When should I start getting nervous? Cant find a good tenant!!

[Allyson Edwards]

Hi everyone,

I have a property in NC that i closed on June 15th. https://www.zillow.com/homes/105D-Brookshire-lane-...

I have a property manager taking care of trying to get a renter. the problem is she is constantly getting stood up by prospective tenants, or people just don't follow up after they contact her. Ive listed it on social media and other sites. I trust she is doing her best. 

Any one have any other ideas? Is this the norm? Flaky people or am i freaking out too early? Does it normally take this long (I live in CA so I have a very skewed view of RE, ill admit that). 

I did my due diligence on this area, I've been there several times, i know the area is growing, and the schools are good (Troutman school district not Statesville). 

So what am I doing wrong? Any help would be appreciated. Thank you.

[Allyson Edwards]

@Michael S. You're correct, but I live in one of the most expensive RE markets in the country. So I have to go outside the box. Then when I have more experience and money maybe I could start investing here where I live. And yes, I know this market Like the back of my hand. Unfortunately I'm dealing with overpriced and inflated RE here...I'll have to get more creative. This place is on the border of Statesville and Troutman with Troutman schools. When I did my research I found growth in the area and backed it up with info given to me by agents, family and friends. That's why I chose here.

[Jiri B.]

@Allyson Edwards the problem is likely the high price as it was mentioned here several times. When you get told by other people, investors or even realtors that you can get certain rent on those properties, always verify the data by looking at rented comp and how long those properties were on the market.. Trust but verify.

If you don't want to sell and want to keep the higher rent in order to stay in positive cashflow, you might try to consider a short term rental option. You would however need to invest in the furniture etc but you will typically be able to charge much higher rent. I don't know that area to give you the proper advice, so you would need to do research if that is even an option there to make it work.

[Martin L.]

@Allyson Edwards I'm sorry that your deal doesn't seem to be working out so far. The problem with turning it around and selling too quickly is that, without enough appreciation you will potentially lose more money from the realtor fees. My last property was also brand new, and I wanted to rent it out for a premium, but ultimately it still went down to market price. Many renters simply don't care how much WE feel it is worth compared to properties that aren't as nice. If you're lucky, you can get your premium but oftentimes they just want the cheapest price for a place that they like "well enough". 
If you can get out of this without losing much money, it might not be a bad move for you. Unfortunately, I don't know this market, but if the neighborhood really is growing and there is strong potential for appreciation, then I would try to rent it out at zero CF and wait on some appreciation. The last property I mentioned has gone up by about 10-15% each year for the past two years. The overall appreciation in the area has affected rental prices and allowed me to increase the rent and CF since I bought it. The benefit of a brand new property is that you usually don't have to spend any extra money on repairs, etc. The roof, HVAC, water heater, etc... they've all got some life on them and should still be covered by the warranty if something happens. The new property has also been appreciating at a faster rate than my older property just a few blocks away even though the older one is larger. 

Good luck either way.

[Tim McKelvey]

@Allyson Edwards I just did a quick Zillow search for properties in Statesville that rent from $1500-1750.  There were 2 properties listed, and yours was one.  From this, I would conclude like others have commented that your price may be higher than market rent, or higher than the market can support.

Good luck with whatever you do.

[Jennie W.]

I don't have an answer on why it is not renting. I'm new to REI. One thing I keep hearing on the podcasts/forums, everyone has deals that didn't turn out as planned. It sounds like you have a few other ideas for it now. Thanks for sharing your experience and best wishes!

[James Ma]

Hey Allyson,

I have a few thoughts for you to think on 

1) You're using the realtor as your property manager? How do you measure or how do you tell if she's doing a good job? It may make sense to you to look at using another PM company if you find she's not doing a good enough job for you.

2) The price of rent - if you're having lots of actual viewings (ppl will always flake so I don't worry about that as much as people who actually come view and want to rent) and nobody wants to rent it, your place is probably not as nice as they thought.  If you're having problems getting people through the door to see the place, then the rent is too high and you will want to consider lowering it.

