Rental Homes: You Break It, You Bought It?
“The “Pottery Barn Rule” is an American expression alluding to the policy of “you break it, you bought it” or “you break it, you remake it”, by which a retail store holds a customer responsible for damage done to merchandise on display. It generally ‘encourages customers to be more careful when handling property that’s not theirs.’”
Wikipedia definition of the “Pottery Barn rule”
I think every parent has there own story on this concept. My version comes in “Hobby Lobby” when my young son smashed a glass Christmas vase while “admiring” it. I was within a 50-yard radius (which apparently puts me in the “bad” or “absentee parent” category); I heard the crash and prayed no Furniss was involved. I wasn’t so fortunate.
The next step was to ‘fess up to a cashier or store manager. As I searched the available employees up front, I was left with the strategic decision of who to approach:
- The 17-year old (does he look apathetic or one that would stick me with store policy?)
- The middle-aged woman (does it look like she might sympathize/empathize? Or is she the type that makes an example of a parent who prioritizes reading “Calvin & Hobbes” ornaments over watching his kids on the other side of the store?)
The downside of either was $17.99 + tax and a stern look. The upside was getting off with a warning. I approached the front gingerly and dutifully offered to pay.
“Don’t worry about it! It happens all the time!”, the middle-aged woman cheerfully chirped. “Chip! Go clean up aisle 5.” The 17-year old gave me a look and grabbed a broom. Mercy won out.
One of the hardest things of being a property manager is the security deposit dispensation after a tenant moves out. Homes are rarely left in perfect shape which leaves the owner paying a bill to get the rental home back in market shape. The question that is left is how much of the bill should the tenant shoulder and how much falls under “normal wear and tear”, which is legally permitted.
The problem is that nothing in a house costs $17.99! Things are expensive. Steam cleaning a carpet costs a few hundred dollars; if the carpet needs to be replaced, it’s now in the realm of thousands of dollars. The costs are similar for painting- touch-up can be much less versus a full paint job, but it’s still in the several hundred dollar range.
Very few tenants ‘fess up and offer to replace the carpet or paint the house after they vacate. In fact, most say that the “place was like that when they moved in” and not getting their full security deposit back is nothing short of an injustice. Property managers tend to utilize pictures/videos and tenant-filled out “move-in inspection reports” to document what the home looked like prior to home occupation. These are helpful to ascertain the truth.
Regardless, costs can be high if a home is not taken care of. And if not, there can be a large degree of sticker shock when a tenant receives a bill for repairs that runs in excess of their security deposit. How could this happen?
The components of homes are expensive. And someone needs to fit the bill. The assumption can’t be made that the landlord pays for everything short of a wall being knocked down. “Normal wear and tear” cuts both ways. Abnormal wear and tear is costly and the tenant is legally responsible for it.
It is a win-win when a landlord can return a non-docked security deposit to a tenant- trust me! Then no one needs to shell out funds to repair folks and a house can be turned over for another family to move into; this is the most desirable and profitable outcome for all involved.
But, with rental homes, if you break it, you bought it. It may “happen all the time!”, but someone has to pay the piper and most home issues are not cheap to fix. Smashing a $17.99 Christmas vase is one thing, but see what the “Hobby Lobby” cashier says if your kids clip the branches of their $2K “Super-Deluxe” Christmas tree.
Happy Landlording!
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Comfort of Old Cars & Non-Perfect Rental Homes: Does Anyone Care?
“Champagne tastes with beer budgets.”
Common real estate agent lament
I drive an old car. And it has lots of miles (almost 300K!). I’m reminded of this from time to time:
“Dude, seriously? You’re driving that? Don’t you want to step things up a little?”
An old friend
“You thinking about buying a new car soon? I only ask because I’m looking to buy a car for my teenager and thought you might be interested in selling… How does it run?”
Pastor at my church when I saw him in the parking lot
I get it. Nothing looks like success more than a new, nice car. If you want people to think that you’re the “property manager to the stars”, you shouldn’t be driving a beater. Realtors especially lock into this mindset. A nice car means lots of closed sales. “You look good, you feel good, you sell good” as the old salesperson mantra goes.
But there are positives to driving a beater. First there’s an overall peace of mind (if it doesn’t breakdown). For example, when I take things out of my car, I don’t particularly care if it scratches the paint or rips the seat. When I walk out of the supermarket and someone has dinged my door, I’m OK. When my young kids spill something in the backseat, I’m not reading them the riot act. I’m cool. No worries.
There’s also the financial piece. There are no car payments. The taxes are low. Occasional repair bills are taken in stride as they are lower then having a new car. Insurance is lower with a “liability-only” policy. I’m not worried about additional miles detracting from the value of the car.
Most people don’t subscribe to my “peace of mind” thinking. They want to look cool. I’m OK with that, to a point.
