Brett Furniss Tag

Predicting Presidents & Charlotte Real Estate Prices

There are people who are very interested in politics, especially in the US presidential election every four years.  “It’s the most important election of our lifetime!  Think of the children!”  I don’t fall into this camp.  However, I do like to try to predict who will win.

That doesn’t mean I’m any good at it, unfortunately.

I try to use “common sense” on who will win- ha, ha!  Below are the actual winners from the past few elections and my rationale at the time for why there was no way they could win:

2008: Barack Obama.  I was wrong.  I didn’t see how a community organizer with no experience running anything could win.  Plus, he shared his middle name with a top, evil dictator.

2012: Barack Obama.  I was wrong again.  The economy was in shambles and the “Great Recession” was on his watch.  I wasn’t sure that President Obama could effectively keep blaming former President GW Bush for the poor economy his entire term.

2016: Donald Trump: Wrong on this one too.  Where do I start on how I didn’t think his election was possible?  I mean he didn’t even think he was going to win.

2020: ???  Pollsters say Joe Biden is close to a shoo-in.

Now let’s shift to Charlotte real estate.  When COVID-19 began to affect our lives in March 2020, people were understandably afraid.  Corporations began rapidly shedding jobs, the stock market tanked, and there was little optimism in the world.

We had just put up a home for sale for a client that month (who really needed to sell) and we were concerned that COVID-19 would adversely affect the market.  We lowered the price and worked quickly to get it under contract before things got worse.

However, the adverse effect on Charlotte housing prices never really happened; in fact, prices actually climbed and continue to climb.  We probably should have raised the price!

So why am I bringing up my poor predictive skills?

Sometimes it is more effective to forget the short-term noise of what is going on and stick to market fundamentals.  The market fundamentals for Charlotte are that 66 people on average are moving here every day and that number will probably increase as people flee big cities for more space.

There is also a housing shortage in Charlotte.  This has been exacerbated as people are “sheltering-in-place” and not putting their homes on the market.  The fundamental “supply vs. demand” rule takes effect and prices rise with scarcity.

Things can change quickly, but fundamentals and long term trends tend to move glacially or not at all.

And political incumbent candidates usually win…

Happy Landlording!

COVID-19 Rent Collections: OK to Say “I Don’t Know”?

“Dewey Defeats Truman”

Chicago Daily Tribune headline on 11/3/48

“Even fools are thought wise if they keep silent, and discerning if they hold their tongues.”

Proverbs 17:28

My 6-year old son is tasked with completing school assessment tests this week on the computer.  It’s a stressful time for him!  Not only does he have to deal with new questions about numbers and words, he has to figure out how to use a mouse for the first time.  It’s a lot for a new, aspirant student.

My wife thinks some of the questions may be out of the scope of a Kindergarten-educated child.  “Three-digit subtraction questions?  Scandalous!  How could he know such things at this point?”

So he’s tackling an assessment question like:

Q.  What is 100 – 80?

1. 35
2. 20
3. I don’t know!
4. I really don’t know!  (Can I watch TV now?)

The truthful answers for him are clearly 3 or 4 (with a hard lean on 4).  But for us educated folk who have been taking tests all our lives, we know at minimum we need to answer 1 or 2.  Nobody gets any points for offering “I don’t know” on a test!  We only get points for knowing (or acting like we know and guessing correctly).  But we really should know stuff, right?

Or maybe that’s the limitation with tests when we implement this methodology in real life.  With tests, there’s always one right answer that is evident if the data is studied and understood.  But reality can be very different.

For example, take this COVID-19 situation for property managers.  We’re asked questions from clients like, “Do you expect tenants to pay rent next month?”  Or, more directly, “Will my tenants pay rent next month?”  As someone in the property management field for the past 16 years, I should be able to answer that question, right?

Well, I read the same articles that everyone else did with statistics from large apartment provider associations saying 33% of tenants didn’t expect to be able to make their rental payments this summer.  Wow!  1 in 3, that’s bad.  Then I received calls from a few of our tenants telling me about their job losses and wondering if any of our owner-clients would be offering “Free Rent” until things were back to normal.  Data was not promising, both empirically and anecdotally.

All of this must have meant that we were going to experience some rough times with the rental properties we manage in the Charlotte-Metro area, right?  So I jotted off letters every month this summer to our owner-clients telling them to expect some rental disruption.  I thought I knew what was going to happen and then I relayed this to our clients.

