Put it in Writing

Put it in WritingOften, when renting an apartment, tenants are overwhelmed by the amount of information they are given, from the initial apartment viewing, to filling out the application, to getting approved, to finally, moving in.  While it’s important to let all prospective residents know and understand the rules they must abide by when moving into their new apartment home, it’s even more important that the rules and regulations be put into writing.

While standard information such as lease term, rental amount, and deposit information is almost always included in every lease, it’s important that other items are written into the lease as well.  It’s also a good idea to mention these items to residents so that they are aware that they are there.  After all, most tenants do not read their lease from beginning to end.

Here are some things that property managers should ensure are included in every lease and mentioned to each tenant as well:

  • Rental due date.  While most leases will stipulate that rent is due the first of each month, most  management companies will offer a grace period of a few days.  If rent is considered LATE on the 1st, put it in the lease, likewise if the late period starts on the 3rd.
  • The penalty for late rent.  This needs to be spelled out as well.  Tenants must be informed what the penalties will be if the rent is late, and if extenuating circumstances will ever apply.
  • What utilities, if any, are included in the monthly rent.  If gas is included in the monthly rent, state that in the lease.  Likewise, if the tenant is responsible for electric, that should be stated in the lease as well.
  • Apartment alterations.  This can be a sticky area, and one most likely to be abused.  If tenants are required to get permission from management prior to making ANY alterations to the unit, it must be spelled out in the lease.  This includes anything from painting the walls, to installing a ceiling fan.  If this is not spelled out in the lease, tenants cannot be penalized for any property alterations found upon move-out.
  • Authorized landlord entry.  Another sticky area.  Years ago, when I rented a house, the owner of the house thought nothing of using her key to enter the property, clip roses in the backyard, and complain to me about the unwashed dishes in the sink.  Only legal action could keep her out.  While landlords are perfectly within their rights to enter a property during an emergency situation, 24 hour notice is typically required to enter any other time.  It would be in your best interests to put this in the lease.  And obey it.
  • Pet policy.  If your property doesn’t allow pets, put it in the lease.  If you do accept pets, layout any restrictions (dogs under 25 pounds), and any pet deposits required.  Also be sure to note whether the deposit is refundable upon moveout.

By providing your tenants with a comprehensive, in-depth lease, you can avoid any misunderstandings and possible legal issues later.

Posted on 10. Jul, 2014 by in Articles, Business

El Niño Information

What is El Niño?

El Niño is a naturally occurring event in the equatorial region which causes temporary changes in the world climate. Originally, El Niño was the name used for warmer than normal sea surface temperatures in the Pacific Ocean off the coast of South America. Now, El Niño has come to refer to a whole complex of Pacific Ocean sea-surface temperature changes and global weather events. The ocean warming off South America is just one of these events.

Why is it called El Niño?

Fishermen off the west coast of South America were the first to notice appearances of unusually warm water that occurred at year’s end. The phenomenon became known as El Niño because of its tendency to occur around Christmas time. El Niño is Spanish for “the boy child” and is named after the baby Jesus.

What cause an El Niño?

In normal, non-El Niño conditions, trade winds blow in a westerly direction along the equator. These winds pile up warm surface water in the western Pacific, so the sea surface is as much as 18 inches higher in the western Pacific than in the eastern Pacific. These trade winds are one of the main sources of fuel for the Humboldt Current. The Humboldt Current is a cold ocean current which flows north along the coasts of Chile and Peru, then turns west and warms as it moves out into the Central Pacific. So, the normal situation is warmer water in the western Pacific, cooler in the eastern.

In an El Niño, the equatorial westerly winds diminish. As a result, the Humboldt Current weakens and this allows the waters along the coast of Chile and Peru to warm and creates warmer than usual conditions along the coast of South America. As far as we know, other forces, such as volcanic eruptions (submarine or terrestrial) and sunspots, do not cause El Niños.

How often does El Niño occur and how long does it last?

El Niños occur irregularly approximately every two to seven years. Warm water generally appears off the coast of South America close to Christmas, and reaches its peak warmth in the eastern Pacific during the late fall of the following year. After peaking, the waters will tend to cool slowly through the winter and spring of the next year. Effects can be felt continually around the globe for more than a year, though this is generally not the case in any one place.

