Section 8 Program Worth Revisiting? A Definite Maybe
No one really liked Janie. And there were a lot of reasons why. For a teenager, she was pretty much a know-at-all. Stubbornly obnoxious. She would not let you get a word in edgewise. Always right. Rude. Cocky. Maladjusted. And that was just her award-losing personality. And physically? Her scrawny frame, big glasses, and overflowing braces (often full of food scraps) made her equally unappealing.
Now fast forward 5 years in the life of Janie. After years of dejection, she has softened a bit. Instead of looking completely past you before beginning her monologue on her life’s recent happenings, she’ll toss a few platitudes your way that make you feel a small connection. “How are you doing?” “How’s your brother? “You get that mole taken off your back yet?” She’ll still take the last doughnut off the plate in front of both of you, but now she’ll pause and feign a glance your way for approval. She still texts constantly when you talk, but now raises her head for momentary eye contact when you bring up your mother’s cancer treatments. And her scrawny body has filled out, she started wearing contact lenses, and has a nice straight smile now; some may say she isn’t bad to look at, relatively attractive even.
But Janie’s not for everyone. Maybe not for most people. But some people “get her” and even go out of their way to be around her. Some of your friends have even dated her.
Ever know anyone like that?
The Section 8 program is like Janie in a way. Several years ago, I wrote how we needed to get our landlords out of the Section 8 business because it was impossible to get a good ROI for our owner clients. As a Charlotte property manager, we couldn’t cost justify the lower rents, costly repair items, poor communication, and overall effort needed to recommend the program. And I still get a little queasy thinking about it.
As a footnote, we do have clients that have kept their homes in the Section 8 program. The owners allowed the tenants to keep renewing their leases (most at significantly below market rates) and the Section 8 tenants chose to do so. The advantages to our owners are continued rental payments and not having to fix-up their properties to get them market-ready for new tenants. The negatives are that as Charlotte rental rates have been going up 5-10% annually, Section 8 has capped their permitted rental increases (if approved) to 2% annually (in real numbers: $900 monthly rent = $18.00 rent increase- not much to get excited about). Section 8 also conducts annual inspections which almost always lead to an owner repair bill; some of the items would never have to be repaired if the house didn’t have to meet many government regulations (re: peeling paint on ceiling, etc.).
However, in the past 6 months, Section 8 has enacted 2 changes that I thought were very landlord friendly:
- Locking a tenant into a property if they have lived there for 18 months. The owner has the option of not renewing the lease, but the tenant does not have the option of moving if they want to stay in the Section 8 program.
- Changing house inspections from annually to biannually. So, now the repairs only have to be made every 2 years (which is a huge deal for landlords who have gone through the nightmare of rent abatement for multiple inspection failures).
This still doesn’t make Section 8 work for everyone, but it might start making sense for some people. And as responsible property managers, it is something we will need to consider recommending again for certain owners (risk averse) and certain properties (difficult to fill, long term investment holds, areas of historically low rent appreciation). While the private rental market might be compared to the stock market (higher yields, more volatility), the Section 8 market might now be compared to the bond market (lower yields, steadier income).
So… your best buddy saw Janie the other day and said she was looking good and they had a nice chat. He said she asked about you. Your stomach still churns when thinking about your past dealings with her, but since she’s interested, maybe she’s worth meeting up for coffee? Maybe she’s changed?
Anyway, it’s something to think about- a definite maybe. Happy landlording!
Brett Furniss is the head property manager of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords & Home of $100 Flat Fee Property Management. BDF Realty utilizes their innovative Pod System for exceptional customer service in residential property management, home repairs, and home sales for single-family homes, Uptown condos, and town homes in the Charlotte-Metro Area. Contact Us Today!
Learn MoreWho Pays Incidentals When Things Break? A Rental Home Dilemma
The Situation:
The tenant (Mitch) has received higher-than-average water bills for the past two months. He calls his Charlotte property manager who sends out a plumber to investigate. The plumber says there is a pipe cracked underneath the driveway that will cost $2,500.00 to fix.
Mitch’s take on the situation:
“I just rent here. My water bill is usually $60.00/month. The last 2 months it’s been $150.00/month. So, I’m out an extra $180.00 at no fault of my own. I pay my rent on time every month and don’t have the budget to afford this. If you ask me, the owner is lucky to have a tenant like myself that doesn’t cause any problems.”
Bottom line: Mitch requests a $180.00 reimbursement from the owner for excessive water expenses.
