Dealing with tenants

Hey all you future 4X’ers out there.  Thanks for joining us again on 4X Formula Radio where we talk on a weekly basis about the Real Estate Business. If you are a licensed Real Estate professional or thinking about becoming a licensed Real Estate professional, then you are in the right place.  If you are here for the first time – Welcome.  I am so glad that you are here.

Have any of you experienced this?  You have investors that own properties and now it is time to sell.  But there are people living in those homes that you have to deal with.  How do you approach dealing with the Tenants in the homes…that is what we are going to talk about today.

Over the years I have run into a lot of crazy scenarios and I continue to be surprised by how some people live in their homes.  Everyone has different standards.  That is blatantly obvious in some situations.  I walked into one home that was a rental property for one of my clients.

That particular client was what we refer to as an “absentee landlord”.  He just bought properties, rented them out, and then set up a payment schedule and as long as the tenant was paying the rent, he never visited the property.  Sometimes he even forgot about certain aspects about the property because it had been so long since the last time he had seen it.  He lived about 90 minutes away from his properties.  He decided it was time to liquidate.  I was not involved in the original purchase of these properties but I was now going to take care of selling his two holding properties.

The first one was in a “developing part of our downtown core”.  This was kind of a rough neighborhood.  There were a few people speculating in this area for future development potential. As I arrived at the home, I saw from the outside of the home that there had been absolutely no maintenance performed on the home for some time.

In this case, the seller had arranged the appointment with the tenant and I arrived at the agreed time.  I knocked on the door and the lady answered the door in her housecoat.  IT was around 11am on a Saturday.  I then entered the home, and there was this wave of movement that happened and a smell that seemed to slap me in the face.  IT was cats.  Over 20 of them!  They never made a sound… totally silent, it was frightening, the only sound was from their movement.  Creepy.  I didn’t even want to sit down.  She showed me around and there were cats everywhere and the place was a mess.  Food dishes everywhere and the furniture was full of cats and cat hair.  Let’s just say that the sanitary conditions of this home were not really up to par.

Then I learned that the tenant was actually worked as a nurse in our local hospital!  Yikes.  Anyway… these are the types of things that you can run across.

This is a very rare case of course but we do run into this quite often in our Real Estate businesses where we run into some wacky circumstances.  However, the most common is the “Difficult Tenant”.  The nightmare tenant… the tenant who refuses to allow showings… the tenant that is freaked out about how you are going to treat them.

When a home is occupied by a tenant and suddenly the landlord decides that they want or need to sell, it is very disruptive to the tenants lives.  This is their home.  They pay on a monthly basis for the right to live in this home.  There is normally 0 incentive for them to ensure that the house is presentable.  There is 0 incentive for the tenant to ensure that the Buyer walking through the home is impressed with their décor.  There is 0 incentive for the tenant to ensure that the Buyer is impressed with the landscaping maintenance etc.  In addition to that, the wear and tear on the appliances, flooring, walls, and exterior parts of the home are the responsibility of the landlord, and there is no incentive for them to take care of general upkeep.

Now this is not say that there aren’t wonderful tenants out there that take care of the home as if it were theirs. They have certain standards that they maintain whether or not they have actual ownership in the home.  I found that the tenants that have good attentive landlords tend to feel more of a moral obligation to take a little more care when living in the home.  We all know that this is not always the case.  These are the dream tenants, and I believe, that, as a landlord when you have a tenant that is of that nature that you, should go the extra mile in making them feel comfortable and be more attentive when items are in need of repair.

So now – what is the best way to deal with tenants as a big bad Real Estate professional who is now going to disrupt their lives.  I have a system for this.

Personally, I will not list the home until I have had a chance to meet the tenant and have a proper chat with them.  If It turns out that the tenant is difficult to meet with, then that is the first sign of difficulty.  So, then we may have to think of ways to motivate them, and attempt to adjust their attitude towards “The REALTOR®.

Once we get the meeting, our purpose, is to approach the situation with empathy and assure them that we understand that they are people living in a home and that there is no incentive or benefit to them during this time as we totally disrupt their lives.

Next we talk to them about the Laws that are in place to protect them as tenants and educate them on their rights.  It is best to adhere to the Act that is in place for your area that regulates how tenants are to be treated, anyway, to avoid putting your landlord/Seller, and yourself, at risk, so why not use that to make the tenant feel more at ease. This will give them a sense of control, knowing that their rights will be protected and that you respect them as people.  At the same time, you are literally telling them the rules of the game… it goes both ways.  If you play by the rules, then they have to, as well.  Its an implied expectation.

