Charlotte Property Management Monthly: If You Can’t Sell, Rent: 3 Steps to Get a Great Tenant
Rental homes are in a full-on, undeniable uptrend! A recent real estate article headline blared, “Property Managers Set to Rule the World! 1.8M new tenants to enter the rental pool in the next two years.” Exciting stuff for us stodgy property managers!
While this leads to raised glasses (no plastic cups- they’re actual glass now!) in the property management industry, it is unwelcome news for homeowners trying to sell their homes. The math is easy to calculate: there is roughly the same amount of people moving into homes every year. So if 1.8 million more of them are now renting, there are 1.8 million less of them buying.
So people with homes they can’t personally live in anymore have to do something. The “selling the house and moving on” thing isn’t working for most due to an uncooperative real estate market. Some are letting their houses go back to the bank via the foreclosure route. It’s not a great option in terms of stress and credit damage, but it does solve the problem. Others are going the rental and rent-to-sell route to fill their homes. Some might argue that this is more stressful than the foreclosure route!
But why is it stressful? It boils down to one thing- the tenant. If you get a great tenant, they pay on time, care for your home, and don’t bother you. If you get a bad tenant, you never get paid on-time, enjoy a myriad of excuses for this non-payment, wind up in costly eviction proceedings, and are rewarded with a busted-up house at the end.
So how do you get a great tenant? Let’s define a great tenant first. They:
1. Pay on time and in full every month
2. Respect the home (aka like keeping it clean and undamaged)
3. Get along with the neighbors, the HOA, and you!
To get someone like this, there are 3 steps to follow:
1. Gather information: Order credit and criminal background checks, verify income and employment (request copies of the tenant’s last two paystubs and call the employer), and call the tenant’s past two landlords. You’ll want to ask the prospective tenant, employer, and past landlords as many questions as it takes to get a comfort level of what type of person wants to rent your home:
a. “Mr. Prospective Tenant, it is a pleasure to speak to you again! I never tire of your hilarious tales of amazing coincidences, which seem to be your hallmark. The honeymoon beach story with your two ex-wives somehow being on the same beach as you and your soon-to-be third ex-wife? Priceless! Now, why didn’t you pay your light bill in 2008? Why is there a collection account with Macy’s? What would your last landlord say about you?”
b. “Mr. Employer, if I may humbly ask, is Mr. X’s employment part-time, full-time, or contract work? How long has he been working there? Is he in good standing?”
c. “Mr. Landlord, your azure eyes must have been killing the ladies for years! At a risk of wasting your precious time with my inquiries that are so well beneath you, would you rent to this tenant again? Why or why not? How many times have they paid late? What did the house look like when they moved out? Is your superior intelligence a product of extensive domestic schooling, a plethora of renowned international boarding schools, or ‘Good Will Hunting’-like genetics?”
2. Analyze the data collected. Does the prospective tenant have stable employment? Do they make enough money to afford the rent and their other expenses realistically? What about if there is a slight bump, like a big car repair- can they still afford the home? Do they pay other people they commit to pay? What did their last landlord think of them? Would I feel unsafe renting to them if I had to give them bad news? Am I being overly optimistic about their merits or am I making a solid business decision?
3. Make the call. If they pass the smell test, approve them and move forward. If your gut is telling you to pass on their application, then pass! There is more than one fish in the sea.
There are many great tenants out there! Get a lot of data on the applicant, analyze it objectively, and make the decision on whether to approve them. It will work out most of the time!
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: Incentives: Knowing Why the Chicken Crossed the Road & Why Fees are Good
Q. Why did the chicken cross the road?
A. There was bird feed there
B. A coyote was chasing him
C. He saw a hot “chick” on the median
D. To get to the other side
Answer D is the response that makes this a legendary “joke” (somehow…). Answer D is also very incomplete. Everything happens for a reason; no one does things without some type of incentive being involved. I mean, the chicken wouldn’t care about getting to the other side if he didn’t have a reason to do so. What was its motivation? What was the incentive the chicken was pursuing? A, B, or C answers make much more sense to me in answering the “why” question! They address the chicken’s needs:
A. Hunger
B. Safety
C. Love (or lust)
In business, incentives usually mean money. If 90%+ of businesses fail for lack of cash flow (lack of money incentives), then the ones that survive make sure they are getting enough cash incentives from their customers. Obviously, this isn’t a one way street; the businesses are offering enough value in return so these payments are a win-win deal.
