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The Downside To Raising Rents

The Los Angeles rents are likely to rise an additional 2.9% in 2018, what this means to you as a landlord is higher rental income of course, but it could also mean additional vacancies or evictions as the rental rates are pushing the renters beyond appropriate rent to income ratios. Many of the renters are choosing to relocate to an area that has better rent for them but that sometimes means driving further which as we all know in L.A. can add a good amount of additional drive time, others may try to scrape the money together every month so they don’t have to move but that’s usually a short term prospect. As a landlord you will want to consider your current residents and face the facts that if they move the cost to replace them can be significant, down time for the unit (lost revenue), the expense to turn the unit and of course advertising and in some cases you will have to pay commissions to a realtor or property management company. It can sometimes behoove a landlord to meet the resident halfway on the increase, maybe setup a plan to gradually increase their rent instead of all at once or maybe consider not doing the full percentage increase but something that is comfortable for you both (keep in mind the higher rent will  exponentially  increase the value of your asset) and will allow them to stay in their unit. If a resident tries to make ends meet but can’t and y......
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What Type of Commercial Real Estate Investment is Right for You?

I often get asked how I first started investing in commercial real estate (“CRE”), and of course the next follow up question: “How do I start investing?”    I think the most important facet to begin investing in CRE is to identify what your goals are.  How much do you want to invest and why do you want to invest, is it to build equity; for cash flow purpose; or are you looking for larger future appreciation?  CRE can provide an avenue of long-lasting income; it can help diversify your portfolio, it can offer tax benefits, and by using properly selected real estate strategies, it can produce the potential for appreciation, in addition to cash flow. Many first time investors in CRE immediately go to multi-family apartment buildings.  Any multi-family building with 5 units or more is considered a commercial property.   There is a comfort level for most people in that they are familiar with the leases, how they operate, and what a tenant might expect of a landlord.  This asset class however, is one where the investor is typically very hands on with the investment.  There tends to be higher turnover of the units (advertising for new tenants), make-ready of the apartment once someone has moved out, and maintenance issues (emergency calls in the middle of the night).  An area many first time investors overlook is the budgeting for capital expenditures (roof or water heater replacement, repairs, etc...).    An alternative to an apartment building is either an office or retail bu......
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What Foreign Companies Should Know Before Opening in the US

By George Pino From demographics to understanding the permitting and planning processes of each city, there is much to consider when foreign companies look to expand into America. We’ve all heard it before… “The American Dream” and “America the Land of Opportunity.” We have heard it so often that it has all but become a cliché; however, it would seem the entire world has heard the saying and in many ways have taken it up as a call to action. Over the last decade, we have seen an unprecedented amount of foreign investment into the United States, not just in dollars, but in companies looking to expand into different markets.  For many foreign companies, the US has become their “emerging market.” Although the recipe for the American Dream is easier than in most other countries around the world, it still does require hard work, persistence, and a little luck.  For foreign companies and concepts looking to expand into America must also keep in mind other pitfalls, especially when it comes to commercial real estate and leasing. First and foremost is the securitization of the lease.  Many times a newly formed US-based subsidiary looking to lease commercial property may not have independent financials, credit history, or significant assets in the US. This may lead to some landlords requesting guarantees from the foreign parent.  Although this sounds like a pretty easy and straight forward solution many landlords will not accept a foreign entity to securitize a commercial lease as they are concerned about the collecta......
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The Effects Of The Blockchain On Real Estate

