Brett Furniss Tag

Don’t Be a Desperate Housewife (or Landlord), Just Push the Right Buttons

“Desperate times call for desperate measures.”

Hippocrates

Typing the word “desperate” makes me think of the old TV show, Desperate Housewives.  The story centered on four suburban women who were neighbors.  They found themselves making risky choices in order to look good, be fulfilled, and live the lives they thought would make them happiest.  This made their lives hectic and drama-filled.  And it also made it one of the most successful shows on TV for its 8-year run.

However, no one really wants to live the way they did; it may be entertaining to watch, but it’s not peaceful.  Desperate is not desirable.

Desperation can elicit hopelessness and cause knee-jerk reactions:

I never think anyone is going to marry me!  So I’ll lower my standards and date anyone and try to make it fit. 

I don’t have any money and lots of debt.  I’ll rob a bank.

We need to win a championship this year or the fan base will be calling for my head.  I’ll trade away future draft picks, get a marginally better player now, and hope it works out.

We see it in all walks of life in many different situations.  Desperate situations make people feel that they have little choice but to make hasty and risky decisions.  And these decisions generate results that usually share one common trait- they are poor.

For landlords, they typically begin to feel desperate when their rental properties are vacant and they need tenants to move-in and start paying rent.  Things look bleak as time rolls by and there has been:

1. Financial bleeding: mortgage payment, management costs, utilities, lawn mowing
2. Vandalism and/or squatting while vacant
3. Only substandard applicants applying

It’s tough.  There is pressure on landlords to accept the first person that has the deposit and first month’s rent to put down.  “Just move in quickly, please!!  We need this off the market to get the rent coming in!”

As a Charlotte property manager, we are not immune to this either.  We get some version of this at times:

Aren’t you the professional??  Why is my property empty? What does your marketing look like?  It doesn’t seem to be working, bud!!  I could do better than this myself!

Desperation can take hold… And it takes discipline to stick to the fundamentals and not succumb to the pressure.

When a property has sat on the market for longer than expected, the key is not to panic!  Slow down, take a breath, and push the right buttons:

If there are no showings of the property:

1. Double-check the marketing, add/replace pictures, make sure the home is coming up in on-line searches.  Then see if any showings happen.  If not, go to step #2.
2. The price is too high.  Lower it ASAP.  Prospective applicants are not seeing the value on-line versus other homes.

If showings are being generated:

1. Ask people who have seen it why they are not filling out an application.  It will usually come down to some cosmetic issue.  Take care of the issue!  Note: Some “cosmetic issues” are personal preference- if it is not a major flaw and only one or two people comment on it, it might not make sense to address it if it is costly.  If almost everyone mentions it, it either needs to be fixed or the price needs to be lowered (or both).

I remember we had a large house on the market that “desperately” needed work.  We did not want to pay for it (it was going to cost a lot to get to market shape) and we were hoping we could slide by with one more rental cycle before ordering the major (cosmetic) fix-up.  We went a few months with several showings, but no approvable renters from those who filled out an application.  Most non-applicants who visited the home cited a few issues they wanted addressed.  What to do?

The easiest way path is to give in to the desperation, roll the dice, and approve a risky tenant.  In contrast, experienced landlords will reject substandard tenants, double-check the marketing, fix any reasonable home repair issues, and lower the price.  It’s better to wish you had a tenant than wish you didn’t.

Don’t fall for the feeling of desperation and press the panic button!  Stick to the fundamentals and your future self will thank you for dodging the money/time/emotional sinkhole of the eviction process.  Don’t let yourself become another desperate resident of Wisteria Lane!

Happy Landlording!

Is Signing Zion Williamson a Worthy Tenant Placement Strategy?

“Therefore everyone who hears these words of mine and puts them into practice is like a wise man who built his house on the rock. ²⁵ The rain came down, the streams rose, and the winds blew and beat against that house; yet it did not fall, because it had its foundation on the rock. ²⁶ But everyone who hears these words of mine and does not put them into practice is like a foolish man who built his house on sand. ²⁷ The rain came down, the streams rose, and the winds blew and beat against that house, and it fell with a great crash.”

