Multifamily Investing

Though the acquisition of renters’ insurance is ultimately your tenants’ responsibility, as a landlord it’s important that you have an understanding of what it is and why it’s important, both for your own well-being and for your tenants’. Your tenants should be aware that in the case of a destructive event at your property (fire, natural disaster, theft, etc.), existing property insurance will only protect your actual property. In other words, tenants’ possessions and personal belongings are not covered.  In addition to protecting their personal items, renters’ insurance also helps protect tenants in the case that a visitor is injured due to their negligence while in their unit. For example, if  a tenant’s dog bites a visitor, renters’ insurance will protect the tenant. Some property managers build a clause into their lease stating that renters are obligated to purchase renters’ insurance for the duration of their occupancy. Whether or not you choose to include this sort of stipulation in your own lease depends upon your personal preference and, also, state and local laws. Why would it work to your benefit to require tenants to have such insurance? After all, they’re taking on the risks of being uninsured and you don’t want to give competing properties an advantage by requiring tenants to pay the additional costs, right? Before making this decision, be aware that in cases where a tenant without renters’ insurance is sued by a person who is injured in their apartment, you can be included in this lawsuit also and......

The question I get most asked is how does yield maintenance prepayment penalty work and should I be worried about it.    This is especially true for borrowers who had previously borrowed from banks and are now looking at a loan from Freddie Mac or Fannie Mae.    My short answer is that this is not something to worry about, but if you are taking a loan with yield maintenance you should not expect to pay it off until close to maturity because you will have a significant prepayment penalty.  First what is yield maintenance (YM)?  It’s basically a calculation that guarantees the lender will receive the interest payment from the loan for the full term of the loan (or yield maintenance period).  The idea is that if you pay back the loan early, the owner can reinvest the proceeds from the money you return to them, plus the penalty amount in safe treasury securities and receive the same cash flow as they would by holding your loan.    How is YM it calculated?   All YM is not calculated exactly the same, but the general principal is the same.   Basically it’s the difference (spread) between the note rate and the current yield on a specific treasury security that has the same remaining term as the loan (this is called the reinvestment rate).   This spread is multiplied by the remaining term and then discounted back to current dollars.  A rough way of determining the penalty is to subtract the treasury rate from a security with......

Collecting timely rent payments from tenants is essential to keeping your property finances in order and promoting responsible tenant behavior. Writing a late fee policy into your rental agreements is a good way to make sure tenants remain diligent about on-time payments throughout the course of their tenancy. Just as important is making sure you hold your tenants to this policy. Rental agreement payment policies should include the following information: The day of the month rent is due. The day the late fee kicks in. The amount of the late fee. In a standard rental agreement, landlords provide tenants a five-day “grace period” between the day rent is due and the day the late fee is applied. Late fee penalty payments generally fall around $25. However, before setting the fee, be sure to check state and local laws to find out what maximum fees are allowed by law. While some landlords charge a single flat late fee, others charge an escalating amount for each day payment is late (for example, $5 on the first day, $10 on the second day, etc.). If you do use an escalating scale, you will also need to cap the late fee at a reasonable maximum amount. Not only is it important to build late fees into your lease contracts, but it’s also important to enforce the policy. With this in mind, though, judgment and reason are called for. For example, if a tenant has lived in your unit for eleven months and consistently paid rent......

Setting your property management fees can be tricky business. Obviously, you’d like to obtain the greatest amount of money possible for your services. On the other hand, it’s important that your prices remain competitive in order to secure new clients. Following are some things to take into consideration when setting and evaluating your property management fees. Know Your Competition While your prices shouldn’t be totally dictated by what your competitors are doing, it is important that you have an idea of the going rate for property management services in your area. While you don’t want to undercut yourself, you will likely also have a difficult time selling your services to potential clients if your rates are significantly higher than your competitors’. If they are higher, be sure you have a compelling answer lined-up when potential clients ask why that is (for example, “We offer more automated services for you to utilize” or “We have twenty more years of industry experience than our closest competitor”). Compare Apples to Apples In that vein, when evaluating competitors’ prices, be sure that you are taking similar companies into account. For example, if you have ten years of experience and several successful properties under your belt, you should not compare your prices to those of a relatively novice, start-up property manager. Obviously, the converse of this also holds true. Account for the Local Economy How are things in your area? Are vacancy rates high? Or is business booming, bringing lots of new residents to town? Keep......

While profitability is one great sign of success, there are also many other less tangible indicators that your property management business is doing well. Following is  a list of ten signs you’re running a good property management shop. How many items on this list apply to your business? 1. Your vacancy rates are low. Low vacancy rates can mean any one (and often a combination of) several good things: 1) that you’re doing a good job marketing your property to new tenants; 2) that you’re maintaining existing tenants; and 3) that your units are generally sought-after. 2. You receive new property management clients from referrals. In business, referrals are the sincerest form of flattery. When existing clientele are referring potential clients your way, it is a sure sign you’re doing things right. 3. You receive new tenants from referrals. Chances are tenants who are displeased with your property aren’t going to recommend your property to their friends. As with client referrals, tenant referrals speak kindly of your work and may also indicate that you’ve successfully instated a good tenant referral program. 4. Your tenants stay put. They like you, they really like you! As with all business, it costs far less to keep existing tenants than it does to find new ones. If your tenants tend to remain in your units for multiple lease periods, chances are you’re pricing your units right and making tenants feel well cared for. 5. Other property managers contact you for advice. While it’s nice to......