What effects does El  Niño have on the world climate?

A strong El Niño is often associated with flooding rains and warm weather in Peru, drought in Indonesia, Africa, and Australia, torrential downpours and mudslides in southern California, a mild winter in the northeast, and fewer hurricanes in the southeast. Keep in mind that these effects aren’t guaranteed, but an El Niño makes these conditions more likely to happen.

El Niños occur irregularly approximately every two to seven years. Warm water generally appears off the coast of South America close to Christmas, and reaches its peak warmth in the eastern Pacific during the late fall of the following year. After peaking, the waters will tend to cool slowly through the winter and spring of the next year. Effects can be felt continually around the globe for more than a year, though this is generally not the case in any one place.

How does El Niño affect bird and sea life?

In non-El Niño years, upwelling of deep, cold ocean water brings up nutrients that lie near the bottom. Fish living in the upper waters feed plankton that are dependent on these nutrients. Kelp forests also depend on cool, nutrient-rich water for survival and growth. An El Niño reduces the upwelling of cold water off the coast of the Americas. When this happens, fish either die or migrate into areas where they’ll find more to eat. With the fish gone, sea birds that depend on them may die or go elsewhere. Kelp forests are often destroyed by storms and ocean swells.

Off California, fish populations may also be reduced. Marine mammals, such as seals and sea lions, that feed on fish may be affected. Californians may see an increase in dead and live strandings of seals and sea lions along the coast, and poor seal and sea lion pup survival at island breeding sites. However, despite the increased number of deaths of marine mammals during an El Niño, scientists report the long-term growth rate for California sea lions and harbor seals to be 6 to 10 percent annually. An occasional increase in strandings or deaths of these animals is not a threat to their overall population.

How can we predict El Niño?

In the tropical Pacific Ocean, the National Oceanic and Atmospheric Administration operates a network of buoys that measure temperature, currents and winds in the equatorial band. The collected data are evaluated by complex computer models designed to predict an El Niño. Even these complex models, however, cannot predict the exact intensity or duration of an El Niño, nor can they predict how areas will be affected.

What is the difference between El Niño and Al Niña?

Both refer to different phases of ENSO. El Niño refers to a pattern characterized by the tropical Pacific’s warmest water spreading eastward to the coast of South America. The opposite condition is characterized by unusually cold ocean temperatures in the tropical Pacific; hence the strongly contrasted name, La Niña.

Information obtained from: https://www.wildlife.ca.gov/Conservation/Marine/El-Nino#26072346-what-is-the-difference-between-el-nio-and-la-nia

Preparing Your Properties for El Niño

While preparing for winter weather is a common occurrence for property managers throughout the country, the preparation for this year’s winter may be slightly different. The National Oceanic and Atmospheric Administration (NOAA) has predicted the return of El Niño this winter; one of the strongest on record. The return of El Niño means a shifting weather pattern, increasing the likelihood of increased moisture across a wide swath of the U.S.

With El Niño expected to impact Southern California, as well as Nevada, Arizona, New Mexico, through Texas to Florida, the chance for inclement weather in these areas increases dramatically. And while this changing weather pattern can create havoc for most of us, property managers face a more daunting task; preparing their property for the possibility of increased inclement weather. And while none of us can accurately predict what the weather will be in the coming months, it’s important for property managers to be ready for the possibility of increased wet weather and intense storms. So what are some of the steps property managers can take today to be better prepared for the possibility of El Niño affecting their properties?

  • Make sure that property insurance policies are current with adequate coverage. One of the things that you don’t want to happen is for a catastrophic weather event to occur and you’re your current policy is inadequate or lapsed.
  • Make a point of checking windows and entryways, repairing or replacing loose panes, bent storm windows, or inadequate weather stripping.
  • Check roofs for any loose shingles or potential leaks and repair them promptly.
  • Walk the grounds and check for loose branches, damaged or dead trees, or other landscaping that could pose a hazard during a brutal winter storm.
  • If your properties are in a low-lying area, be prepared for the possibility of extensive flooding from extended periods of rainfall. This can include everything from having sandbags ready to be deployed, to having an escape route planned out for residents in case of catastrophic flooding.
  • Be prepared for other events such as loss of power for extended periods of time – which can mean no heat in some areas. Again, having an emergency plan can help.
  • Stock up on flashlights, blankets, and non-perishable food items, and advise your residents to do the same.
  • Be sure to convey this information on a timely basis to your residents; perhaps holding a special information day, or distributing emergency and evacuation plans with monthly rental receipts.

