How Much Should I Fix Up My Rental Home for the Next Tenant?
The perfect scenario:
You are lounging on a sunny, deserted beach with your loving wife by your side. You have a cold drink in your hand as you marvel at the solitude and beauty of your surroundings. The only sounds you hear are the waves gently crashing in front of you and the occasional fluttering of a seagull’s wings. The sun subtly warms your skin before a timely breeze arrives to refresh you. You grasp your wife’s hand as she lovingly reciprocates. And you just filled your last rental property with a tenant. Life is perfect.
But, wait… is that your cell phone ringing in your beach bag? Who could be calling you? As you reach for the phone, your wife aggressively removes her hand from yours. “You better not answer that! We haven’t been away together since Eli was born and I’m not going to have our vacation ruined by work calls!” As your eyes refocus to the numbers on the phone, you realize it is the new tenant. “I’ve got to get this,” you mutter as your wife disgustedly begins to turn her beach chair away from you. You feign an enthusiastic greeting of “Hey Herb, what’s up? How’s the place?” as your eyes plead forgiveness to your now emotionally-estranged wife.
Herb begins his 10-minute rant, “This place is a dump! The whole house is filthy! The cabinets and appliances are especially gross and the entire trim needs to be repainted. The landscaping has been completely neglected and the yard is mostly weeds. My wife and I have spent our first 48 hours here on our hands and knees scrubbing and aren’t even close to being done! The air conditioning doesn’t even blow cold air. How could anyone live in this place??”
“Multiple tenants have managed to survive the experience in past 12 years I’ve rented it out,” you want to retort and then think better of it. You turn your head to see your wife disgustedly heading back towards the resort while pounding feverishly on her iPhone, undoubtedly spewing Facebook hate (Subject: You).
Herb is irate and you hear his wife trying to get into the action in the background. Once Herb says his piece, you tell him you’re very sorry, you’ll have someone over to look at the air conditioning, and will send the cleaners back (“No need! If they think the condition they left it in was clean, I don’t care to entertain their second act!”).
So this is bad. You thought you had the rental home in good shape and the tenants are ripping it apart. You look up at the resort and see your wife talking to the pool boy as she uncharacteristically is downing cocktails at 9 AM. This was supposed to be a relaxing, loving vacation and things are going very wrong.
What could have been done to avoid this tenant situation? Honestly, nothing. No matter how clean a house is left, some tenants will say it is filthy. Cleanliness is subjective.
There is a relatively predictable spectrum of responses from tenants after they move-in:
- 10% will be happy with whatever condition the home is in when they move-in
- 10% will be unhappy with whatever condition the home is in when they move-in
- 80% will be happy if the home is reasonably clean and touched-up when they move-in
So if things are reasonably clean, all major systems are working, and the house has been touched up, 90% of tenants will be happy. And everyone likes happy tenants.
And what about the unhappy 10%? It’s not a desirable situation, but there is a silver lining. You will take heat on the front end from them; that is for sure. And you won’t like it. But there are 2 positive takeaways:
- There was nothing you could have done to avoid their unhappiness. If you fixed your home up to such a pristine condition, it would crush the ROI on your investment property. And if you are going to pay to fix it up that much, do it only once and sell it for top dollar. Don’t do it every year. The objective (I’m told) is to make money on investments.
- When the initially unhappy tenants vacate, they will probably leave your home in move-in condition for the next tenant! This allows you to take the pain now to experience joy later.
So, to sum it up:
1. Fix-up your home in a reasonable manner between tenants. This means all systems working, touch-up paint (don’t repaint the house), steam cleaned carpet (don’t replace the flooring), and professional cleaning.
2. Hire a property manager so you don’t have to answer the phone on vacation.
3. Go get your wife!
Brett Furniss is the President & Owner of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords & Home of $100 Flat Fee Property Management. BDF Realty utilizes their innovative Pod System for exceptional customer service in residential property management, home repairs, and home sales (including Rent-To-Sell) for single-family homes, condos, and town homes in the Charlotte-Metro Area. Contact Us Today!
Learn More#1 Way Landlords Can Increase Their Rental Home ROI: 4 Tips
Landlords always want to know how to make a better return (ROI) on their rental homes:
Can we raise the rents?
Can the pet fee be an annual expense?
Can we charge for air usage within the confines of the home? (OK, I haven’t really heard the last question… yet)
As a Charlotte property manager who has been in the business for a while, there is one clear cut winner on how to maximize rental home ROI. And this earth-shattering, nugget of wisdom is…
Keep your tenants.
That’s it. If they stay and sign long term leases, landlords avoid a litany of costs: vacancy, fix-up, utilities, lawn care, potential vandalism, property management tenant procurement and marketing fees, potential non-paying tenant moving in… and that’s just off the top of my head.
