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Pricing and Dispositions: When 12-1 does not equal 11+0

blog 130115The deal world. Gotta love it. Smart people doing deals worth tens of millions. Even hundreds of millions of dollars. Surely with that much money at stake, processes are wired tightly and there’s really no room for pricing shenanigans, right? Of course if you believe that, you probably thought sub-prime mortgages were a great investment back in 2007 as well. Here’s something that I’ve wondered about for the 15 or so years I’ve been doing pricing and revenue management in multi-family housing. Two different deal scenarios: “Hey boss, I’ve got this great deal we should take to under-writing. We’re buying from  XYZ Apartments, and they’re cutting back on this market. They’ve way under-managed the asset, and their team knew a sale was likely so they’ve been in pretty poor morale. They’re doing average rents of about $1200 a month with one month free. I know we can burn off that concession over the next year and really kick ass.” “Hey boss, I’ve got this great deal we should take to under-writing. We’re buying from  XYZ Apartments, and they’re cutting back on this market. They’ve way under-managed the asset, and their team knew a sale was likely so they’ve been in pretty poor morale. They’re doing average rents of about $1100 a month net. I know we can grow those rents to at least $1200 [ed. Note: that’s an 8.33% increase] in the next year and really kick ass.” Every acquisition guy (or gal) I’ve talked to and presented these two scenarios tells me the same thing. The first scenario......
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Do Short-Term Rentals Make Sense for Property Managers?

Short-term rentalsA guest post by Ashley Halligan, Analyst, Property Management Software Guide Short-term rentals, of all natures, have become a hot commodity – and a controversial one at that. Short-term rentals can include vacation rentals and temporary housing, often sought by vacationers, business travelers, or people who have recently relocated while seeking long-term living arrangements. Either way, it’s become an ongoing topic of debate and an attractive investment opportunity for property owners and managers. In comparison to traditional rentals, short-term rentals can charge significantly higher rates given their nightly and weekly availabilities. Some property owners have earned as much as 25% of their mortgage in a single night. And during special events or peak rental periods in a given area, potential rental rates can be very attractive to property owners. Because of the income short-term rentals can procure, the opportunity for profit potential may be exponential – but there are several considerations that should be kept in mind. First and foremost, it’s essential to keep the added costs of maintaining a short-term rental in mind. These rentals can be subject to Hotel Occupancy Taxes in certain cities, while other cities require specific licensures and inspections not required of traditional, long-term rentals. Penalties for not abiding by short-term rental laws in your city may result in hefty fines. There can also be increased insurance costs. Additionally, the cost of regular upkeep and maintenance, including utilities, should be calculated. In order to continually attract tenants, your property must be kept in prime condition, both functionally and cosmetically. F......
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How Are We Screwing Up The Resident Turnover Battle?

I truly believe our industry is progressing rapidly, so I’m very optimistic about prospects in multifamily, but we still average around 60% resident turnover every year.  I think that this figure is so commonplace that people tend to forget how ridiculous it truly is that 60% of our customers take the time to move their entire life in order to leave our service.  I am particularly concerned that with the potential rising rents coming in our industry, we will lose focus on our inherent problems and just relish the changing market conditions. So I’ve started a list of elements that I believe add to the fundamental problems we face with resident retention.  Please add your own in the comments! 1)      Our contracts are designed to end – With most other subscription-type services, contracts renew forever automatically or at least last for several years, such as car leases.  In a subscription-type revenue model, you hope that the customer does not enter the “buying cycle”, because once that happens, they are actively shopping for alternatives.  With many services, an average customer will stick with a service until something forces them into that buying cycle, such as the product doesn’t work, the product is outdated, the price increases significantly, or the customer’s personal budget changes.  In most cases, competing marketing will not impact their decision to change, similar to how you don’t even notice car commercials until you are looking to buy one. However, in the multifamily industry, we are so fearful of losing......
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8 Tips for New Landlords

Transfer PoliciesA guest post by Brian Davis, Ezlandlordforms.com, Moorestown, NJ Building a strong relationship with a new tenant and protecting your real estate investment is of paramount importance when crafting a lease agreement.  There are a multitude of considerations at this juncture that are essential to understand.  Brian Davis, Vice President of EzlandlordForms.com, is a seasoned landlord and top expert on landlord-tenant relationships.  Here he offers his top tips for new landlords as a helpful tool for navigating lease creation and the ongoing considerations of managing a rental property. 1. Understand the Fair Housing Act and how it applies to your rental.  When advertising for a new tenant, it is critical that landlords and property managers understand and comply with the Fair Housing Act. The Fair Housing Act prohibits landlords from using any of the following criteria when evaluating potential tenants: race, color, national heritage, religion, gender, disability, and familial status. While that may sound simple on the surface, consider that stating in a rental listing “perfect for a single professional” is a violation of the Act (bias against familial status). Advertising only in your church’s newsletter discriminates by religion. What landlords can and should use to evaluate potential tenants is financial data, credit histories, and other background data. 2. Know your tenant by thoroughly screening each prospective renter to avoid problems down the road.  This can be accomplished by a few simple steps.  First, conduct a professional credit check to learn an applicant’s credit history and if they have been fiscally responsible in t......
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Establishing Transfer Policies for Multi-unit Properties

