Month: December 2015

Year End Message


Matthew Whitaker - Wednesday, December 23, 2015

Thank You on the blackboard with chalk writing.

We wanted to take some time just to say ‘Thank You’ for a great 2015. We understand that in the world of rental real estate not everything goes according to plan.

  • Things break and need to be fixed
  • Rooms need to be painted
  • Roofs need TLC
  • Tenants move out
  • Finding qualified tenants take longer than expected

Really…the list could go on.
It’s not always an easy business but from our perspective we believe that we have THE BEST OWNERS in the world…literally…some of you live halfway around the world.

  • Thank you for trusting us with your rental property.
  • Thank you for allowing us to care for your tenants.
  • Thank you for your business and loyalty.

We wanted to share a video that Matthew Whitaker made specifically for you.

 

End of the Year ‘Thank You’ from Matthew Whitaker





We wanted to take some time just to say ‘Thank You’ for a great 2015 and what to expect moving into 2016.

Warning: These Rookie Mistakes Can Cost You Bigtime [VIDEO]


Spencer Sutton - Wednesday, December 16, 2015

A sign written Big Mistake on red wood.

If you’ve invested in real estate long enough you’ve probably made some mistakes that cost money.
Real money.

Or heard the horror stories that circulate on the web.

I’ve made several of those mistakes myself.

One in particular was when I bought a 12 unit apartment complex in an area of Birmingham that we believed was going to be revitalized.

A large local church had opened up a center in the area along with a clinic. And just on the other side of the train tracks was a great part of town where young professionals were moving in and changing the credibility of the area.

All positive signs.

However, we underestimated the criminal element in the area as well as the time and attention that these low income apartments required. We ended up selling the complex at a large loss.

I drove by the apartments several months back and they’re no longer there. They were bulldozed and I believe that a non profit organization is going to come back with something better for the community.

In this post we’re going to talk about the importance of doing your homework before you take substantial risk in owning rental real estate…especially in low to moderate income areas of town.

Mistake #1 – Morgan Smith

screen-shot-morgan
I asked one of our property managers, Morgan Smith, to describe a mistake he’s made in his investing career. We’ll also look at how this could have been avoided if he would have done his homework.

Morgan’s been investing for almost 10 years now and he recounted one of his biggest (and earliest) mistakes below:

“I purchased my first rental house for $81,000 in Tuscaloosa in 2006 with 80/20 financing after educating myself about leverage and housing. I was in school at the University of Alabama and I thought this would be a great way to earn some extra income.

Here’s a picture of me standing in front of it the day we closed!

screen-shot-morgan-smith

The house was a really nice foreclosure and was ready to rent soon after it was purchased. It was a 3/2 and we started to try to lease it in the winter months.

As a rookie you can imagine how excited I was to start getting calls on my first rental house. Because I was so excited and anxious to start making some money, I took the first applicant that had enough income to qualify and who could come up with the deposit and first month’s rent.”

This was a BIG rookie mistake by Morgan and one that we see new investors/homeowners make all the time when they’re trying to rent out their house.

Renting a house takes patience and discipline.

It can take as many as 20 showings and 10 applications before we find one solid and approved tenant for a gk house. Morgan wasn’t being especially disciplined and he allowed his emotions to get in the way of solid underwriting practices.

Morgan explains further:

“Some unfortunate highlights of my deal:

  • Thankfully the tenant stayed for 3 years. Unfortunately I had to evict her in order to get her out of the house. It was tough to think that this was my first property and first tenant ….and ultimately, my first eviction. Although we were in the middle of the eviction process, she ended up vacating before the Sheriff had to set out all of her things on the street. An interesting side note…in 2015 she ended up paying us her past due balance via collections (so I collected 50% on the $3,500 balance she owed us).
  • By the time the tenant vacated my property, I had moved to Birmingham. When she left I hired a contractor from Birmingham, who moved into the house in Tuscaloosa and lived so he could fix the property and get it back on the market. That didn’t end up working out like it was supposed to…this contractor ended up stealing all my tools.

In hindsight, I should have never purchased this house because I knew I was eventually leaving the city. Real estate is long term investment and like all hard assets, selling is very costly and time consuming.

I was able to sell this house for $80,000 in 2012. A rough calculation of the numbers (rehab costs, ongoing maintenance, financing, selling costs and commissions, etc.), I would say I lost around $15,000 on my very first rental property.

While it’s hard to stomach a $15,000 loss (especially for a college kid!), it was valuable experience. All of the education I received at Alabama was not as practical as this one lesson. I gained so much knowledge and wisdom about managing property and handling tenants.

One of the biggest things I learned is that failure is guaranteed if you never even try.”

Currently, Randall “Morgan” Smith owns 35 single family rentals in Birmingham, Alabama, manages another 300 homes for gkhouses and continues to purchase property for the purpose of renting them.

So what’s the lesson for you and me?

1. Being extremely disciplined in your underwriting takes patience but will pay off with a solid tenant who may become a long term resident of your rental. This is huge…do your homework and stay disciplined to your criteria and process.

2. Understand the difference of managing property in and out of state. There’s a big difference and Morgan said he should probably never have bought that house knowing that he was going to be moving to a difference city. But if you do buy a rental property or decide to rent your own property and move out of town, make sure you either have a lot of experience…or hire a professional property manager.

Mistake #2 – Not understanding the street scene

screen-shot-wayne

I was with Wayne McGinnis (one of our property managers) the other day filming for some upcoming ‘owner education’ pieces and I noticed an interesting thing.

We were in an area of town called East Lake walking through a house that a tenant had just moved out of a couple of days before.

I noticed a house for rent across the street.

It looked like an investor may have recently purchased it, rehabbed it and was now marketing it with some street signs. Everything looked good at first glance.

But I started looking at the street scene and trying to figure out if I would have bought that house as a rental.

The answer: NO
Directly next door was a burned out house….and next to that burned out house was another burned out house!

