Some Perspective on Rental Property Cash Flow Disruption

Bedroom fire and flood
Bedroom below attic while lightening caused home to catch on fire

About a year ago, Sept 2014, during a violent Austin thunder storm, a rental property I personally own in SW Austin was struck by lightening and caught fire in the attic.

As the thunderous flash of light, noise and immediate smoke jolted the tenant out of bed at 2:30AM, he quickly realized that he was standing in water. The home was flooding, and also on fire, simultaneously.

Wow! Wake up!! His elderly mother was visiting and he was able to get her and his son out quickly as the house filled with smoke. Then he called 911. Then me.

I showed up around 3:15AM, sloshed through about 18 inches of water at my driveway, as about 6 firetrucks were on the scene. It was an apocalyptic scene, like out of a movie. But everyone was ok, and the fire was contained to mostly the attic and three bedrooms. But the home was rendered uninhabitable.

Of course the tenant had to move out, insurance got involved, and a year later I’m just now getting ready to re-rent the home. Insurance only paid 4 months of lost rent, and denied my appeal for more, not accepting my explanations of why the job took longer. So, as it stands, I’m out of pocket 8 months rent ($12K) and about $8K more after insurance deductibles and other snafus that I won’t go into. Plus whatever continued vacancy loss I incur until I place a new tenant.

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Austin Lease Extensions Depend on Timing and Season

austin lease renewalAs we head into the Spring/Summer leasing season in Austin, and I just mailed my first batch of renewal letters, I’m already fielding inquiries from tenants who have lease-end dates that don’t coincide with their future plans.  The inevitable question is “can we have a move-out date of x instead of y?

For one tenant, planning to get married, extending the lease from a March 31 end date to a May 31 end date (two months) is not a problem. The home is owned by a long-term investor, and the new May lease end date benefits both the owner and the tenant. This is a win/win. It places the home dead center of the summer leasing season cycle.

In these win/win scenarios, I have flexibility because the adjustment benefits my client, the owner. I work for the owner and must only make decisions that are in the owner/client’s best interest. Thus, if that same tenant, in that same house, asked for the same 2 month extension for a lease that ended July 31st instead of March 31st, the answer would be “no”. Timing is everything.

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Why Online Repair Request Forms Are Best

Austin Property Management Repair RequestMost Austin Property Managers, in fact all that I know, require tenant repair requests to be submitted in writing. This is required by Texas Property Code as well as the commonly used TAR (Texas Association of Realtors) and TAA (Texas Apartment Association) lease forms. It’s good practice for tenants to follow, even if the landlord or property manager doesn’t strictly enforce it. As a tenant, you want all of your important communication regarding your lease to be documented in case the worst case scenario ever comes about and you end up in court over a dispute.

At Crossland Property Management, we provide an online repair request form for the convenience of our tenants. 99% of our repair requests originate here, albeit sometimes after I direct a tenant there from a phone call or email. Occassionally tenants fuss about this. “Why can’t you just take the info over the phone?” is a common gripe. “Because we already agreed in the lease agreement that repair requests are submitted in writing or online” is my response. “And we make that super easy for you by providing an online form”.

The operational efficiencies of having all repair requests originate online through a repair request form are phenomenal.

1) The online request form is interactive.
This is very important. All property managers should be programming your online repair requests with this functionality. It’s simple to do even for non-programmers if you’re using the right web tools. Sorry, but none of the “out of the box” pre-fab websites that many property managers use provide for this, which is another good reason to develop, host and manage your own website with WordPress, then you can use a simple Forms Plugin.

For example, on my repair request form, once the checkbox under “Problem” is checked “Air Conditioner” or “Furnace”, an informational blurb automatically appears above the Submit button. It reads:

“Many of our service calls for A/C and/or furnace result in “user error” as the cause, especially when seasons change from hot/cold and thermostats are not properly set. Please double-check your thermostat and also make sure you have clean filters properly installed. If you feel confident that the thermostat and filter(s) are in order, proceed with your request so we can get out to have a look.”

