Charlotte Property Management Weekly: The Cheap Rental Home Game: A Saga of Ups & Downs- 10 Tips for Survival
Cheap rental homes remind me of buying electronics off the street.
Street Urchin: “$50 Bucks! Flat screen television for $50! Why are you even thinking about it? This is a great deal- CHEEP!!”
My mind (definitely thinking about it): “Hmmm… I need a flat screen, but this thing is either stolen or a piece of garbage. But, if it’s not (and his uncle really died and bequeathed it to him), this is a great deal!”
My mouth: “OK, I’ll give you forty-five for it.”
This is the type of deal I see people making to buy homes for as little as $10K. It’s really a gamble, but can be a lucrative one if it works out. I mean, the ups can be great!
For example, a $20K house’s payments come to approximately $130/month (believe it or not, there are no HOA fees to worry about!). The home can rent for $400. That’s a positive cash flow of $270/month, which is not bad! With a $100K credit line, this could equal 5 homes. I like the math, $270 multiplied by five homes equals $1,350/month. That’s a monthly return of 13.5%. Oh yeah! So the flat screen works and works well! I’ve got a great television and an even better story of my tough negotiating tactics to match.
But then, there are the down times. The house is cheap and old, and things start breaking down. The tenants (savvy to the system) call the city’s code enforcement department, who find a lot more stuff that’s not at code. The landlord is required to fix them (or face fines) which eats into the return. Several of the tenants think that requests for rent are merely suggestions; they promise payment, but it never comes (even after thousands of dollars in repairs are done). Evicting them is a double-whammy as no rent is coming in and the attorney fees are going out. The house becomes vacant and vandals begin to smash windows; neighborhood kids start using the home as a party pad. After filing ineffective police report after police report, it’s clear that the police don’t want to be in the neighborhood unless absolutely necessary. Then again, neither does the landlord.
So now “you get what you pay for” begins to ring true. The flat screen has stopped working and has somehow completely shot the electric system of my condo. A detective from the police department has left a business card on my door. Unfortunately, I threw away my old television set (“Good riddance, 20th Century!” I said…) and am now forced to read a lot more.
So how do people make money off of cheap homes? Well, the margin is there so some savvy investors have figured it out. A guy I used to work with told me his system:
1. Thoroughly inspect to see what’s broken and on the verge of wearing out. Include this in the upfront cost of the home.
2. Leave the home broken up until someone moves in. Then repair it.
3. Never have carpet in the house; always use vinyl or a hard surface that cleans off well for flooring.
4. Get tenant referrals from good existing tenants
5. Find out when pay day is and show up in person on that day. Accept cash and carry a gun.
6. Find a handyman who lives in the community to take care of the needed maintenance/repairs.
7. Understand that evictions and losses are part of the game sometimes. There will rarely be months where something doesn’t happen. It’s not upsetting, it’s business.
8. The homes will probably never go up significantly in value and will be difficult to impossible to sell on the market. This is purely a cash flow play.
9. Buy these homes in bulk and spread the gains and losses across many homes.
10. Make enough cash flow to hire someone else to do the dangerous duties (aka visiting the properties).
Cheap homes are meant for the savvy investor with a system, not the guy looking for a deal on an inexpensive set on the street. A steel stomach doesn’t hurt either!
Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)
Learn MoreCharlotte Property Management Weekly: Is “Final Tenant Approval” Desirable For Landlords?
As I was thinking about this question the other day, I had a flashback to my high school history class. The first thing I learned from this trip down memory lane was that it is indeed possible to daydream about hours of daydreaming.
The second thing I learned was the strange applicability of our class’s discussion on democracy in regards to approving prospective tenant applications. The question was whether a true democracy (everyone makes the decisions) or a representative democracy (“experts” were voted in to make the decisions) was better.
The effectiveness of a true democracy was illustrated by a story that Aristotle told. It goes something like this:
You’re on a big cruise ship with 100 other passengers. Everything is going fine until it is clear a major storm is on the horizon. The ship is about to navigate a tight channel where it could easily be dashed upon the rocks if steered incorrectly. Any wrong move would spell imminent disaster for all the passengers. What to do?
A true democracy would offer a vote to everyone on the ship to determine which way to steer the rudder (“Raise your hand if you think we should steer right. Okay, after the final count of hands, the ‘Lefts’ have it.”). Aristotle said he’d prefer to rely on the captain and his crew to make that decision. This discourse lead to our founding fathers (many years later) settling on a representative democracy as America’s form of government; a true democracy sounds better, but wouldn’t work as well in practice. The captain, due to his experience and expertise, would know best.