 

 

 

 

screen-shotburnindown_the_house
Watch this video as I show you the house and explain the problem:

The Importance of Doing Your Homework





Out of state investors who buy rental property in Birmingham should be careful about the house and street they’re buying on. Many investors don’t take the time to come to the city and walk through po…

What do you think is going to happen to those houses?

I’ve met many investors who might believe that the owner will have those lots cleared and rebuild a house. I’ve met others who might believe that the lot is worth something.

Both of these assumptions are incorrect.

In certain areas the houses and the lots are worthless. At this point they become a liability for the owner.

And for the investor who owns that perfectly good house next door, it’s not a positive situation. It’s going to be much more difficult to rent that house with a burnout next door. Good tenants who will pay you every month don’t want to live next to a long-term vacant house or a burnout. Would you?

So, what’s the lesson for you and me in this situation?

Understand the street scene. Before you buy in a particular neighborhood, call some property managers who manage in the area and ask them about the street…the good, the bad and the ugly. They’ll let you in on the challenges of owning property on that street and in that area.

Remember that Google Earth images may be a couple of years old. I would ask for recent pictures of the house and the street…and by ‘recent’ I mean a week or two old at the most. Here’s a picture of the house in the video that I found on Google Earth today (12/17/15):

google-earth
Be realistic.

It’s worth noting that these two houses next door may have burned down after the investor bought the good house.

Regardless, this is a problem and an investor needs to know that these houses will never be rebuilt and that the best case scenario is the city tears them down within a few years.

This is all a part of the risks of buying in low to moderate income areas.

I hope this has been helpful for you.

Key takeaways…

  • Do your homework
  • Get good advice from local investors/property managers
  • Know the street scene
  • Understand the risk of buying in low to moderate income areas of Birmingham

Remember, you can call us at anytime if you’re looking for advice on certain area of Birmingham. We would love to help you make wise decisions.

What Do You Pay a Property Manager For?


Matthew Whitaker - Tuesday, December 15, 2015

What do you pay a property manager for?

I think that’s a fair question.

This post is meant to help you solve the property management vs. self management debate.

I’ve heard that from 50% to 80% of all rental properties in the United States are managed by the actual homeowner and not a professional manager. In fact, when we discuss our services I know people are thinking it, though they rarely asking it… “What am I paying you for?” What really are the reasons for hiring a property manager and what do their services include? Why does property management seem like such a “nickel and dime” business?

I’ll do my best to tackle under what circumstances it makes sense to hire a professional manager and also help define their scope of services.

Reasons you would hire a manager:

1. Saves you time when marketing – one of the biggest mistakes we see from self managed homes is in the marketing of the home; specifically their discipline to find the right renter.

Typically, it takes multiple showings to find the right tenant for your rental and you have to be consistent in showing it to make sure the law of averages works in your favor. You may get lucky and find the right tenant on showing one, but frequently it takes 7-10 showings.

Are you willing to drive to the property and show 10, 15, 20 times until you find the right tenant for your home? If you are, then you will be pleasantly surprised with how much time and money it saves you on the backend.

2. Application underwriting experience – professional managers aren’t perfect, but they are consistently better than self managed people about picking a tenant. I’ve seen many people make the poor decision of choosing a tenant with their heart and not their head. Bad tenants are good storytellers. Can you see someone telling you a story and you believing it and letting them move into your home?

3. You make better decisions – much like #2 above, the separation between an owner of a home and their tenant can be a healthy thing. Situations involving your home and where a tenant lives frequently become emotionally charged and a “buffer” for that can allow you to make a decision that doesn’t involve emotion.

Emotion clouds good judgement and a professional manager can help you maintain that clarity. Do you think you can remain level headed when dealing with a tenant who is not?

4. Landlord Tenant Law – whether you are ignorant to it or not, the Uniform Residential Landlord and Tenant Act of Alabama applies to you. If you aren’t in compliance with it and end up in court, judges don’t feel sorry for you because of your ignorance. They give no passes and you will pay dearly for it. If you are not willing to read the whole law and know that you can consistently comply with it, you may need a professional manager.

Repairman checking outside air conditioning unit for voltage.

5. Availability for maintenance emergencies – Being a landlord means being knee deep in Murphy’s Law. Yes, I’ve had the a/c break on July 4th and the stove break on Thanksgiving. The biggest reasons tenants leave is a landlord’s unwillingness to get repairs handled quickly and that means on holidays as well.

Are you willing to answer the phone on Christmas day?

 

 

 

 

6. Preferred contractor pricing – Keep in mind that professional managers are handling dozens of toilets breaking and dozens of broken light fixtures each month. Because of the amount of business we are able to provide contractors, we frequently received discounted or preferred pricing. Usually, that benefit is passed along to you. Do you see the benefit of discounted pricing on work done to your home?

 

An eviction notice taped to a door.

7. Collections and evictions – What happens if the worst happens? Even great tenants lose their job or their car breaks down and they need to use the money typically allotted to pay you for other expenses. Do you understand what it takes to collect that money and when it is time to evict a tenant?

 

 

Property Manager Scope of Services

Now that we’ve looked at the questions you should ask yourself when deciding whether to choose a professional manager or not, let’s take a look at what a manager does and outline their scope of services.

These typically fall into two categories . . . marketing and management.

1. Marketing – When marketing the home, a professional manager should oversee and be responsible for the whole “leasing pipeline”. That means they should oversee the marketing, showing, applications, lease signing and move in of your tenant. Your professional manager should provide you at a minimum the following to rent your home:

  • Sign in the yard.
  • Professional manager’s website posting.
  • Posting to 3rd party websites such as Zillow and Trulia.
  • Some sort of system for handling the traffic generated – whether that be a leasing agent answering the phone or a system for answering all the questions people have asked.
  • Showing – recently this piece has changed a lot for a lot of professional managers. Whether a professional manager has a live leasing agent showing up at every home or provides some sort of technology, they need to have something consistent setup for people to view your home.