(Jesus Christ in Matthew 7:24-27)

“…(Zion) Williamson and the team quickly agreed on a five-year rookie max extension worth at least $193 million. The new deal will kick in at the start of the 2023-24 season, and the figure could rise to $231 million if Williamson makes an All-NBA team or wins a major award next season. The No. 1 overall pick in 2019, Williamson’s career has been plagued by injuries and concerns about his conditioning. He missed nearly his entire rookie season after undergoing knee surgery, was shut down early in his second season with a broken finger and did not play at all last season due to a broken foot that required surgery and did not heal as quickly as expected. 

When he has been on the floor, he’s been spectacular. In his second season, when he played 61 games, he averaged 27 points, 7.2 rebounds and 3.7 assists per game while shooting 61.1 percent from the field, and was named an All-Star. All of which is why, despite his injury history, the Pelicans were eager to extend him as soon as possible. At the same time, giving $193 million to a player who has been on the court just 85 times is a risky proposition.”

(Jack Maloney in CBSSports.com 7/29/22)

As stated above by Mr. Maloney, when Zion Williamson is healthy, he is a spectacular basketball player loaded with potential.  With experience, he could even be much better!

If Zion was a healthy tenant, he’d be the dream of any landlord.  He’d be paying above market rent, he’d keep the place spotless, the rent would come in early each month, and there would never be any outside complaints about him.  He’d maintain the property flawlessly and even take care of minor repairs on his own (and on his own dime!).  His uncle would be a world-class handyman who loved to stop in and help his nephew out with some free repairs and upgrades from time-to-time.  He’d kick some courtside tickets to his favorite Charlotte property manager when the Pelicans came in to play the Hornets.  And, to boot, Zion would love the house and want to rent it forever.

Cash flow heaven!

But what if, as his application suggested could happen, he got hurt and lost his job?  Things could start going downhill quickly for Mr. Williamson (and his landlord):

Rent?  Late and not paid in full.  Eviction is probably required (NBA tickets now nixed)

Repairs/Maintenance? Not up to it

Outside Complaints? The lawn guy who is not getting paid stops the service.  Air filters are too expensive now.  The HOA and City are up in arms and threatening fines.

His Beloved Uncle? Now that Zion is hurt again, he doesn’t seem to come around…

But Zion?  He still wants to stay in the house forever!

As a property manager in Charlotte, we get rental applications from people similar to Zion.  They have a lot of potential and are willing to pay top rent, but their rental screenings show that they are susceptible to bad stretches of luck (which made some of their past tenancies bad landlord experiences…).  The question is: are they just isolated events in their lives or a pattern?  Is Zion Williamson going to continue to miss seasons with injuries or will he turn the corner?  It’s impossible to predict.  The New Orleans Pelicans apparently believe he will be healthy as evidenced by them handing him a $193M guaranteed contract.

So is the high risk, high reward strategy a good or bad one?  I believe it depends who the landlords are and whether they can financially handle the downside.

Example: The institutional investors who have bought up thousands of houses in Charlotte seemed to have embraced the high-risk strategy.  They list their rental homes for above market rent and then accept risky tenants who are willing to pay.  Does it pan out?  Well, I had read something that said one of the institutional investors had a 25% eviction rate; that’s super high (bad!).  It also means that 75% of their tenants were able to pay the above market rent to them monthly (good!).  So spread over enough houses, the excess rent may be able to pay for the evicted houses that face no incoming rent, court costs, and needed repairs.  The math could work, even in their favor(!), when factoring in that they probably have faster tenant placement times due to less stringent tenant screening.

However, we work mostly with smaller investor-landlords (the “Mom-and-Pops”), where this strategy wouldn’t work well.  One bad tenant could destroy their profit for the year, let alone two of them.  We need “build on the rock” tenants, not “sand” tenants, because our property management clients need them to hold up in storms.  So that has been the strategy that we have used.  It requires more stringent tenant screening and sometimes a longer placement time.  But we will feel it is the wise strategy for our particular client base.

Zion is a great, generational basketball talent and all basketball fans want him to get healthy so they can enjoy watching him play.  But not all landlords can afford to risk $193M to find out if he’ll even be on the court.  Pick your tenant placement strategy accordingly!

Happy Landlording!