The owner’s take on the situation:
“$2,500???? The rent on this place is $1,050.00/month, so I’m looking at 2.5 months of rent down the drain. How does a pipe crack happen under a concrete driveway?? And the tenant wants an additional $180.00? Please let Mitch know that I didn’t burrow under his driveway a few months ago with a hammer and smash the pipe. Let me get back to you on where I’m going to get the money to pay the mortgage and for this pipe leak. I think there is assumption that because I’m the landlord, I have millions of dollars sitting around for this type of stuff. Not true!”
Bottom line: The owner does not look at Mitch’s request (or the entire situation) favorably.
So who pays the incidental water expense?
First of all, this is a bad situation for everyone, with the exception of the plumber. The tenant has higher water bills at no fault of his own. The owner has a broken pipe at his house (and an unhappy tenant) at no fault of his own.
In life, things break. And things sometimes break with no one at fault. We’re in a society that expects 100% uptime on everything, but that is a fallacy in a world where things wear and rust out. And when things break, there is cost and (usually) a mess to clean up. And everyone expects some other party to pay for it (not me!!).
So we have to go to the lease for guidance. Most standard leases that I’ve seen say that unless there is “willful or wanton negligence” on behalf of the landlord, landlords are not responsible for incidental damage from things breaking. (Note: I’m not a lawyer and don’t even play one on TV)
If the landlord sent someone to fix an issue in a reasonable amount of time, he should be in the clear from having to pay additional costs beyond the repair. That’s not to say there may not be additional factors involved that may compel the owner (or tenant!) to offset the other’s financial outlay. But, normally speaking, the lease seems to offer this protection to the landlord.
So, if you are the tenant, what to do? If Mitch has renters insurance (which is a requirement of our leases), he has another venue to ask for relief from.
We’ve had other similar examples: a hot water heater leaking on to a laptop, food being ruined from a refrigerator breaking down, and others. To the tenant, it is a loss of a computer or replacing spoiled food; to the landlord, it is buying or repairing a hot water heater or refrigerator. Ugh!
Bottom line: When things break, it is not a good situation for anyone. But realize that it is a part of life that is 100% guaranteed to happen to you many times. Try to be civil and understanding when it does. Neither party likes it!
Happy Landlording!
Learn MoreThe Miami Heat Big 3 & Your Property Management Maintenance Team
The Charlotte Hornets opened up the NBA season the other night against the Miami Heat. For NBA fans, this is exciting stuff! The Hornets hope to replicate some of the past success of the Heat, while the Heat are looking to find success again.
How well have the Heat done in the past 5 years?
2011: Eastern Conference Champions
2012: NBA Champions
2013: NBA Champions
2014: Eastern Conference Champions
2015: Missed playoffs altogether
So things were rolling from 2011-2014. Making the NBA Finals every year (and winning twice!) is unbelievable excellence. How did they achieve this?
It started with the Heat picking up two great players, LeBron James and
Chris Bosh, in free agency after the 2010 season. When they paired them with Dwayne Wade, their existing All-Pro, they had the talent to take on anyone in the NBA. And through hard work, they bonded together and had immediate success.
Along with the “Big 3”, the Heat had a good bench of role players, which changed often from year-to-year. But as long as Bosh, Wade, and King James were pulling the scoring load, the Heat’s role players were able to offer enough support to make them champions.
The Heat’s success also translates into winning property management maintenance.
90% of property maintenance issues with rental homes can be handled by another kind of “Big 3”:
- HVAC company: Air conditioning and heat are a big deal for tenants. Having a reliable and timely HVAC company on call is huge.
- Plumber: Sanitation, leaks, and hot water heaters are also very important.
- Handyman: For the “miscellaneous”- Broken windows, doors, drywall repair, paint, power washing, gutter cleaning, etc., etc.
If the maintenance “Big 3” are intact, the rental home should be in good hands for landlords. They will handle most of the on-going issues.
But never underestimate the role players; they are called less often, but play vital roles. Vendors such as pest companies, roofers, electricians, painters, house cleaners, carpet cleaners, lawn care, and others are important to have on your team as well.
So what, you may ask, happened to the Heat in 2015? King James left the team as a free agent to go back to play for his hometown Cleveland Cavaliers. Bosh and Wade both missed many games due to injuries. And the remaining, healthy role players around them couldn’t shoulder the load themselves without them.
Having the “Big 3” is important to property maintenance success. If one is lost, making sure a worthy replacement (Kevin Durant to the Heat in 2016?) is imperative!
Happy landlording!
