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Tough Economy Makes Tenant Debt Tough, but Not Impossible, to Collect

The downturn in the economy has caused many landlords to lower their credit requirements for new tenants. Of course, lowering credit requirements increases financial risk.  Renting to a tenant with little or poor credit increases the likelihood that the tenant will at some point leave owing the landlord money.    This change in rental criteria is understandable, considering the need to keep all units rented.  But know that when you lower your standards and in turn incur debt, this debt will be tougher to collect than if you had rented to a tenant with good or great credit.  If you use a collection agency to collect the debt, you should also lower your expectations about how much you feel they should collect.   Collection agencies are reporting that they are receiving many more files than two years ago.  The average amount of debt in these files has also increased.  Relaxed rental standards, coupled with the high unemployment rate, have put collection agencies in a tough spot.   The American Collectors Association reports that the collection industry debt recovery rate is down 30-40% over last year.  Angi Pusateri, National Sales Manager for RentDebt Automated Collections, confirmed that her company is experiencing a similar decline in debt recovery.  However, RentDebt Automated is weathering the storm well and has added employees in the last year at their offices, which are located in Nashville, Tennessee and Dallas, Texas.   Jeff Cronrod, the President of Rent Recovery Service, a national collection agency specializing in the col......
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Property Repair Forecasting

No matter how meticulously you look after your property, there are certain long-term maintenance items and repairs that are inevitable. Sure, by staying on top of things you may be able to stave some of them off for a bit, but some things are impermanent by nature and are going to have to be repaired or replaced sooner or later, no matter what you do. A savvy property owner will always keep these items in the back of her head because the big repairs are almost unfailingly also the expensive repairs. In order to avoid being submerged in massive expenses all at once, be sure that you keep the following long-range maintenance items and repairs in mind, stash savings away, and know how up-to-date you are at any given time in order to better project just when these expenses may come due. Roofing Price tag: $10,000 or higher How frequently you have to replace your roof depends on a variety of factors, including the type of roof you have and the sort of climate you live in. For example, shake or wood shingles will last from 20 to 25 years; composition shingles will last for 12 to 20 years; rock roofs will last for 12 to 15 years, and metal roofs will last for 50 to 75 years. Even though most of these time spans are rather lengthy, it’s important that you always know exactly how old your roof is so that you can forecast inspections and, ultimately, replacement. The lifetime......
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Are Landlords Increasing Occupancy: Or Are They Increasing Tenant Debt?

The poor economy has caused landlords and property managers to take drastic measures to lease units and keep them occupied. Some of the measures are understandable, considering the circumstances, but others make absolutely no sense at all.This week I reviewed approximately 80 files from previous tenants who left a large residential property in Sarasota, Florida, owing money. I sat with the manager and discussed how the residential housing market has been turned on its ear, and in some ways seems to be in a downward spiral. I noted that not only had the number of debtor accounts more than doubled, the amount of the average debt had increased by at least a third.The manager explained that the property had tried to increase its occupancy by allowing tenants to try and work out payment arrangements. As I looked at her over this mountain of files, I asked her, "How did that work out for you?" She understood my sarcasm and explained that the owners of the property had pressured her to do something to keep their residency rates up. She agreed that allowing tenants to pay late had only delayed the inevitable and increased the amount of bad debt the property must now write off.I would argue that in such cases, if closely analyzed, the cost is actually even higher. The tenants she allowed to get behind on rent grew accustomed to management's tolerance. When she finally drew the line and required payment, she was then often forced to file eviction proceedings......
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The Rent Check Won't Die

Online or otherwise-automated rent collection has the potential of simplifying one major headache for on-site apartment teams. And even better, residents seemed to really want this new ability themselves, providing a nice benefit to them, as well. But somewhere along the line, the plan has broken down.
 

According to a recent report by NMHC, an impressive 81 percent of apartment operators utilize online rent payment through either credit card, bank transfer, or both. But when the dust settled, only 18 percent of residents actually used the service. The report states that 76 percent of residents still make the walk to the leasing office each month, rent check in hand.
 

The report mentioned a few obstacles that online/automated rent payment had, including:

  • Costly convenience fees for credit card transactions
  • Integration problems with property management software
  • Accounting and reconciliation issues

Of course, that does not explain the lack of bank transfer use. Was there a element of confusion with setting that type of transaction up? Or possibly a misguided lack of trust issue?
 

If you offer these services, what are the reasons you have heard why residents don't participate in your online/automated rent payment options?
 

(If you would like to see more statistics from the NMHC report or would like to view the entire report, click here.)