Tenant selection is one of the most important duties a property manager performs for landlords. Tenants make or break (unfortunately, literally sometimes) a rental property. They will pay and treat the property well, or they won’t. Knowing who they are as people and their background greatly mitigates this risk. This is why the front end tenant screening by a property manager is so vital. And experience in tenant selection counts!
Some landlords want to be hands-on in this process. I don’t have an issue to this prior to going to market. But if the hands-on treatment is expected to go on for the duration of the tenant selection process, there is little need for a property manager. I would recommend posting a few rental ads and going the “do-it-yourself” route. This works for some people. It also (potentially) saves money, but greatly increases the risk.
It reminds me of my favorite all-time television show, 24. Kiefer Sutherland (Jack) would only try to bandage people with life-threatening injuries in the field if it was an absolute emergency. Most of the time he would just send them to CTU’s medical clinic for treatment. And, at no point did he ask Chloe (from CTU’s IT staff) to give him pointers on bandaging the wound. He trusted the professionals.
And so should landlords. “Final tenant approval” can be used as a cop-out by property managers. If things go south with a tenant, “final tenant approval” makes it very easy for the property manager to say, “Well, you gave final approval for the tenant we placed, so what happened isn’t really my fault.” I even sometimes see property management companies advertise this “feature”, making it appear to be desirable! All I can say is that if my sister died on the operating table and the doctor came to me and said, “You know, I asked you for “final removal approval” on which part of her organ to cut out… you said ‘OK’…” I would be incredulous! I mean, what do I know about medical procedures? Why would he ask me what to do? I’m paying for his expertise!
True democracy may sound good, but a representative democracy works much better in practice. Let the “final tenant approval” come from the expert you hired!
Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)
Learn MoreCharlotte Property Management Weekly: “Free” Repair Quotes on Rental Homes Can Cost You Money
Everyone wants to save money! But to what lengths (and for what) does it make sense to find “deals”? It really depends on the urgency level of the need. Here are three scenarios of high, middle, and no urgency:
High urgency (nurse): “Your daughter needs the heart transplant now! Do we have your consent? …I don’t know how much it costs, sir… it will be itemized on your bill later, I suppose… No, there is no AAA discount on this procedure… I’ve never seen a coupon like that- it looks like you typed up ‘50% OFF’ and then wrote ‘Group-On’ on top of it… No, I suppose we don’t want to lose your business to a competitor… We’re losing her!! Yes, we do validate parking.”
Middle urgency (property manager): “The house needs one bedroom painted, the carpets cleaned, and the outside power washed before we can put it on the market… You said you want 3 quotes per repair?”
No urgency (sales clerk at Best Buy): “The new iphone detachable screen is really cool! You’re a loser if you don’t get one! We only have 10 million of these left, but when they’re gone, we’ll call our factory in China to make more… $199 for a screen to put on top of your screen (that already works) is a bargain. This is as cheap as it gets (until next week when ‘Detachable Screen Mini’ comes out). There is no discount; it’s under $200 bucks already, man! Go to another store then! …Fine, don’t call me crying when you are shunned socially and professionally for your weak iphone accessorizing…”
So the point of these scenarios is to illustrate that “high urgency” scenarios need to be acted on immediately, with no time to haggle. And “no urgency” scenarios allow time to shop vendors for price; time is on your side (yes, it is)!
But what about “middle urgency” scenarios? We run into these sometimes when tenants move out and the rental home needs to go back on the market. Houses need to be repaired, and some landlords want to quote out every repair multiple times to get the lowest price. This sounds reasonable, even prudent. The repairs do need to be made in a reasonable time, but not tomorrow or next week. Time is on their side (yes, it is?) to get repair quotes. Right?
Well, it’s a “middle urgency” scenario (not a “no urgency” scenario) because there are other factors in play. Every investment home has some combination of costs that accrue every day it’s vacant: mortgage payments, HOA fees, lawn care, utilities, property taxes, etc. For easy math, let’s say these come to $900/month. $900 split into a 30-day month is $30/day. This is a very real cost; the meter is running daily.
For this example, let’s say the initial repair quote comes in at $500. After getting 3 quotes per repair item, the repair quote is whittled down to $400. Congratulations- that’s a 20% savings of $100!