So what happened?  Everyone this entire summer paid (with the exception of literally 1 tenant who is moving out).  And the number of late paying tenants was half of what we usually have.

What do I know?

What is 100 – 80?  Fortunately, I can help with that one.  But are tenants going to continue paying on time and in full next month?  I really don’t know.  (But I hope so!)

Happy Landlording!

Lost in Translation: Landlords Are Not “Pants”

“OK… but do we rock?”

(Opus from “Bloom County” after reading his band’s confusing review in Rolling Stone)

I remember back when I was in college and I had the opportunity to be a student-athlete abroad in Merrie Olde England.  I thought the new scenery shouldn’t be that hard to figure out being they spoke English over there.  But I didn’t account for some of their slang that as a “Yankee” I wasn’t privy to.

I was on the American football team and we had a pretty mediocre record.  In our defense, we only had about 20 guys, so most of us were playing offense, defense, and special teams.  We had some good players so we were able to keep the score close for most games (and win some of them), but exhaustion would set in during the fourth quarter due to our lack of depth; this would sometimes doom us.

Very few fans (aka only our friends) showed up for these fake “football” games (aka not soccer).  So I really didn’t know if anyone cared or thought we were any good.  However, someone pointed out that an article had been written about the team, so I was anxious to read it (was I mentioned in it???).  I was in the computer lab later that day and found it.

Now, I’m not sure if the writer was trying to appear impartial, but I had a hard time figuring out what his take on us was.  And then I wasn’t sure if he even understood what he was watching, as he used some soccer references to describe the action.  He listed some good things about us and then list some bad things, and then vice-versa.  Finally, at the end of the article, he gave his summation.  “All in all, the Staffordshire Stallions are pants.”

“Pants”??  What the heck does that mean?  I was at a loss.  Do we rock?  That’s what I wanted to know.

So I nudged the guy beside me and asked him what “pants” meant.  He looked at me for a second, noticed my American baseball cap, and had pity.  He said, ‘It means rubbish, complete rubbish.”  Ouch.

For us to have a .500 record and beat some much bigger schools with 60+ players on their sidelines, I wasn’t sure how fair his assessment was.  Some of our 20 guys hadn’t really even played before and were pressed into action.  The article really could have been about how well we were doing despite the odds being stacked against us every game (and then how some “American saviors” were making their mark…).

I bring up this story because it reminds me of negative press landlords are taking for being against the eviction moratorium (not legally being allowed to file for eviction for non-payment) imposed now during COVID-19.  The plight of affected tenants has been well-documented and no one wants this economic devastation.  But to make landlords the villains is ridiculous.

I “know a friend” who manages a property where the tenant has not made a rental payment in 2020.  My friend’s client still needs to make a mortgage payment, insurance, and property taxes every month without any offsetting revenue coming in.  He provides a service where an agreement was made to pay him for it, and he is not getting it.  And he has nowhere to go for help.

I’m not sure if any of our property management clients are multi-millionaires who are immune if no rent comes in on their rental houses.  I get calls and e-mails from concerned owners when a tenant is late in paying or a repair seems on the high side.  Most need the rents to keep their real estate investments afloat.  I don’t know of any that are sitting on their yacht in the Mediterranean who rarely need to check a bank account!

Some of the criticism probably comes from people who just don’t understand the real estate investment game.  On the other hand, I also understand (during tough times especially) that eviction is dirty word and can appear heartless.

But this is a situation that has been lost in translation.  Landlords are not “pants” for wanting to receive their rental payments for providing houses for people to live in and making repairs to keep them functional.  It makes sense for them to have the option of legal recourse to go to if things are not working out.  They rock for trying to keep their obligations up-to-date during tough times.

In summation, the COVID-19 economic situation is “pants”, not landlords (or the 1998-1999 Staffordshire Stallions, for that matter).

Happy Landlording!

Virtual Life With Virtual Rental Home Showings?

“Ain’t Nothing Like The Real Thing, (Baby)”

Marvin Gaye & Tammi Terrell

I don’t think I’ve ever written on the same topic four months in a row, but COVID-19 has affected every facet of life so abruptly; it’s tough to avoid.

Everything in life has changed when you can’t be with other people and are scared (or not allowed) to go places.  Some things have been enhanced (more time with your family in your home & no commute) and others have been limited or discontinued.

In the limited and discontinued space, compromises were made to replicate virtually what was lost physically:

“If we can’t meet in person, we’ll have an awesome Zoom.com meeting.”

