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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Leasing a Home in Austin TX – Then and Now

When Sylvia and I started leasing and managing rentals in Austin in the early 1990s, the business operation was phone-based. I had a phone, answering machine, and spiral pad on a desk in our kitchen nook. All business happened there. I also had a Windows PC, a 386 with a dot matrix printer which ran the DOS version of my property management software. If you don’t know what 386, DOS or “dot matrix printer” means, you’re probably less than 40 years old. Oh, it probably had a 2400 baud modem as well, and a 50 meg hard drive. It wasn’t until 1996 that I put up my first website and started using email for business.

All rental inquiries thus originated with a phone call to that one phone. It was a “single channel” communication system. Those callers either saw a yard sign or a 3-line ad in the Rentals section of the Sunday newspaper, and called to inquire. That was the extent of the entire communication system with regard to advertising a rental listing and taking inquiries. We did also have the Austin MLS, so Realtors could show our homes for lease, same as today, but if they called, it came through that same 1-phone system.

Today leasing inquiries come through multiple channels. So much so, it’s difficult to control, and impossible to manage manually.

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Austin Lease Renewals 2012 – Rents Are Increasing

I just mailed a batch of renewal letters for leases expiring April 30, 2012. All of them include rent increases, but most tenants will still be below market rent value even with the increase. More on that in a minute. Furthermore, many tenants will be paying a rent amount lower than the rental rate the house would have rented for 11 years ago. No, I’m not kidding. Austin rents peaked in 2001 and we’re just now starting to get above 2001 rates on some properties.

My Approach to Lease Renewals
I’ve been renewing leases in Austin for 22 years. I’ve mailed thousands of renewal letters. During that time, in dealing with tenants who are trying to decide whether to stay or go, I’ve noticed something interesting about basic human behavior related to lease renewals.

First, an increase above $50/mo. seems to trigger in many tenants in Austin a negative emotional reaction, causing the tenant to feel slighted, even if they logically understand the reason for the increase and the data supporting it. This results in some interesting phone conversations where a tenant confesses to knowing that the increase is fair, but it still makes so them so mad they might move.

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Austin Rental Market Update – Nov 2011

Rents continue to rise in Austin as more buyers opt to be renters and the supply of homes shrinks relative to demand. See the graph below for a snap shot of the wild ride Austin rental rates have taken since 1999.

Austin Rental Market 1999 thru Nov 2011
Austin Rental Market 1999 thru Nov 2011

It took over a decade for Austin’s rental rates to return to their 2001 peaks. Good for renters but it’s been a rough 10 years for landlords. And not all homes are back to pre-2001 rates, these are just the averages.

For November 2011 compared to a year ago, let’s take a look at the chart below.

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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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