There’s definitely much to be said for setting oneself apart from the pack in business. In fact, particularly when it comes to business, establishing a reputation that sets you apart from the pack in a certain niche or area of expertise can be invaluable. This allows you to be the go-to source when a client is seeking out specific information, thus distinguishing your company from the competition. Of course, there’s also a risk involved in all of this: When dabbling in specialties, you need to make sure there is ample clientele out there for that specialty to keep your business profitable. These considerations should come into play for property managers that are considering investing in unique or specialized properties, such as waterfront or luxury properties. Following is a brief listing of essential pros and cons you should consider when determining whether or not adding more specialized properties to your portfolio is the right business decision for your company. Pros Brand building. Specialized properties can assist in building your brand. For example, realtors in your area with clients looking to rent a luxury apartment will learn to go directly to you, setting your business apart from competitors. Market stability. It goes without saying that the economy and rental market are out of your control. However, certain sectors of the market are more stable than others—if you can identify one of those sectors and cater to it, this will go a long way toward insuring your business thrives even in difficult times. Look......

  STOP ask yourself do you do your follow up calls or thank you cards?!?!?!?  By Jolene Sopalski Leasing Specialist WRH Realty Services If you answered no to that question then I want you to hold up your right hand and pledge the following “ I will  start following up with my prospects no prospect will go un-followed up”. Good now if you are one of the ones that said yes I do my follow up calls and thank you cards I want to give you a big hug so just picture me giving  you a hug.  Why are follow ups with prospects so important to you and your owners? They are important to us because our prospects are the key to our success in this industry with out them leasing our apartments there would be no need for us. So why would you let them walk out of your office and never make contact again with money? All to often we use the excuse there's just no time to follow up. I really don’t like hearing there is no time to follow up on a potential lease because that is our job. I want to share with you some tips on following up on prospects that will hopefully increase your leases, make your owners happy and make it easier for you to follow up.  Always keep in mined that you are not the only property that your prospect is looking at so you want  to stay in the game by......

Determining when the time has come to do renovations on your rental property is a process that requires good judgment and a careful analysis of your goals. Depending upon your situation, renovation time may occur before you ever even move tenants into your property or, alternatively, it may be one of the final things you do before selling your investment property. Following are a few key questions to consider when contemplating a renovation. Would I want to live here myself?While you don’t have to outfit every rental you manage like a luxury penthouse complete with every amenity imaginable, it is important to make your rental units as comfortable and livable as possible for tenants. Upon purchasing a rental property (and every few years thereafter), look around your rental unit and ask yourself: Is this somewhere I would want to live? If the answer is no, it’s time to start taking a serious look around at what features could stand changes or improvements. The better condition your rental units are in, the more quality tenants you will attract. And the better quality tenants you attract, the better care they will take of your units. Good tenants are a key element to consistently maintaining the value of your rental property. How do I stack up with the competition?If you are looking to sell your investment property at any point in the near future, you should make yourself familiar with comparable properties in your area. In real estate, sale prices are determined in large......

A question that we – as a property management firm – are constantly asked by prospective new clients is “How do you reconcile the trust account against all the checks and bills that come in and out of your office each month? How can we be sure that our money is being properly accounted for?”  To us, the answer seems very simple:  each new client is set up with two new trust accounts once they sign a property management agreement:  An Operating and a Reserve account.  Security deposit monies that are collected from residents at move in are deposited into the Reserve account and not touched until that resident moves out again.  Monies that are collected as rent are deposited into the Operating Account and used to pay bills, vendors, owner distributions, etc.  At the end of each month, each account is examined and reconciled.  True, this adds a bit more work for our book keepers, but the reconciliations at the end of each month end up being very precise.  In California it is legal keep every client’s rental and deposit monies in one single trust account – but to me that seems like an accounting nightmare.  One account would save on bank fees and back end set up time, but that seem like a small price for being able to show our clients a bank statement at the end of the month with their specific account and accounting info.  If we employed the single-trust fund method, our clients would never......

If you have usable rooftop space, did you know that independent power producers, solar energy companies, urban agriculture companies, and more want to lease it from you? That is right, your rooftop space is a valuable part of your property now.  If you aren't listing it as a site for energy production or urban farming, you are missing out on getting a return from your unused rooftop space.  When your rooftop space is used as a site for energy production or food production, you get either a flat $/sq. foot lease rate, a split of the profits from the energy or food produced and sold, or a reduction in your energy bill with a Power Purchase Agreement (PPA). You can also get a combination, for example, a flat lease rate plus a PPA.  Site requirements for solar energy, wind energy and urban agriculture vary. Most flat (or up to 30 degree sloped) rooftop space may be useful for these purposes, as long as you have a 1,000 sq. foot or more building.    It's important to know that when they contact you, the interested power or food producers will request a site inspection to walk your property (with an Engineer) to determine if your rooftop has the structural capacity to handle additional weight.  This is a good and necessary step to ensure that your rooftop is a good fit for their projects. If all requirements pass, you can then begin negotiations of the lease rate, PPA, profit sharing, and other benefits you......