Steve Martin, Roxanne & Tenant Identity Issues

In the timeless appeal of romantic comedies, one of the tried-and-true story lines is the ugly guy who tries to get the really beautiful girl who is out of his league.  I was thinking of the movie, Roxanne (with Steve Martin and Daryl Hannah), and realized bringing up that reference was probably on par with bringing up Ben-Hur with Charleston Heston at this point- it’s like how long ago was that???  But humor me…

In Roxanne, Darryl Hannah is the beautiful bombshell and Steve Martin is the smitten, huge-nosed fire chief who does not feel worthy to pursue her.  A much better-looking, witless firefighter expresses interest in Hannah and Martin decides to help him; he gives him romantic ideas and poetic things to say to woo her.  Hannah loves it and the romance is on.  Of course, the subterfuge can only work for so long until it is discovered and then… (you’ll have to get the VHS to find out the dramatic ending!).  But, suffice to say, the ruse did not help either of them with their relationship with her in the aftermath.

Outside of Hollywood endings, lying about one’s identity is not typically a long term, winning strategy.  And as a property manager in Charlotte, we are seeing a lot of prospective rental tenants misrepresent themselves on their applications (right now, I’m applauding myself for my diplomacy in that last statement).  Okay, to be more direct, some applicants are outright lying.  And this may be the worst that I’ve seen in my twenty years of screening tenants.  It’s high quality “fakery”- doctored paystubs, friends as landlord references, other people’s information being offered (with better credit & criminal reports), etc.

Why?  I believe it is a combination of much higher rental rates and inflation.  Housing and regular living expenses cost much more and this has eroded the financials of many prospective renters; debt levels have increased, credit quality has declined, and landlord reports have less nice things to say.  So, it makes it harder to have prospective tenants pass muster on screening criteria.

The thing is, at its core, good tenant application screening is designed to protect everyone (especially tenants!).  I don’t know how many times I’ve given some version of this stump speech:

Listen, we want to approve you as a tenant.  We easily get paid the majority of our fees to place tenants, not turn them away.  But prospective tenants with similar incomes have a tough time making it work at this rental price coupled with their other monthly obligations.  Then when rental payments inevitably aren’t made, it creates a bad situation for everyone: the owner doesn’t get the money, which forces us to use available avenues to secure the money, and then it creates a lot of all-around stress.  No one wants that- trust me, we do not want to chase you.  So, let’s avoid it and find a less expensive rental house for you.

Of course, most people don’t like to be told “no”, no matter how nicely or well-meaning the message might be.  So, they try to avoid the “no” by submitting falsified information making their application appear stronger.

How do we figure out what tenant information we receive is true and what is manufactured?  As President Reagan famously said, “trust, but verify.”  And verify.  And verify.  And verify.

As landlords, we need to ask a lot of questions, especially now.  Call landlords and wait to get them on the phone.  Is the information the same as what is stated on the application?  Call the employers and do the same.  Is there a potential fraud alert on the credit application?  Do the paystub calculations for taxes and deductions pass an eye test?  Request bank statements to confirm the money flow.

It takes more time.  And applicants do not always like the increased scrutiny- and they’ll tell you this!  But there is a lot at stake.  Since the CARES Act, evictions take more time and a wrong applicant can be very costly.  Take the upfront time to avoid the backend headaches.

Steve Martin and his young accomplice had Daryl Hannah fooled… up to a certain point.  Smart and thorough landlords need to make sure that certain point is prior to handing the keys over!

Happy Landlording!

“Oh, you know, COVID…”: Spotlighting Tenant Retention Amid Rising Costs

“I noticed you didn’t post a blog last month?  I really missed it!!”

(Actually, no one said this…????)

I think one of the frustrations that I’ve had in the last year is how seemingly how every business underperforming service-wise or raising prices can be explained away easily by COVID or her offspring (shortages, inflation, sharp price increases, not enough employees, etc.).  Examples:

My coffee cost $4.00 last week and now it is $5.50.  Why?

“Oh you know, COVID…  Prices of coffee in South America have spiked due to complications in the harvesting process and container price shipping increases.”

Why wasn’t the gym open this Monday when I showed up there?

(A sign with a partial explanation was posted to the locked front door on Monday and then Tuesday the front desk person offered more details)

“Oh, you know, COVID…  Staffing is still really tough as no one wants to work anymore.  Once people left the workforce, they just didn’t want to come back.  You know, I think it’s mostly due to video games- guys just prefer to play them all day instead of going to work.” (Oh, really???)

Voicemails I run into frequently: “Due to recent events, call volume has increased creating longer than normal hold times.”

(I’d like to get an explanation on why this voice mail message is still there and has not changed in almost three years).  But I can speculate…  COVID?

