Property managers are a creative lot.

bob-ross

My job entails discussing rent with property managers – lots and lots of property managers. Every conversation I have seems to uncover some tactic about rent payments I have not yet considered. I must admit, I seriously underestimated the creativity of property managers as it pertains to rent payment solutions. (Yes, I just called property managers creative.)

For example, one property manager I recently met has his bank send an ATM deposit card (tied to his checking account) to each of his paying tenants. The tenant then takes rent money directly to that bank’s ATM machine for deposit. How does this property manager know which deposit to apply to which home? He changes the rent, subtly, to match the property’s address, so 123 Main Street’s rent might be $1,001.23. I wonder how that month-end deposit matching process goes with 20, 50, or 100 units to reconcile. It seems like a lot of work to me…..but it is creative.

Another creative solution I often hear about are fees, which I blogged about in October 2014 here. Last night, I was talking with a 40+ year property management veteran and he swears by “on-time discounts.” For example, his tenants’ rent might be $800. If tenants pay on or before the first of the month, they get a $75 discount on their rent – no excuses on the second of the month; they pay the full $800 rent.

This creativity in rent payment solutions begs the question: How is there such low adoption for online rent payments when it truly simplifies these processes?

At RenterUp, we realize that changes in behavior are challenging, yet we hear from hundreds of property managers who have creatively deployed hundreds of different solutions. Responsible tenants yearn for a simple way to pay rent and property managers would do well to look for a simple solution. It helps with tenant acquisition and tenant retention. Make rent easy!

No vacancy means no polar vortex. This rental market is hot.

No Vacancy

 

Don’t take my word for it. A simple Google search will provide you with a bevy of data to support the claim there will be no polar vortex for the US rental market this winter…..it is hot, hot, hot. (The question is…..for how long?)

Let’s start with Zillow’s January press release. According to their findings, the US rental market increased 4.9% from 2013 to 2014, for a total 2014 market of $441B in rent. It’s a BIG number.

So, rent dollars are up – what about vacancies? They are down. US census data reports Q4 2014 national vacancies were 7.0%, down 1.2% from Q4 2013 and fairly consistently down in every region. Digging deeper, we are hearing about rental gaps in markets like Asheville, North Carolina, where they are reporting a 1.0% vacancy rate (reported by the Citizen-Times HERE). They claim that 5% vacancy rate makes for a healthy rental market.

Don’t be shocked to see ‘no vacancy’ signs across the US.

What about your region? Is it hot or not?

Vacancy Rates Q42014

 

Vacancies hurt. Wrong tenants hurt more.

VacanciesHurt

Vacancies hurt! I’m convinced that a property manager’s biggest fear is a vacancy. You have a nice tenant that pays on time and then the dreaded, “we will not be renewing our lease.” I personally have a vacancy approaching for one of my rental homes and I’m certainly not looking forward to paying that mortgage on my own. Getting the home ready for its next tenant will be expensive, time consuming, and stressful. Do I rent it to the first applicant with a job and pulse? Probably not…..

Different property managers have different approaches for their properties. Let’s look at a handful of data points that are available for landlords to collect, review, and consider when evaluating prospective new tenants:

  • Rental application – Typically a document used to capture general information about the prospective applicant, which might include details about the prospect’s income (indicating their ability to pay rent), other applicants, other tenants (kids, dogs, etc.), rental history, and referrals.
  • Credit check – Credit checks produce a number, a FICO score, which should never be taken at face value. The full credit report offers much more data and should be fully reviewed before jumping to any conclusions. There are a variety of factors to consider. The Fair Isaac Corporation is the analytic software company that publishes FICO scores and has published a nicely written brochure titled, “Understanding Your FICO Score.” Feel free to download and read that brochure HERE.
  • Background check – As you probably know, the internet can provide a wealth of publicly available background information about people. Beyond your internet searches, there are a number of different types of background checks that can be purchased from third parties. Background checks can include: identification verification, court and/or criminal records, property records, financial information, academic verification, employment verification, and more.
  • Rental history – These reports are newer, but are now available. Rental history reports can shed light on your prospect’s past rental payment history, assuming they have paid rent to a company that would have been submitting rental payment data into the credit bureaus.
  • Prospective renters’ rights  to Equal Housing –  The details of the US Fair Housing Laws can be found HERE, but basically, your prospective tenants have the right to expect that housing will be available without discrimination or other limitations based on race, color, religion, sex, handicap, familial status, or national origin. This includes the right to expect equal professional service, the opportunity to consider a broad range of housing choices, no discriminatory limitations on communities or locations of housing, no discrimination in the pricing of housing, reasonable accommodations in rules, practices and procedures for persons with disabilities, and to be free from harassment or intimidation for exercising your fair housing rights.

It can be a lot to consider but it’s all important. What else is there? How do you get to know your tenants?

 

 

Assigning late rent fees? Check state laws first.

