The Reality of Property Management...Part 2

Rehabbing, Fix and Flip, Rental Properties
1

As promised here is the 2nd posting of The Real Truth in PM.
This posting will focus on marketing, and more specifically the strategies followed by almost all companies, as discovered during my research/investigations.
In a city where over 40% of 2.2MM residents are actually renting, it’s a little hard to wrap your head around the idea that your property is actually vacant. When you read the following message, you will probably understand it a little more. It’s not that there are no renters, or even enough qualified renters, what I have found is the fact that the properties are just not being marketed correctly.
Please read on!
When marketing a property for rent, what I have found is almost all companies operate with the exact same strategies. In my experience, most company executives know that business does evolve, and you should as well if you want to maintain success. What I am seeing is the exact opposite of this, they are not evolving at all, they are relying on the same techniques of a different era, where gas prices and the economy was considerably better than now.
Their strategies are as follows:

  1. Sign In Yard - BAD BAD BAD IDEA! Why? I’m glad you asked! The issue with signs in yard is the fact that gas prices in my city are hovering around $3.50-$3.60 per gallon. So if the average vehicle can hold 15 gallons of fuel, that is around $50 or so for a tank of gas. Now this may or may not seem like alot of money to most of us, but I can assure you that it might as well be 1 million dollars to most tenants. These tenants usually put $10-20 in their cars at one time, they DO NOT drive neighborhood’s just looking for their next rental home. In fact, my exit polls with tenants have discovered less than 15% of tenants use this method. Those that have answered that they found the property by a sign in the yard, was only because they happen to be on the street.
    The other major issue with a sign in the yard, it advertises your property as in FACT being vacant, and invites break ins!! I see this time and time again, rental houses with yard signs, having their front/back doors being kicked in. It’s just a bad idea!
  2. Craigslist Posting - Before someone yells at me, I strongly support CL ads, when they are done correctly! What do I mean by this? When posting rental properties on CL, you have to run that ad, no less than 3x per day, if you want it to gain momentum. The very reason we post on CL (millions of users), is the very reason it can defeat your intentions. The average ad takes 15-20 minutes to go live on CL, in a section like Apts/Housing For Rent, you will literally have 1000s of post every day. What happens to your ad is quite simple, it goes live, and within 30 minutes it is buried on Page ___! To properly use CL, you must fully understand how CL works, this means creating intelligent ads that CL will not FLAG, and a good understanding of marketing. How do you get your house to stand out among a 1000 others?
  3. NON Employee Leasing Agents - This is just a terrible terrible idea! You can bet, if your company is using this method, and many many companies, in fact, utilize this strategy almost exclusively. Here is the only problem you need to know about this. I can promise you and almost guarantee you, there will be absolutely no background checks run on those tenants.
    Here is how this strategy plays out. Most independent leasing agents, will charge anywhere from $350-500 per tenant. If your property is renting in the $600-800 range, and your agreement calls for 75% or even 100% of the 1st month’s rent, who is going to pay for the background check? You can bet not the leasing agent, and the company will not be happy with $100-$300 to place a tenant, this drastically cuts into their profits. So to reduce this number by another $30-100, just not going to happen. A thorough background check should cost around $30-50 per adult! And they should be pulling a background check on ALL adults!
    Now for facts!
    60+% of current tenants DO NOT have consistent access to the internet! They simply cannot afford it.
    80+% of current tenants DO NOT and WILL NOT drive area’s looking for their next home! This used to be the norm, but gas prices have changed all of that! It’s time to evolve!
    Over 95% of tenants literally live check to check, extra money is out of the question! Why do I bring this up? To help their bottom line, all companies I researched, charge anywhere from $20-40 for an application fee! What’s wrong with this? It’s really about economics, the very tenants that cannot afford to pay any extra money for an application fee, that they stand a 50% chance of being denied, will just look for those companies that DO NOT charge for applications! ME!!! What does this mean for me and my clients? I see considerably more applications per property than any other company, as they say, safety in numbers! I choose from an average of 12 tenants per property, instead of 1 or 2, which odds do you like better?
    There are companies that have connections with Section 8, and are allowed to market within the Housing Authority. I have no issue with Section 8, as long as you do a background check, and a very very thorough previous landlord interview. I won’t post the story here, but if you all would like to see why this is important, visit my website and read the story of a Section 8 tenant!
    All companies I investigated DO NOT run any checks on Section 8 tenants, this is simply foolish! It may be guaranteed rent, but IT IS NOT guaranteed good tenant, major difference.
    To summarize:
    Make sure your company is in fact evolving with the times, this economy has changed the way ALOT of us conduct business. You can bet if it’s effecting our bottom line, it’s killing the tenants. Your company should be savvy enough to detect this and make changes where necessary.
    NO SIGNS IN YARD! They simply are not as effective, and they cause more problems than it’s worth.
    CL Posting – Consistency, Consistency is the key! Learn CL, so that you can manipulate the results. For example, I use video links in my ads of the properties. Why? It creates an automatic counter for me, I can see actual results of my ads, and not have to guess on their effectiveness. This is marketing!
    Independent Leasing Agents. Just a bad idea PERIOD!!
    I want to thank those of you that have read my previous post, and this one! I hope this information will help all of you experience a better opportunity, in any market. These methods are tried and true, and backed up with actual data from tenants!
2