Wise landlords want to do everything they can to keep their tenants.
Here are 4 tips to keep them:
- Think about not raising the rent. I’ve heard of some landlords who do not raise the rent EVER for as long as their tenants stay! That seems extreme to me, but I can see the rationale.
- If #1 (no rental increases EVER) doesn’t work for you, cap the annual rental rate increases at 5%. Or offer to raise the rent 5% on a 1-year lease while simultaneously offering to extend the lease at a lesser rental rate for a multi-year lease. (Incentives really work!- part 1)
- Pay your property manager for extending your tenant’s lease. This will align their interest with yours. We have a client who proactively offers us $400.00 to extend his tenants’ leases. I think he has a great understanding of where his ROI comes from. (Incentives really work!- part 2)
- (Most important) Execute the normal blocking & tackling of property management. In other words, do what you’re supposed to do. Make needed repairs in a timely fashion, don’t be a jerk, and set proper expectations and meet them. Remember: Moving is a pain; don’t make your tenants feel they need to because their rental situation is unbearable.
There are many other tips on how to keep rental tenants (give them rental anniversary gifts, free months of rent for renewing, etc.). However, it is not disputed that tenant retention is the #1 component of achieving a good ROI. As the old song goes, “It’s cheaper to keep her!”
Brett Furniss is the President & Owner of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords & Home of $100 Flat Fee Property Management. BDF Realty utilizes their innovative Pod System for exceptional customer service in residential property management, home repairs, and home sales (including Rent-To-Sell) for single-family homes, condos, and town homes in the Charlotte-Metro Area. Contact Us Today!
Learn More3 Tips for Effective Rental Home Inspections
What’s going on in my rental home and how does it look?
Typical Landlord Query
You do want to know, but you don’t want to know. It’s one of those paradoxes in life.
If you do want to know, it’s important to have some type of methodology. Here are 3 tips to making the most of your rental home inspections:
- Spot checks won’t lead to lease extensions. And, in the South, they may get you shot. Being that I usually don’t prefer it when people show up unexpectedly at my door (even people I really like!), most tenants are not going to like it if a property manager shows up unannounced (they might not even like the property manager- I’ve heard this happens sometimes…). Prior to tenant move-in, let the tenants know what type of inspection schedule you are likely to keep (annually, bi-annually, quarterly, monthly (gasp!)) so expectations are set in advance. Don’t feel the need to schedule the inspection when they have company in town; it can be a good idea to give the tenants at least a week notice of your visit. And the tenants don’t need to be there, but make sure they muzzle their pets. Don’t undervalue injury-free inspections!
- If you ask for nothing, don’t be upset when you get it (and you usually will!). Smart property managers want the tenants to know exactly what they plan to look at. But isn’t that like giving students the answers to the test beforehand? Yes!! Having the home in good condition is the desired test effect (even if they have to cram for the test). We send them the exact checklist we are going to fill out a week before we visit. This checklist lets them know we’re looking out for unapproved animals, dirty air filters, smoke smells in the house, cleanliness, lawn care, that our keys work, functional smoke & CO detectors on each home level, and any other things that really stick out (we provide ourselves a little latitude to comment on items not on our checklist). Then we snap 4+ pictures (no bedrooms) and e-mail the filled-out checklist and pictures to the owner.
- If no one is keeping score, no one cares. Sharing the inspection results with the tenants is paramount. They need to know that the property manager is paying attention and cares how they treat and maintain the home. We send them the exact, filled-out checklist we had used on their home. We let them know what corrective actions need to be taken and ask them to get back to us when they do correct any issues. However, the first thing we do is compliment them on the items that are correct. We want the tenants to know we appreciate the things they are doing right, prior to asking them to correct the items they could be doing better.
In short, schedule courteously, announce beforehand what will be inspected, share the results, and praise/correct accordingly. Rental home inspections, when thought out well, can be a positive experience for both the property manager and tenant (and the home itself!).
Brett Furniss is the President & Owner of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords & Home of $100 Flat Fee Property Management. BDF Realty utilizes their innovative Pod System for exceptional customer service in residential property management, home repairs, and home sales (including Rent-To-Sell) for single-family homes, condos, and town homes in the Charlotte-Metro Area. Contact Us Today!
Learn MoreWhat Rental Home Repairs Should A Landlord Pay For?
Oh, home repairs… One of the aspects of rental home investing that can really eat into a landlord’s financial return. Landlords and tenants both want to have a perfect home, but debate on who should pay for it.