Family moving into new house

  • Applications – the next step in the pipeline is very important. You professional manager should supply a way or multiple ways for a prospective tenant to apply for the home. Online application or paper application or both, you want it to be EASY for prospective tenants to apply and they should provide that.
  • Lease signing – a professional manager should provide a lease that complies with the Landlord and Tenant law mentioned above. The lease must comply or could be thrown out in court. A professional manager’s lease will not only will comply, but probably has already stood up in court.
  • Move in of the Tenant – this is an often overlooked item. Frequently tenants move in and there are problems. The highest concentration of work orders happen upon tenant move in. A professional manager’s thorough oversight of the move in should keep these work orders to a minimum and make sure the tenant’s experience with the company gets off on the right foot.

2. Managing – Once the tenant is finally moved in your home, the work is not over. A professional manager ought to provide the following services to you. . . A way for your tenant to submit a problem with the house that needs to be fixed, a solution for getting the work completed on the house after it is called in, and a consistent way to collect and account for the rent.

  • Submitting work – It needs to be easy for a tenant to submit a work order. I know that is scary to hear, but most tenants don’t abuse this. It is very important for them to be able to report problems easily, because ease-ability is what keeps them around longer.
  • Getting the work done – a professional manager ought to have tons of options when getting the work done to your home. A laundry list of vendors is a hallmark of a professional manager. Tenants say “speed” is their most important need when something isn’t working right with the home as it relates to getting it fixed and their happiness.
  • Collecting and accounting for rent – There ought to be transparency in the collection process and detailed accounting. You should be able to trust a professional manager and one of the ways to see this is through the monthly statements they provide. They should also have a system in place to collect the rent should the tenant stop paying for any reason. Lastly, they should send the money to you timely..

Lastly, I want to tackle a statement(s) that frequently comes up from owners.

It’s the statement, “I feel like you are nickel and diming me” or, “That’s what I thought I was paying you for!” I think there is a common misconception that leads to this misunderstanding with our Clients and I think it is appropriate to address it.

The misconception is “property managers are real estate agents and thus their services should include everything that has to do with my house.”

I think it is important to understand that we are in two distinctly different businesses and are paid completely differently. A real estate agent who is selling your home is paid a huge commission when that home sells. There really isn’t a scope of services for someone selling your home other than, “Do everything you can to sell my home.”

That may mean showing up at the house multiple times, sweeping off the front porch, etc. For property managers, we get paid a leasing fee and a small fee every month to provide a limited scope of services – essentially trading time for money.

If we go outside of that scope of services (spend time) and don’t charge for it, then we lose money . . . which wouldn’t keep us in business very long. Therefore, we are happy to “go outside” the scope and spend the time, but we need to charge our Client for doing so.

When Clients ask us this question, it starts like this, “Can you just run by the house and . . . ” While this request often sounds like “management related activities”, property managers can’t afford to provide these a la carte items in their basic scope of services along with the numerous other services outlined earlier and remain profitable.

The sad thing is we want to be helpful and we want to provide you a good service. The reality of it is that we have to remain in business to be able to continue to provide you the basic services you and so many others desire.

When you are hiring a professional manager you need to keep two things in mind, TRUST and COMMUNICATION.

communication

This is what you are going to want when you hire a manager according to our 2015 Owner Survey. We highly suggest talking to many and finding the one who you have confidence that you will trust them and they will communicate with you.

If they don’t, then move along.

How to Keep a Tenant 20 Years (part 2)


Spencer Sutton - Friday, December 11, 2015

Set of vintage glowing light bulbs on black

We’re going to conclude our post on ‘How to Keep a Tenant 20 Years’ with the final 4 points our friend Robert Locke shared with me in Atlanta.

As way of review, the first four were:

1. Buy the right house

2. Get that house in great shape

3. Put time and effort into curb appeal

4. Create a strong maintenance response system

These four are great foundational points and I would say a good landlord already practices these things and recognizes their importance.

Now we’re going to move into some less obvious points that are critical to keeping your tenant for years and years. So here we go…with number FIVE:

5. Recognize the Tenant is the Customer

ATM payment by credit card or cash concept with the hand of a businessman holding a bank card and a second holding a banknote

This may sound like common sense but we’ve found that not every owner recognizes that their tenant is the customer. Instead, some owners view tenants as an ATM and are more interested in calculating ROI than understanding how to achieve that ROI.

This is highlighted when something in the house needs to be fixed but the owner is resistant because they wouldn’t have a problem living in their own house with that issue.

At Crown, Robert just terminated an owner because a tenant was worried about a deck that was swaying. When Crown took it to the owner, their response was, “It’s been that way for 20 years. I’m not going to fix it now.”

That response and attitude got the owner fired. Why? Because of the liability involved when a tenant reports a possible hazard and there’s nothing done in response.

Crown preaches to their owners and investors that they need to understand the difference in what you would live with and what a tenant is expected to live with in a rental house. You, as an investor, are now in the customer service business and that means providing a great product and service to back it up.

It’s important that certain items in the house should be taken care of so that you as an investor can maximize profit and keep the tenant long term.

Robert says that if a tenant sees a double cylinder deadbolt when they rent the house, the assumption is that the deadbolt works. But when it doesn’t and the tenant complains, an investor might say, “I haven’t a had a key to that deadbolt for 10 years. Just let the tenant deal with the door knob lock and that’s good enough.”

That’s not good enough.

The tenant will expect that deadbolt to work and so it needs to be replaced.

Robert believes that owners need to understand that a whole new set of laws come into play that didn’t come into play when the owner lived there.

They now have a commercial enterprise. This is now a business and new laws engage and govern the way you treat, deal and interact with that tenant that you were not subject to when you lived in the house.