While no one can tell if severe weather will make a beeline for your properties, being prepared will help both your tenants, and your staff handle just about any situation they may be faced with this coming winter.

Posted on 12. Nov, 2015 by   in Articleshttp://36northpm.com/blog

2015 Rental Market Report

2015 Rent.com Rental Market Report

2015 Rent.com Rental Market Report

October 7, 2015 | Rental TrendsRental Trends and Real Estate News

The seventh annual Rent.com Property Owner and Manager Market Report captures trends in the rental market directly from apartment property managers nationwide.

In the 2015 survey, more than 500 property managers in the U.S., representing thousands of rental properties, and hundreds of thousands of rental units, provided insight on the current and predicted demand for rentals, expected rental rate increases, how property managers are working to retain residents, and the changing demographic profile of American renters.

Rental Inventory Near 20 Year Low

This is the lowest that vacancy rates have been in almost 20 years! According to the U.S. Census, national vacancy rates in the second quarter of 2015 were 6.8% for rental housing, down nearly a full percentage point (from 7.5%) from the same time in 2014. The last time vacancy rates dipped below 6.8% was the fourth quarter of 1985 (6.7%).

Since Rent.com’s first Property Owner and Manager Report in 2009, property managers have reported a steady decrease in vacancy rates, and 2015 is no different. This year, more than 46% of property managers surveyed reported a decrease in rental vacancies.2015 Rent.com Rental Market Report - Rental Inventory Near 20 Year Low

According to Census data, vacancy rates for rental dwellings have fallen steadily since they hit a high of 11.1% in the third quarter of 2009, at the height of the U.S. housing bubble burst.

Fewer Vacancies Leave No Room for Negotiation

As the rental market continues to become more saturated, property managers are having to do even less in order to fill apartment openings.

In 2015, 55% of property managers said that they are less likely to offer concessions or lower rents in order to fill vacancies than they have been in years past. In fact, 64% reported that they are not doing anything different from one year ago, in order to fill vacancies.2015 Rent.com Rental Market Report - Fewer Vacancies Leave No Room for Negotiation

With multiple applicants vying for the same apartments, more than half of the property managers surveyed (54%), noted that it is taking roughly the same amount of time to convert leases, while 33% stated that it is taking even less time, compared to last year.

It’s Less About the Renter, and More About the Benjamins

Despite the fact that property managers currently have the upper hand in the leasing process, 56% reported that the increased demand has not made them become more selective about potential renters.

In fact, only 17% reported that they have become more selective about who they rent their apartments to, regardless of increased demand and limited inventory. Higher credit scores, higher income-to-rent ratio and excellent rental history rank amongst the top requirements from property managers.

What do they care about when it comes to who is leasing their apartments? Money. While they might not be more selective in their screening process, property managers still care about getting top dollar for their properties. In fact, 53% of property managers said that they were more likely to bring in a new tenant at a higher rate, than negotiate and renew a lease with a current tenant that they already know.2015 Rent.com Rental Market Report - It's Less About the Renter, and More About the Benjamins

Expect Rates to Rise by 8% in 2016

An overwhelming 88% of property managers raised their rent in the last 12 months, and there does not appear to be any signs of stopping.2015 Rent.com Rental Market Report - Expect Rates to Rise by 8 Percent in 2016

68% of property managers predict that rental rates will continue to rise in the next year by an average of 8%! This is a two percent increase over the estimated 6% rent hike predicted by property managers back in 2014. 2015 Rent.com Rental Market Report - Expect Rates to Rise by 8 Percent in 2016 !

Unsurprisingly, increased demand and low inventory were the primary reasons for increasing rental rates over the last year, according to 64% of property managers surveyed. Property maintenance costs and remodeling fees were also cited as primary drivers of rental increases (44%).

