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Renters' Insurance -- Do You Need It?

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......
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Yield Maintainance Prepayment Penalty - Should I Worry.

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......
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STOP ask yourself do you do your follow up calls or thank you cards?!?!?!?

  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......
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Tenant Referral Programs -- Are They Worth It?

Let’s face it – keeping vacancy rates as low as possible is any property manager’s first priority. With the economy in its current state, this is truer than ever before.  We’ve written several articles in the past on combating a lousy rental market with strategies like lease renewal incentives and cross-promoting with local businesses. This week we are offering just another tool aimed at keeping vacancy rates low – a tenant referral program. Tenant Referral Incentives – How Much is Enough? By far the most common type of tenant referral program involves offering current tenants a monetary incentive to refer a new friend, family member, or colleague to their community – the current tenant is then paid for their referral when the referred tenant signs a lease.  Although monetary incentives can come in all sizes, one of the most commonly used programs offers $100 per tenant successfully referred. It’s important to note that if you go the monetary route, incentives should match your tenant demographic – we recommend starting with an incentive that is about 20% of one month’s rent. That being said, some of the most successful referral programs actually occur in more high-end properties. A wealthy person in a high-end property may be more motivated to refer a friend for a $1000 incentive than a less well-off person would be for a $100 incentive. Get Creative with Your Program You know your property better than anybody else. In order to achieve the highest adoption of your tenant referral program,......
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Fannie Mae Small Multifamily Loans – Demystified

During the economic crisis of the last two years many banks that traditionally made loans to owners of small apartment properties have either left the business or cut back on lending.  This has left many owners of small apartment properties with limited borrowing choices.  One lender that has stuck with the small multifamily market and even expanded their outreach is Fannie Mae.   A number of Fannie Mae DUS lenders have embraced this program and its being marketed by almost every loan broker/banker in the country.   This program is different than bank loans that traditionally have lent to small owners and many of the brokers/bankers who are selling the program don't really know how it works.    Hopefully this article will explain some of the issues with these loans and make it easier for you to evaluate these loans.First lets talk about who makes these loans.   These loans are made by one of a few select small loan lenders and then are either sold to Fannie Mae or are sold as Fannie Mae guaranteed mortgage backed securities to Wall Street.  Because Fannie either buys the loans or guarantees the bonds backing the loans they must follow Fannie Mae guidelines.   According to the Fannie Mae web site there are 12 Market Rate Small Loan Lenders.  However, not all of these lend in every market and many are really not active in lending today.  My experience shows that there are really 4-5 lenders who are actively pursuing this business.  These lenders predominantly work through mortgage......
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Redefining the Renovation Process

As renovations have slowed due to the current state of the economy and the reduction or elimination of the renovation departments in REITs and property management companies have ensued, the time is prime to start strategizing on how the industry should approach renovations when they do come back...... and they will......, probably even stronger than before. Although the past year or so has been very painful within the industry, the slowdown offers a unique opportunity to reflect on the past, evaluate and modify the renovation process. The owner or management company that does not take the time to do this will find themselves being left behind using yesterday's more expensive  methods and technologies, resulting in  being less competitive and experiencing lower revenue than is possible because of not performing the renovations in a strategic manner. Over the past 5 years or so, companies like HD Supply, Wilmar, GE and a multitude of contractors have been desperately attempting to determine and meet the needs of their multifamily clients during the renovation process. The main challenge these vendors have had is trying to get their arms around an industry that demands immediate execution and a high quality product.   When a company performs new construction they will spend months or even years in the planning process prior to the start of a project.  Their planning usually includes demographic studies, engineering, architecture and design.  Now let's compare that to the renovation process, wherein companies will often begin a renovation project costing millions of dollars within......
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Loans options for owners of small multifamily properties

You hear in a lot of places that the only commercial loans available today are for apartments.  Apartment loans are available especially for larger apartment project (over $5 million) where the agency lenders, Freddie Mac and Fannie Mae, and HUD are keeping the market going.  These lenders are offering very aggressive rates and in some cases aggressive loans.   HUD loans are still available up to 85% LTV and Freddie and Fannie loans are available in the 75%-80% LTV range in most markets.  However, Freddie and Fannie do not generally service the smaller loan market.  You can get a loan from them in the $3-$5 million range, but only if you find the right correspondent lender.  For loans under $3 million its very tough to get a Freddie or Fannie lender interested in talking to you at all.So for smaller properties is there capital still available?  Thee quick answer is yes.  Owners of properties under $5 million still have choices.   There are fewer choices today compared to last year, but of coarse who has more choices today when compared to last year.  There are still some banks lending and some Fannie lenders are offering loans to borrower needing between $1 and $3 million.  Over the last week my office called over 100 banks in the Chicago area looking to see who is lending.  We found 21 banks (about 20%) who said they were willing to consider new loans.  A slightly smaller survey earlier in the year found almost 50% of the banks......
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Vacancy Rates, how high will they go?