So, as an investor it’s important to change your mindset. It is a commercial enterprise now and, if somebody else lives in the house, it doesn’t mean they have to tolerate what you tolerated.

It’s a mindset shift that must take place if you want to keep a tenant for 20 years.

6. Provide Scheduled Maintenance Opportunities

As Robert’s group at Crown regularly keeps tenants 5, 10, 15 years, they like to ask the question, “Why do you continue to stay in the house?” The biggest reason they hear is, “Good maintenance response system.”

The second most common answer is, “The owner obviously cares for the house because we have scheduled maintenance being done on a regular basis”.

These are opportunities for you, the owner, to make an impression on the tenant.

Some of the things that Crown offers their owners:

  • Landscaping twice a year
  • Weed prevention and treatment
  • Shrubbery trimming
  • Gutter cleaning
  • HVAC checkup
  • Termite Bond

On Robert’s personal rental properties he has landscaping done four times a year because it shows the tenant he cares about where they’re living.

These are called scheduled maintenance opportunities and Crown believes that being proactive is the best method. You don’t want to wait for the tenant to complain.

Scheduling is important because if you wait and manage ‘fix on failure’ it’s usually going to happen at an inopportune time. Every year Crown has a termite contractor go and walk their properties and issue an annual bond for the coming year. And termite bonds are are a preventative measure, because once you find termites, it’s too late.

Just like us, tenants want to be proud of where they live and if you can provide this for them, you’ll have a satisfied tenant and one that wants to stay in your house for many years.

7. Practice Great Communication Skills

What do owners and tenants really want from their owner (or property manager)? Good communication. From experience, this is where Robert has seen a lot of private landlords make a mistake.

They get the tenant in, hugs and kisses, they make sure the rent comes in and then they go on a communication vacation.

Most investors who get into this business have jobs that are pretty demanding. On top of that they have family, kids sporting events, dental appointments, vacations and eventually they slow down on their response to the tenant. And the tenant is expecting a fast, quick, and easy response system. In this business, a strong communication system with the tenant and owner is imperative.”

Speaking together media concept as two crumpled pieces of paper shaped as a human head with talk bubbles or speech bubble icons taped as a communication symbol for business understanding and compromise agreement.

At Crown they use Fonality.com, a web based phone system where you can control where those incoming phone calls go. For years, Crown has rotated the emergency phone around the office.

At gkhouses.com we have a 24 hour service line that can take care of service calls and handle middle of the night emergencies.

Robert suggest that if you have a problem with tenants calling and saying things are emergency but in fact they aren’t, just issue a $100 fine for anything that is not truly an emergency. At Crown it cut down the number of ‘emergency’ calls dramatically!

Common sense can usually be followed here. If it’s backed up sewage on Sunday afternoon, it needs to be dealt with. If it’s a crack in a window on a Saturday night, it’s not an emergency.

At Crown they’ve been implementing a new instant messaging system so the managers can respond at different times of the day and weekend and evenings.

Robert and his Crown team have put together a tenant handbook for the most commonly asked questions…and he suggest that every good investor ought to distribute to them to new tenants.

For the property manager he suggests pulling your staff together and asking the question, “What are the 10 most common questions a tenant asks?” Compile those answers and put the answers in a tenant handbook.

If you’re a landlord who has several properties, this is a great idea for you as well.

At this point, Robert says that approximately 40% of tenant calls are maintenance related and the other 60% are commonly asked questions.

Find a communication system that works for you and make your tenants feel like you care.

You’ll end up with tenants that don’t want to leave.

8. Tenant Appreciation

And finally, one of the most important aspects that will help you keep a tenant 20 years is that you need to treat tenants like you would your staff if you owned a business…and this means it’s important to make them feel appreciated. Robert insists that investors would do more good and get a greater return by appreciating their tenants more. It’s not a requirement and it’s not in the lease, but they routinely send gift cards to tenants for different reasons.

  • Some examples of how Crown has used this gift card strategy:
  • When they endure a maintenance problem
  • When they renew their lease
  • When they pass a home inspection
  • When you find out about any difficulty – divorce, death in the family, etc.

Robert says that anytime you send a $20 gift card and say, “I’m really sorry to hear about your struggle…let us know if there’s anything we can do“, it’s going to mean a lot and show them you care.

He had a lot of great ideas:

bigstock-gift-card-15448193

“What if you noticed that they paid rent on time for six months? Or even if they’ve gotten behind, worked out a payment plan and finally gotten caught up…it will change their attitude towards your company.

Some landlords are going to be too cheap to consider this strategy. They’ll say, “Why should I send them a gift card for paying six months on time…isn’t that what they agreed to do? Why should I applaud a tenant for that?

And you can definitely take that approach. But in the long run, if you never appreciate your tenants, you more than likely won’t keep them long term. The goal is for them to believe you care.”

 

This year Robert and the team at Crown took this practice to another level and planned what he calls The Crown Carnival. Unfortunately the day was cancelled due to severe storms in the area but he ended up hosting ‘Giveaways‘ that included tablets, gas cards and even a cruise for two.

For an investor this doesn’t make a lot of sense but the important message is to think about ways to celebrate your tenants. Keeping a good tenant in your house for 20 years will most likely result in significant ROI.

————————————————————————————————–

At gkhouses.com we are reconsidering everything we do in order to make sure we reward the best tenants.

As demand for rental property continues to increase, especially among millennials, make sure you’re providing an excellent product and even better service.

You’ll stand out above the rest when you can do these 8 things well:

  1. Buy the right house
  2. 2. Get that house in great shape
  3. Put time and effort into curb appeal
  4. Create a strong maintenance response system
  5. Recognize that the tenant is the customer
  6. Provide scheduled maintenance opportunities
  7. Practice great communication skills
  8. Appreciate the tenant

So the question you should consider is, “Do I want to keep my best tenants 20 years or not?

If you answer “YES!” to this question, then follow these 8 principles and you’re well on your way.

