Working With Tenants: We Handle the Hard Stuff

We know that many investors are hesitant to get started in real estate because they’re concerned about challenging landlord/tenant relationships. After all, we’ve all heard the horror stories!

While most landlord/tenant relationships go smoothly, there’s always the chance that conflicts will arise. That’s why having a property management company as a neutral intermediator is often worth the investment.

At Castle, we take care of every interaction with tenants, including:

  • Vetting applicants and showing properties
  • Reminding tenants when rent is due, and following up when it’s late
  • Responding to maintenance requests
  • Handling emergencies and 2 A.M. phone calls
  • Enforcing the provisions of a lease

If you’re hesitant to get involved in the messy, human element of real estate investing, rest assured that Castle can be here to handle the hard stuff for you. We’ll work to provide tenants with a great rental experience while letting investors focus on what matters to them.

Making the Switch From Another Management Company

Unfortunately, it’s all too common for us to hear from people who are having a bad experience with their property manager.

While switching management companies can seem daunting, the last thing we want is for someone to delay a needed switch—or avoid the process altogether—because the process seems unclear. We’ve seen such delays lead to mishandled assess, mistreated tenants, and much larger headaches down the road.

That’s why we do everything we can to make the switch from another management company as easy as possible. There are only a few things we need new customers to retrieve from their previous managers:

Vacant Properties Occupied Properties
Keys Keys
Leases
Tenants’ contact information

There is some additional information we’ll require from you as the property owner, but that should be it for information you’ll need to get from your old manager!

For vacant properties, our team will conduct a full inspection and can handle utility turn-ons or transfers if needed. For occupied properties, we’ll handle communicating the change with the tenants.

Switching property management companies is never fun, but our goal is to make the experience as simple and stress-free as possible!

One thing to note: Castle won’t communicate with your previous manager directly. Instead, we ask that you get the necessary information from them yourself.

We do this because in our experience transitioning over 400 properties from other management companies, we’ve found that these companies are much more likely to be friendly and cooperative with you, their customer, than with us, a competitor.

Understanding Castle’s Pricing

Our pricing is designed to be simple, fair, and transparent, with no hidden fees or perverse incentives. To achieve these goals, we offer our customers a choice of three plans: Basic at $89 per unit per month, Pro at $99, and Premium at $149.

All of our plans include the same great property management services that have made Castle Michigan’s fastest-growing management company: property listing and marketing, tenant screening and placement, maintenance coordination, rent collection and real-time financial reporting, and compliance and legal services. They also come with access to your online Castle account, which provides real-time data on your portfolio. And all plans include our flat tenant placement fee of just $499, which is refunded if your tenant breaks their lease or gets evicted.

The difference between the plans comes down to the type of service that you’re looking for: whether you want Castle to be an assistant, working hand-in-hand with our team (Premium), vs. being hands-off and trusting us to do what we do best (Basic).

The Pro plan, which is our most popular, strikes a nice balance between the two approaches. In addition to our standard services, the Pro plan includes access to the Investors’ Dashboard, a new section of your online Castle account that provides high-level portfolio metrics like net cash flow and overall ROI. It also includes twice-monthly portfolio review calls with your dedicated Account Manager, who will set aside 20 minutes to personally run through the latest updates with your portfolio.

The Castle Investors’ Dashboard

For customers on the Premium plan, we boost the frequency of portfolio review calls to once a week, and we guarantee a 12-hour response time for all non-urgent customer support inquiries. (Urgent inquiries will be responded to ASAP.) We also offer priority phone support, which means you can skip the call queue and connect with your Account Manager right away.

Equally important as what’s included in our plans is what’s not included. You won’t find markups on maintenance, setup fees, or lease renewal fees in any of Castle’s plans.

Our pricing page has a detailed breakdown of our pricing, and more information on how we stack up to other management companies.

Connecting to Realtors and Contractors Through the Castle Partner Network

While many other property management companies are part of conglomerates that provide all kinds of real estate services, Castle focuses exclusively on property management. It’s our belief that we can provide our customers with the best possible service by doubling down on our core competency, rather than trying to do everything and ending up a jack of all trades, master of none.

A local team is crucial to successful real estate investing, which is where the Castle partner network comes in. No matter what kind of real estate service you need—from buying & selling to renovations & rehab to property insurance—we have someone in our partner network who can help get the job done.