In 10 years of practicing property management in Charlotte, I’ve found that the responses of who should pay for what repairs are unanimous (depending on what faction of people you ask):
Q: Who should pay for broken stuff at the rental house?
A. The owners!! (results tallied from 100% of the tenants)
Supporting testimony: “This house is a piece of garbage! They are lucky I’m a great tenant and renting it. I pay on-time every month; the least the owner can do is make some needed repairs around here. I guess Ebenezer is too busy counting his money to remember the little guy living in one of the houses in his vast real estate empire.”
Contradictory facts: House was lived in by owner prior to tenant move-in. Everything worked fine. Actual real estate holdings of owner are 2 houses.
B. The tenants!! (results tallied from 100% of the owners)
Supporting Testimony: “The house was in perfect condition when the tenant moved in. I lived there for 5 years and everything worked. Now they want every little thing fixed? Who cares if the screen door has a little rip in it? It didn’t kill my family, but the tenant can’t live with a flea once in a while? Please! He doesn’t even have children!”
Contradictory facts: “Little rip” in screen would allow full grown vulture entry. Perfectly conditioned homes would be violently offended at this owner’s shoddy home being placed in the same category as them.
And this is why property management can be challenging at times.
“To pay to repair or not to repair”, that is the question. And it is one that has no clear-cut answer. But, with that being said, there should be some methodology applied to make fair decisions.
My take on some parameters:
1. The house must be kept at code. Major systems (plumbing, heat, electricity, appliances) need to work properly. This includes working air conditioning nowadays (I know the old-school hardliners just stopped reading). I’m aware it used to be a luxury item, but that was a long, long time ago.
2. If it worked when they moved in, it should work throughout their tenancy (some exceptions apply on really high-cost or not-being-manufactured-anymore items). Example: a home was rented with a working gas fireplace. The fireplace stopped working in the middle of the tenancy. The manufacturer went out of business for the parts that were needed to fix it. In my opinion, the owner is not responsible to pay $3K for a replacement fireplace for home that rents for $1K a month.
3. If tenant negligence clearly causes something to break (example: a bottle cap found blocking a garbage disposal from working), the tenant should be billed back for the repair. But a tie goes to the tenant. Think of this as more of a criminal trial (where the tenant is innocent until proven guilty) than a civil trial (only requires a preponderance of evidence). There is a higher standard of evidence required before a tenant can be billed back for a repair (it must be really obvious).
4. Operational items need to be repaired; aesthetic items (aka how the house looks) do not. It should be made clear to the tenant during the lease signing that the home looks the way it looks now and nothing will be done by the owner about it.
5. Just because the tenant is renting the house, it does not mean that they will never spend money on the house. Maintenance items are required (air filters, light bulbs, lawn care, etc.) and are not paid by the owner.
This is obviously not a comprehensive repair policy, but it is a good start. Good luck!
Brett Furniss is the President & Owner of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords & Home of $100 Flat Fee Property Management. BDF Realty utilizes their innovative Pod System for exceptional customer service in residential property management, home repairs, and home sales (including Rent-To-Sell) for single-family homes, condos, and town homes in the Charlotte-Metro Area. Contact Us Today!
Learn MoreDoes It Matter If Your Property Manager Personally Owns Rental Properties?
When assessing property managers, does it matter if they personally own rental properties? This question is on the same line of thought as:
1. Are sports coaches better suited to coach if they were former players?
2. Is it preferable to have a nanny who is a mother care for your children?
3. Is it better to have former addicts speak at rehab clinics than clean-cut drug counselors?
You may be saying, “Whoa, Brett… could you come up with a better example in #2 above? What percentage of your property management blog readership has gone through the thought process of having nannies taking care of their children?”
Fair enough.
So, in short, the question is whether actual experience matters. I would argue that it does in most cases.
As a Charlotte property manager who owns personal rental properties, I have several things that concern me from painful experience. These may not have the same resonance with a property manager who has never personally dealt with the repercussions (aka writing big checks to other people) for the following:
1. Vandalism/Damage: Is the house in a good enough area that it can sit vacant without being broken into? Do I need to let the police know and put “No Trespassing” signs up? Can I let some of the neighbors I know around the house keep an eye on it? Nothing is worse than fixing broken windows continually when trying to show it for new renters.
2. Utilities: Am I going to be stuck with big utility bills when the house is vacant? I’ve received large water bills (from running toilets) and huge electric bills (from prospective tenants turning the air conditioning down to 40 degrees when visiting the property) from empty houses. In the back of my mind I’m weighing whether I need to keep the utilities on (based on the time of the year) or checking the home during showings to make sure things are kosher.