If you don’t use gkhouses.com as your property manager, what have you done to keep your best tenants?

We’d love to hear from you.

How To Keep a Tenant 20 Years


Spencer Sutton - Wednesday, December 9, 2015

In the Real Estate Investor world there’s a lot of noise.

It seems that everywhere I look on social media or coming through my inbox is THE BEST way to find/buy/flip a house and make a quick buck.

If you want proof just take a look at two of the 30 emails I’ve received in the past couple of months about real estate investing.
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Did you catch that? “YOU NEED THIS LIKE AIR!!”

And this one…

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But I’m not here to knock ‘buy/fix/flip’ course sellers or even those who do it day in and day out. I used to be one of those guys.

From 2003 to 2008 I was buying houses and selling them to other investors who either rehabbed them and held them or sold them retail. I owned a Homevestor franchise here in Birmingham and used their system to find investment property around town.

It was a great way to make a living and we ended up picking up several rental houses along the way.

But the owners who use gkhouses.com as their property manager seem to be more interested in the buy and hold method.

So what does a successful rental portfolio look like and how do you actually make money in this business over the long haul?

I had the privilege of sitting down with Robert Locke of Crown Realty in Atlanta one Friday afternoon at his house to find out the secret he discovered to long term wealth in the rental business.

Man telling an astonished woman some secrets

His answer surprised me at first but then as he explained, I began to see his point.

He explained to me that the secret to a successful rental portfolio is simple and straightforward…but that landlords and property managers don’t do a great job of it.

The secret to long term success is this….keep your tenants for 20+ years.

Think about it…when do you as a landlord spend the most money on your rental home? It’s when the tenant moves out for whatever reason. That’s when the turn takes place and you may need to replace carpet, paint the walls, etc.

You’re usually writing big checks during a turn and it’s money that you’re not going to recover easily…if at all.

We see investors often put most of the emphasis on their rental property. That’s good but it becomes a problem when you begin to neglect the true asset – your tenant.

Robert’s been in the business 35 years as both an investor and a professional property manager. He loves helping others succeed in this business and actually speaks at a number of NARPM conventions each year.

How did Robert learn this important lesson? Purely by accident.

He learned it when a tenant who had been in one of his rental houses put in a notice after 21 years! He didn’t start that relationship thinking of ways to keep them that long, it just happened that way.

Imagine that…one of your tenants staying in a rental house you own for 21 years. That would probably end up being one of your most profitable rental investments.

So I asked Robert to lay out his strategy for keeping tenants 20+ years.

That afternoon he gave me 8 keys to keeping a tenant 20 years.

In this post we’ll discuss the first four and in our next post we’ll look at the other four.

1. Buy the Right House

Seems simple, right? But as Robert explained, it’s not so obvious to a normal investor. He explains:

“Many times, investors buy a house because it’s convenient or because it feels like a discounted price when it really isn’t. They’ll buy strange floor plans…maybe something that a bored doctor built for his daughter and he forgot certain things like enough doors or completely left closets out of bedrooms and maybe the windows are in weird places. You know the houses I’m talking about…really strange floor plans. They’re funky, they’re dysfunctional floor plans. And, many times, those houses might look like they’re being sold at discount but they’re really not a discount.

It’s a price adjustment for an irreconcilable defect.

Think about other situations like buying a house on a busy street.

Someone may give an investor a $10,000 ‘discount’ for being on that busy street…but it’s not a discount, it’s a price adjustment for an irreconcilable defect!

So, new investors get tricked into buying something because nobody else will buy it…

Closeup portrait of handsome young man looking shocked surprised in disbelief with hands on face looking at you camera isolated on background. Positive human emotions facial expressions

Sometimes the public are buying houses smarter than investors who will buy things that are dysfunctional for the area. Split foyers are popular in some areas. In many parts of the US, a split foyer is dysfunctional. Nobody wants to walk into a landing and then go up or down or carry their groceries upstairs.

You see town homes with two story steps up to the open door to go into the main level of the house. They learned that didn’t sell very well, so they put the steps on the lower level but the lower level is a garage and a utility room.

They still have to walk up steps to get to the living area and they still walk up another steps to get up to the bedroom. People who live in those houses figure out pretty quickly that they don’t want to live there.

The ‘wrong house’ in my model in Atlanta could mean a steep driveway. Any potential tenant who moves to Atlanta from the North wouldn’t buy a steep driveway because they think about the difficulty of snow and ice on a steep driveway.

We actually had a steep driveway that people parked up the on street and always walked down the driveway and then up steps into the front door. In their third year in the house, the brakes weren’t set and the car rolled down the driveway into the rec room. It went right into the furnace and into the rec room where they were sitting.

So while you might get better prices for these considerations, don’t mistake them for a discount…and don’t let your investors get tricked into buying them.

They’ll buy something that’s been on the market a long time and they think they’re getting a discount. When they get ready to resell it, they’re going to have to give the same price adjustment for an irreconcilable defect.

So, the public is sometimes smarter than investors. They want vanilla. They want floor plans designed by national builders. CalAtlantic Homes, Pulte Homes, D.R. Horton. They have tried and tested floor plans.

They know what the public likes and what the people like to walk and flow through.

In this town, Eastern Airlines used to be strong here. Pilots were making a lot of money and could only work 10 days a month, so they had a lot of free time. And one of the things they did is go out and build houses.

Now we’ve got houses in this town where you’ll walk in and face a wall and you either have to go left to the living room or right to the bedrooms but you’ve got this great big wall in front of you. Crazy!

We’ve had houses where there is a forty foot hallway and eleven doors coming off it. We’ve got them where they call it a bedroom but there’s no closet and there’s no room to build in a closet. We’ve got them with kitchens in the lower level.

So, the first thing if you want to keep a tenant 20 years is buy the right house because if you buy the wrong house, you’re gonna have trouble renting it.

Then, when you turn around getting ready to sell it, you’re gonna have trouble selling it because you’ve got the oddball.