I see a similar thought process play out in rental homes. As rental rates continue to rise significantly annually (in the Charlotte-metro area, newly offered rents increased 16.7% from September 2020 to now per CoStar), the tenant income levels needed to support the higher rents also need to rise significantly. But people’s incomes are not going up 15%-20%. This is where all the press about the lack of affordable housing comes from. Renters are becoming “severely cost-burdened” where over 50%+ of their incomes are going to housing costs. That’s a huge percentage (which many experts call a crisis).
What has contributed to this crisis? One factor is the decision a landlord is generally left with after their tenant moves out and they are preparing the house for the next tenant. Do they spend a lot of money to make the rental house look great (full paint jobs, new carpet, new appliances, etc.) or do they try to “let it ride” (minimal to no touch-up paint, steam clean carpets, entry level appliances, etc.)? I think with all the HGTV housing television shows, many owners decide to fully refurbish their rental homes. By employing this strategy, they are looking to get top rent when it goes back on the market.
This only works when tenants play along. Tenants need to be willing to sacrifice a higher percentage of their incomes for a nicer, updated home.
And they are! Even when they clearly can’t afford it.
When some of our clients “let it ride”, we accordingly price the house lower. The owner chooses to accept below-market rents to avoid a pricey fix-up bill. They play the long game; every year that goes by, they use the rents to lower their mortgage payment until it goes away (that’s when the landlord game gets a lot more fun!). And as a bonus for the tenants, they keep more of their money. They also get a lot more leniency on their security deposit deductions as the house is already worn, so any mishaps they inflict on the house aren’t so noticeable or costly when they move out.
But many tenants choose not to make this trade-off. “The carpet is stained! The walls have some scratches! The refrigerator is old!” Um, that’s why it is priced lower.
Most tenants don’t seem to care. Frankly, it’s shocking to me. I’ve expected more tenants to happily make the trade-off for the peace of mind it offers.
Old cars may not look cool, but they may allow for a cooler, more peaceful life. But if this line of thinking has little appeal, I suppose landlords need to give people the housing they want.
Happy Landlording!
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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!
Learn MoreCharlotte Property Management Monthly: Everyone Loves Pets (Except Landlords): 3 Reasons Maybe They Should Too
“Oh, did you see Fluffy. He’s so cute! He’s practically part of the family.”
(Most pet owners)
“Pets in my house? Never!”
(Most landlords)
Almost everyone loves pets. Some people are dog people. Some are cat people. And some like the more interesting kinds, like birds and snakes. Pet enthusiasts are a multi-billion dollar business segment; and those billions don’t count the home rental income from tenants who crave those fenced-in backyards and pet doors.
However, landlords are the one minority group that typically despises pets. They’ve heard the horror stories of urine-soaked flooring, smells that just never seem to go away, and shredded interiors. “I’m not going to allow that to happen in my house!” thousands of landlords have told property managers throughout the years.
But maybe going in the complete opposite direction of this conventional wisdom is the best way to maximize ROI?
Here are the top three reasons why landlords should consider welcoming pets into their rental homes:
1. It’s much easier to place tenants! From personal experience in Charlotte property management, tenants have pets 50%-75% of the time. I really don’t think this is an exaggeration! Property managers turn away so many prospective (great) tenants when pets are not allowed. This crushes ROI as it slows the property being occupied, turns away better tenants, and commands lower rents as a smaller pool of tenants are being courted.
2. Non-refundable pet fees are free money. Tenants will pay extra for their furry (and non-furry) animal friends to be in the house. The bigger the house, the bigger the pet fee the tenant will pay. The more pets they have, the more pet fees they will pay. Try to charge per child for big families and see how that is received! But, with pets, it is industry standard.
Furthermore, there is nothing that says that pet fees have to go towards cleaning up for the pet; this is what the security deposit is for! The pet fee is merely paying for the right to have a pet in the home- nothing more.
3. It is important to have a realistic view about pets and the potential damage they cause. Have pets caused costly damage to rental homes in the past and will they continue to do so in the future? Yes. Flooring, especially carpet, is the usual casualty when pets go rogue. And new carpet isn’t cheap. Now, with that being said…
Tenants who like and can afford nice homes typically like to have clean places that their friends and family can visit. It is embarrassing to most people to have visitors into their home if it reeks of pet urine and there are visible pet feces ground into the carpet.
With lower priced rentals in questionable neighborhoods, the carpet is typically a goner anyway. So instead of fighting this, rip up the carpet after the current tenant moves out, replace it with linoleum, and allow pets! As my friend who invests in lower price rentals says, “Carpet? What’s that?”
Allowing pets often makes for a better ROI. Maybe landlords should consider showing pets more love!
Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)
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Charlotte Property Management Monthly: Stick It Out or Play the Field? Long Term Vs. Short Term Leases
In property management, one of the things we discuss with new clients is their goals. Are they planning on keeping the property long term or are they looking to sell it at the first opportunity? Do they want to move back into it at some point? How much flexibility do they need? What is their risk tolerance?
We want to make sure that we are enacting strategies that fit what clients are trying to achieve. They aren’t all in the same life situations.
It’s the same thing in the dating world. Some are looking to get hitched. They want to be seriously dating in an exclusive relationship on the way to marriage. They want someone on a long term basis who they will be with through the thick and the thin. This type of dating allows for greater security and a lasting partnership. However, it is a difficult one to leave without very hurt feelings and does not always allow you to see the best that the partner has to offer.
Other people are looking for “fun”. They want to meet as many people as possible and continually upgrade who they are going out with. This is a strategy that entails a lot of dates, work, and stress. The swinging singles would also argue that it also includes a lot of excitement, the ability to always see the best of the other person, with little actual commitment from their end; when something better comes along (or any other reason, including none at all), it is understood that they are gone.
Leases are the same. Some owners want to have the security of a payment coming in every month. They are willing to sign a multi-year lease for the current market rent, with no rent escalators built in. They want their tenants to be there for a while and be happy. To this end, they often will make home improvements for the tenants. They know they will be holding on to the property long term and are willing to make some sacrifices to keep tenants for the same time period.
Some owners like flexibility and the ability to always get the market rent (or more) for their home. They entertain weekly or monthly leases where they know they can demand a premium for the short lease period. Sometimes there are big events (like the upcoming Democratic National Convention inCharlotte) that they know they could get the equivalent of several months rental payments for renting out for only one week! They also have family and friends that come into town often and they like to have an open place for them to stay.
There are certainly downsides to short term leasing! There are no recurring rental payments guaranteed to come in every month, which is a financial risk. There are many opportunities for the bevy of new tenants that go in and out to damage the place. There are also increased payments to the property manager for fixing up, marketing, and procuring tenants so often. These need to be covered by the excess rent that is hopefully commanded.
Long term versus short term leases is much like the old argument of risk versus reward. Short term leases provide higher highs and lower lows, while long term leases are a moderate investment path that should provide consistent, average returns. The question is what the owners’ goals and needs are and this can certainly change many times during the relationship with the property manager.
For most property owners, the long term leases are the most economical option for their investment homes. However, one size does not always fit all and short term leases can provide a nice bump in income!
Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)
Learn MoreCharlotte Property Management Weekly: Is the Section 8 Program Good for Landlords?
I was signing a lease with a Charlotte Section 8 tenant (the government subsidized rental program) a year or two ago and asked her if she liked the Section 8 program. She smiled and said, “Yeah, it’s a pretty good deal.” I laughed; when the government is willing to pay some (or all) of your rent, I guess it would be tough to answer any other way!
So, it’s a good deal for tenants. But is it a good deal for landlords?
I only have limited space, but here are the most pertinent and succinct pieces of advice I can offer to landlords to determine whether allowing Section 8 tenants to rent your properties is a good deal:
1. If your house is higher-end, Section 8 has limits on how much they are willing to pay based on the amount of bedrooms and whether utilities are included. This leads into point #2.
2. The rental rates aren’t that high. To see if allowing Section 8 tenants to rent your home makes sense, the cash-flow needs to be computed on a property-by-property basis. On some properties, the cash flow is good and should be recommended as a viable rental source. On others, it just doesn’t make sense.
3. The house will need to meet many government requirements and will be inspected to make sure it is up to snuff. If the house is newer and kept up, it will usually pass. If it is older, there are usually costs incurred to meeting these requirements; the question is if incurring these costs is worth it.
4. It’s a government program which always means two things: it isn’t fast and features many, many documents to sign.
5. Payment is guaranteed, but when mistakes are made (aka missing or incorrect payments), getting them corrected is usually arduous. See point #4.
And as a bonus, here is an answer to our most FAQ by far:
Q: If I allow Section 8 tenants to rent my house, am I just asking for my property to be torn up?
A: I haven’t seen this be the case. There is actually additional protection against a Section 8 tenant tearing up the home, when compared to a regular tenant. Let me explain. The Section 8 program has a huge tenant waiting list (no surprise there!). If a Section 8 tenant tears up the home (or does anything that violates the lease), there is an implied understanding that they can be reported to Section 8 and be removed from the program. The tenant cannot afford for this to happen!
Section 8 can be a great option for the right house. Use it wisely and selectively!
Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. His newest book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill Vacant Homes, and Earn $2,250* Upfront! (*Minimum!)
“Rental Denial” is costly! And why your daughter may not be as good-looking as you think…
“Rental Denial” is costly! And why your daughter may not be as good-looking as you think…
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