3. Tenant Wear & Tear: After screening a tenant and talking to their former landlords, it seems like he/she would be a good payer. On the other hand, it seems like he/she is careless and the house is going to need major cleaning and touch-up after he/she moves out in a year or two; this is going to cost big bucks and be a headache then. I know the short-term expediency of having a tenant move-in right away is going to turn into pain later after they move-out. I’ve written painful checks for these repair bills before. My stomach churns thinking about it.
4. On-Time Rental Payments: I’ve got mortgages to pay on the properties every month. I need to get the funds on time and in full so I can pay the bank. It’s not acceptable to not actively collect late rent; late fees must be enforced to dissuade late payments and tenants need to be encouraged to be on time. Unpaid days do matter!
These are just a few of the things that I think would be difficult to understand if a property manager doesn’t own rental properties. It’s one thing to read what not to do in a property management handbook and another to have to clean up messes with your own money. Experience is a very good teacher… and a harsh one.
As a learned man once said, “It’s not that bad to die in a video game. Just don’t try it in real life.”
Brett Furniss is the President & Owner of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords. BDF Realty utilizes their innovative Pod System for exceptional customer service in residential property management, home repairs, and home sales (including Rent-To-Sell) for single-family homes, condos, and town homes in the Charlotte-Metro Area. Contact Us Today!
Learn MoreBDF Realty’s Pod System Manifesto: Property Management… Better!
Bring back customer service; let me speak to a human
Customer service is dead.
It’s so frustrating you can never get a live person to handle your question or complaint.
After several minutes of music and advertising, you might even hear “all our customer service people are busy… You might want to go to our website to handle your problem.”
The message is loud and clear: Corporate America does not want to talk to anyone, any time!
Richard Lynch (Charlotte)
From his “Letter to the Editor” Charlotte Observer
As a Charlotte property manager and owner of BDF Realty, I was thinking about our firm’s value proposition the other day in the context of the “Big 3”. The “Big 3” value proposition is a formula that includes picking which two of the following a firm wants to excel at: Price, Quality, Customer Service
Realistically, no firm can excel at all three. McDonald’s, for example, shoots to be great at customer service and price; however, they know the quality of their burgers is not exactly filet mignon (you would go to Ruth’s Chris Steakhouse for that). On the same token, Ruth’s Chris Steakhouse wants to be great at quality of product and customer service, but know their prices are way higher than McDonalds; there are no Value Meals there!
So any firm that tells you they are great at all of the “Big 3” is probably not being overly truthful (including BDF Realty!).
So how does this boil down to property management?
Price: Most reputable property management firms compete on quality and customer service and forgo trying to position themselves as the lowest cost provider; BDF Realty is a member of this group. It helps that home owners are typically too smart to go with the lowest cost property management companies as their home investments are typically in the hundreds of thousands of dollars. Any mistakes in tenant screening, mismanagement, or prolonged vacancy would cost thousands of dollars and make any relatively negligible monthly savings on service quickly moot (without even mentioning health costs associated with a continuously elevated stress level!).
Quality in property management really boils down to technology and efficiency. Though very important, much of the impact of quality as a differentiator can be negated by software and hiring good people.
Customer service is really where property management companies should be competing and where BDF Realty aims to shine. Through BDF Realty’s innovative Pod System (PS), we look to eradicate the two biggest customer service killers: lack of personalization and lack of ownership.
Lack of Personalization
Michael Gerber’s book, The E-Myth, was a huge seller and really revolutionized the way businesses looked at systems. It made a great case about writing out all job responsibilities and then plugging people into the positions with a detailed function (compartmentalization). McDonalds was his textbook example of a restaurant becoming a multi-billion dollar company based on using systems that were so detailed that they could plug in high school kids and still turn out the same quality of product in any McDonalds restaurant in the world. There was a detailed set of instructions for the fryer person, the burger flipper, the cashiers, etc. Sounds efficient, right?
However, the one drawback to Gerber’s approach was the maddening lack of personalization when this process was taken too far. Uber-Gerber disciples thought that all business functions could be compartmentalized for the sake of cost. What resulted was the rigidness and lack of personalization we see when we interact with big businesses now.
Take banks, for example. A call to the bank to find out if your mortgage payment was received takes you through a number of menus and prompts. Then an automated voice might tell you after five or ten minutes after you punch in your account information. If you then want to see if there is a better mortgage rate available, you’ll need to go through even more voice prompts and wait to talk to a live person. You’ll need to give them your account information again. And if you want to let them know you’ll be travelling overseas so your credit card will work, and though they are the issuing bank, they’ll give you another number to call entirely! And you’ll input your account information again!
