Information for both the property owner and renter.

When is a Pet Not a Pet? Accommodating Persons with Disabilities

I
INTRODUCTION
Many property owners protect their investment by not allowing any (or certain types) of pets on the property due to possible damage by the pet and the fact that existing law may not allow for an adequate security deposit to cover the damage. However, recent laws on fair housing and accommodating persons with disabilities now restrict the ability of owners to have an “absolutely no pets” policy.
A guide dog leading a blind person is the image that usually comes up when someone thinks of a service animal helping a disabled person. However, guide dogs are not the only type of animal that can be considered a “necessary and reasonable accommodation,” and federal and state anti-discrimination laws broadly define disabilities to include both physical and mental impairments.
This paper will provide needed background and guidance for owners who have questions concerning this issue.
II
FEDERAL LAW
A. The Federal Fair Housing Act (FHA)
The Federal Fair Housing Act, as amended by the Fair Housing Amendments Act of 1988, requires property owners to make reasonable accommodations for a person with a disability, to enable them to enjoy the residence on an equal basis with tenants who are not disabled. 42 U.S.C. §3604(f)(3)(B).
The fair housing regulations state that “It shall be unlawful for any person to refuse to make reasonable accommodations in rules, policies, practices or services, when such accommodations may be necessary to afford a handicapped person equal opportunity to use and enjoy a dwelling unit, including public and common areas.” 24 CFR §100.204(a).
The only specific mention of pets or service animals in either the law or regulation is the following illustration given in the regulations which address an owner’s failure to make a necessary and reasonable accommodation:
A blind applicant for rental housing wants to live in a dwelling unit with a seeing-eye dog. The building has a no pets policy. It is a violation…for the owner or manager… to refuse to permit the applicant to live in the apartment with a seeing eye dog because without the seeing eye dog, the blind person will not have an equal opportunity to use and enjoy a dwelling. 24 CFR §100.204(b).

B. Americans with Disabilities Act (ADA)
The ADA does not apply to private residential rental properties, except to the extent that the property is also a place of “public accommodation.” For example, the ADA would apply to an apartment complex rental office and to a unit used as a retail store, for example. The ADA specifically requires that service animals used by disabled individuals be allowed in places of public accommodation. ADA Title III, §36.302. “Service animals” include guide dogs, signal dogs, and or other animals individually trained to do work or perform tasks for the benefit of an individual with a disability. ADA Title III §36.104.
Although they are not directly applicable, agency interpretations of the term “service animal” under ADA can shine some light on what animals (at a minimum) could be considered reasonable accommodations under the provisions of the Fair Housing law. It is important to remember that the FHA is broader than the ADA because it allows any animal if it is a necessary and reasonable accommodation, rather than just “service animals” with a particular type of training.
Under the ADA, it is clear that an animal other than a dog can be a service animal, as long as it has the training to be a “service animal.” In an opinion issued by the US Attorney General-Civil Rights Division, a disabled individual entering a hotel accompanied by a monkey as a service animal is presented as an example of a situation where the ADA applies – opinion letter of USAG, Civil Rights Division to Corey Hudson 10/26/92 DJ#192-06-00029.
III
CALIFORNIA LAW
California’s fair housing law (the Unruh Civil Rights Act) mirrors the language of the federal Fair Housing Act. “Any person renting, leasing, or otherwise providing real property for compensation shall not refuse to make reasonable accommodations in rules, policies, practices, or services when those accommodations may be necessary to afford an individual with a disability equal opportunity to use and enjoy the premises.” Civil Code §54.1(b)(3)(A).
Like the federal act, California does not define “reasonable accommodation.” The California law does not address service animals, with the exception of service dogs. As a result, an owner with a “no pets” policy may have to allow a cat or other animal if it is a reasonable accommodation, even if it is not trained as a service animal.
The California Civil Code defines disability in essentially the same way as federal law: “[A] physical or mental impairment that substantially limits one or more major life activities of the individual.” Civil Code § 54(b). California law also forbids property owners from inquiring about the disability of any person seeking to rent any housing accommodation. Government Code §12955(b).
IV
RELATIONSHIP BETWEEN STATE AND FEDERAL LAW
It is clear from court decisions and agency interpretations of the federal fair housing law and the ADA, that federal law controls when it is more protective of the disabled person. In the Bronk case, the court ruled that it was wrong to use standards borrowed from state and local laws to evaluate the concept of “reasonable accommodation” under the federal fair housing law, because the state and local laws were narrower (they required formal training). The U.S. Attorney General has also stated that the ADA does not preempt State law, if the State law provides protection greater than that provided by the ADA. The ADA does, however, prevail over conflicting state laws that provide lesser protection – See opinion letter of USAG, Civil Rights Division to Corey Hudson 10/26/92 DJ#192-06-00029.
As a result, an owner who complies with California law could still be in violation of federal law. As discussed above, the question is whether the animal helps the particular tenant with his/her disability.