DemandforPayment

We talk a lot about late rent fees and incentives at RenterUp and sometimes I forget that people live in different states with different laws pertaining to late rental payments, fees, and discounts….

In California, Equity Residential, a property owner with about 25,000 units is currently undergoing a class action lawsuit for excessive fees, which alleges the landlord generates profit from the tenants’ fees. The tenants also complain they have no way of knowing their late-fee balances and that the late-fee policies are not clearly documented. According to a Chicago Business Journal  article by Lauren Hepler, the late fees in this case can “pencil out to more than 1,000 percent interest.”

This opens up a can of worms, right? Why should anyone pay rent on time if the state is going to protect them from paying any late fees? However, should property owners be able to realize 1,000 percent interest on late rent fees?

Let’s look at an alternative way to consider the problem, through discounts. Many property owners choose to offer a refund or discount for early pay or even payment on time. For example, your rent might be $1,000 when the landlord only needs $950, so they might say “pre-pay your rent before the 1st and get $50 off your rent.” This takes fees out of the discussion and certainly should look good to a judge, right? Wait! In many states, including Connecticut, “No penalty or discount of any kind can be assessed or offered as long as the landlord is paid by the 10th of the month.” Ouch.

Conclusion? I’m glad I live in Georgia and…..you might do well to look at your state’s laws before getting creative with your fees and discounts. Take a good look at your leases to make sure all fees are clearly documented and consider using a software application, like RenterUp, to help automate communication of any unpaid rent and/or fees which might be accruing.

What about your state? Any good stories of discounts or fees?

Cash is dead.

heres-how-much-the-giant-pile-of-money-on-breaking-bad-is-worth

OK, Cash is not really dead, but undoubtedly, the usage of cash is diminishing. In our quest to simplify rental management, we talk with a lot of landlords and property managers and they love to talk about the challenges of dealing with cash. Yes, cash for rental payments.

The numbers are interesting. Approximately 10% of the US population is unbanked, with no checking or savings account. When asked why they don’t have an account, 49% say they either “don’t have enough money” or “don’t need or want an account.” (source: Federal Reserve Board’s Consumer and Mobile Financial Services 2014 report). Honestly, at an average cost of $268/year, it is easy to understand why many people choose not to have a checking account.

For rental payments, cash has its pros and cons. Let’s explore a few:

Pros:

  • A bird in the hand is worth two in the bush. Cash can’t bounce like a check or be charged-back like a credit card.
  • It is immediate. No need to wait for it to clear.

Cons:

  • Shrinkage! A friend of mine insures a property management firm that has recently discovered they had lost thousands of dollars of cash rental payments and now they want to file a claim to their insurance company to cover the losses. Sticky fingers in the property manager’s office! Uh, oh……it’s completely untraceable….so, did it really happen?
  • From a property manager’s perspective, it is seriously time consuming. Collect the cash, manually record all the transactions, find a deposit slip, count the cash, drive to the bank, and avoid being mugged! I’m exhausted thinking about it.

Without a doubt, cash is here for a little while longer. I imagine that most independent landlords don’t have a problem handling cash payments, but what about property managers with 10 units or more? How do you handle it? What are your thoughts on cash as a form of rental payments? Is it more of pain than it’s worth?

Is Cash Flow King?

scrooge-mcduck

Last week I was talking with a fellow-landlord, Kevin Sandlin, and we began discussing his rental property. His tenants are moving out and he is considering whether it was good time to sell his rental property or just hold on to it. His preference is to sell now but he is concerned about trying to sell it this late in the year – typically the slowest real estate sales months. So now he is considering to continue renting his home. Such a dilemma! Now that the market has heated up for both real estate sales and rentals, I hear about this dilemma more often than ever. In fact, even I may be changing my tune since my August post, To Rent or Not to Rent.

You may recall from that post that my tenants told me they will be moving out and they felt as though they had done me a favor by queuing up another tenant for me. This is indeed nice because the only thing I hate more than a water leak at midnight is a vacant unit in December! HOWEVER…..I am still a bit foggy-eyed from a 2009 real estate hangover and holding real estate is something I had sworn off forever. Yet now we have a real estate market is forcing me to reconsider.

I have had time to reflect on my rental home and I estimate I have an opportunity to increase rent by nearly 20% with a new tenant – a significant bump in my cash flow situation. Is cash flow king? I think yes, it is, and it is calming my urge to sell. Perhaps this once-sworn-off property will live to see another Favero lease. Perhaps.