This puts them more at ease and disarms them right away.  “These people are different.  IT seems that they are people that operate with the appropriate morals and ethical standards.  I respect them but still feel a little wary…”  Ok… if you can get them into that mode of thinking then you have a better chance of getting through to them… Stage 1 accomplished.

Hopefully we are now transformed the relationship from big bad real estate professional that doesn’t care about them and is more concerned with our commission to someone that has a job to do but will operate in a fair and respectful way.  We believe that they are simply, regular people that are living in this “product” that we are contracted to sell.  Does that make sense?  Do you take the time to do that?  I will tell you that once you meet, disarm, and then establish guidelines with them that give them more comfort, you will have an easier time booking showings and you will find that they will put out a little extra effort to make the home more presentable, more often than not.

If we think about it from their side… there is a FEAR there.  We need to kill the monster when it is small so that we can move forward with less blockages and get our job done for the seller.  If we don’t take the time to alleviate these things then we will have a tougher time with the tenant and it will be a nightmare listing for certain. Taking these steps is not a guarantee that the tenant will absolutely fall in line and be reasonable… Let’s face it  – but it give us our best chance to do a great job for the Seller.

So we did our best to alleviate the first concern.  Which is basically the BIG BAD REALTOR is going to treat me horribly and not respect me and my home…

The next concern – “This is going to be a pain in the butt and enormously inconvenient.”

So, we discuss some guidelines and get their feedback with the attitude that we will try to minimize the inconvenience as much as possible.

The Guidelines that we discuss with them, are as follows:

• What are the absolute most horrible times for showings to occur?
• What is the best day and time frame for showings?
• How do we deal with pets etc.?
• Do you have to be home for all showings or do you actually prefer to have the showings while you are at work?
• What is their work schedule like?
• We will always try to ensure that you have a minimum of 24 hours notice for showings but if we get a request we will still make the request to you. This is just in case that time frame is actually more convenient for you.  You have the right to say no, but if it works for you anyway in that time frame, then we can get it over with.  Please don’t be offended if you receive a request within the 24 hour time frame.
• What is the protocol for booking showings and best contact method? Text, Phone or email? Do we need to await a confirmation before confirming with the other agent or do we consider it confirmed if there is more than 24 hours notice and we hear nothing from them?  The set up here is, that, it is confirmed unless we hear otherwise.  This puts the onus on them to respond quickly if there is a problem with that showing time.  But if we have already established that the showing time falls within the guidelines, we should be ok.
• Who’s the best person to contact?
• Are there any other considerations or special circumstances that we need to be aware of?
• Can we try to push all showings to an open house?

Keep good records

WE make notes in the file and keep it there.  This is incredibly important for future issues that may pop up.  No matter how well you operate there is always the chance that things can get contentious.  If we need to enforce the policies of the law, later, then having great notes will really help build the case.  Having a showing request record, is also very important so that you can show your client the attempts that have been made.  IF your client is upset at you because it is not sold but you can show how you create guidelines, you abide by the agreed terms, and then they refused or blatantly disregarded showing requested 2 out of 3 times, then you are able to, at least, prove that your marketing is working.  Or that you are operating like a professional but are dealing with difficult tenants.  Keep good records.

You should have a copy of the Tenancy Agreement or Rental Agreement that is in place, in the file.  This eventually will be part of the offer.  Those terms have to be assumed by the next Buyer in most cases, so they will need a copy of that so that everyone abides by those terms contractually as well.  I think that this is the case in most areas.

Now with all of that in place… what is the next FEAR to be alleviated?

What happens when the place sells?

• Is someone going to buy MY home and kick me out?
• Is someone going to buy MY home and be a horrible person to deal with?
• Is someone going to buy MY home and increase my rent amount?

This is where it is really important to understand the Regulations, or Laws in your area for the Landlord / Tenant Relationship.  You know the terms of the Agreement and how they are to be enforced.  You should know how this effects all parties involved.

But more than anything – just like when you take any listing, price it, and begin to market it – you must think about who the Buyer is going to be.  Who are you marketing to?

What is happening in the area that his home is located?  Is there future development potential?  Are speculators looking at land assemblies?  IS this an area where it is turning over the most likely buyer is a person who will want to move there?  Is it most likely going to be another investor?