  Blockchain is an emerging technology which will transform the way we buy, sell and lease real estate. “A blockchain is a digitized, decentralized, public ledger of all cryptocurrency transactions. Constantly growing as ‘completed’ blocks (the most recent transactions) are recorded and added to it in chronological order.  It allows market participants to keep track of digital currency transactions without central recordkeeping. Each node (a computer connected to the network) gets a copy of the blockchain, which is downloaded automatically. Originally developed as the accounting method for the virtual currency Bitcoin, blockchains – which use what’s known as distributed ledger technology (DLT) – are appearing in a variety of commercial applications today. Currently, the technology is primarily used to verify transactions, within digital currencies though it is possible to digitize, code and insert practically any document into the blockchain. Doing so creates an indelible record which cannot be changed; furthermore, the record’s authenticity can be verified by the entire community using the blockchain instead of a single centralized authority.” (1) Real estate will not be passed over when it comes to the blockchain disruption either. There will be a need for education in order to transition from the current standard analog norms into the digital space for high value assets such as real estate. Blockchain technology introduces smart contracts on its platform. This allows assets like real estate to be tokenized, and be traded in the same vain as cryptocurrencies, like bitcoin and others. You will be able track all information on real estate,......
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When Bs and Cs are more than passing grades

A recent Wall Street Journal article noted that Class A multifamily apartment supply is at a seven year peak that could lead to a potential oversupply shortly. This shift appears to be sending investors toward Class B and C assets where relatively small improvements can add great value to an investor’s report card, provided the improvements make sense.

Today’s mid-market renters have high expectations about basic community amenities, with things like wifi, bicycle parking, open spaces and other ‘new basics’ front and center in what people look for in their next apartment home. The return on investment of these improvements is hard to calculate though few argue they add to an asset’s curb appeal.

Other critical factors in building asset value in B and C class properties are practices for reducing expenses and managing payment risk among a renter population drawn to lower grade communities based primarily on location and price (i.e. where they can afford to live and can qualify for a rental lease). To address these needs, without sacrificing revenue, mid-market operators are taking a two-pronged approach to improved operations. First, reduce expenses where possible. This often leads to renegotiated vendor contracts as well as installation of safeguards to assure timely rent delivery.

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Top 6 Ways To Get Tenants To Pay Rent On Time

Having your tenants pay their rent on time is key for successful investing; incentivizing them to pay can sometimes be worthwhile. Here are a few ways that we have found to be the most effective. Incentivize them to pay early by offering a discount Let your tenants know that if rent is paid in full on or before the first of the month, they can deduct a certain discounted amount.  If they chose to pay rent after the first of the month, the standard rent is due.  Always be sure your offering is clearly defined so there is no confusion.   Have a point system that allows for upgrades. Create a system for each time they pay on time they receive a certain number of points toward an upgrade ie: accent wall, new flooring, or maybe a gift card to home depot for their unit.   Offer A Community Drawing Every Few Months Create a system that when they pay their rent on time they receive a token/ticket of some kind to throw into a drawing. Individuals who have more tokens/tickets will have a better chance of winning over someone that doesn’t.   Make It Easy For Them To Pay The easier it is for them to pay the better, online or automatic payments simplify the process.   Send Reminders Sometimes, a tenant misses a payment because they’ve simply forgotten the exact date that rent is due. Send your tenants a gentle monthly email reminder a couple days prior to the ren......
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How You Can Afford to Retrofit Your Multifamily Property with Submeters

How You Can Afford to Retrofit Your Multifamily Property with Submeters
I’m embarrassed to admit how many plates of food I consumed the last time I dined at a buffet. It’s always the desserts that lure me in. Chocolate tortes, soft serve ice cream, cake… I will sample all.the.things. If it looks remotely sweet, it goes on my plate. If I try it and it doesn’t appeal to my sweet tooth, no big deal. After all, I’m not paying per item and I gotta get my money’s worth, right? If you spotted me at a regular restaurant where I was paying per item, I’d definitely be more mindful about overdoing it. Residents in multifamily properties who aren’t being held accountable for their utility consumption usually have the same gluttonous mindset that buffet diners do. If they aren’t being billed for their actual utility consumption, they are far less conservative with their usage. In fact, according to Fannie Mae’s Multifamily Energy & Water Market Research Survey, when apartment owners paid for all energy costs, median annual energy use was 26% higher than when tenants were held accountable for their usage. That’s why so many apartment operators (and lawmakers) are turning to submeters. Submeters precisely track each apartment unit’s utility consumption, allowing property management companies to accurately bill their residents for their share of the bill. Submeters are so effective at driving water conservation that drought-sensitive California recently passed a law requiring water meters to be installed at individual apartments starting with new developments in 2018. Even though the law doesn’t apply to existing multifamily structures, o......
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Stocks, Bond and Funds Vs. Real Estate- Look Beyond The Numbers