And when you’re working with a team of focused professionals—as opposed to a single company that claims to “do it all”—you can be sure you’re not going to be taken advantage of. We’ve seen too many management companies funnel overpriced bids to their in-house contracting company, or push their customers to buy subpar properties from their in-house brokerage.

Interested in connecting with a Castle partner? Tell us a little bit about yourself here so that we can connect you with the right person from our network.

Are you a real estate professional interested in becoming a Castle partner? Submit your information here and our Partnerships Manager will reach out!

How Much Should I Budget for Maintenance?

A common rule of thumb, the “1% rule,” says that homeowners should expect to spend roughly 1% of a property’s purchase price on maintenance annually. But is that estimate realistic for the metro Detroit market? We did a deep dive into the data from our 600+ unit portfolio to find out.

On average, Castle customers spend roughly $150 on maintenance per property per month, or $1,800 annually. While we don’t know the purchase price for every property under our management, some quick back-of-hand math gives us an estimate of ~$60,000. (Roughly speaking, 50% of our properties are in Detroit, where the average purchase price is ~$45,000; 30% in lower-priced suburbs with an average purchase price of ~$60,000, and 20% in mid-price suburbs with an average purchase price of ~$100,000.)

If that’s the case, then Castle customers are spending almost 3% of purchase price on maintenance annually. Why does the 1% rule not hold in Detroit? We believe there are a few reasons:

  • Low purchase prices: While maintenance spend can be expected to scale with purchase price to some extent, there’s a floor to how low those expenses can go. 1% may be realistic for a $200,000 house, but it’s almost certainly not realistic for a $40,000 one.
  • Property age: Properties in the Detroit metro area are generally around 80 years old, and most of our customers are not bringing on properties that have been completely rehabbed. Unsurprisingly, older properties are prone to more issues and more often have deferred maintenance.
  • Tenant occupancy: The 1% rule is most commonly cited for homeowners, not investors. While it’s rare for a tenant to completely trash a house, it’s an unfortunate truth that tenants often don’t treat a property quite as nicely as the homeowner would. Additionally, in between tenancies, landlords will often make a property more appealing to future tenants by choosing to fix minor issues that a homeowner might ignore.
  • Other expenses: Rental owners typically encounter a few other expenses that Castle categorizes as maintenance, but that may not be included in the 1% rule: vacancy-related upkeep like lawn care, snow removal, and cleaning a property in-between tenancies. It’s easy to forget about these expenses, but they’re important for investors to keep in mind when budgeting.

Failing to budget enough for maintenance is one of the most common mistakes we see new investors make. Avoid unpleasant surprises by keeping maintenance and upkeep in mind when planning for your investments.

The Best Resources for Staying Up-to-Date on Local Developments

With real estate development in Detroit moving at a breakneck pace, and so much of the city constantly changing and evolving, staying on top of all the news can be challenging. Luckily, there are a cornucopia of online resources that can help you stay updated. Here are some of our favorites:

Curbed

This nationwide blog network’s Detroit chapter is particularly good, with details about every significant Detroit development. If you’re only going to pick one resource from this list to follow, Curbed is the one.

 

The Detroit Free Press

Of Detroit’s two prominent newspapers (the other being the Detroit News), we prefer the Free Press (or “freep,” as it’s often abbreviated). The simplest way to stay up-to-date on the city’s latest.

 

Renegade Detroit Investors Podcast

Our favorite real estate meetup also has a podcast by the same name. While the meetup is the place to be if you want to network or do deals, listen to the podcast if you want to learn. Host Jeremy Burgess interviews members of the local real estate community. Don’t miss Castle’s appearances on episodes 3 and 44!

 

Detroit Future City

A project from the Detroit Economic Growth Corporation, Detroit Future City has released a strategic framework for Detroit’s future development, and regularly publishes detailed, data-driven reports about the city. Their most recent, the 139 Square Miles Report, is 50+ pages on population, people, economy and place. While their content can make for hefty reading, Detroit Future City is the place to go to for an in-depth analysis of what’s changing about Detroit.

 

Castle’s Real Estate News Email

The last resource on this list comes from us! We send out a monthly email with our picks for the most interesting Detroit- and real estate-related news. Sign up here to get the latest updates:

Analyzing Detroit Neighborhood Quality with Motor City Mapping

One of the most common questions we get from investors is, “What ZIP codes are good?”

But the thing about Detroit is that neighborhoods often succeed and fail on a block-by-block basis. ZIP codes usually encompass an area too large to generalize about.