I can be frustrated as a consumer, but understand it.  I’m used to getting what I want at a reasonable price and in a reasonable time period and feel slighted when I don’t.  Pretty much every business has raised prices and many have had hiring issues.  It’s a fact that costs and wait times have skyrocketed whether I agree with the causation rationale or not.

Many landlords have experienced “Oh, you know, COVID…” conversations for the costs now associated with fixing up rental homes between tenants.  All of the issues above coupled with a hot real estate market has led to sticker shock when these repair quotes come out.  The cost of painting an entire house and replacing the flooring (as well as the myriad of handyman issues) has risen, especially when landlords compare prices 5-10 years ago (think double).

Rising rents after fix-up will eventually offset these increased costs, but it is still painful to look a $10K+ repair bill and know that the person writing that check is going to be you.  So, how can this be avoided?

It can’t be avoided forever.  However, there is the strategy of kicking the can down the road as long as possible.  This can be accomplished through an intentional effort in tenant retention.  The basic rationale is that if tenants don’t move out, most repair costs (cosmetic, that is) can be avoided until after their tenancy is eventually over.

So how do landlords accomplish tenant retention?  There are books written about this, so I’m not going to go into all the creative ways people have thought up of: giving free flat screen TVs to the tenants when they sign a multi-year lease, delivering chocolate chip cookies on their birthdays, having a monthly rent credit incentive where some of the money is forfeited if tenants move-out prior to a set number of years, etc.  The advice below is for a landlord who is more a “nuts and bolts” person and doesn’t bake very well.

The great news is that the cards are stacked in the landlord’s favor right now so most of what I propose is being done by others already.  The landlord’s job is just to keep the rental rate reasonable on lease extension offers.  That’s it.  I’m not even saying to not raise the rent at all; just don’t be greedy.  That’s the only thing the landlord has to do right now as a decent tenant retention strategy.

Very few people like to move.  Landlords should continue to perform normal landlord activities in a timely manner so tenants do not have some explicit reason why it is imperative for them to leave the house.  And be pleasant.  Then wait.  The heavy lifting is already being done by the big institutional landlords who own houses nearby and are raising the rents up 25%-50%.  When tenants see the advertised rental rates of homes on the market and then see their reasonable lease extension rate, most will stay put.

If the tenant still leaves, then biting the bullet on fixing up the property may be an unfortunate reality.  But the silver lining is that the house can now be advertised at the higher market rate (thank you again, big institutional landlords!) which will reduce the time on the ROI.

Best of luck keeping your good tenants around and avoiding the “Oh, you know, COVID…” expenses on your rental home for as long as possible.

Happy Landlording!

Real Estate Investing: Preparing for Recession

“Where there is no vision, the people perish…”

Proverbs 29:18

Well, we started with a Bible verse, so it’s a good time to go into the story of Joseph in the Bible (located in Genesis 41).

To paraphrase, Pharoah, the leader of Egypt, had two dreams that no one could interpret.  His chief cupbearer (and a former jailbird) remembered that he knew a guy in the joint who had (successfully) interpreted dreams for him and his buddy a few years back.  He told Pharoah about this Joseph guy and Pharoah had him sent for.

Joseph said God had revealed both of Pharoah’s dreams to him and they had the same message; Egypt and the surrounding lands would have seven years of incredible plenty followed by seven years of devastating famine.  He advised, “Let the Pharoah look for a discerning and wise man and put him in charge of the land of Egypt.  Let Pharoah appoint commissioners over the land to take a fifth (20%) of the harvest of Egypt during the seven years of abundance… This food should be held in reserve for the country, to be used during the seven years of famine that will come upon Egypt…”

He concurs and appoints Joseph to head this newly created post and things go as predicted.  Egypt is the only place that has food when the years of famine come, and Joseph is administering it on Pharoah’s behalf.  The Egyptians and the people of surrounding lands are forced to sell Pharoah all their possessions and land just to get food.

To bring this back into the realm of real estate investing, landlords are clearly in the time of plenty as property values and rental prices have been on a growth curve for the last ten years.  To boot, interest rates have been historically low (and really still are) which allow for low borrowing costs and has made for a robust sales market.  Many landlords have used this as a time to sell some of their “dog” properties, make improvements and raise the rents on their existing properties, buy some new ones, and refinance/eliminate debt.