But, wait, is it really? Getting those additional quotes took 10 days. 10 days of vacancy multiplied by 30 days equals $300. So, to save $100, it cost $300. The net loss is $200, plus all the time and headaches it took to coordinate vendors and sort through repair quotes.
Unfortunately, this is not the totality of the loss sometimes. Empty homes are risky! Talk to any police officer and ask them whether they have any problems with vacant rental homes being broken into in this economy. If this happens, stolen appliances and break-in damages escalate the costs upward substantially. Remember: the longer the home is vacant, the higher the risk.
“Free” repair quotes can cost a lot! Don’t over-quote yourself into a financial loss!
Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)
Learn MoreCharlotte Property Management Weekly: Tenant Stories Often Raise Red Flags
“If you have to ask how much it costs, you can’t afford it.” Maxim of the Wealthy
“If you have to ask for a payment plan for the home’s security deposit, you can’t afford it.” Maxim of the Intelligent
We are approached by potential renters a few times a month with something like the following:
“We love this house! We want to take it! We would call our lives “complete” if we could inhabit this home with our children! We get goose bumps just imagining the daily ingestion of pure beauty that permeates from each nook of this stunning domicile. We have the first month’s rent ready to put down now! Where do we bring it? We will treat this house like our very own with weekly carpet baths and loving dustings!
But… The only problem is that we are a little short on the security deposit. Will the owner accept breaking this payment into 3 months? Let the owners know we are good for it and I will be praying that they be blessed this Sunday at each of the church services we regularly attend.”
Thinking like a property manager, how many red flags come up in this beautiful soliloquy? A few come to my mind:
1. Lack of funds: I dare to call this the number one tenant screening technique; this is the collection of the application fee, pet fee, security deposit, and the first full month’s rent upfront and in full. This really is the number one way to find out if they have cash on hand. If they can pay it, they probably have money. If they can’t, they probably don’t and won’t apply.
2. Offer of the security deposit in a payment plan: This ties into red flag #1, but there is another issue. If they don’t pay it upfront, you are left with absolutely no leverage to get it after they move in. You can’t evict them because they are paying rent. Please don’t take payment plans! I’ve done it a few times (because it seems so easy and the tenants seem so sincere…), but they rarely keep up with them. Moving is always more expensive than they realize and cash was already short. They won’t give you the money simply because they don’t have to. They duped you on the front end and will now avoid your calls and hollow threats.
3. Effusive praise over a rental home: I like it that you like it, but let’s not go overboard. When you tell me that you’re going to take meticulous care of it, that’s great; but I’ve never had a tenant tell me that they were planning to systematically destroy their rental before moving in.
4. I like it that you’re into church: But I wonder why you’re telling me this when you’re applying for a rental home?
Red flags don’t mean you need to wave a white one. Be diligent in your screening process and the right tenant will come along!
Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)
Learn MoreCharlotte Property Management Weekly: Why Rent-To-Sell is “Hot, Hot, Hot” in Today’s Cold Real Estate Market
Q: Why do robbers rob banks?
A: Because that’s where the money is
Q: Why have home sellers shifted their vacant homes from “for sale” to “rent-to-sell”?
A: Because that’s where the future buyers are
It’s really that simple. I probably sound like a broken record, but I still see vacant homes trying to sell for full market prices. And it’s just not working. Let me repeat: it’s just not working.
My old economics professor always said that the lottery was a tax for people who didn’t pay attention in math class. He meant that the odds of winning are so astronomical that buying a ticket is just a waste of money.
In a way, I feel the same about most vacant homes. Let’s look at the math:
Find the number of houses that sold in your region last year (let’s call this number “X”). Now compare X with what the home sales numbers were annually in the past 5 years. X is comparatively low. That is obviously not good news for home sellers. Unfortunately, home sales have trended downward (and are expected to continue to do so).
Now take X and cut it in half. What? Unfortunately, half of X is distressed home sales (foreclosure, REO, short sale, etc.). This “half of X” gives us the true number of people who are now shopping for your home (if it is listed for sale at close to full value). That’s not good.
So the math is basically saying that there are way fewer (way, way, way fewer!) home buyers out there for houses that are not distressed.
Note: For non-math majors (and lottery enthusiasts), you can also gather this information informally; just ask “How’s the sale process going?” to anyone who has their non-distressed home currently on the market for sale. They may respond with a half-laugh, menacing glance, or a choice word (not a nice one).
Then ask anyone who is trying to get a home loan the same question. You’ll probably get a similar response.