V
PUBLICLY OWNED HOUSING
California Law requires that public agencies that own or operate rental housing accommodations cannot prohibit a “person requiring supportive services” as defined in Health & Safety Code §50685.5 or an elderly person (over 62) from keeping not more than two pets – Health and Safety Code 19901. This law does not require the animal to be a “service animal” at all.
VI
BASIC QUESTIONS AND ANSWERS
1. What is a disability?
“[A] physical or mental impairment which substantially limits one or more major life activities… “such as caring for one’s self(sic), performing manual tasks, walking, seeing, hearing, speaking, breathing, learning and working.” 24 CFR §100.201. A landlord cannot ask whether the person is disabled, what kind of disability the person has, or how severe the disability is. 24 CFR §100.202. “If a landlord is skeptical of a tenant’s alleged disability or the landlord’s ability to provide an accommodation, it is incumbent on the landlord to request documentation or open a dialogue” with the tenant. Jankowski Lee and Assoc. v. Cisneros (7th Cir1996), 91 F3d 891. Since the owner cannot ask about the disability, the owner should ask for documents showing that the dog or other animal is a reasonable accommodation and how it is necessary for use and enjoyment of the building.
2. What kind of animal is a necessary and reasonable accommodation?
Although it is clear that the FHA does require that service animals be allowed in a residential dwelling when reasonable and necessary to afford a disabled individual fair use and enjoyment of the property, it is not clear what type of animal is “necessary and reasonable.” A federal appeals court has ruled that the reasonableness of a requested accommodation is a question of fact, determined by close examination of the circumstances. U.S. v. California Mobile Home Park Management Co., (9th Cir. 1994) 29 F3d 1413. To be reasonable, the accommodation “must facilitate a disabled individual’s ability to function and it must survive a cost benefit analysis that takes both parties’ needs into account.” Bronk v. Ineichen (7th Cir. 1995) 54 F3d 425.
• The animal must facilitate the disabled individual’s ability to function. To prove that an accommodation is necessary, a plaintiff must, at minimum, show “that the desired accommodation will affirmatively enhance a disabled plaintiff’s quality of life by ameliorating the effects of the disability.” Bronk v. Ineichen, (7th Cir. 1995) 54 F3d 425. In Bronk, the property owner argued that the tenant’s dog was not a service animal because it had no formal training. The court ruled that the jury should evaluate the dog’s ability to help the plaintiff and assign its own weight to the lack of formal schooling. In some situations, no training may be necessary for the animal to ameliorate the effects of a tenant’s disability. A HUD administrative law judge has ruled that a dog with no particular training was a necessary and reasonable accommodation for a tenant with severe recurring depression. HUD v. Riverbay Corp., HUD ALJ 02-93-0320-1.
• Restrictions on type of animal. Because the act does not define “reasonable accommodation,” there is no clear guidance on what types of animals must be allowed as accommodations for disabled tenants. Dogs are the most common, but not the only animals requested by tenants. In some circumstances, other animals such as cats or monkeys could arguably be necessary and reasonable accommodations as long as they ameliorate the effects of the tenant’s disability.
California Apartment Association
www.caanet.org
Revised 06/2016 — © 2016 — All Rights Reserved
Page 4
• Licensing or training requirements. Property owners cannot require that a service dog have certificate from a state-licensed training school. Bronk v. Ineichen, (7th Cir. 1995) 54 F3d 425. By analogy, an owner could not demand that an assistance dog have an official tag. Again, the issue is whether the animal facilitates the individual’s ability to function. This may or may not require special training or licensing.
3. What is the difference between companion and service animals?
Generally, “service” animal refers to an animal that has specific training to assist a disabled person, such as a dog who will alert a resident to sounds such as knocks at the door and the telephone ringing. A companion animal is one that helps the disabled person but does not have special training. For the severely depressed condominium owners in the Auburn Woods case, simply taking care of a dog alleviated their symptoms and enabled them to function more productively. In 2004, the California Court of Appeal ruled that Auburn Woods was required to allow the disabled homeowners to keep their small dog as a reasonable accommodation. (Department of Fair Employment & Housing v. Auburn Woods I Homeowners Association)
