Darcy Alkus

The winter months in Marin rentals can be tricky.

I've noticed a couple a pronounced patterns in my years working in the Marin leasing industry. Speaking broadly, Marin is largely a family-based demographic, thus, most local tenants plan their moves around the best timing for their family. Summer, for most, is that time.

The rental tenant pool* here tends to include the following: SF hipster young families looking to sample life in the wild, wild North in the form of rental housing before commiting to buying their first $2 million McMansion; established locals selling their homes who are looking for a one or two year breather from home ownership before leaping into a new, bigger McMansion; locals remodeling their current McMansion; and locals divorcing (usually the half getting kicked out of the already mortgaged and remodeled McMansion).

With the exception of the divorcing group, most of these parties are making planned moves. They prefer to make their transition when the weather is nice and the school year is complete. So largely, these groups are not calling us looking to rent homes during the winter months.

However, the rental market here in Marin is not fueled simply by the school year. Relocating executives or other out-of-area employees (single, married or otherwise) are a large part of our rental base. When companies relocate their executives they tend to do so based on the financial quarter system, and more so the first quarter of the year. So the biggest month for relocating executive tenants?

You guessed it: January.

This year, however, one has to ask just how many companies are shelling out extensive relocation packages for their new executives? Or their transferring employees? (Or even their CEOs for that matter?) When the stock market suffers, the mid- to high- end rental market suffers. Throw in a high inventory of homes that couldn't sell which are now available as rentals and you see that a landlord with a vacancy this winter might be in a tight spot.

So what does this winter hold for Marin rentals?

The answer is I don't know. I know my phones are busier than usual for this time of year, I know we rented three or four properties right before Christmas (including presenting an offer Christmas Eve), and I know that my partners and I are keeping a positive outlook.

But I also know there are a LOT of great homes available to rent right now.

So here's my advice. If you're a landlord with a vacancy this winter, perhaps it's time to take advantage of the down time. Contractors are available: maybe it's time to update your kitchen counter tops? Trade out your bathroom vanities? Tear up that old carpet and refinish the hardwood below?

I've said it before and I'll say it again: quality properties attract quality tenants. You may not directly bring in more money per month by making a few simple upgrades to your property, but by doing so you may very well reduce your down time next time you have a vacancy. Which, last time I checked, does translate to more money to your pocket.

My fiance', sister and I make up the Marin Rental Team at J.Wavro Associates and are happy to answer any rental questions you may have. Call or email anytime!

*When talking about the cycles of Marin rentals, tenants pools, etc I'm referring to the $3k to $10k+ a month Marin rental. The more affordable properties priced under $3k and apartments tend to rent quickly anytime of year regardless of season due simply to the fact that this is the Bay Area and nice, cheap housing is hard to come by!

My partners and I are frequently asked about lease options or rent-to-own situations. Since we spend 24/7 representing umpteen properties here in Marin County that are listed for sale, and as leasing agents working with rental clients who are eventually looking to buy, we've come up with two basic hard-and-fast guidelines. But I'd better first offer some groundwork on the mechanics of what we're all talking about: how a lase option contract can work. The SPELLING explanation taken from http://www.ShowYourHome.com , a website specializing in bringing together motivated buyers and sellers looking for creative solutions like home swaps, owner financing or lease options:

A lease option or "rent to own" contract can be negotiated in almost manner that is acceptable to both tenant/buyer and landlord/seller. Traditionally, the homeowner requires a certain amount of non-refundable option money (usually anywhere between 1 - 10%) in consideration for taking the home off the market while the tenant/buyer rents and lives in the home for a specific period of time. A very motivated seller might take no money down. Sometimes a security deposit--just like those for traditional rental--is given as well.

During the lease period the seller holds the title of the property and is usually liable to pay the annual taxes of the property as well as perform routine maintenance. A pre-negotiated portion of the monthly rent then credits to the eventual purchase price. Usually, the more money a tenant-buyer puts down, the higher his rent credit will be. Rent credits vary--like all the terms mentioned above--and the amount depends entirely on what the buyer and seller negotiate and agree to via contract.