Likewise, if the tenant checks “Electrical” as the problem, the following blurb automatically appears:

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Renting to Those Displaced by Austin Fires

Steiner Ranch Fire
Steiner Ranch Fire

I’ve received a couple of calls already from agents trying to help folks displaced by the recent fires in and around Austin, including the Steiner Ranch fire and the fires in Bastrop. I currently have one vacant home ready for move-in, and would be more than happy to place new tenants in it immediately. But thus far, in both cases, the agents representing the tenants wanted me to cut corners and make accomodations that would violate my fiduciary responsibility to my client. This presents a tough quandry.

Should fire victims be granted a more lenient and expedited approval process than non-victims?
Yes and no. Property Managers who decide to waive requirements such as credit check and criminal background search and who otherwise might think it “good hearted” to skip certain parts of the application and verification process could be exposing themselves and their owners to greater liability in the event the tenant doesn’t pan out. More on that below.

On the other hand, I see no reason why we, as professionaly property managers, can’t expedite the processing and make reasonable, defensible accomodations should we receive an application from a displaced fire victim. But one agent I just spoke with basically wanted me to say whether or not I’d approve the application before it’s even brought in. I can’t do that. All I can say is that I’ll try to make it work, but it’s still going to have to be brought in and processed like any other application.

But here are some examples of what I think would be reasonable accomodation.

No Picture ID
We require a copy of a picture ID with every application. What if the applicant’s purse, wallet and all identification documentation got burned up in the house?

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When is an Austin Rent Payment Considered “On Time”

One of the most misunderstood agreements that tenants have with Austin Property Managers and Landlords is when rent is actually due. It’s clearly spelled out in the written lease agreement, but confusion exists nonetheless. Most lease agreements require rent to be paid on or before the first of each month. All Crossland Property Management leases have a due date of the 1st, no exceptions. Many of my tenants, however, consider the “due date” to be the last day of the grace period, which is the 3rd for us. This is not correct and can lead to undesirable outcomes for tenants.

Most Texas leases include a provision that states the day upon which late fees begin to accrue for unpaid rent. The period of days after the 1st, but before the “late fee date”, is called the “grace period”. In fact, a 1-day grace period is mandated by Texas law, meaning the first day that a Texas landlord can lawfully charge a late fee is the 3rd of the month (assuming the lease states a due date of the 1st, with the 2nd being the 1-day grace period).

At Crossland Property Management, we have a 2-day grace period (giving an extra grace period day), meaning rent can be paid late on the 2nd or 3rd without a late fee, and the late fee starts on the 4th. But this does not make the 3rd the “due date” for rent, as so many tenants seem to assume. It works like this:

Rent Paid on or before the 1st – This is an “on time” rent payment. You are performing as agreed in the lease. You are an A+ rent payer.

Rent Paid on the 2nd or 3rd –  This is a “late payment” for which no late fee is charged, because of the 2-day grace period. You are a B- rent payer.

Rent paid on or after the 4th –  This is a late payment for which a late fee is incurred. You are a D rent payer. If I have to send an eviction notice before you pay, you earned an F. This will cost you not only in late fees, but in other ways explained below.

Tenants often mentally convert the due date to the 3rd instead of the 1st. In fact, in any given month, about one third of our rent payments are received late ON the 3rd. It’s human nature. We think in terms of consequences. A late payment each month on the 3rd seems to have have no consequences to most tenants, and many in fact consider it to be “on time”. But in fact is not correct.

You may think, “ok, I understand what you’re saying Steve, but there’s still no downside to paying on the 3rd, so I’ll just keep doing that”. This is where most tenants don’t know what you don’t know. There are in fact financial consequences to paying late each month, even within the grace period. Mainly, I don’t offer the same renewal rates to tenants who consistently pay late as I do to tenants who consistently pay on time. I also don’t provide as good a rental refernce for late payors as I do for those who pay on time.

Here’s how it works for lease renewals.

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Austin Rental Market – 2010 Update

Average and median rents for homes in Austin continued to rise in 2010, but still remain lower then the peak in 2001. Hard to believe, but rents in Austin are still lower than 10 years ago.

As indicated by the graph above, rental rates in Austin topped out in 2001 with the Tech bubble and a surge in growth in Austin and companies hired and expanded. Immediately thereafter, when the Tech bubble popped and 9/11 followed, Austin lost jobs, homes were hard to sell, and rental demand decreased as the inventory of available homes increased.

Below is a chart of the year over year stats comparing the 2010 Austin rental market to 2009.

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