Brett Furniss is the head property manager of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords & Home of $100 Flat Fee Property Management. BDF Realty utilizes their innovative Pod System for exceptional customer service in residential property management, home repairs, and home sales for single-family homes, Uptown condos, and town homes in the Charlotte-Metro Area. Contact Us Today!
Learn MoreDo You Want to Rent Your Charlotte Rental Home to Anthony?
Who needs a house out in Hackensack
Is that all you get with your money
It seems such a waste of time
If that’s what it’s all about
Mama if that’s movin’ up
Then I’m movin’ out
I’m movin’ out
“Movin’ Out (Anthony’s Song)” by Billy Joel
People move out and relocate for many reasons- a new job, real love (isn’t that sweet!), real love that really isn’t (not so sweet), the need for new scenery, the need to get out of town (Jack Bauer fleeing the US for the UK in Season 9 of 24), Anthony getting out of Mama’s house, etc…
And most of them, like Anthony, need to find a place to live. So property managers get rental applications from out-of-town folk and need to screen them. It seems like it would just be business as usual. But there are more factors to consider.
We’ll start with the basics:
- Credit check: Anthony saves his pennies, so I’m optimistic.
- Criminal check: He seems frustrated, so we’ll have to see on this on.
The income check seems straightforward; people make what they make. But figuring out how much free cash flow is available can be muddled if the prospective tenants have financial baggage where they are coming from. For example, are they homeowners? That’s another house payment they are responsible for, and one that could rival where available funds would go if things got tight (pay for the house they own or pay rent for the one they don’t?). If they make enough to afford two house payments, that’s great. But most people don’t and it adds a layer of risk. Renting out or selling their out-of-town homes is an uncertain thing and can provide short and long term cash requirements. However, Anthony lives with Mama, so he’s good there with no extra house payment.
The employment screening also adds a potential issue. Unless the prospective tenant is in largely the same work position with the same boss at the same company, there is uncertainty on how things will pan out. When a prospective tenant has been in a job for a year or two, it shows they can get along, handle the job, and fit into the corporate culture. New jobs in new cities are a step into the unknown. And that creates a greater amount of risk. Is Anthony transferring to Charlotte with a position with the same grocer or does he hope to latch on with the local Harris Teeter? This adds some uncertainty to his application.
A quick caveat: “Risky” doesn’t necessarily mean bad. When I think of our best all-time tenants (sigh… love you guys!), many of them were relocators with the “issues” described above.
So what to do about Anthony? His credit score will be a big indicator. If he is in the 700-800 range, this tells me he knows how to handle his finances well and can make things work through potential adversity. If it’s in the 500’s, I’m more nervous.
And cash is king. How much in liquid assets does Anthony have? He can send bank/brokerage statements that can prove he has funds to fall back on or tide him over until he’s up and running in Charlotte.
Anthony may want to get out of the Tri-State area, shun Hackensack, and come to Charlotte, but smart landlords will want to check Anthony’s application closely. He may still need to stay in Mama’s house for a little longer to save more money, line up a job in Charlotte, and pay his bills on time to improve his credit score.
Brett Furniss is the head property manager of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords & Home of $100 Flat Fee Property Management. BDF Realty utilizes their innovative Pod System for exceptional customer service in residential property management, home repairs, and home sales for single-family homes, Uptown condos, and town homes in the Charlotte-Metro Area. Contact Us Today!
Learn More5 Important Steps Not To Forget After Locking In Your Rental Tenant (With Extra Credit)
I finally did it! I found a tenant! Now good times are here! I can just sit back and spend the rent money. Oh yeah!
(Landlord reaction after placing a tenant into her rental home)
It is a good feeling getting your rental home filled! The house preparation, the marketing, the showings, the rental screening, the deposit collection… it’s exhausting, but usually means that you are in the clear from doing it again for at least a year. That’s something to celebrate!
Great tenant placement is about 75% of the heavy lifting good property managers do. Getting past this hurdle is a great accomplishment! If high standards were kept throughout the screening process, a fruitful, peaceful tenancy is extremely likely.
But after the bubbly has been consumed, the noise makers silenced, and the euphoric feelings have subsided, a question sometimes starts to gnaw at your innards:
What have I forgotten to do?
This is a perfectly normal reaction. And, fortunately, it has a very easy answer. Here are 5 important steps not to forget after you’ve locked in your rental tenant (with ways to earn extra credit):
- Make sure the new tenants know where, to whom, and when to send the rent checks. Priority #1!!
