Charlotte Property Management Weekly: Rental Homes Don’t Need to “Dress” Well?
Everyone knows that for a home to sell (especially in a challenging economy) it needs to look its best. Now does that logic apply to rental homes in terms of leasing them out?
Not from what property managers sometimes hear from rental home owners:
“It looks fine. It’s just a rental.”
“I’d live here with the place looking ‘as-is.’ I don’t think I’d want a prissy renter who couldn’t deal with a few minor issues and a little dirt.”
“The other property manager down the street said it was fine the way it was. You want me to spend how much to fix it up?”
I’ve heard the analogy that a house should “dress” like it’s dating when it’s on the market for sale, and “dress” like it’s married when on the rental market. I’m not sure if I’m more bothered by:
1. The connotation that spouses don’t try to look their best for each other once they are married
OR
2. That property managers have to resort to relationship analogies to get people to actually listen to them
That being said, I think there is a semblance of truth to the fact that homes for sale need to “dress” better than homes for rent.
But… there is a direct cost to this! And this is when “monthly rent versus value” arguments start. Let me explain.
When we are assessing what a rental house can rent for, we provide a range of rental prices (example: “Your house should rent in the “$1,100 – $1,300 a month range.”). We ask the owner to pick the price they want to rent it for. Well, duh! Everyone (except the morons) would pick the $1,300!
Well, after further thought, maybe not. There are drawbacks to marketing at the highest rental price when the rental house doesn’t match up to competing homes; drawbacks like the house staying vacant for a long, long time!
In order to command top rental dollar, the rental home needs to:
1. Have minimal flaws and look really good
2. Offer equal or more tangible value than similarly priced rental homes
So, if owners don’t want to spend the funds to have the house look immaculate and the house is not the same or a better value than similar rental homes, they may want to list it at a lower price (like $1,150). This will ultimately offer a better ROI as they won’t have to eat their mortgage payment and expenses for the many months it might take to rent it out (this happens when price is not correlated well with market value).
Unfortunately, the market doesn’t lie. With the internet, prospective tenants can find hundreds of rental homes that are all competing to get their attention and money. The market is efficient; rental homes that offer good value will get quickly snapped up, and the ones that don’t will sit.
The way a home looks is the most important criteria in how much a renter will pay each month in rent. If the home has “some minor issues and a little dirt”, there is value lost when compared to a fully functional, clean rental. The rental rate needs to be adjusted downward or the home will sit empty for months and months.
The bottom line is that good-looking homes offer more value, which will command a higher rental rate, and be vacant for less time. This generates more money for the owner. The converse is equally true. So “dressing” does make a difference!
Wait- it’s also true that a well-dressed person who looks their best at all times will generate more, and better-heeled, suitors…
Maybe there is something to this “dressing” relationship analogy after all?
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: Money Back Guarantee on Rental Homes?
A fact of life is that sometimes people are not happy with what they buy. Sometimes they buy fruit and it is not as sweet as they like. They buy bread and it is not fresh enough. They buy Charlotte Bobcats basketball tickets (prior to them trading away their best player for basically nothing) and the team is not good enough.
And so it occasionally goes for rental homes. People sign a lease, move in, and then decide that they do not want to stay there for a myriad of reasons. As a result, property managers sometimes receive e-mails like this:
Dear Sir/Madam,
We were excited about moving into this home but it is a complete disaster! We visited the property during the day prior to signing the lease and everything looked great. Little did we know that the next door neighbor slept during the day, and only did his animal sacrificing in the dead of the night! The screeching animals prevent us from getting any sleep and my 9-year old daughter is so traumatized she won’t even look at animal crackers anymore! We’ve had to take down our bird feeder to keep the neighbor from hopping the fence and our beloved outdoor cat has been relegated to an upstairs, windowless room. Help!
We need to get out of our lease immediately and are demanding reimbursement for all moving expenses, therapy sessions, and a pet security detail during the move.
Signed-
Moving Now (Unhappily)
P.S. We hate you.
No one likes getting letters like this. Believe it or not, property managers want tenants to be happy, almost as much as the tenants do; so do the owners of the rental homes (without exception in my experience)! It makes the job of securing payment from the tenant (and consequently paying the owner) a lot easier! No non-masochist property manager is trying to pull a bait and switch on anyone; I mean, guess who would be fielding unhappy calls daily for the life of the lease? It would not be worth it!
That being said, I believe that the right rental home exists for the right person. There is not a one-size fits-all rental home in existence. This truth is why tenants need to visit the property, talk to neighbors, and develop a comfort level with the home prior to signing a long term lease!
So back to the facts of the example situation: The property manager works for the owner of the property. The tenant wants out of the home. The owner needs to make a decision on what they want (or can afford) to do.