And if for some reason you find a tenant to move into that kind of house, they won’t renew the lease because mom is complaining about walking up the long stairway to get to the main level of the house.

Another big consideration that most of us know instinctively is the that the school system matters. If you have a house that’s identical to the one down the street but the other house is in the good school system, you’ll never get the same rent they’re asking.

You’ll end up accepting discounted rent because it’s in the wrong school system.”

So what about you?

Have you bought or considered a home that probably isn’t the best house because you might get a good discount? So step one, most important…buy the right house.

2. Get the House in Great Shape

A lot of investors like to save money.

Actually, we all like to save money so that our investments give us greater return.

The problem comes when in our effort to ‘save money’ investors put a few bandaids on their house. They clean up the dead dog in the backyard, have the yard mowed and put tape over a hole in the wall.

Robert explained to me that putting the house in pristine condition is critical to getting the right tenant in your house early in the process. If a tenant walks in a house that isn’t really well cared for, their assumption will be “It’s not going be well cared for while I’m living here either.”

“If they don’t put it in great condition before we start showing it – ripping out the green shag carpet or cabinets that came out of a trailer – then the tenants that will be attracted are going to be substandard tenants who just don’t care because they perceive the owner doesn’t care.

The evidence is there because they didn’t even bother to put it in good shape.

And even if you do get it rented, they will most likely not be long time tenants…they’ll eventually move into a house that an owner and property manager actually care about.

A lot of investors say, “I’ll finish the rehab as soon as you get an application.”

That’s probably the worst idea.”

At gkhouses.com our Leasing Agent does a walk through before it can be shown to the public. There’s no sense in putting a bad product on the market because it’s likely not going to rent fast.

Nice one-family house with a porch

The best tenants aren’t just looking at one house…they’re looking at six, eight or ten and they will compare those houses and choose the one that’s best.

So if they walk into your house that isn’t ready, that’s not a good thing. The sink is sitting in the middle of the living room floor. The ceiling fans are laying in boxes in the corner. That isn’t gonna work for them…or you.

3. Put Time and Effort Into Curb Appeal

Robert and his team at Crown have survey new tenants whenever they move into one of their houses. They are always asking, “Why did you rent from Crown? Why did you choose this house?”

Over 35 years they’ve accumulated a database of responses and one of the most common responses they here is, “When we drove up and saw that the house and yard was cared for on the outside, we wanted to see inside.”

Street appeal is incredibly important.

Their research shows that if the mailbox is hanging off its hinges and tilting over, the shrubbery in the front of the house is dead, the lawn not well taken care of and the shutters need painting…you should be prepared to sit on that house a while. And not only that…a tenant who puts an application on that kind of house is likely not the tenant who’s going to stay for 20 years.

Here are some great tips on making sure the outside of your houses are attractive to the right tenants:

  • Use ground cover – You will want those ground covers that don’t require water and will keep weeds down. The more you cover with mulch, bark, gravel, pine straw or wood chips, the more money you will save on water and yard maintenance. These low cost ground covers don’t require much upkeep besides a new layer every year or so. They’ll also reduce the amount of weeds that spring up while adding a nice touch to the look of your yard. It’s the simple things like this that can attract a tenant to your house over the one for rent on the same street.
  • Plant flowers – This is something easy and anyone can do it. It’s best to avoid tropical plants and other non-native plant species. This is simply because these plants require more water, soil additives and greater care to keep them looking their best. This will ultimately eat into your rental income…especially if the new tenants expect you to keep them looking great after they’ve moved in your house.
  • Trim any shrubbery in the front yard – At first glance, unkempt shrubbery can signal that the inside of your home may be unkempt as well. You can easily change that perception by taking the time to prune any ‘out of control’ shrubs.
  • Put out an American Flag – We believe that patriotism is a GREAT thing! At gkhouses.com we are all fans of this great country. It will likely send a positive message to a prospective tenant if you put an American flag on the outside of the home.
  • Cut your grass and repair any dead areas – During the summer months it’s going to be extremely important to make sure that your grass is cut and any bald areas are being addressed with sand/soil mixture. A well manicured yard is a sign to a prospective tenant that you’re serious about giving them a good product and that you pay attention to details. If you arrive to show your house and the grass hasn’t been cut in a several weeks the inner dialogue the prospective tenant has might go something like this – “If I need work on this house, how soon will they get to my request?” or “What kind of things inside the house need to be taken care of if they can’t even take the time to cut the grass every once in awhile.”
  • Lay trim around any flower beds or mulched area – Landscaping timbers are a an inexpensive way to improve the look of your home. These can be bought for as little as $3.50 for each 8ft timber. You could also look at bricks of some kind that would add a nice bit of curb appeal.
  • Regularly pick up any trash outside of the house – This may seem elementary but it’s extremely important…especially if you’ve had contractors working on your house.
  • Pick up any regularly scheduled news or mail service – If there is a regular service still coming to the house – like newspaper and mail – it’s important that you make sure these things are picked up regularly or cancelled. And as we probably all know that piled up papers or mail is a signal to less than desirable folks that a house is vacant and could invite vandalism.
  • If you have a front porch, it’s important that this area be free and clear of debris – This may seem like a no-brainer but we’ve seen many landlords try to rent properties that have previous tenants ‘junk’ dumped on the front porch. We can tell you that this property will quickly slide to the bottom of the tenants ‘most wanted’ rental house list.

4. Create a Strong Maintenance Response System

Now that you have a tenant in your house, let’s shift our focus to keeping that tenant 20 years.

At Crown every tenant is sent a “How did we respond and handle your request?” survey after a maintenance call.

Every tenant.

Robert’s crew sends a standard email that says, “Please rate: How did this maintenance request get handled?”

Their numbers are pretty impressive:

  • 83% – Excellent,
  • 12% – Acceptable
  • 5% – Not Acceptable (you can’t please everybody)

So what does Robert attribute their good ratings to? Simple…a quick response system. Especially on emergency items.