It’s an old debate. Which is better, investing in the stock market or putting your money in real estate?   Years ago when I was a financial advisor at a Wall Street firm, I knew everything, or so I thought. Late nights spent feverishly studying the stock market, staring at charts, reading stacks of annual reports and clinging to the words of Warren Buffet. Mutual funds, stocks, interest rates, bonds, variable annuities, options, even futures, I knew it all…in theory. One cold February day an older, a much wiser silver haired client sat in my office with hands folded across his chest. I gave my mutual fund pitch, rattling off a dozen reasons to buy. His eyes glazed over. I mentioned our top analyst’s stock picks. He yawned. Quietly and patiently he waited. Recognizing his boredom, I wrapped it up. Later a colleague informed me that my wise old client was a well-known real estate investor. He’d accumulated significant holdings spanning decades. He was far wealthier than I presumed, and much smarter than I’ve given credit. Puzzled, I wondered how stodgy old blue-collar apartment buildings had yielded such wealth. Over the years similar clients sat across my desk with the same story. Sometimes it was a sprawling multifamily complex, other times a portfolio of rental houses or a corner retail building, maybe a warehouse near the airport. But the story was similar, real estate accumulated slowly with good tenants, over time paid off and appreciated in value. It was repeated again and again......
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A Door-to-Door Guide for Apartment Operators

The importance of understanding what multi-family residents are looking for in a rental facility is critical for property managers and operators to keep up with the competitive rental market. In today’s technological society, updating multi-family facilities to feature the most updated building technology and amenities is expected among many renters. Until recently, updating buildings to include electronic locks was more a question of if, not when, for property managers and operators. Elevated installation and implementation costs were enough for even the most experienced multi-family operator to turn away. The question has now become where the best place to start implementing these locks is. The answer – the renter’s front door. Today, the cost of installing electronic locks in a multi-family community has decreased significantly and become more mainstream. What’s more, this technological upgrade is an amenity that residents have come to look for when searching for an apartment as it is the first thing a prospective renter sees upon touring a facility. While installing a smart interconnected lock was once more difficult, the trouble has since been mitigated and these locks now provide an added sense of security for both property managers and renters. Electronic locks log who comes and goes and gives property managers the ability to manage who has access to the facility and when. To entice more potential renters, property managers and operators should consider the switch to electronic locks. For example, in a recent survey of 1,000 Americans by Wakefield Research, 61 percent of millennial renters said they we......
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Critical Mistakes Some Property Managers Have Made

Not Screening Potential Residents The stories I have heard from managers that have chosen to not screen their potential new residents are dumbfounding to me, if you don’t know the history of an individual(s) you can put yourself in jeopardy by having them move into your community. To be safe you should at least run a background check and always be sure to check references (work and last residences). Hiring Unskilled Maintenance Members I understand the desire to save money but hiring unskilled workers will eventually cost you more than doing it right the first time. The work that a novice does will more than likely need to be replaced in a shorter time frame if not completely just redone properly. Have it done right the first time. Hiring New Contractors on a Regular Basis When big projects arise on property and you reach out to get 3 bids every time in an effort to save money you are setting yourself up for bigger problems. While you are getting multiple bids, which will take days your issue on your property is sitting with nothing being done with it and residents/tenants are put out so the longer it takes the more likely you will also have resident/tenant complaints. The paper work you are created by going out for these bids every time will also take a lot of additional time. We always recommend building a team around you, find a great plumber, contractor, roofer and have them be your go to people. L......
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