4. If the tenant does not have an obvious disability, or the need for the accommodation is unclear, what kind of verification can I get?
You may request:
• Verification that the tenant/applicant is disabled as defined under California law (has a physical, mental, or medical condition that limits one or more life activities). You may not inquire about the nature of the disability.
• A description of the needed accommodation and information that shows the relationship between the person’s disability and the need for the requested accommodation.
Who can provide the verification?
According to the U.S. Department of Housing and Urban Development, depending on the individual’s circumstances, information can be provided by the individual (i.e., receipt of Social Security disability insurance benefits) or by a third party who is in a position to know about the individual’s disability (a medical professional, peer support group, non-medical service agency, or other reliable third party).
5. Does this only apply to dogs or also other animals? I read that the Americans with Disabilities Act (ADA) only requires me to allow dogs, not other types of animals.
The Americans with Disabilities Act regulations were recently revised to define service animals as dogs, and in some cases miniature horses. However, this definition applies only to “public accommodations,” i.e., places that are open to the public. The fair housing laws that apply to rental housing do not restrict the type of animals that can be a “reasonable accommodation.”
6. What about “dangerous breeds?”
Strict prohibitions on specific breeds, sizes, or types of animals are generally not permissible. For example, a resident may request to have a pit bull as a reasonable accommodation. The reasonability of that accommodation will depend on the particular dog, not the breed characteristics. The owner is not required to make an accommodation if the dog poses a “direct threat.” This does not mean that an owner can refuse all pit bulls, but must instead evaluate the particular pit bull that belongs to the resident or applicant. If the dog has a history of aggressive behavior (regardless of breed), that may be a reason to negotiate a different accommodation with the resident. When a requested accommodation is unreasonable, the owner has a duty to engage in the “interactive process” with the resident/applicant to find an alternate accommodation. (See also CAA Industry Insight – Liability for Injuries Caused by Dogs)
California Apartment Association
www.caanet.org
Revised 06/2016 — © 2016 — All Rights Reserved
Page 5
It is also possible for an assistive animal to be “exotic,” such as a monkey that helps feed a disabled person. Dangerous animals such as rattlesnakes or tigers would not be reasonable, nor would animals that are illegal to own in California, such as ferrets.
7. What if I am required to have breed restrictions by my insurance company?
One of the exceptions to the duty to make reasonable accommodations is if the accommodation places an undue financial or administrative burden on the owner. CAA has heard from many of its members that their insurance companies are requiring breed restrictions, and, therefore, they cannot grant the accommodation requests for pit bulls and other such breeds. Several years ago, HUD issued a policy statement on dangerous breeds and insurance. This document provides information to HUD’s investigators on how to view a landlord’s defense of undue burden due to the insurance breed restriction issue. Essentially, HUD does consider that a valid defense, as described in the memo at this link: http://1.usa.gov/1jW4XqF.
Some attorneys have had some success with getting insurance companies to make an exception to the breed restriction when the animal is a service or companion animal for a disabled person. The argument is that insurance companies also have fair housing obligations. The California Department of Fair Employment and Housing is currently working on fair housing regulations that may address this issue.
8. What if the tenant wants more than one companion animal?