At any time during the lease, or at the end of the option period, the tenant-buyer has the option to purchase the home at the pre-negotiated price. If the buyer decides against buying the house then the entire rent credit amount stays with the seller--non-refundable option money included--and both parties move on.

If you are an owner looking to sell, and I'm a leasing agent with a tenant looking to buy who likes your house, there is easily a win/win situation possible. But before we sign that contract there are a few risks both buyer and seller should consider.

As a homeowner there are two main risks to think about. First, how likely is your tenant/buyer to actually purchase the home and what are the costs to you if they don't? Just because the very nice couple relocating from Minnesota with their two declawed cats claim they want to buy your home within the next year doesn't mean they can or will, especially during the current economic credit crunch. Bad credit today does not turn into great credit within one year--so if you are making concessions during the negotiating process like taking your home off the market, accepting a lower rent than you could get on the open market, or signing over a first right of refusal, make sure it's likely that this couple will be able to come through in one year. Or, make sure you don't care of they do or don't. For example if you're going to lease the home anyway, and the Minnesota couple is very well-qualified as tenants, then best case they buy the house, worst case you've had great tenants for the year. Second, evaluate your lease option tenants just as you would traditional tenants. Are they smokers? Do they have rental references? Secure jobs? Pets? Are they putting up a security deposit? (Yes, even if they do put up the option money, a security deposit should be held to secure your asset and to encourage your would-be buyers to take care of the property even if they do not decide to purchase.)

If you're a tenant/buyer, a lease option is not without risks for you either, especially if you're putting up non-refundable option consideration funds. Evaluate this home as if you were purchasing it today. Spend the money for an inspection--a home with $10k in pest problems, for example, should be reflected in the purchase price when you're negotiating the lease option. Does this person you're about to sign a rental agreement with actually own the home? Is the title clear? Is this homeowner current on his/her mortgage payments? Who will maintain the home if the roof leaks? Toilet clogs? Who pays HOA? Is the home insured?

The last important point to cover is the issue of the non-reundable option money. As mentioned above, I have two lines of thought on lease options: either make your lease option a great deal with easy, attractive terms to help entice a tenant/buyer, OR treat the lease option as an offering with set terms (like 10% down required) and hold to your terms.

As the sales market began to slow in Marin, my first reaction was to advise my clients who asked me how I wanted to market their lease option, "Well...if you really want to sell the house then make a lease option as attractive as possible! No option money required!" But as I started to think about the process, and see more and more proposals, this started to make a lot less sense. When you as homeowner sign a lease option contract, you are signing over a certain amount of control to your tenants. If your Realtor brings you a great buyer sometime during the tenancy, you likely cannot accept the offer (depending on how your rental contract reads and how you've structured the deal), because you are essentially under contract with your tenants.

On the other hand, if you're a tenant/buyer and the seller is requiring significant option money, you can likely find another home to lease option that does not require a large sum of cash up front. There's risk to tenants too, who put up option money. What if the home goes into foreclosure during the tenancy?

The bottom line? If you're considering a lease option as either a buyer or a seller, you have to think about what makes sense to you. We're in a buyer's market and homeowners want to stand out from the crowd--which a lease option can help do--but you also have to understand the risks on both sides and make sure the terms make sense for your situation.

(And, of course, a word of caution: tenants, buyers, landlords, sellers....always, always consult an attorney before signing any important document!)

I'd love to hear success (or nightmare!) stories out there: who has bought or sold a home successfully through lease options?

The phrase, "it's just a rental," doesn't work for me.

Granted, I'm likely a bit biased since I work only in leasing homes and condos here in Marin County and probably take hearing the phrase a little more seriously than many folks, but still, I couldn't disagree more. My partners and I often deal in higher end rentals and are accustomed to the pricing and consideration that goes into the rental market, yet those unfamiliar with the Marin housing market would be surprised at how often we'll see a $7,000 a month home in, say, Tiburon, with an aging electric stove and poorly sealed single pane windows. Now, in a strong rental market like we've seen in the past four years or so this home would likely have rented quickly anyway due simply to a magic formula of supply and demand (with a dash of great schools and easy San Francisco commute). Thus, many Marin landlords grew accustomed to thinking, "it's just a rental," and sometimes put off replacing stoves, window seals, maybe skipping painting etc. Well, no more.