Recently, interest rates have more than doubled and many economists (none with divine inspiration like Joseph to my knowledge…) claim a recession is around the corner.  If that’s true, the housing market could take a sharp correction which could be a great opportunity for prepared investors.

I have vague recollections from the last housing correction from 2008-2012.  I did not buy any investment properties then; I was too concentrated on keeping my existing rental homes afloat as rents were low during that time period.  I remember that selling homes was really hard; buyers were scarce!  Many sellers were just giving their houses back to the bank or using “short sales” as the banks would take a loss on part of the loan during the sale.  I remember thinking, “What’s wrong with me?  As a wanna-be real estate investor, how am I not buying homes now?  These houses are going for a steal and they seem to be all over the place!”

The thing that was wrong was that I could not get a decent loan and did not have much cash on hand.  So, I needed to sit on the sidelines like most other people until the economic waves grew more favorable.  But the buyers who were prepared got some great deals!

The investment challenge now is to be more like Joseph and be prepared for any possible famine while things are favorable.  If the right investment comes along during any upcoming recessionary period, I’d like to be able to snap it up (while simultaneously staying solvent during any prolonged economic slump).  Preparation now can pay huge dividends later.

Happy Investing & Landlording!

Extend the Lease AND Sell? That’s Not “The Way”

“You can have it all.”

(1980’s Michelob Light Advertising Slogan)

I was (attentively) listening to a teacher’s presentation at my children’s school and she referenced the movie, Twister.  I nudged my wife and whispered, “That movie is probably 20 years old now.”  “Yeah, at least…”, she quietly agreed while discreetly double-pointing to the stage to redirect my attention back to (arguably) more important points of the on-going monologue.

But it got me thinking about older movies and Road Trip came to mind.  In short, it is about a group of Ithaca College (NY) students racing against time trying to get across the country to the main character’s girlfriend’s dorm in Texas before her mail arrived.  It was going to be close so they needed the quickest route to get there.

There was the route that took all interstates and would definitely be the safest way.  But would it be fast enough?  Preliminary math on the mileage didn’t look promising.  However, there was another path that was more closely aligned with “how the crow flies” that would cut considerable time off of the trip.  It would take them on unproven, side roads.  It was the classic “risk versus reward”.

One of the quotes from the movie that I still remember is from the character, Rubin, when he was defending taking the unproven route:

“It’s supposed to be a challenge, it’s a shortcut!  If it were easy, it would just be the way.”

The point that I take from this is that if something is straight-forward with the least amount of risk, it is “the way”.  It’s a “best practice”; there is no short-cut needed.  If they could have made it to Texas in plenty of time on the interstates, they would have been cruising in the fast lane there (though it would have made the movie less interesting…).

The way may be boring, but it is effective.  And it requires good planning in advance.

As a property manager in Charlotte, we ask our owners approximately 75 days prior to lease expiration whether they want us to extend a tenant’s lease and for ideally how long of a time period (one year or multi-year).  If the rental home is being kept as a long term investment, then “the way” is to offer to sign a lease extension for a long period of time.  If the owner wants to sell it in the near future, “the way” would be to sign a shorter-term lease and/or let the current lease expire and go month-to-month until a notice to vacate is needed.

In a perfect landlord world, tenants would be in leases all the time (no vacancies!), but landlords could still sell the home and have the tenants vacate when the buyer wanted.  But, alas, the world doesn’t work like that.  We live in a world of tradeoffs.

A lease is legally binding regardless of who owns it.  The main trade-off made with long term leases is that both the tenants and owner are sacrificing flexibility for security.  The tenants now cannot move out (without incurring financial penalty) if Uncle Joe calls in a few months and offers a free house to stay in.  They are stuck in a lease.  And, on the same token, if the owner loses his job and wants to move back into the house, he cannot kick the tenants out and take the house back.  On the plus side, the tenants can feel confident that their kids will be able to go to the same school for the life of the lease.  And the owner can count on monthly rental payments.

There is security for both parties, but not flexibility.

You usually can’t have it all, no matter what Michelob Light says.

But what if the owner did extend the lease and then decided he wanted to sell the home right away?  We still live in the United States of America and no one can tell someone they can’t sell an asset that they own.  However, when selling, the prospective buyer would be purchasing the home SUBJECT TO the existing lease.  In short, the buyer would be stuck with the tenants at the terms of the lease for its duration.  For investors, that may be acceptable (or preferable!).  For someone who intends to live there, not so much.

