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!
Learn MoreShould I Sell My Rental Home?
From the mail bag… (aka a question I may have made up to write about)
Q: I have a few occupied rental homes and wonder if I should sell one of them now that the market seems to be improving. What are your thoughts?
- Oh, this is a surprising question from left field! And a great one! Kudos to you, mighty thinker!
It is a tough decision on whether to unload a rental property. If you decide it may be time to do so, the first thing is to establish whether you can by asking 4 questions:
- What is the realistic value of my property? Have your trusted real estate advisor run sales comparables and put your home’s value at the low end of the range for estimating purposes.
- How much will it cost to get my property in sales shape? In my opinion, there is a difference between getting a home in rental shape and sales shape. With a rental, you may get away with steam cleaning the carpet and touching-up the paint; with sales, there is a lower threshold for cosmetic issues which may mean replacing the carpet and repainting the house.
- Do I have the money to cover the mortgage and utilities while the rental home potentially sits vacant for months? Generally-speaking, showing a home effectively with tenants in it is tough.
- Do you have the money to pay the selling costs (Realtor fees, closing costs, less than full market offer, etc.)?
So, the math looks like:
Answer #1 – Answers #2, 3, and 4 = $$ (hopefully a BIG, positive number)
Then the question is: Is $$ above worth selling the property for?
If so, do it. If not, continue to hold the rental until the market and your mortgage balance improves further.
However, there is a scenario that skews the math and lets you skip cost items #2 (home cosmetic fix-up) and #3 (home vacancy costs), and eliminate or reduce #4 (selling costs in terms of Realtor fees)…
- OK, I’ll bite. What is the scenario?
- When the tenants in your rental home want to buy it for themselves.
This is the #1 question to ask if you think you may want to sell your rental homes. ALWAYS ask the tenants first. If they do want to buy it, get them in touch with a mortgage broker and see if they qualify.
If they qualify, this is a win-win exit strategy. The tenants get to start building equity in a home that they already love. And you, the owner, get to avoid much of the costs and uncertainty of selling your rental home.
And what if the tenants proactively ask you if you are willing to sell your rental home to them when you’re not quite sure you are ready? You want to think REALLY long and hard about it. These opportunities don’t come up that often and you need to make sure that it is something you really don’t want to do.
Cash is king and the purpose of investments is to make money. Two well-worn adages come to mind:
A bird in the hand is worth two in the bush.
AND
Buy low, sell high!
Happy investing!
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 MoreCharlotte Property Management Monthly: Should I Even Bother to Try to Sell My House in this Market?
This is a question that I was posed on a call last week. For property managers, this is a no-brainer, right? It’s like any buying question to a salesperson in any industry:
Question from prospective client:
Do I need a haircut?
Barber:
Absolutely.
Question from prospective client:
Do I need insurance coverage for (fill in the blank)?
Answer from insurance agent:
Absolutely. If your family’s (fill in the blank) is important, it would potentially be devastating to live without it.
Question from potential client:
Can my house sell in this market? It didn’t with the past 2 real estate agents I used.
Answer from real estate agent (straight faced without blinking):
Absolutely! My team has a 10-point marketing plan that can sell any house in any market*!
* With a nominal 50% price reduction
So back to the original question:
Should someone even bother to try to sell their house in this market?
My answer:
It depends.
Depends on what?
You should try to sell your home if you:
1. Are living in the house and don’t have to move
2. Have a clean tenant who is amenable to showings
3. Have a unique house (be honest!) that is desirable in any market
4. Are able to afford to price the house competitively (aka on the low end)
5. Are willing to gamble and eat the rent every month and wait for a buyer who might or might not come
My answer to not bother putting the house on the market for sale is under the following conditions:
1. There are several foreclosures and short sales active in your home’s subdivision
2. You can’t afford to or don’t want to drastically discount your home price
3. The home is vacant and #3, #4, and/or #5 above don’t apply to you
4. Neighbors’ homes that are priced around the level you want to sell yours for are sitting
The simple truth is that the buy & sell real estate market is continuing on a sharp downtrend with no end in sight, while the rental market is on a sharp uptrend. Everyone still needs a place to live, but the banks are not willing to lend to less than perfect borrowers. This leads to a surplus of rental and rent-to-own tenants, and a dearth of buyers. So the question is if it is better to go fishing at the small pond stocked with thousands of fish or the big pond with 25?