It’s frustrating, but personal customer service costs companies more money. To achieve personal customer service, companies need to pay and retain good employees who know you, what services you have, and what you like. The higher employee wage cost and the perceived loss of efficiency (for not using compartmentalization) is why it is not prevalent in today’s business world.
The bank example is not surprising because it is part of our everyday life; we’ve become largely numb to it. On-line services have relieved some of the customer service inefficiencies, but this approach is even more impersonal than the phones! Going on the website doesn’t make me feel any closer to the bank and neither does e-mailing [email protected]. Who is “support”? If they don’t get back to me, do I follow up with Support’[email protected]? Or how do I praise “support’s” handling of my issue? Can I contact them directly next time and get the same competent person? Will “support” remember who I am?
Of course not. And I see property management companies setting up their businesses with similar structures. The impersonal approach is simpler to manage when employee turnover is high. It would be easier to just plug in another newly hired person and not worry about changing the contact information.
Lack of Employee Ownership
The other common issue is lack of complete account ownership in property management. If customers have a problem receiving the monthly rent, they need to call the finance department. If they have a question about the repairs being made on their property, they need to talk to the repair department. If they want to know the progress of tenant placement into their property, they need to talk to someone else. Then they often get parked into multiple voicemail boxes! This can really be a headache. What makes it worse is when the person they need to speak to is not [email protected], but rather [email protected].
These “catch-all” e-mail addresses are making employees less accountable. And with this lack of accountability, comes an incentive problem. How do we tie in financial incentives to good performance when one property management account deals with so many different people? Did they leave our company due to dissatisfaction with not getting their rental payments in a timely fashion, or our reports are not what they wanted, or the tenant fill times are too slow, or the communication was poor, or some other reason? Did they stay and want to add other properties with us because of their work with a specific person? It makes it much tougher to correct what is wrong and reward what is right when accounts are overly compartmentalized. I don’t want to piece this information together from seldom filled-out, outgoing customer surveys!
So how is this fixed?
Let’s go back to the bank example and see how I would ideally like to deal with my bank. When I want to find out if they got my mortgage payment, see if there is a better mortgage interest rate available, and let them know by credit card is going to be used overseas, I want to simply write this e-mail (or text message):
To: [email protected] (cell # 704-902-7777)
Hey Jimmy-
Hope you had a good time in Aruba! And congrats on wife #2.
Could you check on a couple of things for me:
1. Did you get my 10/13 mortgage payment?
2. Is there a better mortgage interest rate available that I should be considering?
3. I’ll be in London from 11/13-19 and need to be able to use my credit card without getting busted for fraud J. Can you let the “powers that be” know?
Thanks!
Brett
Why is this e-mail laughable based on service levels now? A bank customer service employee wouldn’t even know how to begin answering this e-mail.
4 Requirements for an Ideal Customer Service Relationship
My customer service needs for an on-going business relationship (like property management) boil down to 4 things:
1. I need a single point of contact for almost all issues (with a real name / e-mail / cell phone)
2. I need to have the ability to reach them directly during business hours (my vendors are allowed to have a life outside work…)
3. They need to know who I am by name and what business I do with them
4. I need to know they care about keeping my business
BDF Realty provides these four requirements through our innovative Pod System!
Property Management Solution- The Pod System
So what is the property management solution for differentiated customer service? BDF Realty strongly advocates and utilizes the Pod System. It’s very simple.
At BDF Realty, every property is assigned a Pod Owner (PO). PO’s are managed by a Pod Manager (PM). The PO:
1. Is the single point of contact for an assigned set # of properties
2. Fosters a tight relationship with the owners and tenants (their clients)
3. Handles all needs for the properties except:
a. Prospective tenant inquiries
b. Initial home fix-ups to prepare the homes for market
c. Outside business hour repair requests
The incentives are in place where the PO has complete ownership and dictates their own earnings based on the financial performance of their pod. The PM just keeps the PO’s on track and measures their activity with the following metrics:
1. Active properties in their pod under management
2. Commissionable items (lease extensions, tenant procurement, etc.)
3. Google Reviews & customer feedback
Being that a BDF Realty PO’s earnings are based on their pod’s monthly financial performance, the PO has a direct incentive to:
1. Treat owner clients well so they retain their management business, add other rental properties they have, and gain referrals
2. Screen tenants well because non-paying tenants are not commissionable and this directly affects their monthly earnings
3. Keep tenants happy so they pay rent and sign lease extensions
BDF Realty’s innovative Pod System promotes personal accountability and employee ownership in residential property management. By increasing customer and employee satisfaction, a true customer service differentiator is achieved.
The Pod System does not reinvent property management; it just makes it… better!