historic vacancy rateschartEarlier today the census bureau issued a press release on second quarter residential vacancy and homeownership.    The report stated that residential vacancy has increased to 10.6%.   Based on this report the public press announced that residential vacancy was at an all time high.   This is true, but unfortunately this does not really tell the story.  You have to look farther into the data to see what's really happening. First the 10.6% vacancy is for all residential housing (single and multifamily) and not just multifamily housing.  For Multifamily (properties with over 5 units) the data is much worse.   The census multifamily vacancy shows at 12.1% eclipsing the historical high of 12% from Q2 2004.  This is truly a scary number, but I am afraid it's not going to drop for quite a while.    If you look at the long view of the data you see vacancy has generally increased over time.   And the volatility of vacancy has been relatively high over the last few years.The regional data is also quite interesting and shows a slightly different picture.  While vacancy is up it's mostly in the South and West .  Year of year data vacancy is actually down in the Midwest and Northeast.    Why is this?   I am not really sure, but the south has always been a volatile vacancy market with lots of boom and bust while the Midwest has always been relatively steady.  Also, the Midwest was hit by high vacancy earlier in the decade.    Most regions are currently seeing historical high vacancy......
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FHA Multifamily Loans - 223(f) Acquisition or Refinance

With many lenders on hold the topic of the day has been FHA.The FHA multifamily loan programs have been in place for over thirty years.  They continue to be used regularly and have closed as much as $8 billion a year in new business.  With commercial lenders on hold there has been renewed interest in these valuable programs.  The following summarizes the 223(f) program.The 223(f) program provides high-leverage long-term permanent debt to refinance, purchase, or moderately renovate existing apartment communities on a fixed-rate, non-recourse, assumable basis.  The loan size is relatively unlimited and the properties can be located in any state, Puerto Rico, Guam, and the US Virgin Islands.The property must contain five or more  units and be at least three years old based on the final certificate of occupancy.  (HUD recently granted waiver authority to the field offices through September 2009  to refinance younger properties that have stabilized.)  Commercial space cannot exceed 20% of the total net rentable floor area or 20% of effective gross income, including a 10% vacancy allowance.  Repair cost are limited to 1) $6,500 per unit as adjusted to FHA's high-cost factor for the area; 2) a maximum 15% of "as-improved" market value; and 3) cannot involve replacing more than one major builidng companent.Borrower Advantages:  35-year amortization period; eligibility for both market rate, subsidized, and LIHTC properties; NO rent control restrictions, rental subsidies, or limitations on owner return; non-recourse; AAA credit enhancement with Ginnie Mae securitization.Guidelines:Term:  Up to 35 years fully amortizing with level payments.Loan Size:  Unlimited, nationwide.Loan Amount: ......
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Freddie Mac CME - A new kind of conduit loan

On June 18th Freddie Mac finalized the sale of the first securities under their new Capital Markets Execution (CME) program.    These securities were backed by over $1 billion in multifamily loans secured by 62 multifamily communities across the country.     The securities consisted of a variety of classes each having different cash flow rights and different risks.  The securities were sold to a variety of investors including large money managers, life insurance companies and pension funds.  Does this sound familiar?  It should, it's very similar to the CMBS business that is in so much ill repute.  However, while this is similar, it's also different in some critical ways. The reasons this is not your typical CMBS is because it's being issued by Freddie Mac with all that backing that implies and more importantly these loans were underwritten to current, relatively strict, standards.  These are all multifamily loans and most of the securities have the backing of Freddie Mac, giving them, in my opinion, the risk of a government security.     For the security holder these do not have the risk of typical CMBS, but it does have some of the same characteristics.  The issuance and acceptance in the market of these securities shows that the capital markets are still interested in securities with the cash flow peculiarities of CMBS.   This is an important first step in re-opening the capital markets to commercial real estate loans, particularly on the multifamily side. While this sale is interesting, does this do anything for the borrowing public?   In the short......
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