If more than one animal is necessary, then it may be a reasonable accommodation. An owner may not have hard-and-fast rules about how many animals are allowed. As with any other accommodation, the landlord may request from the verifier a description of the needed accommodation and information that shows the relationship between the person’s disability and the need for the requested accommodation.
9. Can I require the tenant to follow standard pet rules, such as requiring a dog to be on a leash, to be licensed by the county and to be current with vaccinations?
While you may set reasonable rules for the disabled tenant and assistive animals, these would be specific to the particular situation, rather than one-size-fits-all pet rules. For example, depending on the dog’s function, it may be not able to assist the tenant if it is on a leash. Also, assistance animals should be able to accompany the resident to all areas of the property, including the pool area (but not into pools and spas). These rules should be developed in consultation with an experienced fair housing attorney. If the animal has behavioral problems, the resident should be given a reasonable time to come into compliance with the rules. Consult your attorney prior to taking legal action.
10. Can I require the tenant to get insurance? Or ask for an additional deposit?
No. According to HUD, housing providers may not require persons with disabilities to pay extra fees or deposits, or obtain insurance as a condition of receiving a reasonable accommodation.
11. If the tenant’s request seems unreasonable, can I just say “no?”
No. A request is unreasonable if it (1) imposes an undue financial or administrative burden on the landlord; (2) would fundamentally alter the nature of the operation; or, (3) creates unreasonable health and safety risks. In those situations, you are required to negotiate with the tenant to come up with an alternative accommodation. Failure to engage in this “interactive process” can result in liability, even if the requested accommodation is completely unreasonable. Do not deny a request without consulting with your attorney.
California Apartment Association
www.caanet.org
Revised 06/2016 — © 2016 — All Rights Reserved
Page 6
12. Security Deposits
According to a Joint Statement issued by the Department of Housing and Urban Development and the Department of Justice on May 14, 2004, a housing provider may not require an applicant or tenant to pay a fee or a security deposit as a condition of allowing the applicant to keep the assistance animal. However, if a tenant’s assistance animal causes damage to the applicant’s unit or the common areas of the dwelling, the housing provider may charge the tenant for the cost of repairing the damage (or deduct it from the standard security deposit imposed on all tenants), if it is the provider’s practice to assess tenants for any damage they cause to the premises.
VII
CONCLUSION
There are several lessons to be learned from the laws and decisions when it comes to accommodating a tenant with an animal. (1) Don’t ask the tenant about their disability. (2) If a tenant requests an animal as an accommodation for their disability, ask how you, as the property owner, can be sure that it is a service animal and not just a pet, so that other tenants don’t feel unfairly treated. (3) Ask tenants who make a request, to put the request and any information regarding the animal in writing. Keep these documents on file. (4) If you are skeptical about tenant’s disability, or whether the animal really helps the tenant, consult an attorney familiar with fair housing laws. (5) Don’t require the applicant or tenant to pay a fee or a security deposit as a condition of allowing the applicant to keep the assistance animal.
For more information about providing reasonable accommodations:
● HUD/DOJ Joint Statement on Reasonable Accommodations: http://1.usa.gov/1nkGLgV
● HUD Notice on Service Animals and Assistance Animals: http://1.usa.gov/1sTBeSj
● CAA Fair Housing Encyclopedia (Kimball, Tirey & St. John LLP). To purchase click here.
● CAA Forms Packet 60.0 – Assistive Animal Verification and Documentation
● CAA Form 60.1 – Assistive Animal Addendum
Note: Always get legal advice if you aren’t sure how to handle a disabled applicant’s or tenant’s request. Failure to promptly respond, or to negotiate with the tenant can result in liability. In addition, granting a request for an animal that is not required by law may create difficulties with other residents.

