Property Grunt

Wednesday, April 27, 2005

From the Mail bag

The Grunt gets letters from time to time with readers who ask for his opinion on real estate matters. I am going to be presenting them for your education.

My wife and I are in contract, about to close on a purchase of a three-bedroom condo in Manhattan, and we are considering renting it out for a single year until we are ready to renovate it to our specs and move in. It is perfectly livable as-is, painted in generic white, but we want to make cosmetic improvements to our taste.

I know that you have highlighted the need for a landlord to perform a credit and background check on a tenant before the lease, but do you have any other advice? In particular, we are looking for a tenant who will take a one-year lease and not expect to renew -- besides mentioning that fact up front and only offering a one-year-lease without a renewal commitment, is there anything else we should do to make this go smoothly? What do you think about renting the apartment, which is close to [neighborhood],, to one of the [large companies] in the area to use as a crash pad for [employees]?

Below is the Grunt's response.


Thank you for reading my blog and asking for my opinion regarding your situation. I will do my best to impart as much knowledge as possible.

Congratulations on your upcoming purchase. What you are doing in terms of renting out your condo unit is quite common in Manhattan and you are in a particularly great situation because the inventory in the rental market has been scant due in part to the hot sales market. It has been so expensive to buy that most people are simply staying where they are until the market cools off and there is more sales inventory available.

You should find out what the rental policies are for your building. Although you own a condo and rules are more lax comparing to co-ops from my experience management companies will not let you run roughshod and may require processing fees upward of hundreds of dollars. I have known co-ops that charge upward to thousands to sublet because they want to discourage sublets and investors because those residents are less likely to take care of their apartments if someone else lives in them. Banks are also wary of doing mortgages of buildings that are less than 50% owner occupied.

What are there policies regarding access? Will the doorman hold the key for anyone to see? Do they require brokers to sign in and show their pocket license? Do they allow open houses? You have to find out what the rules before you begin playing the game.

If your apartment is priced properly it will rent immediately. The best way to figure that out is to contact several well know rental firms that have a vast database of listings and can do comparables for your apartment. When you are presenting your apartment to them, please be as specific as possible with the brokers in the descriptions and location of the apartment that way they can find similar ones they can compare too. You can also do your own comparable search by going on the NYT real estate section or craigslist. You should also ask the broker and the management company what apartments rent for in your building. You should definitely talk to residents who have rented in your building. YOU DO NOT HAVE TO PAY A DIME FOR THIS SERVICE! IF SOMONE DEMANDS A FEE FOR THIS TELL THEM TO GO TO HELL! THE REASON WHY THEY GIVE THIS SERVICE IS IN HOPES OF GETTING YOUR LISTING!


You should determine what type of listing you want to present. An open listing is one that does not belong to anyone in particular. Whoever lists it usually gets 10% off the top of the listing when it closes but they do not control the deal. The great thing about the open listing is that you will get the widest amount of access to the brokerage community. Some brokers like open listings because they can make more money off these listings since the fee goes to them and their company directly without being responsible for the apartment. An advantage of having an open listing is that there will be an army of brokers advertising and marketing your apartment without costing you time or money. Another advantage to an open listing is that you also have the flexibility of renting it out on your own without having to pay the broker. Either way any costs for marketing is on the broker and application fees the prospective tenant’s responsibility. And the agent gets paid by their client.

Is there a caveat? Yes because unless the brokers are signing in or they are being escorted there really is no way of keeping track of their comings and goings. The Grunt had a rental listing that he was going to show but the doorman prevented him from entering because the landlord instituted a new policy of no showings during the weekends. The Grunt immediately complied with the orders of the doorman and asked what happened. He was told that an agent from a company that will remain nameless attempted access into the apartment but had no authorization resulting in an altercation with the doorman. The Grunt applauds the management company for their policy because there are people who have no business being brokers and the management is taking an active role in protecting their tenants.

Another option is the exclusive listing which is when you appoint a broker to play the gatekeeper of your apartment. It will be the exclusive broker’s responsibility to market and oversee showings of your apartment. The great thing about having an exclusive broker is that you have someone to hold liable if something goes wrong and that you have more control of the situation. The terms of showing and marketing are entirely between you and the broker in question.

A good broker will not only advertise on their website and the newspaper but will also send this listing out to other brokerage companies .Now if another agent from another company brings in a client to make a deal it becomes a co-broke situation where the two brokers have to share the fee. This is where barriers of entry starts to pop up. When the Grunt started in rentals a lot of brokers hated co-brokes because they always got less money. Nowadays the attitude is co-broke or go broke because the lack of inventory on the market has made it harder to rent out apartments.

Competing brokers are usually not allowed to advertise co-brokes. Therefore it is the exclusive broker’s responsibility to advertise the property. Depending on the company, their resources maybe limited.

The exclusive broker will always get a full 15% fee in a co-broke. It is an unwritten rule that the visiting broker will not ask to negotiate on the fee. The rent maybe but the fee is untouched. Therefore the full fee might present as a barrier to entry for someone renting your apartment if they can’t afford it.

You are on the right track with renting out the apartment to a [large company] because you could have the [large company] act as the guarantor to assume full responsibility of your home during the rental period. Another option is to contact rental companies and ask for their corporate relocation departments who will be more than happy to assist you. They usually have exclusive accounts with [such large companies]. Or you could try RELO, which is a relocation service. They can refer you to a broker in your area.

Timing is going to play a key role in determining your lease. Your intention is to renovate your apartment before you officially move in. It would be best to speak to several contractors and present an idea of what needs to be done and what you intend to do. I am not a contractor but having someone living there may have an affect on the renovation process or it may not at all. I do not know. Having a tenant may put the apartment at risk if something gets damaged or if the tenant decides to stay beyond their lease requirements.

Throughout the whole application you must make your terms clear to all parties involved from the broker to the tenants insuring that everyone knows what they are getting into.

In terms of the application I highly recommend you doing your own credit reports. It costs a couple of bucks but you can pass that onto client. Also you should ask for a letter of employment and the copy of some type of photo identification e.g. passport. You might want to do a background check. It’s entirely up to you.

My final recommendation is this: Talk to residents in your building particularly ones that have a 3 bedroom and have rented it out, find out what there experiences were, find out the policies of subletting, talk to brokers and get comparable rents for similar apartments, ask them benefits of exclusive or open listings. THEY DO NOT CHARGE A DIME FOR INFORMATION! Talk to your contractor to see if what you are considering is feasible and will work out for you. TALK TO A LAWYER ABOUT YOUR LEASE , CREDIT REPORT AND THE LIABILITIES OF RENTING YOUR CONDO! DO NOT TRY TO BE DONALD TRUMP! PICK A LAWYER WHO HAS EXPERIENCE IN THESE MATTERS! DO YOUR OWN CREDIT REPORT AND DO NOT TAKE ANYONE’S WORD ABOUT THEIR FINANCIAL SITUATION UNTIL YOU HAVE ROCK SOLID PROOF. IF YOU PLAY FAST AND LOOSE YOU COULD END UP LIKE THIS POOR WOMAN.

I hope this helps. If you have any other questions please feel free to ask.