So many vacant homes are for sale. And many buyers can’t get a loan to buy your house. How could a win-win situation be created here?
This is why the rent-to-sell method of home selling is hot. Or, if you prefer to stick with the old song, rent-to-sell is “hot, hot, hot.”
How does rent-to-sell work? Buyers, who can’t qualify for a loan now, rent your home for 1-3 years until they qualify. Then they buy it at market price when the real estate market has rebounded. This solves the problem of home sellers eating the mortgage on a vacant home every month and buyers not having a place to call their own.
Rent-to-sell can be a great solution to escape the cold, expensive reality of a vacant home that isn’t selling!
Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)
Learn MoreCharlotte Property Management Weekly: Why Your First 2 Weeks of Dating are Exactly Like the First 2 Weeks Your Rental is Listed
Early impressions can be very telling. In relationships, they can save you a lot of time and heartache.
For example, when you first start dating someone, the first 2 weeks really are pivotal. One really wrong move and it is over, right? So, it is important to pay attention and try to figure out how to stand out (in a good way…). It’s also important to figure out what they really think of you, as they usually won’t tell you outright. Do they think your nervous tic is endearing or pathetic? When you bring up your issues, are they full of concern or pity for you? Do they plan to keep you around or jettison you when something better comes along?
Here are some potential early impressions and what they really mean:
1. “She hasn’t laughed at any of my jokes. However, her over-the-top cackles at the 16-year old valet’s tasteless joke, and then the waiter’s corny repartee, seem to mean that she is straight-faced with me only. I think she cracked a smile when I told my tried-and-true “dog-napping” story (10-minutes of absolute hilarity, if you ask me), but it could have been a result of the 12 text messages she had sent and received during its duration.”
Translation: You are really unfunny (to her, at least) and she is seeking more entertaining companionship elsewhere. Save yourself money and abort this relationship (before she drives off with the valet).
2. She is mesmerized by my every word. She can recall what I said last week in the greatest detail. She tells me that I am the greatest at everything. When I was fired yesterday, she swore that was incontrovertible proof my company didn’t deserve me. She says I’m smart to keep a belly because the winter months are coming and it is actually “sexy.” Hollywood actors and models are “fake”; she likes me because I’m “real.” My annoying idiosyncrasies are “cute” and I’m “untraditionally handsome.”
Translation: Carpe Diem! She likes you. Strike while the iron is hot and lock her up while she is still in this momentary fog!
So, early impressions from dating are good indicators of relationship success. The same is true of the signs received from the first 2 weeks your home is on the rental market.
1. No one is responding to the rental ads about my home. If your home had feelings, it would be locked in a bedroom alone eating bon-bons and watching “Bridges Over Madison County” right now.
Translation: The home is priced too high, the pictures in the ad are either non-existent or awful, there is potentially no contact information contained in the ad, the ad copy is off-putting, or a combination of the above. Fix and repost the ad.
2. I’m getting a lot of showings, but no one is applying.
Translation: The home is either priced a little too high and/or its condition does not back up what is presented in the ad.
3. I’m getting deluged with showings and applications.
Good! But your home is probably priced too low.
4. Real estate agents don’t respond to my follow-up calls and e-mails after they show my home.
Translation: Your home does not back up what is in the ad; typically, it is dirty and might look like a college fraternity house or an early 1800’s boarding home. They are upset that they wasted their time (and gas) to visit your home and look bad in front of their clients.
5. Your home gets a decent amount of interest and a good application is submitted and accepted within 30 days.
Translation: Your home was priced and marketed appropriately. Bravo!
Though early impressions are never 100% full proof, they are usually on point. Paying attention to them and making adjustments early can save you a lot of headaches, heartache, and money!
Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)
Learn MoreCharlotte Property Management Weekly: #1 Way to Fill Rental Homes Quickly
As homes for sale sit and rentals continue to gain prominence in the residential real estate market across the country, concerned owners are wondering how to best fill their rental properties quickly. So are property managers.
“Everyday my house is empty costs me money! Besides the mortgage payment, it’s the other things that are absolutely killing me- utilities with this unusually cold and snowy winter, HOA dues rising, you name it. I need someone renting (or buying) my home!” is a common lament from homeowners with a vacant home on the market.
As a real estate investor and property manager in Charlotte, I feel your pain. I don’t like vacancies anymore than you. But there is a simple way to make your home attractive. And it addresses the most heard complaint, by far, that I hear about houses and why prospective tenants pass on them. And just what is this revelatory nugget?
