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The Security Deposit - How Much is Enough?

Security DepositBy Salvatore J. Friscia, San Diego Premier Property Management, San Diego, CA Every property owner should require tenants to issue a refundable security deposit which is held on file to insure against non-performance of the lease agreement. Non-performance may be, but is not limited to, anything from damages occurring during occupancy to expenses accrued due to the tenants conduct or failure to pay rent. The confusion begins with the property owner not knowing how much to require the tenant to issue for the security deposit. It is important to understand that security deposits for residential properties are controlled by statute and call for nondiscriminatory  and equal treatment. It is a prohibited discriminatory practice to charge a family a different amount then an applicant without children. It is also prohibited by law to require an excessive amount for the security deposit. In addition to collection of one month’s advanced rent, the maximum security deposit allowed (at least in the state of California) for an unfurnished unit is two months rent and three months rent for furnished properties. [California Civil Code 1950.5(c)] Check your local area laws for similar guidelines in your area. Many owners will ask for the first and last months rent along with the security deposit. This is allowed; unfortunately most renters are unable to afford twice the rent plus the security deposit upfront. Some owners will offer their property with a reduced security deposit. The owner will advertise the rental property at $1,000 monthly requiring a security deposit of $500, ......
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Strategies for Collecting Missed Rent Payments

Rent CollectionBy Peter Lamandre, Better by Design Realty, Scranton, PA What to do when a tenant doesn’t pay or skips? I don’t mean hop-scotch I mean what do you do when the tenant leaves the rental prior to the termination of their lease? The process can vary and depends upon the terms of the lease (if there is one). This post will provide some pointers on how to handle this less than ideal situation. I’ve always tried to be human with my tenants and recognize that sometimes good people fall on hard times. The most important thing to remember is not to make this too personal – it is business and whereas you can empathize with the situation you can’t allow that empathy to blind you to the fact that the non-payment hurts your business. Have a specific policy set for dealing with the delinquent accounts. Here is an example action plan for collection, which based on location and local laws may need to be modified (but I think you will get the idea). 20th of the month – statements go out for next month1st of the month – rent is due5th of the month – late fees begin7th of the month – collection calls/letters begin10th of the month – eviction notices are posted13th of the month – eviction filing begins The big picture here is you need to have a plan and follow it. But what do you do if the tenant wants to make payments? Again it is all about having a ......
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Have You Heard of R.U.B.S.?

Water ConservationBy Salvatore J. Friscia, San Diego Premier Property Management, San Diego, CA If you own multi-family rental property in the southwestern United States you should know about RUBS (Ratio Utility Billing System). A large majority of multi-family rental properties in California, Arizona, Nevada, and NewMexico are individually metered for electric but have what’s called a “master” meter for water. The electric usage of the tenant is paid for by the tenant and the water and sewer usage for the entire complex is typically at the owner’s expense. This expense can be rather costly and eats into the NOI (net operating Income) of the property producing a negative effect on the value of the asset. Most industry experts foresee prolonged price increases for water consumption as the areas mentioned above are currently dealing with drought and long-term water conservation concerns. To mitigate this expense savvy investors have typically reduced water consumption by the installation of low flow toilets, low flow shower heads, and landscaping of indigenous plants or desert landscaping in common areas. While this helps reduce cost it doesn’t eliminate it and the owner is still burdened with an expense that continues to outpace reduction methods. Some owners have gone as far as installing sub-metering on each individual unit if the property’s current piping system allows it. This would seem to be the best solution but once again this is only feasible if the properties current piping system will allow you to make these changes. All of these methods are helpful and will curve ......
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Should I Allow Tenants to Make Unit Upgrades?