If you think that it is going to most likely be an investor who will buy the home, then you have already done your job in the steps prior to this but there is one more thing to chat about.  This is where you can attempt to motivate them.  I tell them that it is most likely another Landlord that will come into play and a lot of times they are looking at the home and making a decision on how they will deal with the tenant existing in the home based on how they are living there.  So the more presentable the home is, the less chance that their lives will change.  That is very likely the conclusion in a lot of situations.

People who buy a home that is occupied by a tenant that is living in the home respectfully will sometimes forgo rental increases in order to keep that dream tenant in the home.

If it is most likely going to be a Buyer that is going to want to live in the home, then go over the steps that have to be taken in order to honor their occupancy in the home and how it would play out in such a circumstance.  Tell them that you will let them know how things are progressing so that they have more notice than is legally required.  It’s the best you can do.

Lastly, this is something that we do.  You can figure out something that works for you but we always tell them that we understand that it is a pain in the butt.  There is really no reward for them to go through this inconvenience… so we tell them that after the sale has been completed, we will give them a certificate a night out with their family or depending on the type of tenant something that is more rewarding to them… We will spend over $100 usually on this depending on the number of family members etc.  We tell them about this at the end so it leaves a good impression and hopefully causes them to think…

“Ok… this Real Estate person is not so bad; they seem like they care; they seem professional and that was a nice gesture to give us a night out for dinner and a movie… that was unexpected.  I feel a little more obligated to cooperate now…”

To Summarize:

• We have attempted to relax their minds about who you are and how you are going to operate. Given them a sense of importance.
• Create Rules and Guidelines to operate in this process that is customized to them.
• Create a system for record keeping so that if things get contentious you are prepared.
• We know the terms of the agreement by both parties that need to be respected lawfully and we explain that to the Tenant so that they feel comfortable.
• We offer a reward to them for putting up with the inconvenience that we are imposing on them.

Can you see why it is important to have this meeting PRIOR to listing the home?  You have to agree that it is much worse to have that meeting after the listing is already signed and done and then this new situation is imposed on them as a surprise.

This is the reason that we say to the seller/landlord, that we need to meet with the tenant and see the home prior to going to market, it is imperative for a couple of reasons:

• We approach the meeting with the tenant with the scenario, that we are meeting with them and getting a quick view of the home to establish a listing price. I usually explain at that meeting to the tenant, that it is not a forgone conclusion that the seller will want to sell.  They may not like our suggested list price and decide to keep it.  This puts them at ease and makes it easier to book the meeting.
• Once we meet the tenant and see the home and how it is to be presented most likely, it really does help us come to a potential list price.
  1. If the home is disgusting and it doesn’t look like the tenant is going to improve that…this affects the list price.
  2. If the home is fantastic and has a great tenant in place and it looks like they are going to cooperate well… this affects the list price
  3. If the meeting does not go well and it looks like it will be tough to show… this will affect the list price and definitely affect the marketing strategy.
  4. If the home is a tear down then this will affect who you are marketing to.
  5. If the home has great bones but just needs some updating and it is worth it to do so. Meaning there is good upside potential in the home, then this will affect the list price.

All Factors come into play here.  And, yes, it is possible that it is not the right time to list the home.  That is always the possibility in all situations.

Our Goal as a 4X Agent is always to take a 4 dimension approach to all situations and think it through so that the process can be custom made to get the best possible result for our clients.

The other opportunity that a lot of Real Estate professionals forget is that there is a percentage of tenants that eventually Buy Homes… if you are the only agent who treated them with respect, then there is a very good chance that you have planted a very good seed for future business.

I have run into various situations, where the tenant was actually able to buy right away.  In one instance, I listed a foreclosure, and there were two brothers living in the home and they had collectively saved up $100,000 for down payment.  When they saw what the home eventually sold for in foreclosure it really motivated them to invest in real estate.  I ended up selling them a home and that home has increased in value in 4 years by over $150,000!

These were renters that were able to buy and if I had treated them poorly, I would have not been able to convert those two tenants into Buyers.  They made a solid investment and there is a good chance that their lives will change in the future and I may be selling that home for them and selling each of them a home.  You never know where business will come from.

I have sat down with tenants and gone over a plan with them.  Set them up with our Mortgage Specialist and put them on a path to buy.  This is future money in the bank.

I hope you found value in our chat today.  To learn more about our 4X Formula Training program and take the free training and get on our waiting list  – its FREE to do so – go to 4X Formula.com.

Thank you once again for joining me today.  I appreciate you.  I encourage you to go out and make a great day!