Here's the bottom line, landlords. It's not just a rental. It's a home. And quality tenants require quality homes. Just as if you were selling the property, you must make sure that the property is appealing for your relocating executives or growing families. Because you are still selling a product, and housing happens to be a product many people are quite concerned with.

Now there's an art to showing and selling rental properties. It's not rocket science, but consistency and attention to detail are important to properly highlight the attractive features about your property while properly disclosing the negatives. As a specialized leasing agent here in Marin County, of course I'd rather you list the property with me and my associates, but if you'd like to handle the leasing of your income property yourself, here are a couple pointers (especially for the novice!).

First, it is important to understand that curb appeal can be just as important to tenants as it would be to buyers. Prospective tenants are put off by properties which seem to be dilapidated on the exterior. In order to attract good tenants, you need to make sure that your property is inviting and shows the care that you have put into it. A few new flowers and/or plants in front and a simple powerwashing can go a long way. The better quality you present your condo or home, the better quality tenant you are likely to attract.

Interior first impressions are important. Repair issues should always be addressed prior to bringing a property to market. Touch up your walls, refinish your floors, re-caulk the tubs, upgrade your appliances: do as much as you can as quickly as you can. It's just not ideal to show a property which is still in the process of being repaired or renovated--there is paint, dirt, nails, etc hanging around and most folks just can't look past that. Work quickly to bring the property up to par and then begin marketing and showing so as to present the best possible first impression and highest value. (Here's one area where working with a leasing team that is well connected can help speed up the process--we can rent a property before it even comes to market when we know what's coming up!)

You should also make sure the property is extremely clean. This is the easiest part of owning an income property, yet over and over again we see properties that have not even had a once over! There is nothing worse than a filthy property and, put simply, there is no excuse for it. If you have carpet, be sure it's clean. Ideally, it is best to have the carpet professionally cleaned after one tenant departs and before you show the property to the next prospective tenant. Be sure to allow plenty of time for the carpet to dry before you actually show the property to anyone (dirt can stick when wet). De-grease the stove. Have the windows cleaned. Rake the leaves. Don't skimp on cleanliness: dirty properties attract lower quality tenants.

When showing your property, plan ahead. If the temperature outside is quite cold or hot, be sure to stop by the property in advance to set the temperature inside so it will be comfortable. Generally, if the temperature is uncomfortable there is a good chance that most prospective tenants will not stay around long enough to see the best features of the property. I notice this myself when I'm touring relocation clients and visting other agents' properties. My client and I will tend to gravitate towards and linger in the cozy, warm homes in the winter and the comfortable homes in the summer. Temperature is a small detail but can make a difference on lingering impressions.

In addition, you will need to make sure that you turn on the lights before you show the property. This is particularly important if you are showing the property while it's raining or at night. If the property is not well lit, prospective tenants may wonder if you are trying to hide something. Or the house may seem dark. Or dirty. The few dollars you will spend on having all of the lights on during showings is worth it for the better impression. And while we're on the subject of lighting, let's make sure all the light bulbs work. Working light bulbs may not seal a deal, but a house with many burnt out bulbs can sure kill one.

Before you show the property, especially if this is your first time, take the time to make sure you know the best points of the property. Sit down and think about what originally drew you to purchase the home. Do not hesitate to show off the exterior and the grounds of the property. If there is some interesting feature outside (organic veggie garden, view of the bridge, custom dog run, etc), make sure you show it off. Talk about the schools, the great neighborhood, the weather patterns, the commute. The key is to give prospective tenants an idea of what it is like to actually live there. There is no need to oversell, however, a mistake I see many landlords make who show the homes themselves. Tenants viewing the property do not need to hear how long it took you remodel the garage or caulk the tubs yourself. They do not need to know about the re-arranged wiring from the second bedroom to the office or how to work the alarm system. Too many details and too hard a sell makes the property (and it's owner!) seem desperate. Give tenants a high-level overview: think bullet point presentation rather than thesis paper.

