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Props to That: Property managers put in long days, handle brisk business in vibrant rental market

July 28, 2012 By

By Jim Parker

The Post and Courier

Debbie Miler has logged close to 30 years in real estate, yet she’s hard-pressed to remember a more active time in the leasing side of the business.

“Oh my gosh, it’s unbelievable,” says Miler, who heads up the property management division of Miler Properties in Summerville. “We can’t keep rentals on the market now,” she says. “We have people offering to pay more for rent.”

The rental spike stems from two things, she says. There’s a growing number of workers relocating to the Charleston area for large employers such as Boeing, the port of Charleston and local military bases. At the same time, the sluggish housing market has left a larger-than-normal share of properties as undervalued. “Rather than let properties sit,” she says, owners are renting them out until they can secure a decent sale price.

Miler Properties is one of the larger property managers in the Charleston area, overseeing 700 residences. “The great thing is we are getting a lot more properties as well,” she says, noting many family tenants want to move in before school starts next month.

Yet with a goodly share of homes unsold, everybody is getting into the act. “We have a lot of competition,” she says. One side effect has been an extra-worked staff that is “really stressed out,” to the point that the business is advertising for an additional full-time property manager, Miler says.

The rental blitz is taking place in various degrees throughout greater Charleston. In what’s increasingly a landlord’s market, close to 3,000 properties have been rented in the past six months at an average $1,200 a month.

Tenants are seeing an average $100 increase this year on every $1,000 they pay in rent. Finding leasable properties is more difficult since they’re being snatched up so fast. And whereas apartments were the overwhelming choice of renters in the past, more than 20 percent of leases in the Charleston area and 44 percent downtown are for houses. Yet the apartment business is hardly struggling: Developers have poured capital into new apartment home complexes in Mount Pleasant and Goose Creek among others that have brought hundreds more units to the market.

Eric Wetherington, who directs the property management division at Carolina One Real Estate, is cognizant of the revved up rental business. Carolina One’s clientele of home, condo and townhome owners who want their properties rented out has increased 25 percent from last year to more than 1,025 properties under management. Rents are up 10 percent across the board, he says.

Certain sectors of the Charleston area are stronger than others in terms of leases.

“Summerville is a very popular market,” he says. Residences fetching as much as $1,200 to $1,500 a month “are renting very quickly.”

In Mount Pleasant, some single-family home rentals are proving so popular that tenants are bidding on them, Wetherington says.

The agency’s property management chief cites two factors in the recent surge in rental business.

“We are still seeing a lot of folks coming to us to help rent homes out,” he says. At the same time, “We are starting to see more investors,” people who buy homes and condos and rent them out as income producers. Wetherington says the investor pick-up is due in part to the Lowcountry’s attractive economy.

“Charleston is a great place to live. It’s a popular market for people to buy homes and use as investments,” he says.

A beneficiary of the pick-up in rental homes, townhomes, condos and apartments has not only been the owners, who are receiving a steady stream of income. Also doing well are property management firms.

• Day-to-day managers •

While some owners self-manage their leases, many others turn the task over to professionals. Even an apartment developer typically brings in another company to take care of the day-to-day routine of screening tenants, welcoming them to the community, making repairs, fixing leaks, maintaining amenities, mowing the lawn and hosting social functions.

One local business that’s been ahead of the curve on home, condo and townhome leases is James Island-based Charleston Home Rentals.

Matt Manaker got involved in property management in 2005 and started the company the next year. Brothers Matt Azar and Josh Azar joined the company in 2009 and became partners a year later.

“We all grew up together in Connecticut,” Manaker explains.

Today, the business counts 300 owner-clients and oversees 600 houses, condos and townhomes. It handles all types of properties, charging rents from $500 to $5,000 a month.

“I think we were one of the first (in Charleston), the niche service,” Manaker says.

Along with the partners, Charleston Home Rentals consists of maintenance and cleaning chiefs and leasing agents. The business is steady year-round —- “We do a good bit for Boeing, Bosch, Blackbaud (employees),” Josh Azar says —- but also spikes at certain times or places.

One blitz of activity was earlier this month. The College of Charleston “told 1,000 students they couldn’t get on-campus housing,” he says. That sent hundred of college kids, and more-so their parents, scrambling for places to lease downtown.