Every now and then, a tenant offers to make repairs to the unit he’s living in. Often, such offers are made in exchange for rent (in other words, the cost of the repairs is deducted from the monthly rental rate). In other instances, the tenant simply wants certain upgrades in his unit (a new paint job, removed carpet, etc.) and offers to do them himself. The argument for this is that the tenant can enjoy a place that “feels like home” and you reap the rewards of these upgrades once the tenant vacates the unit. Clearly, there can be benefits to this sort of situation: You receive property upgrades at a reduced (or negated) cost, and your tenant gets to customize the unit to his own preferences. Unfortunately, though, there can also be some pitfalls. All too often in these scenarios, tenants are not qualified to complete these upgrades or updates up to par. The result is unfinished or sub par work that ultimately becomes your responsibility to rectify. Not only this, but such deals can also result in sticky financial situations and—in extreme situations—legal problems. Let’s say that one of your long-time tenants wants to repaint his living room from the standard white all of your units are painted in to a more colorful rustic red. You agree that the color would suit the space well and tell your tenant can deduct the price of paint and labor from his next rent payment. When the first of the next month......
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Staff Versus Software for Property Management

There’s no doubt about it—of all the business problems you could potentially have, being too busy is certainly not a bad option. However, being too busy can become a problem if you lack the bandwidth to stay on top of things. If you consistently find yourself putting off certain tasks or letting them fall through the cracks altogether, it’s time to make some changes. Being overloaded can result in a slip in the quality of the service you provide or oversights, both of which may guarantee you’re not so busy for long. The obvious answer to too much work is bringing more hands on deck. But, of course, just because you’re busy doesn’t necessarily mean you have the budget to hire additional employees. Property management software may give you the extra help you need at a lower cost than an additional salary. Multi-tasking Functionality One of the great benefits of property management software is that it essentially acts as an office generalist. For example, hiring extra staff to take care of accounting work may alleviate that workload, but that same person can’t necessarily take on other tasks such as advertising. Modern property management software, on the other hand, handles a diverse variety of functions. It does accounting, allows tenants to make rent payments online, provides an advertising platform, runs credit and criminal checks, creates reports, and keeps records. Cost-effective Investment Property management software requires only a nominal investment when compared to hiring new staff and adding an additional salary to your......
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Choosing the Right Business Entity for Your Property Management Business

The business entity you choose for your property management company will affect you in very real ways—especially when it comes to taxation and financial and legal liability. This is a big decision and one that you may want to make with the assistance of your accountant or attorney. Following are the four business entities most commonly used by property management companies and some basic information about each. Sole Proprietor The title of this business designation pretty much says it all—a sole proprietorship is a business owned by one individual. Unlike more complex options, sole proprietorships do not have to be legally registered with the state you do business in. Rather, a sole proprietorship’s existence is solely based on the fact that you’ve gone into business. In other words, it’s simple and free to set up. Sounds too easy, right? Well, there is a drawback. Because you are one and the same with your business, business gains and losses are filed on your personal tax forms and, most notably, you are liable for the business, both financially and legally. Partnership A partnership is much like a sole proprietorship, but it involves two or more owners. As with a sole proprietorship, no paperwork or registration is required—you are simply in business. Again, partners claim their share of business income on personal tax forms and are held liable for the business’ financial and legal claims. Limited Liability Company (LLC) LLCs are a bit more complex to set up than sole proprietorships or partnerships, with......
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5 Financial Ratios Every Property Manager Should Know

Whether numbers are your forte or not, there are certain ratios and calculations every property manager should understand. Following is a look at five key ratios that apply to your property management business, how to obtain them, and what they tell you. 1) Vacancy Rate Your vacancy rate demonstrates the number of units available or unoccupied versus the total number of units available for rent on a property. The lower your vacancy rates, the better. The formula for this is simple: Vacancy rate = Total number of unoccupied units in a property ÷ Total number of units in a property This total can then be converted into a percentage. While average vacancy rates vary from region to region, according to a January 2011 article on MHN Online, “[President of Axiometrics, Inc. Ron] Johnsey’s forecasts call for the average vacancy rate to drop in 2011 to 5.8 percent—a solid statistic considering apartment properties aim for vacancy rates of 5 percent for optimal rent increases.” Note that your occupancy ratecan be easily determined by subtracting your vacancy rate from 100 percent. For example, with a vacancy rate of 7 percent: 100% – 7% (vacancy rate) = 93% (occupancy rate)   2) Depreciation Depreciation helps you determine how much value your property has lost over time due to age and wear and tear. Depreciation is considered an expense and will come into play as a write-off when completing taxes. Note that depreciation is completed over a 27.5 year period and applies only to the actual building on the proper......
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How Bright is the Light at the End of the Tunnel?