Due Diligence – What Is Important When Buying Real Estate?

When you make a big purchase, or an investment, buy a car, sign up for healthcare, etc. you do you “homework” to hopefully make a sensible decision that gives you good value for the money you are spending.

When you buy real estate, which is likely to be the most expensive, most complex, and riskiest purchase you will ever make, there is an extraordinary amount of due diligence that you should do to reduce your risk and make a smart decision. It’s a time consuming, laborious, and expensive process of which most buyers fail to understand and complete. Most don’t even know many of the steps, or they don’t understand the time and cost required to perform the tasks, steps, procedures, analysis, review, etc. To give you a feel for it, here are the main steps in buying income producing property.

Pencil out your deal. In order to determine whether or not you are buying a fair deal, you must pencil out, or pro-forma, your particular deal. This involves investing rents, expenses, vacancy, financing costs, current leases, capital reserves and replacements and inputting those figures into your pro-forma. And you need to do your own research and use good numbers because if you take the seller’s figures, you’re going to find out quickly their numbers were probably overly optimistic. You might need a C.P.A. or financial advisor to help you.

Financing your property. You must also take the time to get qualified and procure several bids to secure the best financing for their property. Understanding the costs and terms involved in a financing agreement, and how those clauses could impact your investment returns and future financing options on the property is a must. Just accepting the loan documents, without your and/or your attorney’s review, is not prudent practice.

Title Issues, Site and Title Insurance. Title issues, at least expensive ones, are rare. But that doesn’t mean you don’t have to do all the needed review, maybe with an attorney, on every single purchase – because you do. You will have a title insurance policy to review, plus an abstract of title that could list easements, restrictions on use, and a schedule of exclusions related to the title insurance. Reviewing all of these, probably with an attorney, is an absolute necessity. And you probably have to have a survey done to see if there are any encumbrances on the property. You don’t want to discover an issue after you’ve closed escrow.

Property Inspection and Rehabilitation. You will also need to have a professional building inspector review the property and do a report of all the issues. Then have several different contractors to come bid on the work that is needed to get it into the condition that makes sense for your ownership and rental operation. These need to be done within the tight timeframe of your inspection period so you can terminate the contract if you find issues and the costs of renovation are prohibitive.

Dwelling and liability insurance policy. During your inspection period you should also get some bids for properly insurance your real estate. Sometimes there are insurance issues, and you may not be able to obtain a policy or the premiums may be unaffordable. For standard properties in decent areas, like apartments, it should be relatively straightforward and easy. But if you add in fire prone, flood prone, hurricane or high property crime areas, you might find a little more trouble obtaining a reasonably priced policy. Make sure to get some premium estimates early in the due diligence process.

Partnership, LLC, tax and ownership issues. If you are buying with other partners, or raising capital for the purchase, there are a myriad of legal partnership, LLC, and tax issues that need to be reviewed with a professional before your purchase. You need to set up the entity structure and tax items before you close escrow so all investors and partners are satisfied with the agreement.

Those are the main due diligence issues for an already built and operating income producing property. There are many other tasks and procedures depending on the circumstances of your purchase. So talk to your real estate broker, lawyer, C.P.A., escrow agent, title officer and others involved in your purchase for other items that need to be considered. And make sure educate yourself well before the process begins and give yourself enough time to do a good job of completing all these tasks.

Leonard Baron is America’s Real Estate Professor – his unbiased, neutral and inexpensive “Real Estate Ownership, Investment and Due Diligence 101” textbook teaches real estate buyers how to make smart and safe purchase decisions. He is a San Diego State University Lecturer, blogs at Zillow.com, and loves kicking the tires of a good piece of dirt! More at ProfessorBaron.com.

Posted on 08. Aug, 2013 by in Real Estate

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

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