One place turned out to be 35 Society St., a three-story brick residence and smaller dwelling in back divided into 10 rental units from 900- to 2,000-square-feet. A number of the tenants are college students, he says.

Charleston Home Rentals started managing the property in January, Manaker says. Just this week, Rachel Cottingham and her two employees cleaned a unit to make it ready for a new tenant, while Wes Austin fixed a busted air conditioning unit.

Cottingham says she jumped into the cleaning trade after she lost her job at MUSC during a round of layoffs. She wanted a position with flexibility, not 9-5. “I’ve been at it seven years now,” she says.

Cottingham, who contracts with Charleston Home Rentals, and her crew are thorough. They scrub and dust everything from high-up ceiling fans to the tight spaces behind the washer and dryer.

She says there’s no pattern on messiness. “I’ve gone into really expensive homes and I’m in shock,” Cottingham says.

Austin, who runs Charleston Real Estate Repairs and contracts with the home rental company to head up maintenance duties, has had his share of late night emergency calls.

Take an incident a week ago at a local residence. “The unit above flooded out the unit below,” Austin says.

He was notified at 11 p.m. Saturday. “It wasn’t resolved until 2 a.m.,” Manaker says. The culprit? “It was a toilet spraying (nonstop).”

Especially of late, Manaker and company haven’t had much time where they are totally away from the job.

“I sleep with my cell phone,” he quipped.

• Leasing the future •

Like his colleagues, Manaker notes that lease rates on Charleston Home Rentals’ properties have risen 5 to 10 percent in the past year. He believes that many properties were undervalued before that.

Wetherington, meanwhile, forecasts that the rental business will continue to extend beyond apartments.

“I think for the foreseeable future (you’ll see) more and more rental homes,” he says. Banks are starting to loosen up stringent lending requirements and taking part in short sales, where the borrower gets a break on paying off their mortgage. That’s a good thing, he says. It should help clean out the distressed property backlog. But even if the deals close today, short sellers are forbidden from buying a new home for three years. Wetherington believes the ex-homeowners aren’t likely to choose to rent an apartment for a full 36 months.

“They’re looking for homes,” he says.

Filed Under: Blog, Charleston, South Carolina, Property Management Tagged With: , ,

Professional Property Managers Cut Vacancy Rates In Half

June 14, 2012 By

Survey reveals that professional property managers cut vacancy rates in half

By All Property Management

While increased ROI on rental properties is far from the only reason to hire a professional property manager, many property investors want to see clear economic benefits before taking the plunge and outsourcing this key responsibility. Based on All Property Management’s recent survey of 300 property managers from around the US, it’s clear that professional property managers pay for themselves based on vacancy reduction alone.

According to the US Census Bureau, the national average rental vacancy rate hovers around 9%, while our survey reveals that the average vacancy rate for professionally managed properties is about half that, coming in at 4.5%.*

To calculate what this reduction means for the average rental property owner’s bottom line, we took a look at what it would mean for the owner of a property valued at $150,000, with a monthly rent of $1,250, assuming a 10% monthly property management fee. We found that, when you take into account both lost rent and turnover costs, each 1% drop in vacancy rate saves the property owner about $1,900 over the course of a five-year period. Thus, a reduction of 4.5% equals a savings of about $9,500 over five years. Meanwhile, at 10% per month, professional property management would cost only $7,500 over the same period, resulting in a $2,000 profit, which represents a 30% ROI.

All Property Management’s survey also confirms that average turnover costs total about $2,000 – double that when there is an eviction, or similarly challenging tenant situation, involved. Pair this with other advantages of hiring professional property management, which include time savings, the ability to command higher rents, and improved maintenance at lower costs – just to name a few – we think payoff from using a professional property manager is clear. It’s the best investment for making a solid real estate investment.

*According to our survey, the median vacancy rate reported by our nationwide network of property managers was 4.5%. Reasons cited for this performance was a) local market knowledge b) screening for high-quality tenants c) superior customer care during tenancy d) swift action against delinquent tenants and e) longer lease periods.

Filed Under: Blog, Leasing, Property Management, Tips and Advice Tagged With:

How to Get Financing for Rental Properties

May 5, 2012 By

By Leonard Baron

These days, many people hear in the news that it’s a good time to buy rental property, and so they’ve decided that they would like to get started in the property rental business, (a.k.a. being a landlord).

