Archive for the ‘ Property Management ’ Category

Increase Your Cash Flow with French Fries

I know, I know that title has you scratching your head.  But rest assured, if you’re a rental property owner you’re gonna love this technique.

Yesterday I went to sign a lease on one of our properties.  Normally this particular property rents for $750 per month and that’s exactly what we marketed it for.  However, after a short discuss with the tenant he happily agreed to pay $815 per month for the property.

So how did we do that?

The answer is simple – we gave him the McDonald’s treatment.  When you go into McDonalds what’s the first thing they ask you after you order a burger?

Would you like fries with that?

I love fries and I’m sure you do too – they go great with a burger.  Well, let’s pretend we’re McDonalds but we’re not selling burgers, we’re renting houses.  What do you think McDonalds would offer their prospective tenants once they agreed to rent?  If you really think about it there are hundreds of things you could offer.  Here’s our menu of “fries” that we offer to our tenants.  You can see that each upgrade increases their monthly rent by a nominal amount.  For this particular lease signing the tenant took one look at the list and said:

I want the flat screen…make it happen!

There was no coaxing, no selling, no haggling to increase his rent.  This guy took one look at the list and knew he needed a big screen.  Heck he was even eyeing the lawn mower but that was “too expensive”.  So, just like that we increased our monthly rent by $65.  Sure, we’re going to have to go out and buy a TV, but let’s take a look at the numbers.

The TV we’re going to buy is a 42″ plasma TV from Costco at a cost of $399.99 ($424 with tax).  Over the course of the first year we will collect an additional $780 from this tenant which means we’ve increased our cash flow by $356 for the year.  Now here’s the kicker – if this tenant stays beyond the first year we’ll increase our cash flow in the 2nd year by $780 (I won’t even talk about the 3rd year).  The bottom line is that we set the pricing on each upgrade so that it will pay for itself during the first 6 months of the rental.  Everything after that is gravy.

This certainly doesn’t work with every tenant, but it’s an easy program to offer.  If you don’t offer things like this you could be leaving money on the table…so take a cue from McDonalds and start offering fries with your rentals.

2012
05/06
CATEGORY
Deal Negotiation
Property Management
Rentals
2 comments

I Hate No-Shows…Here’s a Solution

A few years back we bought our first rental property.  We put a lot of time and effort into the purchase and rehab which is why I was really excited when I got my first call from a prospective tenant to rent the property.  He called me up and we had a very good conversation.   By the end of the call we decided it was best that he come and take a look at the property, so we made an appointment to see the property the following Saturday.

So that Saturday I went over to the property early to make sure everything was clean, and I even brought over some candles to make sure the home smelled  nice.  Our appointment was for 10am that morning.  I can still remember sitting there at 10am…then 10:10…then 10:20…still no sign of this guy.  After waiting for 25 minutes I decided to call him, and when he answered I asked if he still wanted to see the place.   He simply replied:

Sorry I changed my mind.

And that was that.  Quite frankly I was really upset.  How did this guy have the nerve to change his mind and not have the decency to call and let me know.  I had wasted several hours of my time just preparing for the showing but it was no skin off this guy’s back.  Well, since then I’ve learned a few things about showing properties to tenants and perhaps the best idea I’ve come across is the idea of the rental open house.

As we talked about in last week’s blog we paid one of our tenants to leave which created  a vacancy.  Under that scenario the agreement was that we would pay her to leave as long as the property was left clean and with no damage.  This of course allowed us to begin showing the property immediately after the tenant moved out.  So, I made it a goal to fill the property within 72 hours after the tenant vacated the property and here’s what we did…

I started all the marketing for the property the week leading up to when the tenant would vacate.  The marketing included advertising on Craigslist, Vflyer, and placing a sign in the yard.  This marketing worked great, and the phone started ringing early in the week.  Now rather than set up individual appointments with each prospective tenant, I told them I would be available to show the property at 10am on Saturday.  I didn’t tell them this, but I was creating a rental open house.  The goal was to get as many people as possible lined up for the 10am showing.  The current tent was set to move out on that Friday, and I was able to get 7 people set up to see the property at 10 am on Saturday.  This of course was a bit of a risk because I wasn’t 100% sure the property was going to be clean, but I did have the agreement with current tenant, and I was relying on that.  If the house was a mess my plan was to reschedule with everyone.

Well, things worked out with the current tenant on that Friday, and the place looked great.  So we were all set!  On Saturday morning, I arrived at the property early to make sure everything was in order.  I brought some Febreeze to enhance the smell, and I fully inspected the property to make sure everything was in working order.  Then I began to wait.  At 10am the first prospective tenant pulled in the driveway.  Then a few minutes later the 2nd showed up, and about 10 minutes after that the third showed up.  Only 3 out of the 7 people I spoke with actually showed up, but I didn’t care about the 4 no-shows…I had 3 fish on the line.