Wow, I must be doing it all wrong. I’ve found many of my best tenants because I have had a sign out in the yard!

3

The data never suggested any factual information on the quality of tenants. The data only suggested that over 80% of tenants no longer spend 100s of dollars in gas expenses to drive neighborhood’s, like they use to. I use this information as a way of comparing risk vs reward, and in this instance, the risk far out weighs any reward that could come from that strategy. I am constanatly looking for ways to remove as much risk as possible for my clients, it’s a part of what I feel they have hired me for.

4

I don’t like signs in the yard either for the reasons you mentioned. The reality is that we get so many calls that we don’t even need to advertise. We usually have people waiting on us to get a house ready. I have good and bad experiences with sect 8. More good than bad. I like working with them. We charge for application because it costs here to run a background check. If I could check someone for free, I wouldn’t charge at all. I agree if you can cut that cost out for the applicant, it’s a good thing but I won’t pay $10 per person out of my own pocket to do a background check on them.

5

Wondering what are the better ways to advertise a rental for those w/o easy access to the internet. The good old newspaper?

6

I’ve done newspaper ads a few times. The little classified ad papers seem to be more cost effective than advertising in the actual newspaper most times. I don’t put the address in the ad for the same reason I don’t like signs in the yard. I got good traffic from the classified ad.

7

Mscott,

I have alot of success in the newspapers, it draws out prospective tenants by the dozens, literally. If you have a home in a area that has a specific paper for that area, even better. The paper I get the most response out of is the American Classifieds, or Thrifty Nickel.

8

Yea it’s never a good idea to advertise the exact location, might as well leave the door open for them, and save the owner the expense in a broken front door.

I don’t even show a property without an application, nor do they get the address until I have an application. I can pre-screen them, without ever showing them to a tenant, that stands no chance of getting approved.

9

I liked the previous post, but this advice sucks. Where did you even pull these statistics? Out of your butt? I’ve been been a landlord for over 16 years. I’ve also dealt with hundreds of evictions and can spot the money pits right away. What’s your experience? What you said is a huge mistake. I always put a sign out front. On every application I get them to fill out, I have a spot that says, “How did you hear about the listing?”

Half of the applicants said they saw the sign out front as they went to see the building down the street or they were looking for something close to work and were just driving by and saw the sign. You’ve just lost a huge pool of applicants by not putting a sign out front. And I’ve had thousands of applications pass my desk. If you’re worried about break-ins, GET AN ALARM!

Second, where did you pull this statistic that 95% of tenants live from paycheck to paycheck and can’t afford a credit check??

I can tell you 95% of my tenants DON’T live like that.

I always charge an application fee for the credit check. That’s how I know they are serious. I’m a busy person. If they are not willing to invest $25 in a credit check, I’m not even going to let them fill out an application. I don’t even hand out applications. If they are serious, they fill it out at my office or set up a time because I never get those applications back when I hand them out and I just wasted money on toner and paper.

Why would you even let someone into your building who lives from paycheck to paycheck and can’t even afford the credit check?? You are asking for Trouble (with a capital “T”) and asking to loose money on legal and carrying costs plus damage evicting tenants for non-payment of rent because they just proved to you that they can’t afford the apartment. And the laws protect them from garnishments because their incomes are so low, so it’s a complete write off. If somebody can’t afford last month’s rent deposit or paying for a credit check, I won’t even show the apartment to them because they can’t afford it. If they can’t afford it, let someone else loose money on them. Are you a desperate slumlord or something? If the apartment is clean, up to code and freshly painted, they’ll pay what you want.