But, in order to get into the rental property investment business, how do you obtain mortgage financing to purchase your first rental property? It’s true that it has become a lot harder to get financing these days, but for people with decent credit and sufficient income there is still plenty of money available to borrow. For terminology purposes, when you borrow for a rental property, it is called non-owner occupant (NOO) financing. Let’s run through some financing issues, items and suggestions that may help you.

Buy as an owner-occupant

The best way to get into the landlord business is to buy a home that makes sense as a rental property, but you buy it as a personal residence, and live there for the required 12 months that an OO loan requires a borrower to do. As an owner-occupant, you get the best financing terms and you may be able to put down as little as 3.5 percent with FHA financing. The loan stays in place with the original terms when you move out and make it a rental. It’s the best way to go!

Other reasons this makes sense:

  • You move into the property and learn the property specifics, issues, kinks, etc. and have them fixed before you move out and make it a rental property.
  • You also do any renovations and upgrades you need while not making two housing payments like someone would do if they bought a property and were simply rehabbing it to rent it out.
  • Lastly, you are more selective and only buy properties that you are willing to live in, and that’s a smart way to go for investors; don’t buy properties that you wouldn’t live in.

Then, after 12, 24 or 36 months, buy your next owner-occupant property and rent out the original one. Then repeat, and repeat, and repeat again once every one to three years.

Buy as a straight rental property

Let’s say you just want to buy it as a straight rental property. First up, you need a 20-25 percent down payment for most lenders (Fannie Mae and/or Freddie Mac may have some 10 percent investor properties, so check those out, too). And that 20-25 percent, plus closing costs and renovation costs, might add up to 30-35 percent cash upfront to close escrow and get a property rental ready. So, for a $120,000 property, that could easily be $40,000 cash needed. That owner-occupied 3.5 percent FHA loan sounds pretty good right now, huh?

As noted above, you also need to have good credit and qualify for a bank’s financing for an investment property. One nice thing about rental properties is that the bank may include some estimated net rental income from the property to help your debt-to-income ratios, especially if you buy something with a tenant already in place. Discuss this with your lender.

Speaking of tenants already in place, there are some significant advantages therein, too! For example:

  • You get the security deposit from the seller at closing and some pro-rated rent
  • You probably collect the first month’s rent a month before your first mortgage payment is due
  • There is no vacancy, so you don’t need to find a tenant, and
  • You probably won’t have to rehab the property until they leave.

The negative could be a lower-than-market rental rate or a tenant who pays late, doesn’t pay, or doesn’t take care of the property. But he or she could be a great tenant, too! Once in escrow, do a little looking around the apartment and talk to the tenant to make a determination if you want to keep them or terminate their lease when it ends. Convey this to the listing agent so that agent can alert the tenants either way.

Rates, costs, fees on investment properties

The costs of doing any mortgage loan these days are much higher than they used to be just a few years ago. And non-owner-occupant (NOO) investment properties are even higher. Small dollar loans, like under $100,000, have very high fees as a percentage of the loan amount. Possibly up to 5 percent when you add in the loan origination points, fees, appraisal, underwriting, title insurance, escrow costs, etc. But the present rates are really very competitive and you can get NOO financing at 4.5 percent on a 30-year amortizing loan these days. And that is dirt cheap, locking in a 30-year low-interest-rate loan on a rental property.

Where can you find loans?

Right when you start you should meet with two to three lenders and see what NOO loan programs they have for what you plan to buy. Try a bank or two, plus a mortgage broker or correspondent lender, and an online lender. Different lenders have different programs, and a bank may reject you but a mortgage broker might have a program that works for your situation, so check around. Loan costs and rates will also vary, so get a couple of estimates and compare them to find the best deal.

How many properties can you buy? If you have the credit score (estimate your credit score), and the debt-to-income ratios (which change with each property you buy), you can pretty easily finance up to four properties. Once you go over four and up to 10, the number of lenders who can finance you gets much lower, but they are still out there. The underwriting criteria also may get much tougher, but still possible. Once you go over 10 loans, it’s really hard to find lenders who will finance, and the loan costs, interest rates, and terms will be less appealing, but still relatively reasonable. Lenders who do over 10 loans are called portfolio lenders.