“Area Rents Up, Vacancies Down” can be heard across the land as the new census statistics come out. Vacancies are down and rents are on the rise HOORAY! For a moment the excitement is heard across our industry as the communities that have suffered immensely from the recession see a light at the end of their long journey. Suffice it to say, rents are up and vacancies are probably down, but what have we all sacrificed in the past few years to get us through the dark days. During this time of struggle our industry strengthened a trend that we were hoping to make extinct which were the rent concessions, the lavish giveaways, and in some cases lower rents. Our industry as a whole has opened a door that cannot be easily shut. Due to the fear of high vacancies we have allowed the prospective residents to take control of an industry that was once controlled by quality apartments, great curb appeal, and luxurious amenities and turned it upside down to an industry that thinks it needs to survive by "outgiving" other communities. We have all seen the enticing ads in the newspapers, Craigslist, or Apartment Guide, “First Month Free Rent” or “Rent today and receive a $100.00 off your rent”. The oversaturation of these deals has changed the way prospective renters think about leasing. Five years ago, it was highly uncommon for a prospect to call an apartment community and ask for something free but today it is the norm.......
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The Home-Buying Checklist

The importance of being methodical when purchasing property can’t be overstated. As you go through the purchasing process, make sure you have accounted for each of the following items on our Home-Buying Checklist. Look for Seasonal Slumps As with every other type of shopping, some times of the year are better than others when it comes to purchasing property. Even during years when it’s a seller’s market, there will likely be certain months that are better suited for buyers than others. For example, home sales tend to be slower around the holidays when people are already feeling over-extended financially. Bad weather can also inhibit other would-be buyers from checking out potential purchases, which means less competition for you if you strap on those snow shoes and a couple of extra layers. It works to your benefit to slant your property purchases to these slower times of the year, when there is less competition out there to drive prices up. Get Pre-approved Obtaining a loan pre-approval will not only save you time in the long-run when you want to jump on a purchase as quickly as possible, but it will also help narrow your search parameters (after all, no use falling in love with a place that ends up being financially unfeasible). By having a solid idea of your price limit ahead of time, you can be sure that you’re not looking at properties that are above your price range or, alternatively, settling for an inferior property. Find a Realtor Who’s Right......
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Why Revenue Management still has a little more growing up to do

Parts of this were taken from a post on Multifamily Technology 360. I used to own a Magic 8 Ball. For a short while I had myself convinced that it could really predict the future. One of the times I was aware of its power was the day I was in the back of class casting sideways glances at the girl sitting next to me. I was only 5' 2" and in the beginning stages of THAT LIFE CHANGE so I was nervous about talking to anyone of the opposite sex. I waited until I got home... yanked the 8 ball off my shelf... shook it as hard as I could, thought to myself "Will she talk to me?" and waited for the answer. "Most decidedly YES." The next day with my newfound courage in hand I went to school and waited for her....  Get some confidence. Why have I brought up a story about my Magic 8 ball? Am I saying that Revenue Management is like using one? Hmm... I won't answer that yet. First let's briefly talk about what Revenue Management really is and where it came from. It's relevant if you want to understand some of my reasoning later:  Ronald Reagan, Madonna and Revenue Management. First let's head on over to Wikipedia to check out its definition. "Revenue Management is the application of disciplined analytics that predict consumer behavior at the micro-market level and optimize product availability and price to maximize revenue growth. The primary aim of Revenue......
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