For example, here’s an outline of Detroit’s 48206 ZIP code, just down the street from Castle HQ in 48211:

48206-640x406

And here’s that same area with occupancy data filled in (green = occupied, red = vacant):

48206-occupancy-640x406

Some areas, like the middle, have pretty high occupancy and look like solid investments; others, like the bottom right, have large patches of vacancy and should likely be avoided.

Even zooming in to, say, a two-block radius isn’t enough. If a block of twenty houses has eighteen occupied properties and just two vacancies, it’s a pretty good block. But if the house you’re looking at buying is sandwiched directly in between those two vacancies, you’re going to be pretty disappointed.

That’s where Motor City Mapping comes in.

In 2013, the Detroit Blight Removal Task Force partnered with our friends at Loveland to survey every single property within Detroit’s borders. The resulting data is available to the public on the Motor City Mapping website.

Here’s a step-by-step guide to analyzing the area around a property with Motor City Mapping:

  1. Load the Motor City Mapping site at motorcitymapping.org
  2. Click the search icon in the upper left to expand the search box, then type in a property address and hit “Go”
  3. The map will zoom in with the property you searched for outlined in blue. You’ll see a recent photo on the right, as well as four green tabs on top.
  4. Click the “Explore” tab and you’ll see options for four citywide data layers that you can overlay on top of the map.
  5. Click the “Occupancy” layer. Occupied properties will turn green, blighted or abandoned properties will turn red, and properties of unknown occupancy status will turn yellow. Vacant lots will remain uncolored.
  6. You can click on any individual property to see more details on the right, including photos through the years and an assessment of the property’s condition.

Generally, Castle likes to a see a block that’s no more than ~10% vacant, with no vacant houses directly next to or across from the property.


Occupancy around the Castle founders’ original rental property at 760 Virginia Park St. The immediate block is solid, with only three vacant properties.


A worse neighborhood, near 18700 Tireman St. Castle would not agree to manage this property given the troubled condition of the surrounding area.


A similarly challenging neighborhood, with too many vacant lots, near 3417 Longfellow.

Data on Motor City Mapping isn’t always perfect—it can be a year or two out of date—but it’s usually good enough to take a first crack at an area. (And if you notice any obviously incorrect data, you can submit an update yourself with the Blexting app.)

MCM is fantastic resource for anyone analyzing a deal in Detroit, especially for those who don’t live in Detroit. We use Motor City Mapping to analyze every Detroit property that comes our way, and we highly recommend that our readers do the same.

A Tour of Detroit’s Aviation Subdivision Neighborhood

In our latest neighborhood tour, we take you on a journey through Aviation Subdivision, a neighborhood that’s partly in Detroit, partly in Dearborn—and that used to be an airfield.

Lease Provisions: What’s Legal and What’s Not

Continuing our series on lease agreements, here’s a look at the legality—or illegality—of some common lease provisions:

In addition to the standard content required in a lease agreement, landlords can elect to include additional provisions that protect their property and clarify the terms of the lease. Provisions can be as specific as “only red cars can park in the garage on Sundays,” but you don’t see terms like that often—in part because they’re weird, and in part because they would be difficult to enforce.

More common provisions include clauses that prohibit smoking and pets, and clauses that further clarify protocol around the agreement and terms of the lease—for example, specifying how certain kinds of notices have to be delivered.

What’s legal, what’s not, and what should you take a moment to consider as you’re drafting or signing a lease? Here are the most important things to pay attention to:

mallet

Your lease can’t contradict the rights and responsibilities assigned in Michigan’s Truth in Renting Act.

Michigan state law is pretty clear about the landlord’s responsibility to maintain a certain standard of habitability on their property, and both parties’ responsibilities to mitigate damages. There are also specific rules around security deposits and fees, as well as legal proceedings and their associated costs. Any provision that violates or contradicts these laws and regulations is illegal and void.

Michigan state law also considers tenants to be consumers, so the Consumer Protection Act applies. This mostly regulates things like deceptive advertising and fake rebates.

people

Think about who’s going to live at the property. You’ve vetted your tenants, but have you thought much about subleasing, AirBnbing, or guests? Landlords can restrict who’s allowed to live on their property: outlawing subleasing, allowing only the initial group of tenants on the written lease, or even specifying how long individuals can stay as guests.

You can charge a fee for subleasing, or require sublessees to submit an application and undergo your normal screening process and subsequent approval. Tenants can sublease by default, so if subleasing isn’t mentioned in the lease, it’s allowed.