Not having a renter in there, is costing you rent already and lowering the rent will also let you have the power to select a better tenant instead of the first one who says they can pay and then end up being a bad tenant. You can always increase rent in future years if you think it is underrented compared to the market

3) If you want to sell that's totally up to you but keep in mind the fees you're going to have to pay to the realtors which is probably going to make you take a loss. Its important to consider what you plan to do with the money after you sell this place as that is your opportunity cost. Rent and appreciation tend to rise over time so you'll be able to get out of the cashflow negative hole.

I'd chalk this up as a good learning experience for not properly gauging market rents unless they did end up shifting since you purchased. Using conservatives numbers (I like to add in vacancy rate %, assume a bit lower than market rent, etc. so I have a buffer on cash flow)  is important so you're never forced to sell because the property becomes unsustainable and can always sell on your own terms when the timing is right

[Nikki Grizzle]

@Allyson Edwards You may want to find out what criteria your PM is using. Im in NC. I barely advertise and I always have a pool of applicants and at least 5 to decide on. Something is off.

[Eric Jacobs]

Don’t rush to drop the price.  If you did your DD and knew what you were getting into then your first thought should be to test the efficacy of the property manager not all your DD.  Secondly, I don’t like lame excuses and a PM that is complaining about being stood up sounds like she isn’t doing a very good job of qualifying potential tenants. You may be lucky she hasn’t found you one yet I can only imagine what a tenant he/she procures would be like.  You may want to talk to some other property managers.  You might get very guerilla style and either “secret shop” the place and see what happens or put an ad in CRAIG list yourself and see what happens.  If all of that fails,you can look at adjusting your price but if you got that wrong, and you only just bought the place it would make me wonder how well this was underwritten from the start. Good luck 

[Thomas Staub]

@Allyson Edwards Ryan nailed it. Is the property in a good area with upside potential? If you’re around the NC - Raleigh/Durham Area, and you have a property that is solid but just not making the numbers, you should likely keep it. By 2020 70% of the population will live in just 15 states and that property is in one of them. If it’s in a B class property or above and has long-term potential, consider the following: 1) upgrade countertops (vinyl is fine, $1,000) 2) add modern backsplash ($500) 3) update fixtures ($500) Drop price by $100, see if the market bites, two weeks no bite, drop $50 more.

[Michael Swan]

@Allyson Edwards Do this experiment. Get someone else to call your PM and see if she answers the phone from 9-5 Mon-Fri. Have them leave a voicemail and see how long it takes to get back to them. Have another person leave a text message from another phone number. If I was a potential tenant and the PM I was calling from the ad does not answer the phone, I would just go on to the next ad. Many PM companies say they do not have time to answer the phone. If potential tenants don't show up for their appointments to tour the property, what is wrong with the property? If the PM is answering the phone and doing their job (very rare by the way), July and August are great times to rent out places. So, are you priced too high? After one month the rental rate should be dropped, after the second month in the summer, something must be wrong. Reach out to me if you want me to give you more detailed info on what you should do. Swanny

[Bjorn Ahlblad]

The person who is winning here is the PM. She got the commission when the place was bought and the PM agreement will assure her the RE commission on the sale as well if you sell. In this market she is likely busy showing houses and may not have enough motivation to find you a tenant. I have always been a little uncomfortable in the relationship of the RE agent becoming the PM; too cradle to grave.

[John Burtle]

I'd start with finding a new PM. They may not be taking your property very serious if the first few people decided not to rent it. She may be discouraged at this point and is  busy with properties she KNOWS will rent quickly. I could be far off, but I'd definitely seek a new PM before I did anything else.

[Alpesh Parmar]

@Allyson Edwards something is wrong with the property, area, rent or PM. If the property is in at least C neighborhood and in good condition, it shouldn’t take longer then 8 weeks.

[Terrell Garren]

I live around 45 minutes away (Concord, NC) and own around 17 SFH rentals near me. You have a beautiful property; however, many others are right, it is over priced for the location. The people that can afford that price point would generally commute on I77 and it is a political and construction mess involving toll lanes to/from Charlotte. There is just not enough going on in the specific area (jobs, entertainment, restaurants, child care, shopping) for that price point and getting most anywhere involves I77. Then there are more convenient, attractive areas closer to Charlotte like Davidson, Huntersville, Lake Norman and Cornelius, etc. where people might pay $1,700 or so for what you have. It's not the PMs fault, the location and price are killing you. I wish you the best.

