Thursday, 16 September 2010

Property Management

I changed property managers in Oklahoma City recently. This was because the last ones rented to tenants who left $4,000 worth of damage. This constituted 65% of the rent left after the management fees. I decided they didn’t manage very well, they only collected rent.

So I found all the other real estate management companies in Oklahoma City I could that had with websites and email addresses in Oklahoma City. Even in the 21st century it’s amazing how many still aren’t on the internet, but I figure ease of communication is a priority for me.

I contacted each company via email and gradually narrowed my list to three. I contacted the Oklahoma Real Estate Commission and asked about any complaints against them and I prepared a list of questions about fees and management practices. I rang and interviewed the manager of each company and then made my best guess about handing over Mom’s house again. The first bad news was that they charged me nearly $8,000 to do the repairs on the house. I told them the next time I had repairs to that extent I would make them to sell, not to rent.  Our first tenant experience together would be a make-or-break deal.  The house looked nice - from the pictures -  with new paint, new carpet, new window blinds, new kitchen floor and new cooking stove. I should get to live in a totally refurbished house one day, eh?

This company gives the owner the final decision about prospective tenants. Reviewing the application information was interesting, to say the least. The first applicants were a married couple with three children and two small dogs (one 4-years; one 1-year old). They were proposing to pay $745 a month to rent my 3-bed house after paying only $450 per month for an apartment. She was a clerk in a doctor’s office for the past 2 years, while he has been in the National Guard for not quite two years. Their total wage income was $1,844 a month plus $472 in child support. Credit scores were 567 (hers) and he had no score available. She had rent debt judgments for 2004 (because of living with an abusive boyfriend), 2006 (because of a job loss) and 2007 (no excuse offered) plus other recent account collections. Her rent debts were paid up, except for one that was ‘an error and she had fulfilled the lease’. They asked to move in without paying the full deposit (two month’s security deposit, another month’s rent in advance because of the credit risk, and $500 for the pets). The management company recommended I approve this application if they came up with the deposit, except that they would move in before that was paid.

What?

Most of this was Greek to me, not having lived in the US in 15 years, not being acquainted with the credit scoring system, etc. I did a bit of internet research about credit scores and Weekend Warriors and thought about the reliability of child support payments (from both abusive and non-abusive partners).  Then, as politely as I could manage, asked the management company folks if they were out of their minds. Whilst they said it was not unusual to allow people to move in still owing the deposit, it seemed they had more information about other debts this couple had and agreed that it might not be best choice to accept their application. Clearly I was going to be the main filter in this process. 

In addition, I really itched to send that couple on a personal finance course.  Then, maybe ship her off to  counseling to see if she could find a man who could a) not hit her and b) work full time.  I keep saying I’m not the welfare department, so I suppose I can’t be a social worker either.

The second application was from another married couple with no pets and no children. They had been leasing a house for a year for $595 but the house loan had gone into foreclosure and they needed to find another place to live. Before that they’d paid $470 for an apartment and both landlords said they were excellent tenants. They both worked in sort of hippy type shops – natural foods and crafts -- and brought home $2,065. Again, one of them had no credit score and the other’s was 674, not great but OK. The rental management people explained to me that people with really good credit tended to buy houses, not rent them, which makes sense. I was ready to take on, at a reduced rent of $695, even though they were pushing for a refrigerator to be added to the kitchen and asking that the house be cleaned again (?), but somehow the foreclosure was forestalled and they decided to stay where they were. Bummer.

Finally, the current tenant is a single man with no pets and he’s both a student and a musician who had been paying $850 rent and would be happy to pay $695. He also works part time for his mother who owns a construction company. His credit score was slightly better and his mother co-signed the lease. She has an excellent credit rating and earns a whole lot. So we took him on.

I thought about these people a lot in the weeks that the house was on offer to rent. I did the math to see what percent of their income was going to go to rent, considered how far the house was from their places of employment, wondered why a single man needs three bedrooms, will the neighbours complain about the noise? It was quite an eye opener about people who rent their homes.  I rented a room for the first 10 months I was in Newcastle, until I could save up a deposit and get to know the area.  I rented a house in Salt Lake for a year for the same reason before buying.  Before that, I rented a house for a year after divorce number one.  Other than those occasions, I've owned my home since 1979.  I much prefer paying a mortgage to paying rent.  Then again, I've never really experienced negative equity.  

It’s hard for me to judge the neighbourhood Mom’s house is in from this distance. I gather it’s not great, but not useless either, not yet. I’ve had about a 6% return (for no investment) over the 20 years she’s been gone. Not great, but not useless either. It is income that has helped me to pay off my other houses, another sort of compound interest, I suppose.

I’m not sure yet about the management company. It’s too early to tell yet. Cross your fingers for me, OK?

4 comments:

Struggler said...

Ohhhh... I was reading your first description and thinking 'eek' - was so pleased you felt the same way. Of course, people can run into problems, and that's really sad, but all that unpaid rent history reminds me of the expression "no smoke without fire". I'm a wee bit concerned that the managers would recommend that situation to you.
Your current tenant does sound like a great bet, and I'm sure any music noise issues can be smoothed out.
I rented one room for a couple of years after leaving university, before I bought my own place... and again, we rented for 3 years when we moved to California before buying. In this area, houses are so incredibly expensive, that all kinds of people with high incomes rent, so I think that makes the typical renter profile a bit different. Certainly, there were some very expensive cars in the parking lot of our apartments; I think young professionals had given up on the idea of buying and were spending their money on 'toys' instead.
I do hope this experience works out for you - I agree, at such a distance, you are working very much in the dark...

Frugal Scholar said...

Fingers crossed. I know it's hard to manage from a distance, but lucky you, living in England!

Rick Stone said...

That part of town currently is average. Not Nichols Hills but not Muligan Flats either. Currently, do the recession, housing is affordable and the management company is correct, folks with decent credit scores are buying and not renting.

When I had rental property my best renters were two single guys. They took better care of the place than any other and left it spotless when they moved out. Second best were two single sisters. The married couples were the pits.

Remember, we are local and, unfortunately, are home most of the time. If you need someone to run interference just let us know.

Shelley said...

Struggler - Thanks very much for your good wishes. You are right that the area will very much influence whether people buy or rent. I know I was shocked by the housing prices - and rent - in SLC compared with OKC back in 1991.

Frugal Scholar - Yep, I am very fortunate to live in England. It has given me opportunities to see things I just couldn't have had I stayed in the US. That said, it would be nice to have a regular summer again. There are always trade offs, aren't there?

Rick - Thanks for this very useful feedback. It like to have killed me to sell Grandma & Grandpa's house on Pennsylvania Ave, but I did live through it (and am pleased everytime I see the developer who trashed the area has yet to develop anything). I need to get a bit more perspective about Mom's house as 'investment' rather than 'sentimental' property. We'll give it a month or two and then I might suggest you drive by one evening and count cars. Are you sure your two guys were 'single'? ;-)