Brett Furniss is the President & Owner of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords. BDF Realty utilizes their innovative Pod System for exceptional customer service in residential property management, home repairs, and home sales (including Rent-To-Sell) for single-family homes, condos, and town homes in the Charlotte-Metro Area. Contact Us Today!
Learn More
Reviewing the Lease: 3 Simple Things Good Tenants Should Do (And How to Check!)
As Charlotte property managers, we meet with each new tenant and review the rental lease packet (lease, maintenance addendum, move-in inspection form, and, if applicable, the pet addendum) with them before we both sign it. We even send the lease packet via email to the tenants a week before move-in so they can review it and ask any questions prior to our meeting (before they potentially sign their lives away!).
This brings up the million dollar questions-
1. Is this largely a waste of time?
2. Does anyone really read through up to 13 pages of legalese gibberish?
3. Is it necessary to send it to them for early review and then go through it in person?
Answers:
1. No… it only feels like it sometimes…
2. Some actually do read all of it and are prepared with questions (10% – 20%)
3. Definitely!
Why “Definitely!”?
I like sending the lease to the tenants for early review. In the United States, ignorance is no excuse for breaking the law. Providing a clear, reasonable path for tenants to digest, question, and understand the expectations of their lease agreement is a good thing. This shifts the onus on knowing the lease from reasonable negligence (“I saw the lease for the first time when we sat down to get the house keys! If I didn’t sign it, I wouldn’t have a place to live!”) to passive acceptance (“Hmmm… It was provided to me, but I chose not to read it over…”).
In terms of reviewing the lease in person with a new tenant, I don’t think it is necessary to go over it point-by-point. Most of the things in the lease govern what would happen in worst-case scenarios; being able to answer any questions the tenants have about obscure items in the lease should suffice. However, the following three things that make for a good tenant should be spelled out (and if the tenant screening is done correctly, we’ve already checked on these during the application process):
1. Good tenants pay in full and on-time: this is why we do credit checks (do they pay other people on time?), landlord checks (did they pay their previous landlords?), and employment and income checks (can they afford the place?)
2. Good tenants maintain the house: this is why we do landlord checks (did they keep and leave their prior place in good shape?) and include the maintenance addendum (the things they need to do to keep the house up- change air filters, mow the lawn, etc.)
3. Good tenants get along with their neighbors and society at large: this is why we do criminal background checks, landlord checks (did you have any issues during their rental period?), and pet addendums (if your pet does things we don’t like, we can legally ask you to remove it from the home within 48 hours)
If you can narrow the focus to the lease signing (and tenant screening) to these 3 points, you should be in for an enjoyable tenancy!
Brett Furniss is President & Owner of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords. BDF Realty manages single-family homes, Uptown condos, and town homes in the Charlotte-Metro Area with services that include property management, home repairs, and home sales (including Rent-To-Sell).
Learn MoreSection 8 Offers “Free Rent”? 5 Reasons Many Landlords Still Choose Not To Participate
I saw an ad for a Section 8 speaker touting their government-sponsored rental assistance program as “Free Rent” for landlords. I had to laugh. As we’ve been told our whole lives, nothing worthwhile is free. And the Section 8 program is not an exception to the rule.
For the uninitiated, the Section 8 housing program allows people who earn under a certain income to receive a housing voucher to partially subsidize or pay for their rent in full. This seems like a boon for landlords.
The process looks like this: For the tenants, they need to scour rental home ads and find landlords who are willing to accept Section 8 vouchers. For the landlords, they need to willingly accept them. The problem is that many landlords choose not to accept them, which seems strange. The landlords do not want government-guaranteed “free rent”?? Well, maybe free isn’t always so free…
A big misconception is that the tenants are the reason landlords hesitate to accept Section 8 vouchers. To me, this is patently false. Some of our nicest and best tenants use Section 8. Really, on our rental applications for Section 8 tenants, we run them the way we typically do, but deemphasize income and credit score requirements as Section 8 has them partially backstopped.
So, if the tenants are good, why not accept Section 8? The 5 main reasons many landlords choose not to accept Section 8 vouchers:
1. Too much paperwork. It’s not easy for landlords, especially non-real estate professionals, to navigate the process.
2. The governmental standards for housing are really high and your house will fail the inspection. Slum lords (ex: the type of people who ask if tenants really need clean, running water) are not the only people that fail; almost everyone fails the inspections. I can speak from personal experience, anecdotal evidence, and conversations with the inspectors. I asked one inspector what percentage of homes passed their first time and he laughed. “Seriously? Zero percent. I’m not kidding.” He went on to say that his own house wouldn’t pass a Section 8 inspection. Our latest fail report had paint splatter on a strike plate and a loose electrical outlet as reasons it failed. When there are hundreds of items that the inspectors are looking for, you are behind the eight ball.
