.
Learn MoreCharlotte Property Management Weekly: The “Additional Security Deposit” Letter Exchange
Dear Property Manager,
I am very interested in the rental house you have listed! I think it will be perfect for our family. However, when you asked me for an additional month of security deposit, it made me concerned. Money doesn’t grow on trees these days and I thought the rental ad said you only needed one month down. We also have to come up with the first month’s rent and pet fees, so you’re talking about a pretty big sum already. I’ll be honest, I just don’t have it.
I explained our situation to you. The economy had turned against us, but we’re past it! My wife is employed again and getting you the rent will be no problem. Haven’t you ever had anything happen to you before? Have a heart! We’d take great care of the home, but just need the security deposit reduced. My business is booming so things will be fine! Don’t worry! You’ll get your money!
So what do you say? Can you help me out?
Sincerely,
Mr. Tenant
P.S. My wife thought you looked exquisite in your emerald blazer! It’s a bold move to wear it in 97 degree heat, if you ask me, but it’s better to look good than feel good, right?
Mr. Tenant,
Thank your wife for the kind words about my blazer. Typically they run the air conditioning at 40 below (so I try to stay prepared), but it didn’t work well when we moved outside. Emerald has sort of grown on me as I’ve gotten older. I think it complements my eyes, but opinions sometimes vary. You know, you make a call on the outfit every morning and sometimes you hit it out of the park and sometimes you whiff. Truth be told, I’d settle for hitting singles in the clothing department!
As for the request for additional security deposit monies, I understand your concern. Let me explain our rationale.
I understand you hit a rough spot a year ago; that happens. It’s obviously not just you; we see applications like this everyday. We also rent to a lot of people who have hit rough spots before! It’s not a deal-killer.
But there are other mitigating factors. Let’s look at your credit application and income. Your scores are obviously not good, but I’m not overly worried about that. There looks to be some recent 30-day late payments on power bills and cable. Your current landlord said that you had a few late payments as well during their lease (at an amount less than you would be paying now). You gave us your business bank statements to show your income, but it’s not clear how much of that actually makes it to you. This information collectively gives me pause about your financial condition.
My job as a property manager is to mitigate risk for our client, the owner of the home you want to rent. I personally think you would be a great tenant; anyone who compliments my wardrobe is good in my book! But if something happened to you that turned into a decent size expense, I can’t say with much certainty (with the information we have) that your lease wouldn’t be at risk. If an extra thousand dollar deposit is a deal-killer from your end, what would happen if your car stopped running next week? You obviously would need to fix that first to get to work. The owner of the home would be left waiting for their payment. And we wouldn’t be doing our job well.
If you have something that addresses these concerns, please send this information over so we can consider it! We make money by filling properties, so we want to approve you! We just have to protect our clients first.
I hope this letter clears the air. Thank you for your interest in our home and I hope we can work together in the future.
Sincerely,
Your Property Manager
P.S. On your suggestion, I’m wearing a short-sleeved cotton blend shirt today, no jacket. It feels good- thanks for the suggestion!
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