I’m happy to report that even though I didn’t get 100% attendance it was a complete success.  All three of the people that showed up submitted applications.  Furthermore, not one of them tried to negotiate the rent to a lower price (even though I listed it $50 higher than the previous tenant was paying).   In the end, 2 of the 3 prospective tenants qualified.  By Sunday we signed an agreement with one them, and they moved in this past Tuesday.

So you can see that setting up your showings with multiple tenants is a good idea for a few reasons:

  1. It maximizes your efficiency in showing the property
  2. It minimizes the risk of having nobody show up
  3. It creates a sense of competition for the property, and the tenants are less likely to negotiate.

The bottom line is that this is the model for how we will show our properties in the future because it simply generates excellent results.  Furthermore, you can see the result of how the Cash for Keys offer and the Rental Open House worked together.  We used these two ideas to minimize the vacancy period, and now this property is once again performing very nicely for us.

In total this vacancy cost us $375 which was $300 to pay the tenant and $75 for 3 days of vacancy.  However, when you consider we were able to increase the rent $50 over what we were charging, we will actually come out further ahead in the long run.  Of course it’s better to have no vacancy but in this situation I’m elated with the results!

2012
04/08
CATEGORY
Property Management
2 comments

Pay Your Tenants to Leave – Give Them Cash For Keys

If you’re a landlord long enough you’re eventually going to have to evict someone.  Well, that day finally came for us this past month.  We had a tenant in one of our properties that was receiving assistance through the Section 8 program.  If you’re not familiar with this program, Section 8 helps low-income tenants by paying a portion or all of their rent.  For those in the program, it’s obviously very advantageous for them to stay in the program.  Well, in February we were notified that this particular tenant had their Section 8 status revoked because they failed to submit their renewal paperwork.

Honestly I couldn’t believe that someone receiving free rent would fail to send in their renewal paperwork to make them eligible to receive another year of free rent, but I guess that’s a whole other story.  The unfortunate thing for us is that we now had a situation where this particular tenant had no ability to pay the rent, and our only recourse was to evict her for non-payment right.

If you know anything about the eviction process, it takes a minimum of one month to evict a tenant in Michigan, and because of court delays it typically can take closer to 45 days.  This amount of time creates several distinct issues.  First and foremost, you don’t receive rent during this time period so you’re losing there.  Adding insult to injury, your expenses go up because you have to pay court costs will typically run about $300.  In addition to all of this you run the risk of upsetting your tenant leaving your property vulnerable, and a pissed off tenant can do a lot of damage in 45 days.  If you add up loss of rents, court costs and damage to the property, you can easily run into the thousands of dollars to evict someone.

Rather than take on all of this risk, we took a different approach.  We wrote the tenant this letter:

Dear <Tenant>,

As you are aware, you have lost your Section 8 status and you no longer have the income level to afford the home you are living in.  We understand your situation and we are willing to work with you through this transition.

As you are aware, we have begun the legal eviction process.  The costs to you to go through this process are excessive, and can run into the thousands of dollars.  We would like to avoid all of these charges, and we have decided to make the following offer to you.  If you fulfill the following terms of this offer, we will agree to compensate you $300.00.

Terms of the offer:

  1. You will vacate the property by Friday March 30, 2012 at 3:00pm.
  2. The home will be clean and be cleared of all your personal possessions.
  3. The home will not be damaged in any manner other than normal wear and tear.

If these conditions are met, we will offer you a payment of $300.00.

Please contact our office by Friday March 30, 2012 if you would like to work towards these terms.  If you do not contact us by this date we will assume you have rejected the offer and we will proceed with eviction.

Thank you,

Management

I’m sure there a number of hard nosed landlords out there that completely disagree with this approach because it rewards a tenant for bad behavior.  While I agree with this to a certain degree, we made this decision purely from a business standpoint.  We talked above about the ramifications to the eviction process.  If we went through the full eviction, we would have lost a minimum of $1730 due to lost rents and court costs.  In addition to this we would have faced the high probability of excessive damage to the property.

With the cash for keys approach, we minimized our vacancy to one month, eliminated court costs, and we guaranteed the property would not be damaged.  By doing this, we would limit our loss to $1000 thereby saving us at least $730 and probably much more.

While it is a bitter pill to swallow, in this case it was the right business decision.  Sometimes there just comes a time when you need to cut your losses, and paying tenant to leave happens to be one of those times.

In the end, the tenant accepted our offer.  We showed up this past Friday and the place was immaculate.  It was clean, there was no damage, and the tenant handed over the keys.  We paid $300 and we were happy because we could immediately begin showing the property.  Of course we had already thought about that and lined up 7 showings on Saturday…we’ll talk more about that next week.

2012
04/01
CATEGORY
Property Management
Uncategorized
3 comments
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