Cleanliness. That’s it. Houses are typically not clean. Actually, it’s not that they are not clean technically. It’s that they are not clean enough. Prospective tenants want to see sparkle. They want to see their unblemished reflections coming off of stainless steel. They want to be able to eat off the floors. They want to lap cool spring water out of the toilets (well, I may be pushing it now…). The point is that they really like the houses to be much cleaner than they would normally keep them.
Recently, we switched to a different cleaning service that was more expensive. I would never think of adding expenses to our owner clients (especially in this economy), but I felt that our homes were not standing out as the rental market continued to get more and more crowded.
And it worked. I noticed our rate of conversions of visits to completed applications went up dramatically. This has gone on for months. Thorough, deep-cleaning was more effective than lowering the rental price. This has been especially effective for our rent-to-sell program where people want to fall in love with the house they are potentially buying.
I would challenge you to give it a try. When a house has been on the market for a while and has been getting visits (but no completed applications), resist the urge to lower the price and just pay the dollars to give the rental home a thorough scrubbing (or do it yourself, though I recommend professionals). See if it works!
Cleanliness is next to godliness, the saying goes. Reap the benefits of a shorter courting period with prospective tenants!
Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)
Learn MoreCharlotte Property Management Weekly: Groupons & Free Property Management
I’m a big (recent) fan of these “Groupons.” What a great deal for consumers! Groupons are like regular coupons, except on steroids; they offer discounts of 50%+ to use at local businesses. I am impressed and now a big supporter.
Early last week there was a groupon for one of the top restaurants in Charlotte offering $60 worth of food for $25. What a great deal! I bought one and used it the next night. It was as advertised; we ordered the food, got the check, and gave them the groupon coupon (I’m a poet and don’t even know it). They took $60 off the bill and we left without any police following.
As a consumer, I was pleased. Make that very, very pleased. However, as a business owner, my stomach turned. Why would this great restaurant agree to take such a huge price concession? Are these the type of patrons they want to attract? Why are they trying to compete on price? That’s for McDonalds and Wendy’s, for crying out loud!
I always came from the school of marketing that believed that business differentiation is achieved on 3 playing fields: quality, customer service, and price. As a business, you pick the two you want to be good at. Most (sustainable) businesses are very good at one, few are very good at two, and none are very good at three. It’s impossible to do; I challenge you to name one business that competes at all 3 (customer service, quality, and price) very well. This is what this great restaurant was trying to do (albeit it was a promotion and not normal business operations)!
I’ve seen a similar promotional tool offering months of free property management for new customers. I can certainly understand the logic as we (supposively) are in a “new normal” that everyone is talking about. Customers are price conscious and free is always better than paying, right? So most customers will gravitate towards this type of deal; it’s just like the groupon I loved, right? Or is it different?
I would argue that good property management is much different than having a meal in a nice restaurant. Sure, discounts on both are nice. But you can eat at a restaurant and leave after paying for the meal, no strings are attached. The restaurant knows that you will only come back (and pay their regular prices!) if you really enjoyed their food, staff, and overall experience. If there is some bite-back of any kind (aka food poisoning), you would never come back.
However, with free property management, you are signing a minimum of a one-year contract. You are like the Huey Lewis song, “Happy to be stuck with you.” But it’s fine because you’re not paying anything, right? Well, that’s true for the first few months anyway. Or is it? What about if the property management company does something that costs you a bunch of money, like places a destructive, non-paying tenant into your home? Then the few hundred dollars of savings from “free” property management won’t be so free. Costs of eviction, non-payment, and fix-up can really add up!
The point is that if the property management company you are looking into is offering you months of free property management (or other “groupon-like” discounts), you may want to look at what that means to their quality and customer service. No company is good at all three, and quality and customer service cost money to implement and execute! Good people are not cheap! And relationships bought cheaply are usually just that.
Saving money is great on one-time deals, like buying a great, name-brand shirt or an expensive meal from a great restaurant! But be wary when saving a few bucks initially means entering into a long-term, contractual relationship!
Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)
Learn MoreCharlotte Property Management Weekly: Your Rental Home Wants You to Wait Until It’s Ready
Every client we’ve ever had has wanted as little vacancy time for their rental as possible. Zero days are optimal; every day after zero winds up costing them money in utilities, mortgage payments, and maintenance. Not wanting to lose any money leads to a mentality of getting the home on the market as soon as possible, regardless of condition and resident situation.