Extra Credit: Send a reminder 7-10 days prior to the due date every month (I like e-mail).
- Call your insurance company and let them know you need to change your policy from a home owner to a landlord. I haven’t seen any price changes personally from doing this. Extra Credit: Make sure your tenant has a renter’s insurance policy.
- Make sure all utilities are scheduled for shut off when the tenant moves in.
Extra Credit: Allow 3-5 days after the tenant’s move-in date to schedule the shut-off. It’s tough to live without utilities and moving time is busy. It’s perfectly decent to be thoughtful!
- Cut off the lawn service after the tenant moves in.
Extra Credit: Have the lawn mowed the day before tenant move-in. It’s a nice gesture and sets a precedent on how the lawn should be kept.
- Exhale and put your feet up! You’ve done it! Never miss an opportunity to celebrate!
Extra Credit: Head to your nearest Caribbean island ASAP.
Brett Furniss is the head property manager of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords & Home of $100 Flat Fee Property Management. BDF Realty utilizes their innovative Pod System for exceptional customer service in residential property management, home repairs, and home sales for single-family homes, condos, and town homes in the Charlotte-Metro Area. Contact Us Today!
Learn MoreTenants with Pets: 5 Steps to Protect Your Rental Home
As a property management company in Charlotte, we sometimes get the most touching letters from owner clients. I’d like to share one of them entitled, “Pets in My Home Please!”
Dear BDF Realty,
Thank you for agreeing to manage our property; we’ve worked really hard to make sure our property is upgraded and clean for the new renter. The new paint and carpet really makes it show well! We know you’ll do a great job with it (BDF side note: thanks!).
We do have one small request. We are huuuuuge pet lovers. Could you make sure that you rent to a family that has as many pets as possible? The bigger the animals, the better! It wouldn’t seem right to have a nice, big house without housing as many of God’s creatures as possible. We’d consider reducing the rent for tenants who can prove they have a large and varied brood of animals. Thanks!
Regards,
Pet Lover
P.S. Not to be too picky, but we’d also like to give preferential treatment to those prospective tenants who have unneutered pets. The thought of them giving birth to a litter in our rental home just sends shivers of joy down my spine!
P.S.S. Think Noah’s Ark on land!
OK, this letter isn’t real. I’ve never had any owner clients who said they liked the idea of having pets in their rental homes. But if that’s the case, then why do almost all of them wind up accepting pets?
It’s simply because most tenants (easily over 50% in my experience) have pets. And most pets do not damage homes.
Let’s take a moment to acknowledge our fears with the following scenario. A nefarious and unkempt tenant has been breeding an even more nefarious and unkempt dog, with the scary moniker of “Gargoyle” (Gargoyle is a great student who has far exceeded his master’s nefariousness and unkemptness). They move into your rental home. Unfortunately, Gargoyle sometimes doesn’t allow himself to be walked and winds up doing his business in the house. Gargoyle is also crazily aggressive and enjoys chewing on all door beams and scratches the paint off the walls. After a year of making your home his lair, Gargoyle and the tenant move out to destroy another rental home…
What happens? After move-out, you (or your property manager) does a walk-through. The damage is clearly above normal wear and tear. Some walls need to be repainted, the carpet either needs to be professionally steam-cleaned or replaced, and some door beams need to be replaced. All of this is taken out the security deposit. In worst case scenarios, the damage is above the security deposit, and the tenant is sent a bill for the balance. And when you have a tenant who is known for his nefariousity, he may not pay it. Then court action to collect the balance would be necessary. It’s not ideal, but not catastrophic.
Fortunately, this is very rare. 99% of the time, if there are any pet issues, they can be taken care of with carpet steam cleaning and a professional cleaning, which usually need to be done after a tenant moves out anyway.
But how do you protect yourself from a Gargoyle experience? Try these five tactics:
- Collect a high pet fee upfront for the right to have a pet on the property
- Collect additional security deposit monies
- Screen the tenant thoroughly upfront. What kind of pet do they have? How big? Is it an aggressive breed? What did their past landlords say about them after they moved out? Was the property left in good shape or was it torn up?
- Put a clause in the lease that if any pet issues arise, the tenant can be asked to remove it within 48 hours
- Inspect the property early in the tenancy to see if the pet is doing any damage
For the most part, pet owners are responsible and will not adversely affect the rental home. Tenants have friends and family over to the house (like you) and would be embarrassed if their house was unsightly and reeked of pet.
Don’t let visions of Gargoyle mess with your head! Take the aforementioned steps to protect yourself and your pet issues should be minimal.