Renters are Struggling to Make it on Their Own

As a result of skyrocketing rental rates, 43% of property managers reported seeing an increase in the number of applicants who do not meet the income requirements on their own and require a guarantor.2015 Rent.com Rental Market Report - Renters are Struggling to Make it on Their Own

Millennials Deferring Home Ownership and Opting to Rent

Millennials face limited job availability, lower incomes and high student loan debts, making it more affordable and flexible to rent. In fact, 45% of property managers have noticed an increase in the number of millennial renters.

2015 Rent.com Rental Market Report -Millennials Deferring Home Ownership and Opting to Rent

Homeowners are Trading in Mortgages for Leases

More than half of all property managers surveyed (54%) reported seeing an increase in the number of former homeowners seeking rental apartments, thus adding to the already crowded rental space.2015 Rent.com Rental Market Report - Homeowners are Trading in Mortgages for Leases!

This is an increase from 2014, where only 50% of property managers reported seeing this same trend.

Existing Renters Not Giving Up Their Leases

Renters also appear to be staying in their apartments longer, adding to this supply/demand imbalance!2015 Rent.com Rental Market Report - Existing Renters Not Giving Up Their Leases

According to property managers, 34% reported that renters are holding on tight to their apartments and renewing their leases (up from 29% in 2014), rather than trying their luck elsewhere.

Methodology: The survey was conducted among more than 500 of Rent.com’s property management customers, representing thousands of rental properties, and hundreds of thousands of rental units.

 

Rental Property – How to Project Cash Flows and Returns

If you are thinking about buying some rental properties as investments, you should probably understand how to project cash flows and evaluate the investment returns you hope to achieve on your hard earned invested cash equity.

There are really two types of returns that we can earn on investment property, first is appreciation in value which is the most common hoped for return. Secondly, and much more important but generally overlooked by investors, is the cash flow picture the property will generate.

The vast majority of investors buy real estate with the hope that it will go up in value. This is really a big mistake because many properties, particularly the prize “location, location, location” properties have corresponding negative cash flows on operations that may negate any true increase in wealth from one’s long term appreciation in value.

So a savvy investor needs to look at the cash flow picture and buy properties with positive cash flows, not negative cash flows. As an example of this in Monterey, one could buy a nice condominium for $500,000, which would rent for about $2,300 per month. That rent, minus all the maintenance expenses, HOA fees, insurance, property taxes, and mortgage payment would have a deficit on cash flows of about ($1,000) per month, or ($12,000) per year.

So while a buyer is hoping some appreciation in value will earn him or her a fair rate of return, that appreciation has to additionally compensate for all the money he has to take out of his savings to cover the negative cash flows. Those negative cash flows, on this example, could span several decades and hundreds of thousands of dollars before the property turns positive.

Alternatively, there are many properties that cash flow positive from day one as an investment. A moderately priced house or condominium unit, only a few miles away from downtown in the $150,000 price range, might generate $1,200 per month in rent and positive cash flows of $225 per month. That’s $2,700 per year of positive cash flow. As a side note – the appreciation in value, over the long term, will probably be similar on both properties anyhow. So why not go for cash flow plus appreciation in value!

To calculate a cash on cash return, we divide that $2,700 positive cash flow by the cash equity we invested, maybe $40,000 on the $150,000 property for a cash on cash investment return of 6.75% on our money. And that’s a really good deal! Especially compared to the fancy prize condominium that might generate a negative (8.5%) return on our invested equity.

As a long term investor, I can assure you that positive cash flow properties, so properties that pay all the bills and provide a rate of return on your money, are much better investments than negative cash flow fancy prize properties that just drain money from your bank account. Hopefully you’ll understand this concept before you buy that prize!

Posted on 29. Nov, 2012 by Leonard Baron in Real Estate

The Advantages of Offering Month to Month Leases

While all properties are not well-suited to offering month to month leases, there are a variety of reasons why it would prove profitable for property managers to investigate the possibility of doing so. In many high profile, urban areas, or in cities where international corporations are located, month to month leases are considered a necessity. While residential communities in smaller cities and rural areas may not be a perfect fit, it may be worth investing some time into considering whether the benefits of offering month to month leases are worth the cost. Here are the reasons why properties should consider this option:

You can legitimately charge a much higher rental amount per month. Of course, your property should be located in a metropolitan area or near company headquarters; in essence any place that attracts a lot of transplants. Cities like Chicago, Boston, and Las Vegas commonly offer month to month leases at a premium price. Renters get the benefit of a conveniently located apartment community while property managers are able to charge month to month renters premium rents.