So now that is established, what can incentives tell you about a company? Some charge for certain services, some don’t. Why not just take the free services when they’re offered? Cheaper, especially in tough economies, seems like the best way to go. Right?
Well, incentives can be telling; company pricing and their fees can tell you what they believe they do well and what they don’t. So, in terms of getting great results, paying fees can be very important! Fees motivate companies to do what you want them to do.
Reading into incentives (aka company pricing) is interesting and generally informative. Let’s look at examples of this from real estate and other businesses:
1. When a tech company sells pricy software and then offers free support with it, I’d expect the software to be good and the support to have long hold times. If support costs extra money monthly and can be cancelled at any time, the support will probably be pretty good.
2. If you ask a friend to pet sit Fluffy as a free favor to you, your friend will probably be late and leave early; unfortunately, most friends will do the minimum required! If you hire the most expensive pet sitter in town, chances are Fluffy will be treated like Benji on a movie set.
3. If property management companies don’t charge you to sell homes under management, they are probably not going to actively seek to sell your home to the tenant.
4. If you offer your real estate agent 7% commission, they will probably be incented to work harder to sell your home. Many people will try to get their agent down to 5%, which is a complete misread of how incentives work.
5. If a property management company charges a huge sign-up fee, but very little for procuring a tenant and managing the property, chances are they will be very motivated to sign you up. They may be less motivated to procure the tenant and manage the property.
Generally-speaking, incentives (pricing) are an effective measure of the value that will be received for different services. A $5 chocolate bar should be better than a $1 bar. If you offer to pay one friend $50 to mow your loan and ask another to do it for free, guess which one you will see firing up his push mower first in your front yard?
So fees are good for consumers! If you don’t make sure you are utilizing proper incentives for service providers, you’ll never know when (or if) the chicken will actually cross the road.
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: Rental Home E-Harmony: What Tenant Is Perfect For Your Rental?
Dating web sites, like E-Harmony and Match.com, have grown in popularity and are apparently very effective; one in five people getting married met on-line, their advertising claims. That’s pretty good!
It can be even better for real estate. Many polls conclude that 90%+ of home searches begin on-line! Real estate web sites have the potential to be much better matchmakers!
But the real test of effectiveness is how many leases are consummated (for lack of a better word) from this on-line home matchmaking. And whether the landlords and tenants are happy with the union after move-in. Much like the 4 out of 5 people who don’t get married from the dating sites, sometimes it doesn’t work out between the landlords and tenants. Why not?
Maybe this matchmaking could be much more effective if there was a lot more honesty going on from both sides of the deal?
For example, on-line ads for homes tend to look like this regardless of what the home actually looks like:
Immaculate & cozy, this 3 BR / 2 BA stunner can make even the most choosy renter’s heart melt. Beautiful home with too many upgrades to count. Voted safest and best run neighborhood in Elmwood for 2 of the last 3 years (as reported by the Elmwood HOA Newsletter)! Priced attractively at $1,200/month and is sure to go fast!
And if the renter had an ad? It would read something like this:
Ideal tenants seek quiet abode for a loving family. Our 8 dogs are trained in Vienna (on Vienna Drive in Lincroft, NJ, it turns out…) and have never soiled a single fiber of carpet. Our rent is always paid on time and the only time the police come to our home is when we make them hot chocolate after they are done caroling in our neighborhood. We love our landlords and they love us!
But what is the truth? No tenants or landlords are filling out a 300-question survey where algorithms are going to match the tenant and house together. Each of them is going to claim that what they offer is top of the line, no matter what the real truth is. The problem for the landlord is that the tenant can see the home and make a determination if the rental ad is true, while the landlord must run an application and make a partially subjective decision on information gathered during the application process.
So how can landlords get the type of tenant they want? It really goes beyond the rental application. Much like dating is about being the mate that you want to attract, rental homes are the same way. What???
Generally-speaking, it’s a simple truth and goes like this:
If the rental house is in a safe area, priced economically, and immaculate, the chances rise exponentially that tenant it attracts will not be a criminal, be economical (buys things valued properly), and value cleanliness.