Whether it still makes sense to list your home for sale really depends on your answers to the questions above. Truthfully, for most people, the best financial option is to stay put in their home. But going straight to the rental or rent-to-sell market is best for people who are:
1. In a time crunch
2. Need to move
3. Can’t or don’t want to afford 2 mortgage payments
Often, it just doesn’t make sense to put the home on the market for sale. It’s an exercise in futility and costs a good deal of money. It’s like asking out the head cheerleader to the prom when you know you are going to wind up going with Suzy next door anyway. You might as well cut to the chase and save yourself the time, expense, and effort.
That being said, one size never fits all. Determine what criteria above fit your situation and act accordingly!
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: Property Management Owner’s Dilemma: Get Bigger, Stay the Same, or Sell Out?
“There are only two directions; you’re either growing or you’re dying. There ain’t no third direction.” (Tommy Callaghan, Sr. in “Tommy Boy”)
Business is a funny thing; one is never allowed to be satisfied. If you start a company, grow it, and begin to cash flow it, then that’s good, right? Isn’t that the idea? I thought it was, at least.
However, it really isn’t if you read the news, watch television, or attend any business group meetings. The things that people want to talk about are:
1. What are your growth figures in terms of revenue? Projected out to 2015?
2. Is your social media and digital strategy sound? Have you made the time and financial investments?
3. Have you thought about geographical expansion? Franchise? Office openings?
And on and on and on. There apparently isn’t any downtime allowed! If you sit pat, you’re destined to fail. You must reach for the stars of worldwide domination! The purpose of making money is to reinvest it! Get on it! Get bigger! Now!
So rapid growth is left as the only option, unless you want to be considered a “burned-out” property manager. If you choose to pursue slower, organic growth, you can be called “uninspired”, a “non-visionary”, and lazy. No one writes articles on business people who stay the course! Those stories got chopped out early in the editing room. But despite many loud naysayers to the contrary, staying the same is certainly a very viable option. It’s just the “keeping on, keeping on” strategy. Nothing is wrong with that!
But what about if you really are “uninspired” now? You are burned out! You are a property management company owner (or real estate agent) who doesn’t want to deal with the business anymore. You are looking to get out and sell out. How would you do this?
You could hire a business broker to find someone who wants to add property management to their real estate brokerage company, or just wants to own a stand-alone property management company. These instances are pretty rare and the business broker would truly be earning their money if they found someone who will buy your smaller firm (under $1M in revenues)!
What is more likely is that you would sell your management accounts to another property management firm. For example, I received a letter the other day from one of the largest property managers in town; this letter was undoubtedly sent to every property management company in the area. The letter asked to buy up the property management accounts we had.
In mergers & acquisitions speak, they were utilizing a typical roll-up strategy of buying up every smaller company in the area to accelerate their growth. They had no interest in our systems or procedures; they just wanted to throw our management clients into their management machine. This would be a fast way for them to grow rapidly. It also would be a quick way for “uninspired” property managers to get out of the business and make some quick money off of their company. A true win-win? Possibly!
To grow, stay, or go- it’s a personal decision that shouldn’t be the result of other’s expectations. There are options available no matter what you and your company’s strategy is!
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: Lessons Learned from Holding Expensive Rental Homes Way Too Long: Why 1 -5 Years is Ideal
I wanted to share a dilemma I’ve had with an expensive rental home I’ve kept. But before I start, a good place to begin is my overall philosophy on “expensive versus cheaper rental homes”:
Expensive rental homes are ideal and appreciate greatly (cha-ching!!) in rising real estate markets, yet are more expensive to maintain, cash flow every month, and pay the mortgage during vacancies. Cheaper rentals are the opposite; they don’t tend to go up in value much, but are much cheaper to fix up, maintain, and positive cash flow every month.