If they whine about the application fee or want a payment plan for last month’s rent deposit, that’s a strike one in my books.

If they are serious, they can borrow from friends or family or even do a cash advance on their credit cards or go to payday loans. I’m not a finance company or charity. I ask them this question before I’ll even set up a time to show it to them. You’ve got to screen for the ability to pay right away or you’re asking for trouble and wasting a lot of your valuable time.

10

I appreciate your opinion, but not sure why you need to go negative with it.

First and foremost I never operate on opinion’s, all of my data is collected through exit polling of tenants as they are being shown the property. Therefore, by definition, it becomes a FACT! Just curious, how much exit polling does your company perform?

Maybe your not aware that the country is in an economical down turn, and that a majority of families are in FACT living check to check. This is certaintly not new news to me and definitely not to them.

As far as my experience, maybe because of the fact I have not had an eviction in almost 2 years now, says a little on how good this information is. I find it rather odd that you question my information, and yet you claim to have been apart of over 100 evictions, I know I have not had 10% of that many.

A professional tenant, will care less about paying $25 for an application fee, as they know the system and can easily defeat the system. I do not charge for applications fees, simply to avoid the professional tenant, that is easy to spot with a dozen applications in front of me, instead of a handful.

I have no issues whether you believe the information or not, but as I will always remain professional on any board I post to, I simply ask the same of you.

11

I’m negative because the advice is bad and I don’t want to see others make some of the costly mistakes I made.

I do exit polling all the time to maintain rapport so I can ensure a smooth transition between the tenant moving out and the new one moving in. How many have you done?

Even in an economic downturn, you can still find quality renters unless your properties are pretty dumpy in pretty rough areas.

When I started with rooming houses over 16 years ago, I was still able to find people making $60K-$100K for a $300/mth rooms. Some have to pay alimony. Some work in the city during the week and go to the cottage on the weekends. Any number of reasons. It’s not hard to do.

You’ve never had an eviction in 2 years?? That can only mean one of two things. 1) you only have a couple of tenants or 2) the clients who hire you don’t hire you for the function of evicting a tenant.

You sound like somebody who’s very new to the rental business. I’m telling you from over 16 years of life experience, not a book.

I know what a professional tenant is. I’ve been sued for everything under the sun including $100K+ lawsuits for bogus slip and fall claims by professional tenants using ambulance chasing lawyer scum. And 100% of the time, it’s the tenants who can’t afford the apartment that end up suing. They’ve nothing to loose by pulling these stunts for an easy payout.

And do you think you can properly screen for professional tenants? If they are professional tenants with a professional understanding of the law, they know how to avoid judgments through counter claims or negotiated settlements with former landlords. Often, past landlords will rarely tell you about it because they want nothing to do with them or to relive that experience. I can tell you myself, if someone calls for a reference, I’ll tell them what the rental giants and institutions say, “It’s company policy only to verify that they’ve lived here and for how long.”

But, what I know for sure is that the blue collar guy making $40K+ a year full-time at some plant has better things to do with their time than become a professional tenant suing landlords. Professional tenants are the low income ones who even get free legal counsel and can barely afford to pay the rent that are going to burn you. Let public housing deal with them if not the next guy.

Flag #1 Applicant can’t afford to pay for a credit check or last month’s rent deposit.

12

I appreciate your career span, but I to do not subscribe to books, never have never will

My experience comes from actually studying the business to do it correctly. To date I have conducted over 200 exit polls, that were written very expensively by a marketing analysis company, in other words, I don’t get Yes or No answers.

the fact that I have not had many evictions could also mean, I don’t place bad tenants. My clients are not paying me to place bad tenants. By my calculations, over 100 evictions would cost about 40K in kansas city, I would be out of business with that kind of resume.

You show concern over me giving a simple application fee away, yet your willing to allow tenants to “borrow” the money they need to pay for it, what else do they borrow money for? How often is that tactic successful?

I currently manage over 100 properties and have kept this number for the better part of a year, so the fact that I don’t manage many properties would not be a very accurate portrayal.

The remark of me renting slum houses, well that really needs no comments. I will say typically landlords and PM’s get sued because of this very issue, I have not had any lawsuits to date, so that’s probably not accurate statement as well.