Finally, make sure you are prepared. When you show a property, make sure that you have a rental application on hand, maybe even a copy of the lease you use. You also need to make sure that you have decided on terms such as security deposit amounts, pet deposits and lease terms. Who will cover the gardening? Pool maintenance? Have you thought about requiring tenant insurance?

Once you have presented a clean, cared-for home that is appropriately priced, aggressively marketed and properly shown, you should be able to attract that ideal tenant to take care of your investment. Because it's not just a rental.

"Hi I'm calling about your 3bd in Sausalito," says one twenty-something-sounding voice over the line to me.

"Ok great," I say, "When are you looking to move?"

"Well, I'm flexible," he responds, "I'm really looking for the right place for me and my dogs."

I pause. "What kind of dogs do you have?" This is the million-dollar question. (See yesterday's blog for more on pets.)

"Oh, you know, mixed breeds. Just normal dogs."

"Well....," I hesitate: he hasn't given me a lot of info. My clients really don't want pets at this condo, especially larger dogs who wouldn't have any outdoors space and might cause damage if left alone too long during the day. But the owners are motivated to get the condo rented, so if this caller is really responsible and comes with great references we might be able to make something work. "What's your credit like?" I ask.

Pause on his end. Then his voice changes. Deeper. Defensive. "I have Renter's Credit."

"Renter's Credit?" I ask. Now that's a first. "Does that mean good credit?"

"It means I am a renter so what do you think my credit looks like?"

The conversation goes downhill from there as he tells me about his 30-day and 60-day lates ("no big deal"), and various ("small") collections. Not only does he have no good reason for this "Renter's Credit", but he doesn't even try to defend his poor repayment history.

Ok, I have two problems with this.

First, Mr. Renter's Credit is implying that the only reason he is a tenant and not a homeowner is that he has this so-so credit problem. (Well, he clearly doesn't think it's a problem, but you get what I mean.) He seems to think that Mediocre credit = Tenant. Good credit = Homeowner. I'm gonna go out on a limb here and suggest that his inability to properly save for a 20% - 25% down payment and/or afford a Bay Area mortgage might have more to do with his current status of tenant, though at this point anyone without good credit is not likely to see bank approval either.

Second, and more important, he is implying that all tenants have bad credit like his.

This couldn't be further from the truth.

Working as leasing agents in Marin we see a wide variety of applications. The majority of our tenants have credit scores over 700, income levels above $250k, and healthy investment portfolios accounts supporting all this. We work with a very high level of clientele who are executives, business owners, previous property owners, entrepreneurs, etc. We also see a variety of lessor credit scores, but the difference between these applicants and Mr.Renter's Credit is the willingness to explain the whole picture. Failed business leads to a bankruptcy? Ok, I can respect that. You're still going to have to pay the maximum security deposit and you better have proof but we can work with that. Ex- husband/wife doesn't make the car payments out of spite? (I hear that one all too often in Marin--especially Kentfield and Ross for whatever reason.) As long as it's a one time thing and the rest of the report looks good we can probably look past those occurrences. Medical collections? Can definitely forgive that if your credit report is otherwise fine. (Note: All of the above also assume the income/references are otherwise strong.)

But pure bad credit for no reason? Forget it. You, Mr. Renter's Credit, are exactly the type of risk our clients are trying to avoid. You miss your repayment obligations for no reason. And you give no indication that you won't do it again.

So if you have bad credit, or even so-so credit, please come prepared with a letter of explanation and promises that this is no indication of your payment history as a tenant. Offer references. Employment history and verification. A co-signer if your credit is really bad (ideally in-state and a property owner). And don't forget to accept responsibility for your actions...especially as we are starting to see applications with foreclosure histories on them. People make mistakes; we get that. Just tell us why it happened and how it won't happen again.