“Let’s do drive-in church where we watch our pastor on a big screen from the church parking lot in our cars and honk when we like what he says.”

“Let’s watch world-renown artists sing in their homes instead of going to watch them live in a stadium.”

“With no live sports, let’s re-watch Game 7 of the 2016 NBA Finals or NASCAR’s iRacing where their drivers are essentially playing a video game from their homes.  That’s awesome!”

 “There’s no need to hold the new grandson when you can just FaceTime him and wave!  It’s virtually the same thing.”

These compromises, though necessary, are certainly not the same thing; I’d say they are not even close.  It’s like seeing a shadow of a person instead of the person.  Or it’s like seeing a picture of the New York City as opposed to standing in the middle of Times Square.  These compromises are largely ineffective, counterfeit replacements.

I remember in my early sales career when I tried to avoid the time and energy of meeting customers, my boss would always say, “You can’t fax a handshake.”  (Note: in retrospect, I need to never give that example again as both of those things seem to be relics of the past and will make me sound really dated…)  Nevertheless, the point is that there is immense value in seeing people, places, and things in person.

A Realtor friend of mine called me the other day and was talking about how “virtual” house buying (aka seeing a video of a house and making an offer sight unseen) was gaining enormous traction.  And really, I have no problems from that from the sales-side.

Why?  In NC, we are a caveat emptor (“let the buyer beware”) state; this essentially means that after you close on a property, there are no “take-backs”.  Once the house is bought, it’s yours- it’s over even if after you move-in you decide you don’t like it for some reason.

With rental homes, it’s a different story.  Back when we first started offering property management in Charlotte, BDF Realty would allow “sight unseen” rentals.  Most of the time, it was fine.  But there were a small number of people who decided they hated the house after they actually saw it in-person; this created problems.  They had already signed a lease and had moved in their furniture when they decided they wanted to move.  The reason was a problem with the neighborhood, or the size if the rooms when they were actually in them, or a number of things that would have been avoided if they had seen the rental home in person.  But, unlike when a house is sold, there was someone they could complain to- the property manager.

Virtual rental home showings just can’t replicate what seeing a home in-person can.  Sometimes just driving a neighborhood or stepping into a home will immediately eliminate it from consideration.  We don’t want renters being forced to live in a home for a year if it is going to be a disaster from the get-go.  That’s not good for anyone- the renters, owners, or the management company.

Virtual life has its limits.  It’s wise to exercise caution on the rental home side with a virtual-only approach.  There ain’t nothing like the real thing, baby!

Happy Landlording!

Credit Reports (YAWN) & COVID Tenant Placement

“Everyone has a plan until they get punched in the mouth.”

“Iron” Mike Tyson

The “sleep industry” (from bedding, sound control, “sleep consultants”, prescription pills, etc.) is estimated to be a $30B-$40B annual business growing by 8% year.  That’s a lot of money going to something that should naturally be free; and, unfortunately, the inability to sleep seems to be an issue that keeps growing.

My father told me that a solution that always worked for him was to read textbooks.  It made sense, but most adults (thankfully!) don’t have many lying around.  However, if you’re in the property management arena, you do have a lot of credit reports you can read through that will have the same effect.

On a single rental application, it is possible to have 20+ pages per person.  Every open and closed line of credit they’ve ever had in their lives is listed.  It can be painful reading and sorting through them as the pages can begin to just run together…

Many property management companies outsource the application process.  I get it!  No one wants to read through the reports and try to put together how someone’s finances link to whether they’ll be a good tenant, especially when 10-20 applications are coming in per property.  It’s arduous.  That’s why it’s common for property management companies to have credit score minimums- for example, if you don’t have a minimum 600 credit score, your application will automatically denied.

There are a couple problems with that approach, in my opinion.  The first is that if every landlord did that, there would be a lot of people in the streets who weren’t eligible to rent a house.  That seems harsh, unfair, and inhumane.

The second is that a credit score alone is insufficient to gauge an applicant’s true financial strength.  I think the level of debt to how much available credit they have is a huge indicator.  A credit score rewards taking on debt to a certain extent as it measures whether debt payments are being made in a timely fashion; people with no debt (or utilized available credit) seem to have lower credit scores because there is less of a payment track record to go off of.  Should people be penalized for that?  I guess I have an “old-school” mindset where I think not having debt is preferable to the alternative.