And without further ado, here’s my personal tale of dealing with my big, expensive rental home:
It is a really nice home! When the economy and real estate market were soaring, my paper net worth (cue laughter) was awesome! Comparable sales in the subdivision kept going up which made me look like a genius with my home investment (I bought a pre-foreclosure at a great discount).
As a property manager, I put this home up for rent-to-sell and rental to a number of tenants over the years. The cash flow more than covered the mortgage and I was pretty happy with myself. The tenants kept the home in relatively good condition so maintenance and upkeep was minimal. I was living the real estate high life as prices in the subdivision continued to go up, and up, and up!
However, there was always normal “wear and tear” on the property. And as the years rolled by and tenants moved-in and out, the minor damages started to add up. Then it came to a point when I realized that the home needed to be updated, as tenants and buyers started turning their noses at it when it went on the market. So I mentally knew it was probably time to pay the piper; unfortunately, the costs started disturbingly revealing themselves (new paint, new carpet, new appliances, etc.). For larger homes like this one, it became clear that real money ($10-$20K) would need to be expended. What wasn’t clear was where this money was supposed to come from.
In a down economy, the expensive home becomes a weight wrapped around your neck; it’s much like the old Mighty Mouse cartoons where every episode had someone (something?) locked in a weighted treasure, sinking to the bottom of the ocean (of financial ruin). It’s tough! The clear answer is to sell the home, but stomaching the “investment” of all of this money to fix it up, waiting months (minimum) before it is sold at a depressed price, while paying the (expensive) mortgage every month is certainly not ideal. It’s also a question of remaining solvent while this selling process drags on.
That’s life, right? Suck it up! But maybe there are some lessons to be learned from this experience when buying an expensive investment home:
- Always buy at a significant discount (preferably in a down economy, like now)
- Target to sell it in 1-5 years, or before a significant fix-up investment is required
- Selling it should be the ultimate, short-term goal. First, try to flip it if it is feasible. If it’s not, try the rent-to-sell method of selling (placing a rent-to-own tenant into the property who is targeted to buy it in 1-3 years); sell it to them, or put it on the market when they move out.
- Don’t be greedy. Making money instantly is better than losing money perpetually.
Buy low, sell high, and don’t get caught fixing up expensive homes! Keeping cheaper rental homes for long-term investments is less risky, less stressful, and easier on the wallet in the long-term; use expensive rentals for a short-term (1-5 years) bounce in income.
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: 2011 Should Be a Fun Year to Work in Real Estate! Really.
“What?? Are you crazy? Is moonshine still a big draw in Charlotte?” you may say.
Sure, I’ve read the news and understand the dire straits the housing market is in. And, no, there is no gold rush (that I’m aware of…) coming to Charlotte; we’re getting hammered like everyone else. My reaction is just based on the sheer need of buyers and sellers to transact real estate and what that means to real estate professionals.
Pat Riley, the legendary professional basketball coach, used to tell a story to his players before big games. He would talk about a small, blue-collar company filled with 9-5 workers; they would clock in, clock out, and never really form any real relationships with each other. Every day was filled with just going through the motions to earn a paycheck.
Then one day, it was announced that their company had won the bid to send the first rocket to the moon. And then, something strange happened. The largely unmotivated workers started coming to the office early and leaving late. They would meet up together after work and really started to get to know each other. Close relationships began to form.
At this point in the story, Riley would look his team in the eye and say, “You know why? They just wanted to make history.”
I tell this story because what is happening in real estate right now is historic. The gigantic number of buyers and sellers facing severe sales issues has never been seen before. But great problems create great opportunities. Innovation is always fostered in such situations.
And that sort of makes it fun if you care about learning in this profession. Things could be normal and the real estate business would have its usual flow of sales. Life would be fine and things would be controlled and steady. Yawn. And yawn.
Or there could be a broken market, problems abounding, millions of customers desperate for new ways to solve old problems, an industry in need of fresh innovation, and people open to trying anything that sounds like it has a chance of working. Billions upon billions of dollars and assets are ready to be disbursed to whoever can come up with the killer idea to fix overall market liquidity. And this idea can be thought up and disseminated from your computer, wherever you live, right now. That’s exciting!