[Irina Belkofer]

 @Allyson Edwards there are 3 things which affect this business:

1. Location

2. Condition

3. Price

Location is given and you can't change it, we have to hope that it will get better after all construction is finished.

You can add something to condition: but it seems like already pretty good.

Price is your only tool here: if property is not rented for 2-3 weeks even in January - it's price. If it's not rented in June&July!!! there is really something wrong.

Is your real estate agent does PM on regular basis or just took on it because she was the selling agent? This is very different business - to sell vs rent property. Property is vacant for 2.5 month and agent doesn't lose money - you do. 

As for "stood up" - at such price range, the tenants are very responsible, usually it takes one Showing to Rent property even at $1300-1400. At $1700 it's people with income higher than $60-65K/year, that means pretty successful people - they don't flake out, they actually call to cancel and not the last minute.

If there is not 2-3 calls/week, something needs to be changed: price, marketing, agent, whatever. Don't advertise it on CL - only MLS and Zillow.

Create your own add on Zillow - by owner, if it's on MLS - it's already on Zillow, too. Answer phone calls - off course, you'll pay your agent comissions but it won't hurt to estimate the demand for the property.

I'd consider the situation as an emergency - you're losing $5K already.

Selling after Labor Day might take long time especially if there is new construction of similar houses.

Lease to own is not that attractive (at least around here): banks are getting very flexible on financing and almost everyone could get a mortgage. If they don't - why would you want to lease them? They will fail and then you have to foreclosure on them vs evict for non payment rent (which is much easier and cheaper).

You need to do something now - not just worry, but really change something in your approach.

Good luck!

[Christopher B.]

I probably can't add much more than has already been said, but for the no shows, we experienced this in the last Unit we were attempting to rent.  Texting reminders right after the appointment was set, and again on the day of the appointment, helped.  We still had one or two no shows, but things improved well.  

[Bola A.]

@Allyson Edwards I am proud of you. It hard until it get easier, keep your head up.

[Justin Flowers]

@Allyson Edwards I think your best bet at this point is to do a lease option or just outright owner finance it. Assuming you get the price you want and the process goes smoothly, you will have better cashflow from owner financing/wrappable mortgage (no insurance, management, maintenance, etc to pay for). Have an RMLO (Residential Mortgage Loan Originator) screen your buyers so you have better protection and a hands-off approach. 

I did this with a property I got into some trouble with earlier this year, and I was able to take a losing deal and turn it into a win. Although you miss out on the tax benefits, appreciation and principal pay down as you would on a rental, it's a good backup strategy in case things go awry. Good luck!

[Lincoln James]

@Allyson Edwards I agree with your thesis apart from the numbers. NC is growing fast. You picked a great state (probably either the best or second best dollar for dollar). Plus Amazon might rank RD up at the top of the list for HQ2. That would almost certainly lead to speculation. But then you get back to the numbers. Clearly that was the only part of your analysis that needed any change. One small bit of advice: be super wary of rent info coming from a broker. I’ve been told by brokers that I could rent a unit for 1400 when really all I could get is 1100. They are going to paint a rosy picture esp to out of town investors because they have to sell. Go online to realtor.com and the various apartment/pm sites and figure out a *pessimistic* rental amount. Use that for your numbers. If you’re doing it right, you should almost IMMEDIATELY find that there are like very very few good deals out there (on MLS anyway).

[Lincoln Tudor]

@Justin Flowers Hi Justin, I'm actually working on a lease option deal in Mckinney Texas. Do you know any real estate agents in that area?

[Jay Hinrichs]

Originally posted by @Michael Swan:

@Allyson Edwards

Do this experiment. Get someone else to call your PM and see if she answers the phone from 9-5 Mon-Fri. Have them leave a voicemail and see how long it takes to get back to them. Have another person leave a text message from another phone number. If I was a potential tenant and the PM I was calling from the ad does not answer the phone, I would just go on to the next ad. Many PM companies say they do not have time to answer the phone.

If potential tenants don't show up for their appointments to tour the property, what is wrong with the property?

If the PM is answering the phone and doing their job (very rare by the way), July and August are great times to rent out places. So, are you priced too high? After one month the rental rate should be dropped, after the second month in the summer, something must be wrong.

Reach out to me if you want me to give you more detailed info on what you should do.