Brett Furniss is the President & Owner of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords & Home of $100 Flat Fee Property Management. BDF Realty utilizes their innovative Pod System for exceptional customer service in residential property management, home repairs, and home sales for single-family homes, condos, and town homes in the Charlotte-Metro Area. Contact Us Today!
Learn MoreShould I Sell My Rental Home?
From the mail bag… (aka a question I may have made up to write about)
Q: I have a few occupied rental homes and wonder if I should sell one of them now that the market seems to be improving. What are your thoughts?
- Oh, this is a surprising question from left field! And a great one! Kudos to you, mighty thinker!
It is a tough decision on whether to unload a rental property. If you decide it may be time to do so, the first thing is to establish whether you can by asking 4 questions:
- What is the realistic value of my property? Have your trusted real estate advisor run sales comparables and put your home’s value at the low end of the range for estimating purposes.
- How much will it cost to get my property in sales shape? In my opinion, there is a difference between getting a home in rental shape and sales shape. With a rental, you may get away with steam cleaning the carpet and touching-up the paint; with sales, there is a lower threshold for cosmetic issues which may mean replacing the carpet and repainting the house.
- Do I have the money to cover the mortgage and utilities while the rental home potentially sits vacant for months? Generally-speaking, showing a home effectively with tenants in it is tough.
- Do you have the money to pay the selling costs (Realtor fees, closing costs, less than full market offer, etc.)?
So, the math looks like:
Answer #1 – Answers #2, 3, and 4 = $$ (hopefully a BIG, positive number)
Then the question is: Is $$ above worth selling the property for?
If so, do it. If not, continue to hold the rental until the market and your mortgage balance improves further.
However, there is a scenario that skews the math and lets you skip cost items #2 (home cosmetic fix-up) and #3 (home vacancy costs), and eliminate or reduce #4 (selling costs in terms of Realtor fees)…
- OK, I’ll bite. What is the scenario?
- When the tenants in your rental home want to buy it for themselves.
This is the #1 question to ask if you think you may want to sell your rental homes. ALWAYS ask the tenants first. If they do want to buy it, get them in touch with a mortgage broker and see if they qualify.
If they qualify, this is a win-win exit strategy. The tenants get to start building equity in a home that they already love. And you, the owner, get to avoid much of the costs and uncertainty of selling your rental home.
And what if the tenants proactively ask you if you are willing to sell your rental home to them when you’re not quite sure you are ready? You want to think REALLY long and hard about it. These opportunities don’t come up that often and you need to make sure that it is something you really don’t want to do.
Cash is king and the purpose of investments is to make money. Two well-worn adages come to mind:
A bird in the hand is worth two in the bush.
AND
Buy low, sell high!
Happy investing!
Brett Furniss is the President & Owner of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords & Home of $100 Flat Fee Property Management. BDF Realty utilizes their innovative Pod System for exceptional customer service in residential property management, home repairs, and home sales for single-family homes, condos, and town homes in the Charlotte-Metro Area. Contact Us Today!
Learn More3 “Insider Tips” When Buying Your First Rental Home
I got a call from a friend of mine from college, “Rich”, a few weeks ago. After the prerequisite ribbing was completed (Do you have any hair left? Is your Linked-In profile photo from your high school yearbook? Are you still awful at basketball?), Rich got down to business:
“I’m thinking of buying my first rental home for investment. Got any advice?”
Me: “Ummm… have you looked at the blog I’ve been writing for the past 5 years entitled ‘Charlotte Property Management?’ It seems like all I do is spout out advice on this stuff.”
Rich: “Sure… I read it all the time, sometimes to my kids at night. I meant any other advice for the special people in your life.” (wink, wink)
Me: “Oh, the “insider tips”? Of course! It will cost you, though!
I suppose “insider tips” means the advice from people that have been burned (or are getting singed monthly) on investing errors. They now know better.
My top 3 insider tips for first time investors:
- Don’t buy in low-priced areas (aka places where you are buying the house for under $75K in Charlotte).
Common retort: “But I can get the house for $15K. There is a tenant paying $400/month. And I could buy 10 of them just like this one. The cash flow would be insane!”
My response: Can you stomach getting calls that say any of the following:
- I just saw someone get shot in my driveway!
- The air conditioning unit got stolen again. Should we order you another?
- I think my flooring is caving in.
Sadly, I’ve gotten these calls. I (and my checkbook) didn’t enjoy taking them.