And fun! Here’s wishing a profitable (and innovative) 2011 to you all. Thanks for reading!
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: Mr. Smith’s Appointment Implies Real Estate’s Future is in Rent-To-Own & Rent-To-Sell
“Since they collapsed into conservatorship in September 2008, Fannie and Freddie have received $151 billion in taxpayer assistance. More will certainly be needed.”
“If this Mr. Smith goes to Washington as head of FHFA (Federal Housing Finance Agency), he will face a monumental challenge at a crucial time: how to protect taxpayers from even greater losses incurred by Fannie and Freddie.”
(Gretchen Morgenson in this week’s NY Times)
So, it looks like NC’s own Joseph Smith, Jr. will be tapped to run the FHFA. Big deal! Somebody’s got to do it, right? And when you’re looking for employment, the government seems to be the only people hiring, so it’s a logical step for him.
Who is this guy? I really have no idea. He’s been in the papers recently due to this appointment; all of the articles about him say that he has a reputation as “friend and rugged defender of the taxpayer.” I pay taxes so that sounds okay to me.
He is taking over an agency that is losing roughly $6B A MONTH over the past 27 months! Obviously, this agency has to be part of the government because after the first $18B loss quarter (or $72B loss year), it would be tough to keep his job in the private sector.
Anyway, what does his appointment mean? Let’s play his first day on the job out.
The first thing Mr. Smith does on his first day of work is ask his new secretary where the bathroom is and how many vacation days he has a year (everyone knows you can’t ask this in the interview!). The second thing he does is call his top guys and ask them how the heck they are losing so much taxpayer money. Their answers probably can be succinctly summarized into one statement, “We guaranteed a lot of bad loans to people who were not qualified enough to have them.”
Mr. Smith rubs his chin and says, “So, going forward, we should probably start only guaranteeing loans to more qualified people, right?” As his top lieutenants vigorously nod ascent and genuflect, he dismisses them from the room. “Sorry fellas, gotta go. It’s time for me to take it street-side and hug some oppressed taxpayers.”
His lieutenants quickly gather and surmise that “more qualified” probably means that Mr. Smith is saying FHFA needs to require “higher credit scores and down payments for loan applicants.” They pat themselves on the back for this revelation and scan the Washington Post to see what new DC restaurants would be good for lunch.
Back on Main Street, “more qualified” means a lot more people won’t be able to get loans to buy homes. It also means that a lot more people won’t be able to sell their homes (it takes two to tango, right?). And, furthermore, it means that real estate agents need to get used to doing even less brokerage business.
So all real estate agents need to pick up their equipment and go home? Hardly! Consumers still need to be able to transact real estate; the last time I checked, people are still marrying, divorcing, transferring, investing, having kids, sending kids into the real world, etc. They need to be able to acquire and dispose of homes.
The opportunity for real estate agents in the next few years will be placing potential buyers (who can’t get a loan now) into homes they will buy when they qualify for one; this means setting up rent-to-own (aka lease option or lease purchase) transactions. On the same token, it means opening up listings of vacant homes to rent-to-own tenants (also known as “rent-to-sell”).
Mr. Smith will be doing everything he can to stem massive loan losses. He is implicitly communicating to the real estate community that rent-to-own and rent-to-sell transactions will be the way to help customers achieve their goals over the next few years.
Will you change your business accordingly?
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: Wouldn’t You Want the Market to Know Your Rental is For Sale?
However, in an increasingly illiquid market, most wanna-be sellers are turning to the rental market to decrease the short-term pain of monthly payments on their vacant homes. What they really want to do is sell (and not of the short variety).
Learn MoreCharlotte Property Management Weekly: Rent-To-Own- A Great Lead Generator for Traditional Brokerage!
During the webinar, the host asked the presenters what percentage of their company’s revenues came from lease options. The other presenter quickly answered, “100%.” I thought about it and said “15-20%”; afterwards, I felt like a fraud. Why was I asked to participate as a “lease option expert” when 80-85% of my company’s revenues derived from elsewhere?
Learn More