Castle’s standard lease prohibits subleasing without prior written approval.

Civil rights laws stand, so you can’t discriminate against tenants based on race, color, religion or creed, nationality or ancestry, sex, physical or mental disability, veteran status, citizenship, or age (people under 18 exempted, since they’re too young to legally enter into contracts). So that “no girls allowed” clause isn’t going to fly, even if you’re trying to preserve your man cave.

Amazingly, in Michigan, it’s still legal to discriminate against tenants based on their sexual orientation. Luckily, many cities have their own ordinances banning this. (Wikipedia has the full list.)

mallet

Just-in-case clauses:

It’s important to add a provision for severability: a clause stating that if one aspect of the lease is found to be illegal, the rest of the agreement still holds. That way, on the off chance a part of your lease is ruled against, the rest remains valid.

You should also know that under to Michigan State Law, either party can terminate the agreement if the other doesn’t fulfill his or her duties, as long as they give proper notice. Landlords, go one step further and actually list out situations that would lead you to terminate the lease. Then if such issues arise, the lease agreement will back you up.

 

Think about what you want your property to be like at the end of your lease. What can you do to make sure your tenant is protecting your interests in the property, and how will your provisions be enforced? Remember, there are a lot of rules around what and when you can charge your tenant. Tune in next week for the full story on deposits and fees.

What’s In a Lease Agreement?

A lease agreement defines terms of tenancy within the parameters of federal, state, and local laws. It’s not just legal mumbo-jumbo; it’s an important contract that defines tenant and landlord obligations and rights.

Oddly enough, it’s technically legal to just have an oral agreement around the terms of your lease, but we wouldn’t recommend it: a written lease you can refer back to will make settling disputes much easier. Also, if your lease agreement is for a period of more than one year, an oral lease is not an option—your lease must be put in writing to comply with Michigan state law.

When you’re looking at your lease agreement, here’s what you should see:

guyonphone

The basics: It’s important that your lease agreement includes the names, addresses, and signatures of everyone involved. How can you hold people responsible if you don’t know their name or contact info? In Michigan, the lease must also include a very specific statement acknowledging that the agreement must comply with Michigan state law.

people

The tricky: If you’re a renter signing a lease with another tenant, your agreement may define the tenancy as “joint and several.” This makes you responsible not only for your individual obligations, but also for the obligations of all other tenants. This includes paying rent and performing all other terms of the lease.

Main takeaway? Unless you’re prepared to foot the bill, don’t sign on for joint tenancy with someone you don’t trust.

piggy$

The recurring: Your lease agreement should define when and how do you pay rent and utilities. It usually boils down to how much the tenant will pay to the landlord each month, and who covers utilities. It may also specify where and how you pay: for example, if a landlord only accepts online payments.

time

The timeline: In a fixed tenancy, the lease agreement will define a set time period in which the tenant is obligated to pay a certain amount for a certain amount of time. On the one hand, this limits the landlord’s ability to raise rent or end the lease during the fixed timeframe. On the other hand, the tenant is bound to the lease terms, guaranteeing monthly payment of the agreed upon amount.

dolla bill

The one-time payments: In addition to rent and utilities, lease agreements often stipulate security deposits and fees that the tenant must pay at the start of the lease. There are some state-specific rules around these one time payments which you may need to be aware of, but the main thing to know is that most fees are for good while security deposits you can get back.

toolbox

The what-ifs: Lease agreements should at least touch upon who’s responsible for repair and maintenance of the property. This can be general (for example, the landlord may take responsibility for all repair and maintenance costs) or more specific (for example, the landlord may take responsibility for unavoidable costs such as old appliances breaking down, but not costs related to the tenant’s activities such as pet-related damage to the property or pests that are attracted by crumbs).

In Michigan, as in almost every state, landlords are required to maintain a certain standard of habitability at their properties. This usually includes things like running water and electricity, heat in the winter, and functional walls and roofs.

mallet

The particular: It’s natural for landlords to care about their property, and to protect its value, they may make some additional rules. No smoking, no pets, and no parking on the grass are three common examples of legal lease provisions a landlord may stipulate.

Lease can include all kinds of weird terms—for example, it’d be legal to ban tenants from parking red cars in the driveway—but provisions cannot violate local, state, or federal law. For example, when a Florida Apartment complex imposed a “no bad reviews” clause, they got in trouble for impinging on tenants’ freedom of speech.

 

We’ll dive more into what’s legal and what’s not in next week’s article on legal and illegal lease provisions!