He explains:

“When a tenant calls and air conditioning is out, it’s likely an emergency. Especially if it’s July. If it’s in October, probably not as big of an emergency.

Customer service questionnaire with green tick in excellent box isolated on white background.

If you’re a professional manager or an owner with a lot of houses, you need a maintenance priority schedule. What is urgent? That’s a half day response system. What is important but not urgent? For Crown, that’s a two day deadline.

What if the faucet is leaking but it’s not really affecting your tenant’s lifestyle? That is a one week response time.

And for those times that it’s not a big deal, then it’s usually ok if you take a look at the issue next time you’re out at their house. It’s usually not worth the trip just to repair a crack in the bathroom tile floor.

The last one for issues that just aren’t that important is, “You’re gonna have to take care of it yourself.” Sometimes tenants will call in with silly requests like a bird nest on the front porch. These things tend to they can take care of themselves.

The key to remember is that your maintenance response should always be proportionate to how the problem is affecting the tenant’s lifestyle.

If the air conditioner doesn’t work in December, it’s probably not going to bother them very much. If the furnace is out in December, that’s a different problem.”

I believe we all instinctively understand how important it is to take care of maintenance calls in a timely manner. It’s important for the landlord with one house and as equally important to the management company with 1,000 houses.

For the rest of the tips, take a look at How To Keep A Tenant 20 Years Part Two.

Why Don’t You Answer The Phone?


Matthew Whitaker - Wednesday, December 2, 2015

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The number one complaint . . . by a longshot . . . we get from our tenants and people who are interested in our homes is, “Why don’t you answer the phone?”.

If you read our reviews, people who score us very low, are generally complaining about our interaction with them and complain specifically about this subject.

 

As a consumer myself, I agree it is frustrating to want to talk with someone and not be able to? Because we believe in uncomfortable transparency, I’d like to give you a “peek behind the curtain” to explain why . . .

1. We get thousands of phone calls every week

This is everything from people looking for homes, current tenants, and owners. We would need a team (a very large team) of people to answer all the calls . . . and really, we would love to hire that team. The only problem is to have that many people on the payroll would affect what we would need to charge our owners for our services.

If we charge our owners more, then they would in turn increase the rent on the homes to cover our additional costs. That would just make the homes more expensive to rent than they are now…and that’s not something we believe tenants want!

What’s our solution?

Since most of the calls (95%+) are for people looking for homes, we implemented a bunch of user friendly technology solutions for seeing a home. The first thing we’ve done is attempt to make our website extremely user friendly.

Most people have similar questions when they are looking for a home and we attempt to answer those questions for every home we have listed for rent. Secondly, we use technologically advanced ways to see our homes. We use a self-showing service to allow people who want to see the home to simply show themselves the home. What’s easier than doing it yourself?

While technology is not perfect and loses the “human touch”, we are working on more ways to bring humanity into our leasing process . . . so stay tuned!

2. We think it is best to communicate in writing

  • For Record Keeping – this is not a new concept, but one that is important when you are dealing with contracts and agreements made between multiple parties. We much prefer to make sure there is no breakdown in communication and prefer to make sure all promises are made – including the promises we make to you. We have a number of employees that tenants may communicate with, so having it all in writing also helps them “get up to speed” on the situation quickly.
  • Efficiency – You can imagine when we are getting thousands of weekly inquiries for homes to rent and currently have 700+ tenants and 400+ owners there is a lot of communicating that goes on. We’d much prefer to have one point of contact and let US get the message in the right person’s hand to answer the question. That way the person looking for a home, the tenant or the owner don’t have to decide who is best to answer their question. We are also able to track how quickly people are getting back with the sender. This makes us able to provide a consistent product to the people we work with.
  • Make sure nothing gets missed – You can imagine with all those people asking questions, things can get lost in the shuffle. That is why each inquiry is logged in our system as a case. We are able to track the case from creation to its resolution. Any open case means that the item has not been answered.

What is our solution?

In our office we have two people who do nothing but assign cases (cases are questions from tenants and owners that need to be responded to) to people in the office and organize our communication. We believe so much in communication, we’ve hired people to be in charge of it!

To kick off a case, anyone can simply send an email to [email protected]. Once we receive your email, it will be reviewed by our operations coordinator and answered if they know the answer or can get the answer. If they can’t answer it, then they will assign the case to the most knowledgeable person in the office so they can answer it. They also manage the backend to make certain that all the team members are answering questions in a timely manner.

See how easily it works?

screen-shot-2015-12-02-at-10-58-15-am

I saw a this infographic saying that 80% of people who contacted customer service preferred someone to respond to them via a phone call.

Email is a distant second on the list.

If we could, we would love to give the people who contact us a wonderful experience.

I’m curious, now that you know a little bit of the “inside”, what do you think you would like to see from gk with regard to answering the phone?

The Single Biggest Factor To Your Landlording Success…and What To Do About It


Matthew Whitaker - Tuesday, December 1, 2015

vector illustration of hand holding money to invest in own house in sketch style

Becoming a successful landlord involves a great many things. Everything from buying the right house at the right price, to putting the right finishes in the home when you get it ready for a renter to making sure it is marketed correctly; it seems like everything is important. There is one factor that stands above all others to success and even has the power to correct previous mistakes . . . and that is marketing the home at the correct market rate.

Why, you ask is it so important?

Let’s look at what marketing a home at the right price produces:

1. A large number of applications – simply put, more applications equals a better chance of finding the right person to rent your home. Remember any “sales funnel” begins with driving traffic in the big end of the funnel.

2. The right tenant – bad tenants (and any un-creditworthy person for that matter) are used to paying more money for services. Think about payday loans and “buy here, pay here” car lots. Logically, doesn’t it make sense that someone would pay more for a service if they didn’t have many other choices?