3. Customer service is typically unresponsive. I don’t really blame the employees. The workload that is saddled on them is immense. I asked an inspector the other day a question about a failed item on the inspection report and she exhaustedly told me she couldn’t remember- she conducts 15 different home inspections every day! So, bottom line, getting anything accomplished with them takes a lot of time, energy, and follow-up.
4. Waiting is the hardest part. We had a house that took 5 weeks to get an initial inspection. So, for 5 weeks, we ate the rent and utilities as the house stood vacant. There was no “free rent” or sympathy. After the home inevitably failed, there was another 2 week wait for a reinspection. The combined 7 weeks of non-recoupable utility and mortgage payments hurt. So did the vandalism that occurred as the house sat empty.
5. Re-inspection failures and rent abatement really hurt. So, let’s say you pass the initial inspection and the tenant moves in. At the ten-month mark of the tenancy, there is a reinspection where the Section 8 inspectors look for housing violations. We used to occasionally pass these, but that hasn’t happened in the past few years due to stricter regulations. The inspectors will find new things that happened during the tenancy; sometimes they find things they missed on the first inspection. Our latest fail was partially for a loose banister.
The problem with failing reinspections is that you are given one chance to fix the items. They provide a punch list so it should be as simple as giving it to a handyman to fix, right? Well, the descriptions detailing what is wrong are nebulous and getting the inspectors on the phone to ask them to remember your home and a specific issue is not likely. The handyman does the best he can, but when it fails, you enter into the unfriendly world of rent abatement.
Rent abatement is how property managers get fired and cash flow becomes difficult. It starts with the failed second inspection. This letter comes a week after the inspection letting you know what items you failed. You are instructed to fix the outstanding items and then schedule a final reinspection. During this time, not only is rent deducted for the abated period while waiting for the final inspection (your bank account is debited the following month on the 1st when payments are made), there is no rent paid for the coming month. For example:
Your rent due is $900/month and your abated 2-week period costs you ($450).
On the first of the month after abatement, not only do you not receive the $900 due (and the tenant is still living in your rental home and the bank wants your mortgage payment), you are clawed back $450 (payable immediately). This essentially puts you in the hole $1,350 (not counting the funds for the repairs on the home). Cash flow becomes a big issue. This is when “free rent” becomes “free rent” for the government. You’re a great citizen to do this, but you don’t feel so great when this happens.
If you pass on your final reinspection, you will get the $900 back the following month (the $450 is gone forever). If you fail, your contract with Section 8 is terminated and the tenant is free to leave. This presents a much bigger problem as the tenant usually doesn’t have money to pay rent, Section 8 is not paying you, and the tenant needs to enter the arduous, time-consuming process of finding a new Section 8-eligible home (while living rent-free in yours).
In closing, Section 8 can be a good program if you know it well and have repair people very familiar with their changing requirements. However, “free rent” for landlords is a gigantic misnomer and is about as far away from the truth as you can get. It can be intelligently argued that Section 8 vouchers are much more risky than working with non-subsidized tenants. “Nothing is free” is the true mantra!
Brett Furniss is President & Owner of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords, managing single-family homes, condos, and town homes in the Charlotte-Metro Area. BDF Realty’s services include property management, home fix-ups, and home sales, including Rent-To-Sell (“When You Need a New Solution to Sell Your Home”). His newest book is 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!) which is available on-line now.
Learn MoreCharlotte Property Management Monthly: 5 Crucial Expectations to Set Verbally With Your Tenants at Lease Signing
I’m a big believer in setting expectations in relationships; it seems to make things go more smoothly. If you know clearly what you’re supposed to do and I know what I’m supposed to do, there is less opportunity for hurt feelings and animosity. A beautiful, life-long relationship can blossom! (Cue the romantic music…)
This is why many married couples say the first year of marriage is the hardest. There is no book of set expectations for each partner; it’s created on the fly. The idyllic vision of married life begins to fade quickly when real life is thrust upon them. Who pays the bills? How many days are you staying out late with your buddies? You want me to iron the clothes? These fun questions need to be addressed and expectations of conduct need to be negotiated so both spouses are (mostly) satisfied. There is no marriage contract that explicitly spells this out.
Fortunately, a landlord-tenant relationship is governed by a set of rules known as “the lease”; this should theoretically make things easy! A lease is a perfect way to express your expectations to your tenant. That sounds good, but how come there often seems to be hurt feelings and bickering in leasing relationships? From the landlord’s perspective, the tenant should read the contract and follow it to the letter, right? If the tenants did everything the lease said, there would be no issues. So, of course, the issue lies with bad, rebellious tenants.