In summary, this is a very good time to buy property, but you must educate yourself on rental property ownership, do your due diligence, and don’t think everything is going to be rosy and hassle-free, because real estate is hard work! Hopefully, the hard work you do and issues you have to handle over the years will just be distant memories when you retire with a nice rental property income stream.

(Note: Many thanks to Robin Hill who contributed her guidance for this article. Robin is a San Diego-based mortgage lender for First Cal. She specializes in residential purchases and refinances for owner-occupied and non-owner-occupied properties. She’s been in the mortgage business for the past 14 years).

Filed Under: Blog, Property Management, Tips and Advice Tagged With:

Renters wanted: A strategy to shrink REO inventory

March 1, 2012 By

By Stefanos Chen

With an estimated 3.6 million more foreclosures expected over the next two years, the government-backed mortgage giants have a proposition for you: How’d you like to take a couple (hundred) homes off their hands?

In a recently announced program, the Federal Housing Finance Agency, which regulates the quasi-government lenders Fannie Mae and Freddie Mac, is offering qualified investors the opportunity to buy pools of foreclosed homes, provided they agree to rent the properties for a certain number of years.

In its pilot run, the foreclosure-to-rental initiative aims to shift some of the burden of managing foreclosed and vacant homes from Fannie Mae to private investors, who’ll be tasked with maintaining the properties. Freddie Mac and Federal Housing Authority loans may be considered at a later stage of the program.

By mandating that the properties be used as rentals, the program seeks to lower rents where foreclosures have hiked up demand and to stabilize communities in the hardest-hit areas.

As neighbors of foreclosure victims know too well, vacant homes drag down prices and attract all manner of blight. Home prices nationwide have fallen 33 percent since the height of the bubble in 2006, according to the Federal Reserve.

Along with corporations, investment trusts and banks, individual investors can also get in on the action, as long as they’re worth at least $1 million (though the actual barrier to entry may be higher).

Behemoth bundles

But even for the largest and savviest investors, the mortgage giants’ first major foray into the foreclosure-to-rental space could prove too costly.

Donna Robinson, a Cartersville, Ga.-based real estate investor and consultant, expects the foreclosure pools to range anywhere from 500 to 1,000 properties — anything smaller, she said, wouldn’t be worth bundling. Fannie and Freddie owned about 180,000 homes at the end of September, The Wall Street Journal reported. Add in FHA-owned homes, and the number rises to 215,000. Even at 1,000 homes apiece, it would take more than 200 mega-investors to work their way through the current backlog.

And while there have been reports of options being available for smaller investors, the onus will still be on major investment firms to manage the bulk of the properties, Robinson said. A spokesperson for the FHFA would not confirm the expected size of the pools.

Geographic sprawl

If the pools are as large as Robinson anticipates, then distance is the investor’s biggest enemy. While real estate investment trusts (REITs) may be comfortable in managing several hundred-unit commercial properties, operating 500 single-family residential homes (defined as up to four-unit properties) spread out across a city — or even nationwide — is an entirely different story.

Local compliance issues and getting properties up to snuff across a large market will take time. Investors could spend upward of a year waiting for clearance to rent their properties while carrying the day-to-day costs of maintenance, insurance and taxes, Robinson said.

Yet with risk comes reward, and Robinson expects investors to get steep discounts on their purchases. “No pro is going to pay anything above 30 to 40 cents on the dollar, tops,” she said.

In the Works

With the initiative still in its infancy, much can change before the program rolls out. One way Fannie might avoid having to make huge price concessions to investors is to offer them a stake in the pools while keeping a share of the returns, suggests Nick Timiraos at The Wall Street Journal.

But whichever route the FHFA ultimately chooses, the program’s success remains tethered to several larger housing factors, said Celia Chen, an economist for Moody’s Analytics Inc.

Even though foreclosures will pick up in the early part of the year, home prices should start to stabilize toward the end of the year as part of the $25 billion mortgage settlement is used toward principal reduction, she said. The REO-to-rental program will take awhile to kick into gear, and could benefit as a result.

But some analysts are less hopeful about the program. A report by Goldman Sachs suggests the effort will have “positive but modest” effects, with maybe a 0.5 percent increase in home prices within the first year, and a 1 percent increase in the second -– but that’s a best-case scenario, the report states.

Scope is also a factor in the program’s success. There are at least four times as many properties still in some stage of foreclosure as there are in the REO inventory, according to a January report from the Fed.