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Making Budget Season Stress Free

Making Budget Season Stress FreeBudget Season.  The words alone instill panic in the hearts and minds of many.  Is there anyone out there who actually enjoys this process?  To help you not only survive the budget season, but perhaps even prosper, we'd like to offer a few tips that will hopefully make this year a little more stress free.1. Be organized.  Set a time aside each day to work on the budget, and don't allow yourself to get side-tracked.  If you're a list user, make one.  Crossing items off will make you feel like you're accomplishing something.  Take a look at last year's budget and identify those areas that will be automatically renewed this year.  Sure, some of the numbers may have changed, but it's a great place to start. 2. Delegate.  Ask your co-workers and support staff for help!  Task them with researching their areas of responsibility.  After all, who knows better what their needs will be for the coming year? 3. Eliminate distractions.  The rest of your work doesn't stop just because you're in budget mode, but for a little while, you might have to put some things on hold.  Forward your phone; only check your email at certain times during the day.  Politely decline requests for assistance or ask for meetings to be rescheduled.  Sometimes when we try to multi-task, we're just asking for trouble. 4. Break it up.  Feel like you're getting frustrated?  You may need a change of scenery!  Go for a walk, get a cup of coffee, borrow some ......
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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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Tips to make your lender happy...part 3

Tips to make your lender happy....Tips to make your lender happy....real estate taxes and utility bills.   to continue with the information you need to send your lender to refinance or acquire a multifamily property it is time to talk about real estate taxes and utility bills.Real Estate TaxesRefinances are pretty straight forward.  If you have the bill we will underwrite to the current year tax bill.  If you don't have the bill we will look at the previous years and try to estimate some reasonable increase.  It only gets tricky if the property is due for a new assessment and/or you plan to do some substantial rehab to the building which would bump the assessment.Acquisitions are tricky when the transfer of the asset triggers a new assessment.  That is particularly painful in states like Michigan.  The new assessment will most likely increase the real estate tax which will directly effect the net operating income.Utility Bills Newer buildings are typically individually metered and the tenant pays their own utilities.  Older buildings are often master metered and either the tenant pays a set utility allowance to the owner or the utilities are included in the rent.   I even have one client that was able to negotiate their gas bill in advance for a three year period.  This was a huge benefit when prices were rising.  It really doesn't matter how your building is set up you just need to let your lender know what utilities are in the rent, what utilities are paid directly by......
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ASP vs. Self Hosting

ServerThe trend over the past many years has been to have software hosted and maintained by an Application Service Provider ("ASP") rather than the company maintaining the infrastructure to run the software. This trend has increased as most applications have become web-based. That is to say, the software is run with a browser (i.e. Internet Explorer) and can be access by anyone with a high-speed Internet connection. As high-speed Internet access becomes increasingly common the requirement for a Client Server application becomes less important. Many of the Property Management & Accounting software companies offer a hosted solution (e.g. Yardi, and Intuit RES). In fact, one firm only provides a hosted version (RealPage).Should you allow your mission critical software (e.g. Property Management & Accounting system) to be hosted by the Vendor? Here are some pros and cons to be aware of before making your decision. ASP Pros ASP Cons Quick start Less control over mission critical software.  Low up-front costs Potential higher cost of ownership.  Usually higher over a 10 year period due to the subscription basis. Easier upgrades Limited to no control of timing of upgrades Must upgrade when they upgrade unless you pay for separate environment. Easier/ lower cost maintenance Difficulty with integration of other applications Less human capital required to manage the system. Difficult to access data for custom reporting ASP Pros Quick Start ASP applications can often be on-line and operational more quickly. The Application Service Providers (e.g. Yardi) are adept at setting up the application and have......
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Tips to make your lender happy....

Tips to make your lender happy....insurance and payroll.  To continue with the information you need to send your lender to refinance or acquire a multifamily property I wanted to talk about two big ticket items on the operating statements:  insurance and payroll.InsuranceWhether buying or refinancing a property the lender is going to look at the cost of hazard insurance for the previous three years.  Take a close look at those numbers before you send the information to the lender.  If you think the number is too high go out and get a bid from another insurance company and send it along.  Most lenders will underwrite to the new bid when it is lower than the previous costs.  This is particularly important with acquisitions where the previous owner of the property may not have the best insurance rates.  PayrollPayroll is always a sticky line item.  From a lender's perspective the best operating statements separate out the cost of full time employees, temporary employees,  employment taxes,  and benefits.  One property I looked at recently had a lump sum number in for payroll.  There was a $10,000 jump in the line item last year which if carried over to my numbers had a direct impact on the net operating income and  lowered the proposed loan amount by $124,000.   Once we started investigating the increase we learned that the property hired temporary labor the previous summer to complete  capital improvements.   Since this capital improvement was a one-time expense I was able to leave it out of my numbers.  Most......
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Multifamily PM Running on DOS?

No DOSThere are still some Multifamily Property Managers using DOS applications like Rent Roll and the AMSI DOS version. Many of you may be surprised that these products are still in use and will wonder why do people still use them? Well, frankly, they work, albeit with risks! Smaller, cost conscience firms find it difficult to justify spending the money for an upgrade when the old DOS system still gets the job done.The expense to upgrade to a new product can be a lot. Plus, new equipment, training and changing business processes can be daunting and costly. But is the risk of staying on the old DOS application too great? I say "YES!" Early versions of Microsoft Windows actually ran on top of the DOS platform; however since Windows 95, DOS is no longer needed and has fallen in disuse. That does not mean you can't still operate a computer with DOS, in fact there are some companies that will sell you a PC with FreeDOS as the operating system. DOS is not the only problem or risk, you have to consider the hardware, support, expertise, security, and opportunity costs.Risks of not UpgradingHardwareIt is increasingly difficult to purchase hardware compatible with running DOS. As I mentioned you can purchase a PC with FreeDOS but that is certainly not a mainstream purchase. If your current PC crashes you won't be able to run to the local retailer and grab a replacement off the shelf. New printers don't usually work with DOS and finding......
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