Swanny

 I know your a veteran and well seasoned.. but I wanted to share this …  when I rolled into INdy to fund a turn key operator there I always check with PM I want to  make sure the PM is solid so that the buyers of the end product don't get a Morris invest experience.

the day I happened to be there was leasing day.. and I thought this was Genius.. there were about 7 or 8 folks there.. they were going over the vacants.. this PM runs 1000 plus units so of course every week there are a significant amount of vacant props.

these were all independent agents working on a fee base.. so then I drive by a few of the vacant homes to check on turn over quality and rehab quality .. there are 5 or 6 for lease signs in the yard.. each of those agents run out and put signs in the yard craigslist ( well maybe craigslist was not invented then this was 04... but any way.. I asked Aaron the owner I said why do you do this why is leasing not in house.. He said the owners pay the lease fee's and what happens is tenants will show up but leasing agents don't get there or whatever the tenant will do a drive by call one sign NO answer call the next until someone answer live.. that person usually gets the deal.. I thought this was genius personally and really helped the owners with down time during a turn over.. now of course this works in the SFR space were you can stick a bunch of signs in the yard.. but here we are 2018 and his is still humming along with his same methodology.. And its the bane of the industry in my mind NO one answers there phone and they hide behind texts.. I wont answer text messages personally. I hate them.

[Jay Hinrichs]

@Allyson Edwards  this is always a problem when your the highest rent in a given area.

I found and I have owned a bunch of higher end new construction.  so the payments are not like a 70k rental in a C class area were they maybe 300 a month..  the negative cash flow waiting for top rent .. will take you half a decade to recoup even if you get the top rent.. it becomes a double whammy.. not only will you end up having to lower your rent realistically  but you just paid 3 months of negative cash flow.. full on negative.. and now you rented fore break even so you wont recoup until rents get above break even and at that it will be a tiny amount.. so you can run the math.

Unless your confident that there is going to be serious appreciation like CA.. OR WA and other prime spots around the country like Charleston SC  there is basically no reason to buy any property for just the sake of  owning it if it does not throw off meaningful positive cash flow.  Your better off break even or a little negative and stay in CA. 

Also you mentioned Schools  well most folks have moved that are keen on Schools  as Schools have already started up.

Its just like having your lease expire in Nov.. I learned that the hard way.. no one wants to move DURING the holidays or at least very few top flight tenants.. so if I was going back into landlording my lease would all have June 1 expirations.. :)

additionally I learned this the hard way as well in Charleston SC I re did a 4 bed historic house to the studs out.. and built another 4 bed new construction on the back of the lot.. 850k into the deal with financing and cash.. we missed the move in date for collage kids because that is the highest and best use of those areas the rooms rent for 900 to 950 each..  I had it on the market for 1.4 million got an all cash offer on it. but it had to close by first week of Aug.. well we did not get our CO until mid sept we missed the date... fast forward it sat and finally close in April for 1,250.000 we lost 200k in profit and paid out 4k a month in negative we still did OK on it made  300k or so.. but we were really hoping to hit that 500k number..  timing when you have good schools is important.. the guys that bought it were from new York and they had a 1031 they had to move so they bought and they let it set until aug so they also went 4 or 5 months without income.. I did not want to rent it at market and then have to refurb it when I new the H and B was students.. we don't buy hold we like making big hits on value adds.. but that's a whole different business.

[Jane Johanson]

You could always try to add value with staging the apartment in a modern style to appeal most broadly then take pics that you will have for the future.    Either that or lower the price.

[Pete Barrow]

==>The problem with turning it around and selling too quickly is that, without enough appreciation you will potentially lose more money from the realtor fees.

I'm not sure there's good reason to think that a new-build townhouse in Statesville NC can be counted on to appreciate any time soon, especially considering that it was probably bought near the market peak. 

[Michael Swan]

Hi @Jay Hinrichs,

That sounds like a real strong company!! I am big enough now that I have attracted the big PM companies and I am sooooooooo happy they have repositioned so many value plays In the last 25 years.   The big guys want economies of scale too.  It is difficult to get a go getter PM for $90-$125.00 a month.  How hard will any of us work for $90-$125 a month.  One hour?  Maybe one hour and 30 minutes.  

Swanny