Let’s look at the money back guarantee possibility from the one who has to pay for everything (the owner). If the tenant is allowed to move out and is reimbursed expenses, the costs that will accrue to the owner are as follows (note: some costs are one-time and others are on-going):
1. Reimbursement of tenant moving expenses and miscellaneous
2. Turning and keeping on utilities
3. Monthly mortgage payment and HOA fees while rental is not under contract
4. Cleaning & repair
5. Preparing marketing materials (pictures, ad copy, and home information)
6. Advertising costs
7. Property management fees (Yes, sorry. The non-profit property management companies (aka www.PropertyManagerInYourState.org)) don’t seem to last.
8. Real estate agent commissions for bringing in the tenant
9. Monthly mortgage payment and HOA fees while under contract (the time the house is taken off of the market and the tenant is ready to move in- someone has to pay for this time…)
This turns out to be a lot of money! This is why money back guarantees on rentals are not financially viable!
At the end of the day, it’s not a good situation for anyone. The owner and tenant both feel they are getting bilked. So what to do?
The best solution is avoidance! Property managers and owners should represent the property as accurately and completely as possible. Tenants should go in expecting that they will be living in the rental for the life of their lease and should perform extensive due diligence accordingly.
Then, even without a money back guarantee, property managers can start getting letters with the postscript of “I love you” a little bit more!
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!)
Charlotte 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!)
Charlotte Property Management Weekly: David vs. Goliath: Punish Those with No Credit or Landlord History?
Everyone knows the biblical story of David versus Goliath. David, a young shepherd, takes his slingshot and takes out the menacing giant, Goliath, with one shot. Then he picks up Goliath’s sword and cuts off Goliath’s head with it, saving Israel from the Philistines as a result. Pretty good work for an amateur!
In the world of property management, “David”, the prospective tenant, is often put on the sideline per se. See, David will probably be a good renter, but it can’t be proven. He has no credit score (works at a restaurant and pays with cash) and no landlord history (besides Mommy, Daddy, and his undeserving ex-girlfriend). With no provable payment or rental history, he is the great unknown. To take Shakespeare into the rental world, “To rent or not to rent to him, that is the question.”
Our property management firm uses four criteria to screen tenants:
1. Credit report
2. Criminal background check
3. Landlord history
4. Income and employment verification
So, let’s play this out. We’ll go off the assumption that David is employed, makes enough money to afford the rental home, and isn’t a (known) criminal. We know that he has the money to pay the rent each month. But we still have no idea if he actually will.
Property managers are tasked with proving to their owner clients that they did their due diligence in the screening of prospective tenants that may rent their home. That’s obviously fair. But in a world of limited information, how can David get approved? The easy thing to do would be to reject the application due to having insufficient information to make a decision. This is a common practice in everyday life. For example, this issue was a big reason why President Obama was elected, right? President George W. Bush went to war against Iraq with insufficient information about WMD’s and look where that got him. Most Americans (see polling numbers) wish he had waited for more proof!
So application rejection is a warranted (and defendable) action; if the information isn’t there to make a well-informed call, it needs to be denied. This will cover the property manager if something bad happens, right?
Or, let’s wait a minute. Hasn’t everyone been in this situation once in their life? Does a generation of new renters deserve to be shut out because property managers can’t figure out how to adequately assess their suitability to rent?
I don’t think so. I’ll approve David’s application if he:
1. Passes the aforementioned four screening methods that he can actually qualify for
2. Shows attentiveness and responsibility during the application process
3. Has the wherewithal and willingness to put down additional security deposit monies (this will mitigate the additional risk of insufficient application information)
Israel didn’t shut out David from saving them, even though he wasn’t an experienced soldier. Don’t automatically reject renters of unknown quality; most will turn out to be pretty good tenants!
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: Drive + Drink = Lease + Option?
“Lease options might be the worst idea ever. Who would ever be a party to one? I tried one once and it was a complete disaster! I mean, I’m not a lawyer- there’s just so much that can go wrong; I don’t have firsthand knowledge of this mind you, but I’ve heard lots and lots of stories.” (Traditional Realtor)
“Combine two innocuous substances and “Walla!” A homemade bomb.” (Al Qaeda training manual quoting a MacGyver episode)
Learn MoreCharlotte Property Management Weekly: “Terms” of Endearment- The Key to Selling Real Estate Buyers
If you were offered both of these jobs, which one would you take?
Job #1: $80K annually
Job #2: $30K annually
Duh, the $80K one.
Now let’s look at the job descriptions:
Learn MoreCharlotte Property Management Weekly: “Cash for Clunkers” Predicts a Cloudy 2010 Housing Market
“Can’t Believe You Still Have a Job” Award of 2009: Obama’s “Cash for Clunkers” sales forecasting team. As they projected a total 7-week program amount of $1B, they ran out of money before the first week was out and had to go begging Congress for $2B more.
If “prognosticatin’” is your game, and you’re off by that much, you probably need to find a new job- you just ain’t that good at it.
Learn More