Tale of Two Houses - Posted by David Krulac

Posted by David Krulac on February 25, 2002 at 07:43:34:


Tale of Two Houses - Posted by David Krulac

Posted by David Krulac on February 24, 2002 at 16:14:18:

Once upon a time there were two houses right next to each other. These houses were exactly identical. They were built at the same time, by the same builder and were of the exact same size and had identical features and finishes. In fact the builder had built many of these identical houses.

The house on the right is currently for rent with an ad in the newspaper and two signs, one on the house and one at the curb. There is an information box with sheets breifly highlighting the features of the property. This house has been advertised and available to rent since Halloween. it still sits unrented and generating zero income for the owner. The rent is $775.

The house on the left was advertised in the newspaper for exactly 1 day. The house is identical to the house on the right, but owned by a different owner. From that one day ad there were about 12 phone calls. Three prescreened prospective tenants looked at the property and two filled out applications and had credit checks done. One had considerably below average credit, ok it was bad with many collection, delinquencies and late payments and the other had outstanding credit, ok it was perfect credit with not a single blemish. The lease was signed with the excellent credit tenant for $795 per month.

What’s the difference between these two identical side by side houses? Why does one sit empty for almost 4 months and the other is rented after 1 day of advertising and at a higher rent?

The differences are small but great. “It was the best of times and the worst of times!” The rented property house was in prime condition and was rented by the owner himself. The unrented house was in good condition, but not prime and was rented by a rental manager, not the owner.
Those are the only differences and they are related. The reason that the house on the left IS in prime condition is BECAUSE it is owner managed. And the reason that the house on the right is unrented after 4 months is because the rental manager doesn’t care enough to put the property in prime condition and doesn’t have any financial stake in whether this house is rented today, next week or next month.

Imho the down time, the vacancy, the zero income time, is what seperates many profitable properties from many unprofitable properties. The biggest expense in rental properties is the lack of rent between tenants and the costs of preparing a unit between tenants. Best wishes for your success.

David Krulac
Central Pennsylvania

Re: Tale of Two Houses - Posted by Frank Chin

Posted by Frank Chin on February 25, 2002 at 14:01:30:

Hi Dave:

A good lesson, and I second that. In fact, I had the same experience just four weeks ago.

I had a tenant moving out 12/31/01, so I checked the classified section for competitive units, 3 to 4BR’s SFH. They were all asking $1,800 to $2,000 in the area. Unfortuantely, my tenant did not completely move out till 01/08, making it hard to rent out by 02/01, so I thought, as the place needed a bit of work.

I finally had the place repaired, and 60% painted by 01/19/02, and placed an ad in the paper. Several ads for similar properties ran several weeks and I got a bit worried.

As is was late in the month, I figured I ask for $1,675.00 if rented up by 02/01/02 or $1,800 (the going rate) if rented for 03/01/02.

Well, I got 50 calls, 30 prospects, and over 12 applications. In fact I only bought six applications with me on 01/19/02, that I ran short, and several people had to come back the next day.

I asked my prospects about the competitive units and they told me:

1- The owners did not have time to clean, repair and paint the place. They expected the tenants to do it.

2- The owners want $1,800 to $2,000 and did not care to negotiate.

A number of prospects called back on 01/22/02 as I said that’s when I’ll make the decision. I selected one applicant, ran the credit checks, approved him that evening, and he came by to sign the lease on 01/23/02.

I guess in any business, if you sell a good product, and the right price, it’ll fly off the shelf.

Frank Chin

Thank you… - Posted by JTF

Posted by JTF on February 24, 2002 at 19:01:46:

Point well taken!

What does imho stand for?

Re: Tale of Two Houses - Posted by Craig (IL)

Posted by Craig (IL) on February 24, 2002 at 16:22:00:

Thanks. Assuming this is a true story, the lesson is well taken.

Pet peeve: Property Mgt companies - Posted by youngsterz (UT)

Posted by youngsterz (UT) on February 26, 2002 at 01:37:51:

I will also concur with all of the previous comments. A property manager or management company doesn’t have to worry about paying the mortgage, and in the grand scheme of things, if they rent the place this month or next, it’s just a matter of their percentage and nothing else. They have no personal vested interest in the property or it’s financial performance. Can you imagine a mutual fund manager with that attitude? You would bail on that fund in a heartbeat, and you should feel the same way about most property management companies. And maintenance? Why bother. Property management companies don’t make their money by doing a great job for their clients, or going out of their way to do them any favors. They make their money by doing as little as possible, unfortunately, and most people who don’t want to be involved in the management of their properties are willing to accept that.

I purchased a few fourplexes a few years ago, and because I was busy working at my JOB, I didn’t take the time to manage these properties in addition to my other properties that I was managing. I figured I would turn these properties over to a management company. They are professionals right? HUGE MISTAKE! It was barely a break even deal for over a year, and when I started getting involved, I discovered I had a real problem and that I had become, much to my chagrin, a freaking slum lord! Yikes!

So I fired the manager, did a lot of basic upgrades for an average cost of about $1,500 per unit, and now I’m 100% full, at higher rents and better tenants, and clearing over $1,000 net each month. I also figure that the upgrade costs all went right into equity in the property, not only for their actual value, but for the resulting increase in rents, and that impact on appraised value using the income method.

I can’t believe the horror stories I continue to hear. I have yet to hear anything glowingly positive about any professional property management company. It’s all quite negative, and I believe it.

Since then I have taken the leap and quit my job to dive full-time into REI, and couldn’t be happier. I manage these and other properties myself, and I figure it takes me about 10-12 hours per month, which leaves plenty of time for new property ventures, not to mention weekday skiing and golf.

Life is good! Carry on. . . . .

in my humble opinion (NT) - Posted by David Krulac

Posted by David Krulac on February 25, 2002 at 07:42:02:


You mean … - Posted by Redline

Posted by Redline on February 24, 2002 at 17:01:51:

If David was just making this up as more of a possible scenario to teach us something, you couldn’t appreciate it? :wink:


Re: You mean … - Posted by JHyre in Ohio

Posted by JHyre in Ohio on February 25, 2002 at 06:51:28:

It matters for me. Opinions, especially those of people like David, count for me. Opinions backed by actual examples count even more. Must be the lawyer in me, trust but verify as the Gipper said, LOL! David’s post is welcome either way…but real examples drive a point home…that’s why I try and use them as often as possible.

John Hyre