Wrong. The problem is a society who doesn’t have the time to read anymore. You are in the minority that you have made it past the Twitter-restricted 180 characters and are on to the fourth paragraph of this blog. Congrats! Pat yourself on the back!
And the standard lease is not exactly a page turner! It is legal jargon with no cool pictures or diagrams that goes on for page after long page…
If you want your tenant to know what you want them to do, you must verbally tell them. They will remember what you say and will usually act accordingly. Your leasing relationship will be the better for it! Guaranteed.
Tell the tenants what you expect (the Cliff Notes version please!) and what you are going to do for them (and won’t do for them!). The five most important things I make sure I cover with tenants in our lease signings:
1. The date the rent is due (the 1st of the month), the day it is late (it must be RECEIVED by the 5th of the month), and the day eviction is filed (the 16th) if we don’t hear from them and work something out. I also mention the late, bad check, and eviction fees that would be due in each scenario.
2. Where their security deposit is, what it is for, when it will be returned (within 30 days after move-out), and under what conditions some of it may be withheld.
3. Explaining that aesthetically the home is “as is”. When things stop working (HVAC, plumbing, etc.), what the repair process is and how it is handled.
4. I explain the 3 keys to a good tenancy: paying your rent on time, getting along with your neighbors, and keeping the home in good shape (including standard maintenance).
5. How early lease terminations are handled. Life happens and this is how you can get out of your lease and keep your credit intact. (Note: We ask that a 30-day notice be given along with 2 months of rent as a lease termination fee, in addition to the rent due up to the vacancy date)
6. Bonus item message to give for property managers: “We are not the owner of this home. We are the messenger. We don’t always like being the messenger, because messengers get shot sometimes. You don’t need to shoot us. We’d actually really appreciate it if you didn’t.”
This isn’t a comprehensive list, but it is important to remember that attention spans are not endless. These five points should be helpful in having a great relationship with your tenant!
Brett Furniss is the President & Owner of BDF Realty (Charlotte Property Management) which works with Charlotte real estate investors and homeowners and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)
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Selling Rental Properties: 3 Free Steps To Determine Whether You Should
There’s been a lot of good news of rising home prices coming from the Charlotte housing market, as well as the rest of the country. For real estate investors, this news is a mixed bag. There are less great buying opportunities for them, but their net worth is increasing. It also presents a good opportunity to turn their home assets into cash.
Making money on selling rental homes is a nice aspect of the investment real estate game. Buy low, sell high. When a real estate investor is able to do this, life is good! It makes all the repairs, waiting for late rental payments, and extra tax work worth it!
Let’s face it, there are two main joys of selling investment homes:
1. A good amount of cash is transferred into your pocket
2. The worry about your extra home is gone and given to someone else!
So if you have an investment property that you may want to sell, here are 3 free steps to make a quick determination on whether you should:
1. Determine the value of your home: Ask your property manager or friendly Realtor a realistic range of values for your home. Why a range and not a fixed number, you ask? Real estate pricing is subjective. If your home is in great shape and in a desirable section of the neighborhood, your home should sell in the top of the range. If it’s been beaten by years of tenants and little fix-up has been done, it will be in the lower range of the values. Estimate low for this exercise.
2. Estimate selling costs: Nothing creates a bigger vacuum of air on the phone when I explain that owners should factor in 10-15% in selling costs. After the initial scolding pause, they ask the requisite question, “What? How do you figure that, brother?”
This general estimate of 10-15% is computed by:
6% Realtor fees
1% Miscellaneous seller closing costs
3-8% Less than list price offer and seller concessions (typically paying for the buyer’s closing costs)
For example, MecklenburgCounty (Charlotte) currently has an average offer acceptance of 92% of the list price (and this is on the rise from 90% from last quarter).
3. Find out your loan balance: For a general idea, just look at the loan balance remaining on the monthly mortgage statement. If you don’t get a mortgage statement, you’ll really like this exercise!
Once these 3 figures are retrieved, the math looks like this:
Value of home (be a pessimist!) – Estimate the cost to sell (say 12%) – Your loan balance = Profit (or loss)
For example, take a $100K house with a loan balance of $60K:
$100K (home value) – $12K (12% of $100K) – $60K (loan balance) = $28K (Profit!)
This is a general estimate of whether it is worth putting your home on the market to sell. Now you can decide whether this approximate dollar figure works for you.
Selling homes can be a very good thing for your wallet! Just use this simple exercise to see if it is worth doing at any given point in time.
Brett Furniss is the President & Owner of BDF Realty (Charlotte Property Management) which works with Charlotte real estate investors and homeowners and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)
Learn More