Are You Overlooking Any of These Fair Housing Laws?

While all property managers are likely (or should be) familiar with standard Fair Housing Laws, such as the prohibition of discrimination in the sale, rental, and financing of dwellings based on race, color, national origin, religion, sex, familial status or disability, there are also a variety of rules and regulations that have been implemented in the last few years that property managers may not be familiar with. Here is a summary of those recently implemented rules and regulations:

  • Civil Monetary Penalties Inflation Adjustment. The maximum civil penalty for a first violation of the Fair Housing Act was $55,000. Due to inflation, this has been increased to $75,000. Subsequent violators previously faced a penalty of $110,000, which has now been increased to $150,000.
  • Reasonable Accommodation for those with a disability. While not new, not everyone may be familiar with exactly what falls under the umbrella of reasonable accommodation. Currently, disability is defined by HUD as individuals with a physical or mental impairment that substantially limits life activities. These impairments can include visual and hearing impairments, cancer, heart disease, muscular dystrophy, diabetes, AIDS, mental illness, drug addiction, and chronic alcoholism. These additional protections include making reasonable accommodations in current property rules and policies in order to allow the disabled person to use the housing. Reasonable accommodations can range from assigning a parking space to a resident with a mobility impairment, to making an exception to a “no pets” policy to allow a visually or hearing impaired tenant to have an assistance animal. They also include things such as removing carpeting in a unit where a resident has severe chemical sensitivity. They also include giving mentally ill tenants the ability to seek treatment prior to evicting them due to violating property rules.
  • Newer buildings must abide by a different set of standards. For instance, for any buildings built after 1991 that has four or more units, kitchens and bathrooms must be able to be used by those in a wheelchair. Reinforced bathroom walls are also necessary in order to allow the future installation of grab bars. These requirements are for all 4 unit buildings that have an elevator. For buildings that do not have any elevator, these requirements extend to the ground floor units.

For more information, visit the Department of Housing and Urban Development website at http://portal.hud.gov/hudportal/HUD, or contact your local and state agencies for additional information.



Posted on 20. Oct, 2016 by in Articles

Audrey Wardwell, Broker/Owner
36 North Properties, Inc
CalBRE: 01746254
www.36northpm.com
p: 831-320-7116
f: 831-309-5584

Why You Should Not Use Excel For Accounting

First, let me confess that I love Excel. Having used Excel for years, I’m fully aware of its strengths, and will continue to use it to create spreadsheets, graphs, and tables. But for some unknown reason, there is a small group of property managers that continue to extol the benefits of using Excel as their primary accounting software.

I have to admit that this has me stumped. The accounting software of today in no way resembles the awkward software of yesterday. Today, most software products are designed with the end-user in mind, and include easy system navigation, intuitive data entry screens, and system tutorials to make it easy to learn your way around the system.

If you’re using Excel to run your property management business, you may want to consider the following:

Excel’s Primary Functionality is NOT Accounting – Excel’s primary function is creating spreadsheets, not processing transactions, or producing financial statements. Yes, it can be used for those things, but typically with accounting software; not in place of it. As a result, users will spend an inordinate number of hours entering Excel data manually, because it does not have the capability to share data. So anytime your tenant pays rent, you’ll be posting that payment in your checkbook, your accounts receivable journal, and your tenant record. With regular accounting software, you post it once.

Propensity for Errors Increases – The lack of a central database and no double entry accounting system in Excel also means a lot more repetitive data entry. And each time you have to re-enter the same data, the likelihood of making an error increases dramatically. Also consider that without the safeguard of a double entry accounting system, it’s very easy to end up with out of balance accounts.

Lack of a Reliable Audit Trail – Accounting software has become valuable to business owners because of the ability to ensure that data is accurate and secure. Excel offers no such protection; meaning that formulas can be changed, entries accidentally (or purposely) deleted, and transactions erased, all without leaving a trace of the original entry behind.

Ease of Use – or Lack Thereof – While it’s fairly simple to create spreadsheets in Excel, making it a functioning accounting program requires another level of skill that most Excel users will never attain. Creating an invoice, printing a statement, or processing a financial statement in Excel can take up valuable time, while accounting software allows you to create those items in minutes.

While Excel will continue to provide a valuable benefit to property managers, it can provide many more benefits and less headaches by using it for what it was designed to be.

Audrey Wardwell, Broker/Owner
36 North Properties, Inc
CalBRE: 01746254
www.36northpm.com
p: 831-320-7116
f: 831-309-5584

 

 

 

 

Posted on 19. Feb, 2014 by in Business

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

Why Renting May Remain the American Dream

Rent Is The New Buy - Infographic

Source: AppFolio.com

Nearly 7 years after the financial crisis of 2008, a time when mortgages seemed available to almost any American, the “American Dream” of owning a home continues to fade.

The “old” dream was to save enough money for a down payment on a home that you could own or partly own by qualifying for a mortgage that you could pay off over time. Times have really changed.