That’s when Rubin’s “shortcut” would be needed.  And that is when it can be a challenge.  Solutions include trying to find investors to buy the home subject to the lease, letting the tenants out of their lease and encouraging them to find a new house, and/or negotiating a financial settlement to entice the tenants to move.  It can be tricky (and not always successful).

However, shortcuts sometime work out.  The Ithaca students were able to get to the incriminating piece of mail before the girlfriend could get to her mailbox.  But it was a stressful “road trip” and success didn’t seem likely during most of it.

I don’t know about you, but I generally prefer the calmness of the way; “boring” property management works well for me!  It’s good to make lease extension decisions thoughtfully now to avoid having to take uncertain shortcuts later.

Happy Landlording!

Rental Roomies & Higher-End Homes a Win-Win?

“Many hands make light work.”

(Old English Proverb)

I remember back to my college days in sunny Arizona when I had to figure out where I was going to live my sophomore year.  Most of my friends were thinking of staying in the student housing in the dormitories for Year 2.  I had virtually no experience with rental properties and wasn’t sure what to do.

I talked to my Dad about it (I learned early it was always smart to run my plans by my financial backer first).  He didn’t really have any input on where I lived; I was the third child and he was much more pragmatic.  “I’m paying XX dollars for your housing- just let me know in what bank account it should go.  So, in that brief exchange, I had my financial backing and freedom to choose where to live.

Some of my friends got similar commitments from their parents and we were house hunting!  Of course we were all-in on finding a house with a pool (common in hot Phoenix) and hot tub (more rare, but not insurmountable).  We found a 4 bedroom house with both, plus lemon and lime trees in the backyard to boot.  It came to $1,200.00/month (which was high back then for Phoenix and definitely over market rate).

But… split between 4 guys it was $300.00/month which was a third of my Dad-provided housing budget.  I now had extra funds to play with.  We, as a group, were overpaying, but I was psyched!  I was paying much less than if I was living on my own or with one other roommate.

I’m seeing a similar play in the rental market as prices continue to rise.  Some of our higher-end rentals are (smartly) getting taken by groups of young professionals.

First, as a point of reference (according to Rent.com), the average one-bedroom apartment in Charlotte in April 2022 costs $1,513.00/month and the average two-bedroom is $1,730.00/month.

If we chop that into per person, we can calculate roughly $850 – $1,500 per person.  When that is multiplied into a 4 or 5 bedroom home or townhome, you can equate that to a $3,400.00 (low end) to a $7,500.00 (upper end) rent spend- and that’s going off of averages.  Obviously, some people spend more than that on their housing.

As good of a strategy it is for tenants to decrease their rental costs, it is also a good one for landlords.  Purchasing lower-priced housing in Charlotte has been very competitive for years, but most investors typically avoid higher-end housing.  However, by buying higher-end housing and marketing to roommate situations, it could allow for good cash flow.  Relatively-speaking, there is just not that much higher-end housing available for rent in the Charlotte market.  Really nice, feature-rich houses could go fast and for top dollar.

For now, it’s a good deal for all, much like my college housing.  Tenants get better housing at a lower price and investors get less buying competition and the ability to charge higher rents.  It could be a rare win-win in the current investment housing market.

Happy Landlording!

Don’t Ask Me When You Should Buy Real Estate…

“Don’t ask the barber whether you need a haircut.”

(Warren Buffett)

“Hindsight is 20/20”

(Popular Idiom)

When you work in real estate for a living (especially on what could be considered the investment side in property management), you tend to get a lot of “party questions” about buying rental homes.  You hear different versions of this:

Oh, you’re in property management?  My cousin owns about 50 rentals in Lincroft, NJ and is making a killing.  He fills them all with Section 8 tenants and just collects the guaranteed money on the first of each month.  Lucky dog!  Is it a good time to start buying properties and get into something like that here in Charlotte?

There are different schools of thought on how to answer that question.

The first school of thought: YES, YES, & YES!!  You sell and manage rental properties for a living- duh!!

Back in the day, I worked with a woman who would look at me cross-eyed when she saw me show any hesitation when the question of when someone should be buying real estate came up.  To her, the answer was always unequivocally “now!”, followed up with “I’ll pull up some listings that we can go look at!”.  In her book, it was a complete rookie move to even contemplate any different type of answer.  If her kids were going to eat tomorrow, she needed to sell real estate today.  So it was always a good time for anyone to buy real estate (and the more the better!).