It’s a great way to attract quality, future tenants. If your month to month rentals are happy where they are, they may consider signing a lengthy lease, providing you with a reliable tenant.

It becomes easier to set up partnerships with local corporations and businesses. Local businesses are happy to direct their newly relocated employees with a safe, convenient place to live. Work out a deal that will be good for both of you.

There are some disadvantages to renting units short-term, the most potentially costly being excessive wear and tear on the short-term units. It’s also important to note that many short term renters have less of an investment in a property short-term than they do when they’re staying for a year, so the possibility of damages may increase in these units. Offering month to month rentals will create more paperwork for your office staff. Maintenance staff will also be busier with unit repairs, maintenance and cleaning.

While offering short term rentals is not a viable option for all properties, if your property is situated in a high-profile area, it may benefit your property and your bottom line to consider offering month to month rental agreements.

Posted on 03. Dec, 2012 by Mary Girsch-Bock in Business

Property Investing – Go For The Cash Flow, Not Location, Location, Location

When discussing real estate investments, we often hear people say the three most important words in real estate are location, location, location. And while “3L” properties may be some of the finest looking and most prestigious properties to own, the reality is that they are generally very poor investment choices. The reason is that the investment returns on these location properties are typically very low; and one should strive for better investment returns to compensate for the risk. The primary reason for those low returns is that A+ location properties are usually bid up to prices that are very high for the rental income and cash flows they can generate.

So where are the better cash flow properties that investors should pursue? It’s really the moderately priced, non-descript, boring location properties – whether apartments, single units, or commercial properties – that typically generate the higher cash flows and investment returns. And, higher returns, for similar risk, should be an investor’s primary goal. This is because cash flow pays the bills and excess cash flow accumulates in one’s bank account.

Let’s just think through a few numbers herein.
Moderately Priced Property – If I find an average non-descript apartment property in Southern California that sells at a realistic 6% capitalization rate (Cap Rate); that means on a $1,000,000 investment I would earn $60,000 per year (if no mortgage) and a return of 6.0% on my investment. That’s a really fair deal, and with that money I can pay the bills, put some money in reserves, and diversify the extra cash into other investments.

Fancy 3L Property – A prize property, so beach area properties, fancy areas of town, the 3L properties, are going to have very low real Cap Rates. Maybe 2.5% to 3.0%. That means on my same $1,000,000 investment, I only get $25,000 to $30,000 per year in cash flow – just half the cash flow of a moderately priced property! That may be enough to pay the bills and put away some reserves, but it’s significantly less than I’d have from a non-prize property.

Now you may think that prize properties appreciate more in value over time, but there just isn’t any long term proof that it is true. And even if it is true, that doesn’t mean it will be the same way into the future. However, the cash flows are clearly different and over long periods of time the investor collecting all that extra cash flow is virtually guaranteed to earn much more wealth on their real estate investment(s).
If you agree with the above information – and please review property listings and do some research for yourself – you might wonder why an individual would buy a very poor cash flow investment property?

There are many reasons: the buyer might not even know how bad a deal it is because they are simply buying the property in hopes that it will go up in value; without evening considering the cash flows. Also, most real estate investors have no idea how cash flows can differ based on a property’s location so it doesn’t even enter one’s mind to consider this issue. And, they may just be buying a property so they can brag about owning a prize, the “I own the nicest property in the land” and the fancy car, big house, etc. Finally, sometimes people are investing other people’s money and earning a fee on that investment; so they’re more concerned about placing investment dollars than making a smart investment.

There really are many reasons why an investor would make less than optimal decisions when purchasing property. And that is to their own financial detriment, or possibly to their investor’s detriment. But you can do better!

My guess is that if you understand the above and do your research, you’ll conclude to similar findings that those prize properties are just not the best of investments.

So to increase your affluence, find the cash flow properties that pay you more cash flow! They’re usually in the boring location, location, locations and they’ll probably provide the most long term wealth building into your future.

Posted on 15. Jul, 2013 by Leonard Baron in Real Estate