On the other hand, if the house is in a crime-ridden area, overpriced, and dirty, the tenant it attracts will more likely be involved in more shady dealings, spend recklessly (re: which may lead them into situations where they struggle to pay rent), and not care about the cleanliness of the home.
So, in practical terms, should the spots in the carpet be cleaned out prior to going to market? Yes, if the landlord wants a tenant who rents the home to care about spots on the carpet. What about cleaning the appliances? Only if the landlord cares about attracting tenants who care about clean appliances. Should the highest rent possible be asked for? Only if the landlord wants a tenant who doesn’t conduct research on their biggest expenditures which may signal their overall financial shakiness.
Much like humans, homes attract suitable mates. Good-looking people marry other good-looking people. Clean people rent clean houses. Financially responsible people don’t lock into overpriced rental homes.
What type of renter will your rental home naturally attract? Or more importantly, turn off?
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: 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: 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!
Learn MoreCharlotte 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: Too Many Repair Requests? 5 Methods To Stop The (Cash Flow) Bloodshed
As a property management company, we work to maximize the cash flow of our clients. Period. We don’t have a problem admitting that.
Sometimes things break in rental homes and that decreases the cash flow our clients receive. They don’t like it, and we don’t either. However, it is part of the game (pardon my street talk), so it is a necessary expense. Sometimes.
Normally if a repair policy is explained to tenants properly at the lease signing, there aren’t any problems. The landlord is responsible for operational issues; that is, if there isn’t any evidence of negligence by the tenant (if there is, the “Sorry if you smashed your toilet because your girlfriend dumped you for being volatile, but the bill goes to you…” message is sent). Then the easy stuff (changing light bulbs, air filters, etc.) is taken care of by the tenant. It’s simple stuff and everyone gets along grandly.
If the home is on the newer side and maintained, there just aren’t that many maintenance calls. Most people want their homes to operate properly (“hey, it’s nice to have the dryer dry clothes in less than 3 hours, so maybe I’ll clean the lint filter occasionally”), so they do the small things to keep it that way.
However, there are some tenants that seem to discover an awful lot of problems that they want the owner to fix. And when they are compared to other tenants, their identity becomes painfully obvious. The calls and the e-mails of their problems continue month-after-month. It gets to the point that everyone involved with managing the property has the tenant’s contact information memorized (“Oh, 704-xxx-xxxx? Mrs. X must be calling from work today.”) Sometimes, the repair requests are a string of bad luck and legitimate; often the tenant is trying to take advantage of the landlord’s altruism and is under the impression they don’t have to lift a finger because someone else will take care of them.
Repairs really hurt cash flow. But if the repairs aren’t done, unhappy tenants also hurt cash flow by trying to use their seemingly one point of leverage (holding back rent) to get what they want done. So what to do?
Before getting to some techniques to ward off unwarranted repair requests, I want to first iterate that almost all tenants (that I’ve worked with, at least) are reasonable with their repair requests. Most have busy lives and can’t be bothered will illegitimate claims. It’s not a huge problem on a whole. I find that doing the repairs that are requested builds trust and keeps everything running smoothly. So requested repairs should usually be done.
For the tenants that abuse the repair system, here are the top techniques to stop the illegitimate request flow:
1. Recalibrate expectations on repairs: Before the next repair is done, a meeting should be set with all principals on the lease. The purpose of the meeting (or call) is to reexamine the lease and go over exactly what is covered by the landlord and what is not. Also, it is probably time to schedule a walk-through of the house to make sure the maintenance agreement is being followed.
2. Alert the repair vendors that fraud is suspected: Vendors who visit the home should be put on alert. They can provide information about what claims are legitimate. If a claim is due to non-compliance with the maintenance agreement or rough play, the tenant needs to be billed for the issue, not the landlord!
3. Push back: If it was your house, what would you be calling a repairman fix, and what would you be doing yourself? That question is a good start to figuring out what repairs may be unnecessary for the landlord to cover.
4. Keep at code: The landlord is responsible, by law, to keep the rental home at building code. Nothing more. What is being requested beyond that?
5. Relocation: Maybe it’s worth asking the tenants if they would be more comfortable in someone else’s home?
Though this issue isn’t overly common, it can be uncommonly expensive and will continually siphon cash flow. If you find yourself signing over the monthly rent to the handyman month-after-month, it may be time to try something new!
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