I laughed at her response and actually thought it was a bit dishonest.  But, if you followed her advice at the time, you would have made an absolute killing.  And her advice is still the same, in case you were wondering.

The second school of thought:  I’m not sure… (The “Honest “Approach)

A friend of mine recently forwarded me an e-mail from 2018 that we had shared discussing an investment property he was contemplating buying.  I wasn’t sure (at $120K it seemed a bit high for what it was…) so I encouraged him to lowball the offer and ask for some concessions.  Of course, when an offer is bogged down like that, it is typically rejected unless the seller is on the desperate side and low on options.  So my friend did what I suggested and the sale never went through.

On top of his recent e-mail was a link showing that the property sold this year for $210K.   So in less than four years, he would have pocketed $90K; that’s not a bad day in the office for the eventual buyer!  But I felt sort of badly that I helped talk my friend out of what turned out to be a great deal.  Fortunately, he is a gracious guy, and hasn’t come over to break my legs (yet…).

So, don’t ask me when you should buy real estate!  I want to give you the right answer, I really do.  But timing the market is tough.  I’m not sure if we are on the top of the market (and about to fall of a cliff) or if we are only getting started.

However, if you can make the numbers work for immediate cash flow and have plans to hold the real estate long term, it is a good time to buy now (especially in Charlotte!).  I can say that with all honesty while not drawing the ire of my old co-worker.

Happy Landlording!

Good Landlords & the Golden State Warriors: A Deep (Vendor) Bench Matters

The Warriors won the NBA title this month in an exciting series versus the Boston Celtics.  Steph Curry, the star of the team (and local Charlotte product!), won NBA Finals MVP and fellow starters Andrew Wiggins and Klay Thompson played well.  But one of the major reasons they were able to pull off a series victory was the play of their bench.  Less heralded Warrior’s players- namely Jordan Poole, Kevin Looney, and Gary Payton, Jr.- gave the team great minutes while the starring players weren’t on the court.  “Strength in Numbers” was the team’s slogan during the regular season and it continued in the playoffs leading to an NBA Championship.

This is also applicable for landlords utilizing the vendors they have to do maintenance and repairs on their rental homes.  I got a call last week from someone interested in our property management services.  When asked what prompted the call, she said that her handyman had gone back to the workforce; this left her without anyone she trusted to do the work on her rental home in a timely, well done, and reasonably-priced manner.   I could empathize.

When COVID hit, many people who had little time to make home improvements suddenly became very interested in their homes.  Part of it was being home and seeing many of the issues their homes had that they had ignored.   Some of it was just making improvements so they could enjoy their home as they were around much more.  Either way, it led to vendor demand to increase which led to scarcity of vendor availability and price increases.  This hit property managers as well.  The advantage swung to vendors as they had more work than they could handle, putting them in a position to refuse jobs and not call prospective customers back.  This trend continues now.

The good news for experienced property managers is that most have a deep bench of vendors.  While we use many of our “stars” regularly to service our homes (and have for years), it is helpful to have a list of secondary vendors who are proven to do good work.  Going to Google as sudden needs arise and hoping that a vendor is going to provide tenants a good experience is not ideal.  It is far better to incorporate new vendors on a regular basis on smaller jobs to ascertain if they meet expectations.  Cultivating a good vendor list is an asset that makes a property manager’s job much easier and keeps owner clients and tenants happy.

Though property managers have a built-in advantage of managing large number of homes which can make working with them attractive (repeat business), smaller landlords can also build good vendor lists by:

1. Being courteous with vendors and trying to make things easy for them
2. Paying quickly and in full
3. Providing pictures and details upfront of what needs to be done so they can minimize trips and maximize their revenue
4. Working with their schedules and only accelerating issues that are truly time-sensitive
5. Providing referrals to them from friends and family that need similar services
6. Writing 5-Star Google reviews (when warranted)

The Warriors would arguably not have gone far in the playoffs and won a championship if they did not allow their bench players to play meaningful minutes and make them feel like a valued part of the team.  Smart landlords should do likewise and use secondary vendors on occasion so they are in the fold and can be utilized when the need arises.

Happy Landlording!