- Hire a great property manager. I know I’m biased, so I won’t expound on this. Suffice to say, you don’t know what you don’t know. And you may enjoy cost savings from not paying a property manager for years; then you make one mistake that wipes out all of the savings and you wonder why you were taking tenant clogged toilet calls at midnight for no long term financial benefit.
And my top tip…
- Don’t get a mortgage; wait until you have the funds and then pay for the house with cash. Or at least pay more than 50% with cash.
It’s a drain on cash flow when you need everything to go right to make money every month (or to break even). Because things break (sometimes major things), tenants don’t always pay (but you better pay your bank!), and you will find yourself losing money. Yes, your accountant will tell you that it’s great for your taxes, but it stinks in real life. The purpose of investments is to make money. Locking into an investment that consistently saps your cash flow is no fun.
Example: $1,000 rent – $850 mortgage payment – $100 property management fees – $250 HVAC repair = $200 loss (bad feeling)
Or
$1,000 rent – $0 mortgage payment (you paid with cash!) – $100 property management fees – $250 HVAC repair = $650 gain (good feeling!)
So, Rich, my insider advice in a nutshell is… Set yourself up in a wise, peaceful manner so you can enjoy and make money on your real estate investments! Be disciplined now so your assets don’t become financial and emotional liabilities… And don’t crack on my hoops game!
Brett Furniss is the President & Owner of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords & Home of $100 Flat Fee Property Management. BDF Realty utilizes their innovative Pod System for exceptional customer service in residential property management, home repairs, and home sales for single-family homes, condos, and town homes in the Charlotte-Metro Area. Contact Us Today!
Learn 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 More“Will You Buy My Rental Homes Now?” Big Buyers Say, “Yes, But…”
The media is abuzz with news of springtime in the housing market! Headlines trumpet:
Sales And Average Home Prices Are On The Rise Again!
Bidding Wars Are Back!
Good times appear to be back in real estate land and you will soon see your local Realtors rolling around in the hottest and newest automobiles again (we don’t use the lowly term “cars”- that’s recession terminology). Real estate school enrollment is up and the housing market is sizzling.
And you’ve been holding on to your rental properties tightly, making the repairs, paying down the loan, and living the ups and downs of your tenants’ employment statuses for the past 6 years. It’s been tough, but now it is time to get rewarded, right? Based on news reports, it is time to sell your rental homes and make some dough.
Or is it? As always, that depends.
The homes that are in bidding wars where buyers are making above asking price offers are typically in high-price, highly desirable areas, which are not where most rental homes are (it’s OK- those homes are tough to get to cash-flow on a long-term basis anyway). But what about the average rental homes that we hold in our portfolios? Can we sell them now?
One type of buyer that is very active in the market now says, “Yes, but not for the price you want. But not so off the mark that you won’t consider our offer.”
This type of buyer is the big institutional investors (Big Buyers) who are invading the local real estate markets armed with tons of cash. They employ some real estate agencies to find affordable homes for sale, send lowball offers (typical haircut of 30% from what I’ve seen), and snap up the ones that accept.
I view this positively. Besides the obvious disadvantage of below asking price offers, they bring a lot of advantages. They pay all cash (it’s so nice when financing snags doesn’t crush deals in the last minute), close quickly, don’t ask for closing costs, and don’t ask a lot of questions. They are really easy to work with; the deals happen rapidly and easily. The only real question is if the price is acceptable to both parties.
So how does this work in practice? Here are 3 examples on 2 houses we listed for sale (some details have been changed slightly):
House #1: On market for $89K
First big buyer (BB #1) offers $55K
We counter at $94K
BB #1 doesn’t dignify our counter offer with a response
BB #2 offer on house #1: $70K
The same day we receive word we have another offer coming in
We inform the BB #2 of the other offer and ask if they would like to submit their best and final offer
BB #2 responds that $70K is their final and best offer
We let them know the other offer was accepted and theirs was declined
House #2: On market for $105K
BB #3 offers $85K
We counter at $104K
BB#3 comes up to $90K
We counter at $100K
They come in at $95K final offer
Offer accepted at $95K
The BB’s are looking to accumulate properties and are not looking to nit-pick on repairs. Sure, if something is majorly flawed, they will ask you to fix it and/or cancel their offer. But the small repair requests that are typically negotiated by owner-occupants aren’t asked for; the BB’s just fix it up themselves. As stated previously, when the price is agreed upon upfront, the deals typically fall into place easily.
To sell or not to sell? That is the question. But, for average rental homes, be thankful it is now an option!
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.
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