First of all, although mortgage interest rates had dipped to historic lows after the financial crisis, qualifying for a mortgage became a more daunting task as standards tightened in the aftermath.

The interest rate on a 30-year, fixed rate mortgage recently jumped from 3.87% to 4.04% the week ended June 11. That’s the highest level since October 2014 and followed a correction in Treasury bonds. The 10 year Treasury bond yield is the benchmark for setting rates on 30-year mortgages.

If the Federal Reserve decides to begin raising short-term interest rates for the first time since the financial crisis, mortgage rates may move even higher. This exacerbates the largest cost of home ownership…debt maintenance.

The media recently suggested that mortgage rates are heading towards 5% in the months ahead. Some industry pundits suggest even higher rates will unfold over time.

Mortgage rates haven’t been at the 5% level since early in 2011. That spike put a temporary damper on home buying activity and by November 2012 the 30-year rate plunged as low as 3.31%.

Rising rates matter. The Mortgage Bankers Association on June 10 said refinance applications during the previous week fell nearly 9% from just a month before and had fallen 4.8% from a year ago.

While owning a home comes with certain advantages, it comes with a number of onerous drawbacks. First, the buyer has to tie up around 20% or more of the price of the house for the down payment.

As one investment analyst stated, “The carrying costs – what’s needed to hold and maintain the asset – range from property taxes and home insurance to emergency repairs and renovations.”

In many states the average annual property taxes range from as low as 1.3% to as high as 5% of the assessed valuation. Often the sales price ends up being the updated value for tax assessment purposes.

On a house that sells for $300,000 in an area with property taxes on the low end of the scale (for example purposes I’m using 1.5%), the annual tax hit of $4,500 is a hefty amount.

Add up the other costs of home ownership that are above-and-beyond the amount of principle and interest owed each month for the mortgage and suddenly the “dream” looks more like a nightmare!

As the cost of buying and maintaining a home continues to climb the advantages of renting are likely to shine brightly.

 

 

Posted on 18. Jun, 2015 by

Buying Investment Property – What is a “Good” deal?

Let’s look at a tried and true way to measure rental property investment returns and what we as buyers should be looking for in our purchases. Total investment returns in real estate are really comprised of two pieces: operating positive cash flows and long-term appreciation. In today’s world, even though it probably will come, we cannot count upon and should not consider long term appreciation. That leaves positive operating cash flows as our primary source of investment return. Let’s call this: “earning money the old fashioned way.”

So how do we calculate our returns and how do they compare to other investments where we could place our hard earned cash equity dollars? It is quite straightforward to calculate our investment returns, unfortunately few people do this leaving many a buyer to make poor real estate choices.

Most Important – “Cash on Cash return” is the most important measurement. So while the price is important, one’s actual cash equity investment is the vital issue. So for every dollar invested what is our percentage yield return on our equity cash investment. CDs offer 1.5%, Bonds 4.5%, stocks 7.5% and real estate is generally high risk, so we want fairly high returns to compensate for the risk.

If one is buying a $200,000 investment property they probably put down 25% or $50,000 plus another 5% or $10,000 for closing costs, loan fees and rehab costs. So the mortgage is $150,000 and a buyer’s cash equity is $60,000 from the start. Again: The property price of $200,000 is important too, but how much cash equity one invests is much much more important.

See Chart – Using a conservative estimate, depending on the local market, that property might generate $1,800 per month in rent and have 33.3% operating expenses ($600) leaving net operating income of $1,200. Then subtracting the monthly mortgage payment of $900 leaves $300 of monthly cash flow or $3,600 per year.

Divide that $3,600 by the $60,000 of cash equity and this property has a first year cash on cash return of 6.0%. And it should increase a little each year as rental income increases, as do general expenses, but the mortgage stays constant.

That 6.0% is a pretty fair return for real estate and of course there hopefully will be some long term appreciation, tax benefits and a little more yield from the mortgage balance pay down via amortization of the loan.

Be Smarter – It is stunning how many real estate buyers fail to do this simple calculation and buy properties with minimal or negative cash on cash returns – to their own financial detriment. Let’s be a little bit smarter and make sure we take a good look and a conservative approach to real estate investing for our own long term benefit.

Go for the Cash Flow! – As a final note, buyers will find prize properties, like at the beach or fancy condos, generally have very low or negative returns. Skip those! It is the moderately priced units that have decent cash on cash returns. Hence… “prize” properties are NO prize…moderately priced cash flowing properties are the real prizes! Then you will have to figure out where to invest all that positive cashflow….

Leonard Baron, MBA, CPA, is a San Diego State University Lecturer, a Zillow Blogger, the author of “Real Estate Ownership, Investment and Due Diligence 101 – A Smarter Way to Buy Real Estate”, and loves kicking the tires of a good piece of dirt! See more at ProfessorBaron.com.