Filed Under: Blog, Leasing, Property Management Tagged With: , ,

Are You Ready to Be a Landlord?

November 14, 2011 By

By Jessica Silver-Greenberg

(THE WALL STREET JOURNAL) — The pitch is compelling: Buy a vacant house or apartment building and rent it out to some of the throngs of Americans who have lost their homes to foreclosure. With interest rates near record lows and property values still slumping, getting into the landlord business is cheaper than it has been in years.

Investors turned off by paltry bond yields and the mercurial stock market are intrigued. Kimberly Foss, president of Empyrion Wealth Management in Roseville, Calif., says she has seen a surge of clients looking to purchase distressed homes and apartment buildings. Her clients have an average net worth of about $4 million, she says.

“Many of my clients are looking to use part of their portfolios to scoop up properties,” she says. “They see it as an alternative retirement plan.”

But aspiring property owners need to watch out for a slew of traps. Among them: prolonged vacancies, surprise costs, deadbeat tenants, difficulty refinancing and overestimating the rental potential.

It is easy to overlook those risks when the market conditions appear so ripe. Home prices have fallen to 2002 levels nationwide, according to the latest data from the S&P/Case-Shiller index, and financing remains cheap. For the week ending Nov. 10, the average rate on a 30-year fixed-rate loan was 3.99%, not far from the Oct. 6 record low of 3.94%, according to Freddie Mac data going back to 1971.

Rents are improving, too. The average monthly rent for all categories, including apartments and single-family homes, was $846 nationwide in the third quarter, up 2.5% from the same period a year earlier, according to Local Market Monitor, a Cary, N.C., firm that analyzes real-estate trends. That is lower than the long-term average gain of 3.5% a year, but better than the 3% decline in calendar year 2009.

Even the Obama administration is considering getting involved in the rental markets. Government officials have been soliciting ideas for how to convert some of the foreclosed homes owned by Fannie Mae and Freddie Mac into rentals, in order to cut the mortgage giants’ losses on those homes.

All of this is attracting interest among investors. Brian Davis, who runs ezLandlordForms.com, a website for property investors, says traffic is up 20% this year.

“Most people think I’m crazy to buy now,” says Jason Walker, a marketing director in Washington. But the numbers were too good to pass up, he says. Mr. Walker is closing this week on a town house in Baltimore, for which he paid $275,000. He says he put down 20% of the purchase price, locked in a 4.5% rate on a 30-year fixed mortgage and expects to net $1,000 a month in profit.

Here is what you need to know before taking the plunge.

Cheaper homes aren’t always a good investment. Even if a property is selling for half the price it fetched during the boom, that doesn’t mean it will generate enough income to make the deal pay off, says Wayne Copelin, a financial planner in Sugar Land, Texas.

The key is to figure out how much rental income the property will generate. A good rule of thumb: Make a deal only if you can collect at least 1.25% of the purchase price each year in rental income, says Jason Reed, a real-estate agent in St. Paul, Minn., who works exclusively with investors.

Determining the rental potential can be tricky. Some properties already have been rented out, and the owner can furnish records. Others have no rental history.

One way to examine the rental market is to use websites like FinestExpert.com, which tracks occupancy rates and rents across the country.

In certain sweet spots, rents are rising even as home prices fall. Take Nashville, Tenn., where rents have jumped 6% over the past 18 months, while home prices have dropped 3%, according to Local Market Monitor. Other markets where that is happening: El Paso, Texas; Houston; Omaha, Neb.; Raleigh, N.C.; Pittsburgh; and Washington.

Markets in areas that have been battered by foreclosures, such as Las Vegas and Phoenix, remain unstable. They might have low prices, but they also are suffering from high unemployment. That could leave aspiring landlords with empty homes, which then could fall even further in value, according to Local Market Monitor President Ingo Winzer.

Local Market Monitor cites Austin, Texas; Akron, Ohio; and Dallas as among the most attractive markets overall, and calls Detroit, Las Vegas and West Palm Beach, Fla., “dangerous.”

When looking at properties, act like a renter, says Jeff Cronrod, president of the Boulder, Colo.-based American Apartment Owners Association. Tour the neighborhood to see if landlords seem desperate to lure tenants. Are there lots of vacancies? Are buildings offering deals like living rent free for a couple of months in order to drive up demand? If so, be wary, Mr. Cronrod says.