Again I respect the fact that you have your opinion, as it what makes this country what it is. If you can only insult others and not back it up with factual information, then more power to you.

My business model is what it is, because I only rely on facts, and not opinion’s, therefore the so called guru’s have nothing to offer me. I can promise you this, I turn away more opportunities to manage properties than I ever agree to, because the house is not up to par.

I will share with you some factual information on background checks. Every tenant must pass 5 levels of approval, or they are denied. There is no 3 of 5, 4 of 5 or anything like that, it’s all 5 or denied! Currently 7 of 10 applicants are denied, and I will never apologize for that. My clients are very happy that I do not have alot of evictions, as this is a sure fire way to a failed portfolio.

13

I always put a sign in the yard on a new property when we start rehab,I’ve never finished a rehab without having a tenant approved and ready to move in.

I deal in nice neighborhoods, the kind people want to move into,and yes, they are nearly always looking to move into that particular area, because of the neighborhood and schools,

14

You manage over 100 properties, over 95% of your tenants live from paycheck-to-paycheck and can’t afford a credit check, and you haven’t had a single eviction in almost 2 years?

Sorry, I just don’t buy it. And I bet you over 95% of the landlords on this forum will agree with me.

btw - when I say 100 evictions, I don’t mean 100 different tenants. I’ve taken the same tenant to court over half a dozen times before: one eviction was for changing the locks and not giving me a key (got a court order to get the key or his tenancy was terminated and finally got the key), another for unreasonable enjoyment and damaging the unit, a couple for non-payment where he tried to counter sue me for repairing the apartment he damaged and refusing to let me do the repairs, one for persistently late with rent. I had to show up in court multiple times. I finally got him out of there when I caught him vandalizing one of the doors on a video camera I installed and laid criminal charges. He then sued me a year after he moved out on a bogus slip and fall lawsuit. The guy is judgment proof, yet owns a van and I know he works under the table as a GC, but the judge couldn’t garnish a dime out of him because of his budget and denial that he works as a GC. It took me 3 years to get rid of him. I didn’t let him in to begin with; he came with the building I bought. That’s what I would call a professional scumbag.

And that’s the real world of landlording.

So, if you haven’t got evictions with the volume of tenants you manage and stories like this to tell, there’s something very fishy about your article like you read a book and are now trying to market your services as some kind of coaching guru for hire or expert PM.

15

What part of Kansas City are you in? I’m in the western suburbs and have almost the exact opposite experience as you. I put a sign in the yard and have half a dozen calls a day about it. It’ll be on the market for a week or two and be rented by the second or third showing. Some folks would say that my rents are not high enough, but I’m already on the high side of market for the area. My turnover are rented before the old tenant moves out, and the only vacancy is the time it takes me to turn over the house.

My tenants are mostly paycheck to paycheck also, but I rent to a lot of people with surprisingly high incomes and two spouses working.

16

As I have stated previously, I DO respect your opinion.

Whether or not you believe that I have not had an excessive amount of evictions from year to year is what you believe or don’t. There is not a whole lot I can do about that.

I do know this however, I would NEVER evict a paying tenant because they “changed the locks” without permission, it is a lease violation, but hardly a reason to evict the tenants. My client’s objective is to actually collect rent, not evict them for silly violations like that.

In my experience in dealing with tenants, if you actually show them some respect (what a concept), they for the most part will do the right things. If you treat tenants like 2nd class citizens, you will probably see different results.

Again, I do NOT listen to guru talk, all of their “information” is relied on THEIR beliefs, which by definition is nothing more than an opinion, therefore cannot be relied on. I am not sure who said it, but there is a saying that goes

“It was a foolish man, who mistakenly took an opinion as thought”.

Why is it so hard to understand that someone might of actually done proper due dilligence in their profession, and put it to paper. Is this not what your suppose to do with any business, let alone Real Estate, where the shear number of risks involved are staggering?

17

All of my properties are on the Missouri side, as I will not manage in Kansas, due to mainly the law about “storing” tenants’s belongings in the event of an eviction.

I would agree with you that you will see major differences in the suburbs versus the city, completely different type of renter. Most of my client’s properties are in the Northeast area, almost all apartments, and in the southern corridor as well as eastern KC. I only manage 1 property in the inner city, and it was a property that was purchased by my client, before he met me.

The data I compile is, of those tenants in the lower middle income class, as our properties rent for an average of $750 for 3 beds, $550 for 2 bed apartments.