3. A long term tenant – to some degree this is the right tenant I describe in the previous point, but think about this . . . What happens if you get a good tenant at above market rate? They typically leave after a year when they realize their friend down the street is paying $200 less for a better home. So even if you find the right tenant, you lose them quickly and have to spend the money to get the home ready for a new tenant.

4. The right income – what happens if you under rent the home? If you can believe it, we see this too. Under renting a home doesn’t allow you to maximize your income.

Ok, so you’ve bought in to the fact that finding the right market rate is painfully important. We are going to look at some ways to do this from a practical standpoint, but first let’s understand the mentality of a renter . . .

A renter, unlike a buyer, is very much a snapshot in time thinker. If you were purchasing a home, you would make a list of all the things the house needs that are non-negotiable, make a list of items that are very important, and then make a list of the “would be nice’s”.

If it is one list or three, it is a long list. Renters typically have a very short list of non-negotiables and once they are able to check those 5-8 boxes, they pull the trigger and rent.

Buyers also are willing to look for homes for a long time and the decision making process can drag out.

Not so much with renters.

I always joke, if a buyer calls at 8 am to see a house and doesn’t get a return phone call till 5 pm, there is no way they’ve already purchased a home.

Under the same set of circumstances, if a renter were to do that, you are wasting your time calling them back at 5, because they’ve already applied, been approved and moved into the home by then.

While this is a little bit of an overstatement, the point remains true . . . renters work fast and don’t typically search out historical rental data.

Now that you understand the mindset of the renter, let’s take a look at some ways for figuring out market rate:

1. Be objective

None of the below ways of finding market rate work without you at least making an attempt to look at your home objectively. All the memories you have at the home will drive the value of the home up in your mind. Do your best to remember that a renter doesn’t care about YOUR Thanksgiving in the living room, they care about THEIR Thanksgiving in the living room.

2. Don’t estimate rent based on your mortgage payment

We talk to a lot of potential clients who say, “I need to rent it for x, because my mortgage payment is y”. The renter doesn’t care about your mortgage payment. If this logic was true, you would rent it for free if you didn’t have a mortgage. Remember renting your home at market rate will ultimately get the most money in your pocket.

3. Search the websites of reputable property managers

Local Birmingham Alabama managers whose sites you can search are Alabama Rental Managers, Decas Group and AHI Properties. Look specifically for your area and for homes that are your competition. The best thing to do is to pretend you are a renter and you are choosing from your house and the closest one to it. Basic supply and demand says that if your house is similar and priced a little less, you are more likely to rent your home first. If your home is BETTER (remember to be objective) and priced at or a little higher than the next home, then your home will rent next. Very simple logic, but very important to remember.

4. Zillow.com

Zillow has something called a rental “Zestimate“. This is Zillow’s way of figuring out how much the rent on your house should be using some sort of proprietary algorithm. Our experience has been that homeowners typically think their Zestimate is way too low . . . and it may be. However, prospective renters are looking at this number and believing it. So, the rent you are asking shouldn’t be too out of line with what this number is or renters will just pass you by. I do believe these Zesitmates are becoming better the longer they’ve been around and the more (and better) data that the company collects; but I also believe they are a bit of a self-fulfilling prophesy.

5. “By the bedroom” areas

The last item to point out will not have to do with most people, but there are certain areas of town like Crestline Park, Homewood and Crestwood where large amounts of transient people live. By transient, I mean they are only living in the house for a certain amount of time while they are attending school or taking their first job and only intend on being in that home for three years or less. These areas have a habit of being priced, “by the bedroom”. Which means the majority of renters here are roommates and are sharing the gross amount of the rent two or three ways. Thus, a home maybe too expensive for a family to live in, but could be easily broken up into ⅓’s and paid for by three students, netting you more money. If you are attempting to lease a home in an area like this, this is something you should definitely consider.

Finding market rate is not an easy task.

In fact, it is one of the hardest things we do. If we have to error, we error on the side of renting for too much because we can always come down . . . but make sure it isn’t way too much, because you are just wasting your time.

What does a home at market rate look like? Let’s take a look . . .

  • A large number of leads – whether this is a phone call or email, homes at market simply drive more traffic. Driving leads is really the first step in aforementioned sales funnel.
  • Lots of showings – This is where I think most people breakdown in the process. Remember that lots of showings is to your benefit. If it doesn’t lease on the first 5, keep showing! I’ve seen far too many people wear down at this point and accept the wrong applicant. If you are showing a lot, it’s working.
  • Multiple applications – While leads are huge and showings are huge, ultimately someone filling out an application is the first sign of commitment. If you are showing a lot and not receiving any applications, that is typically a sign that you priced the area correctly, but there is something wrong with your house. We call this the “price versus product” test. If you aren’t getting applications find out why people aren’t applying. The answers fall into two categories – things you can change and things you can’t change. If it something you can change, like painting a purple bedroom, I highly suggest doing it before the next prospective renter comes through your door. Things you can’t change are like a busy street or steep stairs. The only way to fix this is in the pricing of your home. Bottom line, if they are showing up and then not renting, they are telling you, “I’m willing to pay this much money to live in this neighborhood, but not willing to pay this much money to live in your house.” You need to find out why.

Always keep in mind while people are moving down this funnel that it is a funnel and you will drop people along the way. However, understanding what a market rate home “looks like” or produces is very important. We actually count each step in the sales funnel and find out who we lose along the way and provide that data to our owners. The number of showings and the number of applications are delivered to our owners weekly, along with some average statistics to help them make good decisions about the market rate of their home.

If I had to name only one thing you should get right, this would be it.

It is so important to find the market rate of the home to find the right tenant and have a successful experience. The owners that come back to us after leaving us will typically say it is because we find the best tenants. . . not that we are the cheapest.

Use the above help you find your right tenant. Staying disciplined to the process will yield you overwhelmingly successful results.

Happy Renting!