Ownership of your past mistakes can go a long way to proving current maturity and future responsibility.

I think I read somewhere that 60% of Marin households have pets. As a 2-dog/1-cat household myself, I'll believe that. Marin is a family-friendly demographic. Families have pets. Pets have families. And, of course, every tenant who calls to ask about your pet policy has a "very well behaved" cat. Or Labradoodle. Or Cookapoo/Dachshund mix.

So if you're a landlord having just installed brand new hardwood floors/new landscaping/have pet allergies/etc and have decided you want to list your property as "no pets" what can you do?

First, I might ask you to reconsider.

If approx 60% of the households come with pets, by marketing "no pets" you are effectively eliminating 60% of your possible tenant pool. If you simply do not mind spending that extra time on the market and are prepared to wait, then absolutely, go ahead with your firm no pet policy.

But if the prospect of losing an extra 4 - 6 weeks of income while sitting waiting for that perfect pet-free household to apply causes lost sleep, here are a couple tips that might help ease the pain. Or pet dander.

1) Get references. The current landlord is best, but if your applicants are previous homeowners they may not have a reference. Ask for a current neighbor's contact info. Ask for a letter from the vet certifying no known urination or defecation issues. Ask for their trainer's contact info. (They did send it to to puppy class, right?)

2) Ask to meet the "very well-behaved" pet. Is it well behaved?

3) Look extra closely at the applicant's credit report. It has long been my thinking that when a tenant is sloppy in one area of her life, she is more likely to be sloppy in the rest. A credit report with several late pays--while the tenant might explain he's been really busy and involved with work and it was just two little Target late pays--might be signs of the type of tenant who, say, lets his pure bred show cat pee on your new carpet because he's too busy to keep the litter box clean enough. When I see an applicant with two grown Maltese dogs and a 731 Transunion score I'm a lot more likely to accept the tenant than the applicant with the one cat and 620 score with high balances and two missed cell phone bills.

4) Take the maximum security deposit allowed in your state. Period. This is non-negotiable for me when I represent landlords in Marin. I feel strongly about and have killed deals over tenants who refuse. (Sorry Tenants--I pay it, too!) A tenant concerned with turning over a high security deposit sounds like a tenant who might be comcerned about getting his security deposit back. In California, for an unfurnished property two months is the max. I've seen $15k worth of damage done to a property in under six months! (These dogs literally ate the outside of a $3 million home in Mill Valley rented for $10,000 a month. Luckily, we had taken a $20,000 deposit.) If a tenant believes his pet is well behaved, a high deposit should not be a problem.

5) Sign a Pet Agreement. The agreement we use here in Marin for our leases asks a tenant to agree to take responsibility for the complete cost of replacing surfaces damaged by a pet; including but not limited to complete hardwood floor replacement.

6) Check the age of the pet. An older or younger pet is more likely to ruin carpet or floors due to potty accidents than a healthy 2 - 10 year old pet (with the exception of kittens--somehow most seem born litter box trained!). Also, younger dogs, depending on breed type, are usually more active and better equipped to leave scratches in your hardwood floors. While you can't discriminate against a tenant's children or age, you certainly can deny applicants who plan to get a puppy this year for Christmas for those children!

Now a quick word to tenants: if you do have a "well behaved pet" (or two) and are tired of hearing "sorry, no pets", increase your chances of bringing Fido with you by presenting a Pet Profile that takes the above into consideration. Offer up the two-month security deposit. Bring references. Offer to introduce the potential landlord to your pet -- in your own home if possible. (I've been successful with this route even after the first answer was no). You can even create your own Pet Agreement showing that you are totally willing to accept responsibility. I've done the above every time my fiance' and I find ourselves moving and have happily kept our own "well behaved" pets with us throughout.

(And, uh, when my own show cat got sick and pee'd all over the carpet, guess who went ahead and replaced it right away?)

Good luck!