Thirdly, I like to see cash flow and where it is going.  I’ve had 700+ credit score applicants who have so much debt to pay off that after their monthly debt obligations (aka credit cards, financed cars, etc.) there is little room to pay rent and other niceties of life (like food).

This is where COVID and tenant placement comes in.  How strong is the applicant?  Can they pay when times are good and bad?  Can applicants take a financial punch?  COVID is a huge punch to almost everyone.  But even putting COVID aside, a punch could be an unexpected job loss, big car repair, or some other major expense that life throws at everyone at some point.  Can it be weathered?

That’s where I find the credit report to be an invaluable tool and a “must-read”.  I always felt that the #1 responsibility of property managers is to keep the rents flowing to the owners.  And property managers are only as good as the bench of good-paying tenants they have in their properties.  How strong is the bench?  Can it handle adversity?

COVID has and will continue to put things to the test.  I think the practice of pouring that extra cup of coffee while poring over the credit reports will prove to be time well spent.

Happy Landlording!  And Stay Safe!

Tenant Management: Be Nice Until…

“A brother wronged is more unyielding than a fortified city; disputes are like the barred gates of a citadel.”

Proverbs 18:19

“I want you to be nice… Until it’s time not to be nice.”

Patrick Swayze to the other bouncers in Road House

There’s a danger of showing your age when quoting lines from the classic movie, Road House.  Younger people have no idea what you’re talking about.  It’s not as bad as making a “Rosebud” reference from Citizen Kane (1941), but it can make you feel like you’re in the same ballpark sometimes.

For the uninitiated, Road House is about a bouncer (Patrick Swayze) who is hired to go to a small, backwoods town in Missouri where some local ruffians are ruining a local bar by making it a warzone for fights.  His job is to restore peace by training the staff to deescalate the increasing violence.

His first training session with the bouncers starts with him giving them the advice of “be nice”.  No matter what bar patrons say to them, they shouldn’t take it personally.  It’s a job.  He instructs them not to retaliate, but walk offenders out of the bar, nicely.  They should be nice, until it’s time not to be nice.

The inevitable question he gets after this speech is “how do we know when it’s time not to be nice?”  He answers succinctly, “You don’t.  I’ll let you know.”

As a Charlotte property manager, we often run into the same question.  This may come as news, but tenants don’t always follow the lease to the T.  They want to do what they want to do, regardless of what they signed their name to.  This can be frustrating.  And it can lead to the impulse to escalate situations quickly by invoking phrases like “throw you out on the street”, “it’s eviction time”, and “you’ll never live indoors again when your next potential landlords ask me for a reference”.

That’s not nice.  And it’s usually foolish.

In my experience, nicely asking tenants to do something differently is effective.  For example, if they are leaving the trash cans out for days which elicit HOA complaints, we may ask, “Would you mind trying to get the trash cans in a little earlier so we can be compliant with the HOA rules?  I wouldn’t want them to start sending fines.”  Or “can you try to make your rental payment a little earlier?  The owner needs to be able to pay his mortgage on time and it would also save you from donating late fees to us every month.  You’re usually only off by a few days.”

Most tenants are reasonable and respond well to landlords who ask for things nicely.  I feel as a property manager, one of our most important jobs is to establish a respectful relationship with the tenants who rent from us.  We both need things from each other and it’s much better for all involved when the relationship is cordial.

However, when a landlord is repeatedly ignored or there are egregious violations, it may be time not to be nice.  This is when court action may be necessary, but it rarely leads to a happy ending.  Remember, the tenant and his/her family are losing the place where they live and sleep; in Charlotte, at least, it’s going to be difficult for them to find another house easily due to the lack of available housing and a recent eviction on their credit.  They are in a really bad situation that they will probably blame the landlord for.

At this point, the relationship in most cases is irrevocably broken.  The chances of receiving additional rent are low and the house is usually returned in horrible shape.  It’s a true “lose-lose” transaction.

It’s actually the same ending as in Road House.  When it was time for Swayze and his fellow bouncers not to be nice, it infuriated the bad guys and a civil war broke out in the town.  A lot of people got hurt (including Swayze’s best buddy, Sam Elliot, who was killed) and a lot of property was destroyed.  In the end, Swayze got his Pyrrhic victory which, outside of movie logic, would only be considered a complete disaster.

So, be nice and try to keep things nice as long as it depends on you!  It’s much better than having to turn to the alternative.

Happy Landlording!