So some clients want us to put their homes on the market prior to them being ready for occupancy. What I mean by this is that the home has not been completely repaired and there are still personal items in the house. They (or their current tenants) also are within the process of moving.
The rationale, by itself, is sound. The greater the length of time the house is on the market, the greater amount of potential tenants that can see it. If more potential renters see it, the law of large numbers would dictate that someone at some point would love it and want it.
However, does this really work? I would argue it doesn’t. Huh? Why’s that? Isn’t it common sense?
Simply, the American consumer’s mind works differently now. There is an inundation of information being flung at them on a constant basis. Most of it is ignored; however, there are some marketing messages that get through (like a rental listing). If the consumer takes the time and makes an inquiry to visit the property, there is typically one shot to get them. Their attention span is limited.
This one shot means that the house has to look perfect. This visit needs to conclude with the prospective tenant loving the house. If they see or feel something they don’t like, it will probably turn them off and they will want to find another home. And there are many other rental houses on the market that look very similar. The competition is fierce!
So why does this matter? Maybe the diamonds in the rough that aren’t turned off by the home’s uncleanliness will be unearthed and they’ll take it. It’s certainly possible. But are renters who don’t care about the condition of the home desirable? If so, there may be disappointment when move-out time arrives and the home doesn’t look so great. Clean people typically want clean homes.
The other main reason is that once the marketing of the property begins, momentum is started. The rental is on the top of all the searches from rental websites, people who are waiting for a rental are told about it by their property managers, and it is fresh. This is when things typically happen for an average rental home- the first two weeks. Interested calls, inquiring e-mails, and subsequent showings come quickly. They need to be harnessed and converted into applications and security deposits.
But when the rental house isn’t up to the task, momentum is stunted. Interested, potential renters see the property in less than ideal shape and compare it to better kept homes on the market. The home loses out. Or the current tenant in the home is packing boxes to move and glares at the renter who is interrupting their evening after work. The house looks horrible and the vibe is bad. Potential renters flee to the next home. Can you blame them?
With rental homes, it’s more about quality time on the market and less about total time. Make sure the rental home is ready and most inviting when the most people want to look at it!
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!)
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Charlotte Property Management Weekly: 3 Approaches to Fixing Up a Rental Home
We sometimes take over management of homes that have been treated in, diplomatically-speaking, less than desired regard. It’s frustrating for the owners (and the property management company), especially in difficult economic times when cash is scarce.
The purpose of this article is not to talk about the root cause of this destruction (usually poor tenant screening), but rather the options available when faced with a rental home in bad shape.
It comes down to 3 potential approaches:
- Total Fix-Up: This is when everything is fixed so the home is in tip-top shape. New carpet, new paint, new everything! The upside to this approach is that the home will command top rent and a top tenant, while the downside is that it will demand top dollar to be spent by the owner. ROI on a 1-year rental with this approach is debatable.
- Partial Fix-Up: This is when the most pressing demands of the house are met. The house is cleaned well, the walls are touched up with paint, and the carpet is steam-cleaned. The goal is to make the house look like a good rental, not a show home. The upside to this approach is that it is much less expensive and will entice a good renter, while the downside is that it will not command top rent and the tenant will usually not be a neat-freak (we love neat freaks!!).
- No Fix-Up: This is when the home goes to market “as is.” Little to nothing is done to fix the home aesthetically and the tenant is asked to “have an open mind” and the property is listed as a “handyman’s special.” The upside to this approach is that repair costs are low and the home can be put on the market immediately. The downside is tough. Rents have to be lowered considerably, the quality of tenant suffers, and the house will be in even worse shape (think catastrophic) when the tenant moves out (evicted or otherwise).
So which is the best approach? The answer is the universal response in business school to any question- “it depends.” At different times and situations, each approach is appropriate. Many times this answer is dictated by finances. I mean, if you have no extra money, you are forced to use approach #3, right? And if your rental home has gotten to the point that it is absolutely disgusting, you probably have to opt for approach #1 at some point.
Generally-speaking, I’m a fan of approach #2. I try to stretch #2 as long as possible before I’m faced with the decision that the house has to go to approach #1 (or #3). Once I’m at that point, my preference is approach #1 (if finances allow).
The approach chosen for home fix-ups is a huge component on their ROI. One size does not fit all (as some are wont to do). Choose carefully (and profitably!)!
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 More