To be sure, I am getting out the magnifying glass and taking a closer look. Over the years I have developed a relatively robust spreadsheet that conjures memories from my Real Estate Finance classes in college; this spreadsheet helps me evaluate any potential real estate investment. Stripping it down for simplicity, I evaluate cash flows as below:

  • Potential Income (rents)
  • less Vacancies
  • plus Other Rents (parking, fees, etc)
  • equals Effective Gross Income (EGI)
  • less Management Fees (in my case, I call it the “I hate being a landlord” fee)
  • less Operating Expenses (property taxes, dues, insurance, repairs, utilities, etc.)
  • less Replacement Reserves (I use 10% of rent for this value because I cringe at the thought of replacing a roof)
  • equals Net Operating Income
  • less Debt Service (mortgage)
  • equals Before Tax Cash Flow
  • less income taxes (somewhat complicated but basically estimated by taking EGI less Operating Expenses less Interest Expense from Debt less Depreciation equals Taxable Income multiplied by Tax Rate equals Tax)
  • equals After Tax Cash Flow

There are a number of other considerations beyond cash flows, but for now, this where I am focusing.

Am I missing any major expenses or considerations? Do you face these same questions? I know it is a good problem to be facing, but I struggle with it nevertheless.

From Kazakhstan to American…$55k per month! :: #RidiculousRent

Plaza_Hotel_April_2008

Have you ever been to Kazakhstan? I haven’t. I am trying to imagine what $55,000 USD could possibly get you in the former Soviet state. I honestly have no idea! Perhaps this is a sign there are simply not enough Kazakhstan-focused episodes on HGTV’s House Hunters International.

Anyway, since the Soviet breakup in 1991, I am guessing that Kazakhstan has been doing quite well…..well, at least it appears their royalty is doing well.  As reported by Katherine Clarke in this NY Daily News article, the president’s nephew, Daniyar Nazarbayev is trying to lease his 4,200 sf apartment at the Plaza Hotel for $55,000 per month. The story gets richer (excuse the pun), so you might enjoy reading the NY Daily’s piece here: http://bit.ly/PlazaPad.

Here’s to moving on up!

Convenience Incentives as a remedy to your Fee Allergy

Credit: William K.L. Dickson

Credit: William K.L. Dickson

Like most grandfathers, mine had a handful of quirky quips that were perpetually repeated. My grandfather’s favorite seemed to be, “I’m allergic to fees.”

Allergic to fees.

Last week I was discussing RenterUp with a property manager, Rick, and we started discussing a point I mentioned in a previous blog (Stop Chasing Checks) about changing the way we think about charging for conveniences. That blog post references another property manager who was bragging about his 90% acceptance of online rental payments by charging a $5 Handling Fee. As mentioned before, I really appreciated the change of perspective: Handling Fee instead of a Convenience Fee. Rick had an even better perspective: Convenience Incentives.

Rick and I discussed a few quick ideas of Convenience Incentives, including:

  • Early Pay Incentive Option 1: Pay by the 20th of the month for a $10 discount
  • Early Pay Incentive Option 2: Advance pay 3 months of rent for 3% discount (maybe consider matching the months to the percentage, such as pay 12 months advance for a 12% discount)
  • Electronic Pay Incentive: Pay electronically for $5 discount

Imagine how favorably a judge might look upon an incentive-focused property manager in the event of an eviction or other legal issue.

Everyone responds better to incentives than they do to fees. So, my grandfather was obviously onto something….perhaps we should consider convenience incentives as a remedy for your fee allergy!

What other Convenience Incentives might work for rental homes?

Babies, Weddings, and a $40k/month rental :: Jennifer Aniston’s RidiculousRent

Credit: Zillow.com

Credit: Zillow.com

 

It appears Jennifer Aniston and her special friend, Justin Theroux, have a lot going on at the moment. Allegedly the couple is pregnant, engaged, and in the middle of a remodel. Can you imagine the stress of it all? A remodel with a baby and wedding to plan?

To ease the burden, I recommend they rent something nice. Something really nice. Oh look, they have rented something……something very expensive! Aniston and Theroux apparently paid $40k per month for this amazing LA home – Are you as curious as I am about the pool area after the baby arrives? What will it look like after it’s surround by baby-proof fencing?

Enjoy the pictures of this amazing rental home here, on FrontDoor.com or on Zillow.com.

 

Stop Chasing Checks!

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No more chasing checks; no more faxes; and no more mailing documents!

Last week, I attended the Georgia chapter of the National Association of Residential Property Managers (NARPM) and met a number of great people, most all of whom were full-time property managers. My heart was warmed to hear that these property managers are adopting technology to manage their businesses – particularly for online payments, tenant management, and lease management.

I met a gentleman that impressed me with his efficient approach to operating his 300-unit property management business. We instantly bonded when he claimed, “90% of my tenants pay their rent online.”

Let me repeat that: 90% of his tenants pay their rent online! Can you see the tears of joy streaming down my face?

How does one get an acceptance rate up to 90%? Simply put, he changes the way his tenants think about paying rent. He does not charge a trumped-up Convenience Fee, but instead, he charges a $5 Handling Fee to any tenant paying by check.

Property managers of scale clearly understand the convenience of collecting rent online and our goal is to make that convenience accessible to any landlord, regardless of size. One unit or one thousand, please stop chasing checks!