By Ben Holubecki, STML Realty Group, Glen Ellyn, IL Transfer policies are often a detail overlooked by landlords and property owners who own/manage multi-unit properties. A tenant requesting a move from one unit to another presents challenges and can add unnecessary and unexpected costs for property owners. Ignoring these requests or not addressing them properly can open landlords up to potential resentment from tenants and even legal liabilities if not properly documented. There are a lot of reasons why a tenant might request a transfer to another unit within the same property and there are positive and negative impacts resulting from this type of request. The most common reasons for these requests in my experience are: - Problems or issues with current neighbors - Maintenance issues within their current unit which they feel were not or will not be addressed - Lack of upgrades due to extended tenancy (newly remodeled units are obviously more desirable) - Preference regarding location within the property (different floor, closer to parking, amenities) - Moving from 1 unit type to another such as moving from a 1 bedroom apartment to a 2 bedroom Regardless of the tenant’s reason for the transfer request, there are both positive and negatives that you should consider. The positive: - Your tenant obviously likes the property enough to want to stay - You have a history with this tenant so you know what to expect regarding care for the property and rental payments. No surprises. That is always a positive. ......
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Prostituting the Product - A 6 Month Review

About six months ago, I wrote about the changes I was seeing in marketing,  concessions, and targeted prospects in my specific comp market... It was suggested to me that I complete a follow up to Prostituting the Product.   So away we go... In the merry adventures of market comp re-shopping, I was astounded to see that very little has changed locally.  Unfortunately, my market suffers due to influx of new multifamily builds and increasing home purchases, which has reduced traffic across the board and continued to train prospects to expect the very best in concessions. Seemingly, product quality is not at the forefront of the shopper's mind; "concession, concession, concession" continues to blink about as a strobe-light of expectation... Of my market comp's, Rental History continues to fail the mark.  Gone are the days of taking serious rental verification... instead what I heard was:  "Well.... if the writ wasn't processed..." or even better yet was, "We're giving away clean slates, here at...". I continue to be dumbfounded.  If a prospect can't pay previous property management, how can you expect to be any different (Note:  Reference the definition of "insanity").  Trust me, I get the concept of hard times.  I even get the concept of the resident that is consistently late but always comes through.  But what I fail to get is the turning of the blind eye to what seems to be an obvious mistake in decision making. Credit has also taken a direct hit in terms of importance.  My......
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Not Everyone's a Property Manager!

By Salvatore Friscia, San Diego Premier Property Management, San Diego, CA I made a quick trade, put an offer in on a property in Arizona and then closed my laptop and headed with the kids for lunch in La Jolla. It was after lunch that I had an all too familiar experience. We were playing tourist for the day and on the walk back to our vehicle we stopped into a small boutique store near the cove to allow each kid to choose an item of there choice as a fun reward for good behavior throughout the day. I noticed the owner of the boutique slumping over his cash register near the back of the store and I greeted him and asked how his day was going. He responded quietly, “Better then yesterday” and we struck up a conversation. The conversation quickly went toward business and the owner proceeded to tell me that he just bought the store last year and sales were considerably down. To make matters worse the landlord was increasing his rent. I empathized with him and offered some of my ideas for a short term solution but it was obvious they were falling on deaf ears as the owner quickly interrupted me and said something that made me stop and think. He told me that he was not really worried about the slower sales at his store because he was going to start managing some real estate for a couple of friends that own rentals in ......
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Tenants Have Legal Responsibilities Too

By Colin McCarthy, J.D., Robinson & Wood, San Jose, CA Recent posts have suggested onerous burdens and detailed obligations owed by landlords.  “What about the tenants?” you ask.  They have some responsibilities, too.  If a tenant in California does not adhere to these minimum requirements, a landlord may not be held responsible for failure to provide a tenant with a habitable residence – i.e. the bare necessities.  Let’s outline them here, ok? To successfully prosecute a claim against you for not providing those bare necessities, a tenant probably should be able to show that: He kept the unit clean and not unsanitary.  He cannot let it get dirtier than it was when he first started renting. He cannot abuse or misuse the plumbing, gas, or electric fixtures in the unit. He should prevent his guests from damaging the premises. He should make written requests of his landlord when he wants something in the unit fixed. When you come to fix it, he should not prevent you from doing so.  He should not put the chain lock on.  He should not refuse to let you come to fix it on reasonable notice. He should throw out his trash and garbage. If your standard lease agreement does not spell out some of these responsibilities, you might consult with your transactional attorney to see if such terms can or should be incorporated. Basic equity (and some statutes) provide that a tenant should inform you if he believes the premises are or have become uninhabitable.  Any ......
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Move In - Move Out Checklist (Part 1)

By Salvatore Friscia, San Diego Premier Property Management, San Diego, CA A vital part of reducing cost when managing a rental property is limiting the expenses associated with tenant turnover. Tenant turnover usually requires the rental property to be professionally cleaned, painted or touched up, and carpets cleaned or replaced. In order for you to know what expenses to absorb and what expenses to charge back to the tenant, you should always know the current condition of the property as well as the condition in which the property was given to the tenant. To accomplish this, each tenant should be provided with a written “Move-In/Move-Out” checklist. The “Move-In/Move-Out” checklist allows both parties to identify in writing the initial “Move-In” condition and the final “Move-out” condition of the property. These checklists will eliminate any misunderstandings regarding which party will pay for non-normal wear and tear repairs throughout the tenancy and upon move out. Prior to giving the keys to the tenant the owner should completely inspect the property and document the existing condition on the “Move-In” side of the checklist. It is necessary to document the condition of the appliances, windows, screens, blinds, doors, walls, lighting, flooring, a/c, heating, toilets, faucets, ceiling fans, and any other necessary interior and exterior areas. During the initial walk-through with the tenants, it is important to review the findings with the tenant and have the tenant sign and date the document. The use of a digital camera or video camera is also recommended upon both “Move-in”......
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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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