Carrying costs add up. Another pitfall for real-estate investors: not accounting for unexpected expenses.

Besides closing costs, which generally average between 3% and 6% of the purchase price, general maintenance expenses like taxes, insurance and repairs can be much higher than many investors expect, says Jason Post, president of Los Angeles based Post Investment Group, a boutique real-estate investment firm that buys and operates apartment buildings.

You should allot roughly $2,000 a year for insurance, taxes and any association fees for neighborhood pools and the like, Mr. Reed says. To ensure that a major repair doesn’t break you, set aside at least six months’ worth of expected rent, he says.

“You can’t even fathom some of these strange costs,” says Jerry Garretty, who runs a property-management firm in San Jose, Calif. Six months ago, Mr. Garretty says, he found a nasty surprise after overseeing the eviction of tenants who were three months behind on rent in a Cupertino, Calif., home: They had poured quick-drying cement into the sewer pipes—a $1,000 repair—and defaced the walls with graffiti scrawls, he says.

Jumps in property insurance premiums also can dent your investment profits, says Jason Holtz, a real-estate lawyer with Kevin Jursinski & Associates in Fort Myers, Fla. This is particularly common in states like Florida that are prone to tropical storms.

Kathleen Farmakidis, owner of a three-unit apartment building in Winter Haven, Fla., says she has seen her property insurance jump 50% this year, to $110 a month.

Venturing far from home can be dicey. It is a good idea to buy rental properties only in your immediate geographical area, Mr. Cronrod says. Although it might be tempting to venture far from where you live for better deals, those properties can be difficult to manage.

As an owner, you need to be ready to repair leaky faucets, collapsed roofs and all other middle-of-the-night disasters—or pay someone to do it.

Hiring a local property manager can help. Such managers perform maintenance, collect rent and even screen tenants. But they typically charge 8% to 10% of the annual rent for their services.

And some are much better than others. Michael Epstein bought a single-family home in Pompano Beach, Fla., in 2009 even though he lived more than an hour’s drive away in Jupiter and the house needed work.

Mr. Epstein, a small-business owner, hired a property manager to rehab the house, which he scooped up at a foreclosure sale, and maintain it. But because Mr. Epstein didn’t visit often, it took him months to discover the manager hadn’t been overseeing construction and that the work was botched. He had to spend an additional $40,000 to bring the property up to building codes.

“That was a risk I didn’t even factor in,” Mr. Epstein says.

It pays to plan conservatively. Don’t assume you will be able to attract renters immediately. If a neighborhood is littered with foreclosures, those properties aren’t going to be any more attractive to would-be renters than they are to buyers, says Jim Evans, president of real-estate investment firm Bruce G. Pollack & Associates and president of the nonprofit Institute of Real Estate Management.

The best tactic, say financial advisers, is to build in a cushion. Assume you need at least three months to find a tenant, and keep that much cash in reserve.

John Interdonato wishes he had foreseen the dry spell he would suffer after buying an investment property in Cape Coral, Fla., for $280,000 in 2005. The electrical engineer planned to rent it out for enough to cover the $2,200 mortgage payments. But after the property sat empty for more than a year, starting in 2009, Mr. Interdonato fell behind.

Last December, after having sunk 50% of his savings into the property, he was forced to sell.

“It felt like I was staring down the barrel of a shotgun,” he says.

Refinancing can be difficult. With interest rates so low, many homeowners have been able to refinance their mortgages recently. But lenders are reluctant to take on refinances of investment properties, says Matt Englett, a real-estate lawyer in Orlando, Fla.

Banks view such owners as more of a risk, he says, because they can walk away from the property more easily than owners of primary residences can.

Mark Cheplowitz, the owner of an international event-planning firm in Aurora, Ohio, says he is losing roughly $24,000 a year on two properties in Collier County, Fla. Last week, a lender declined his applications to refinance the mortgages.

Mr. Cheplowitz says he despairs whenever he flies down to check on the properties.

“Here I am, staying in a crappy motel,” he says, “as tenants live in these beautiful carriage houses I am losing money on.”

Screen tenants with care. Renting out your property to unreliable people can be a costly mistake. Eviction proceedings can take months, and owners can’t rent out the property until the eviction is final.

Chris Ourand, a chief marketing officer for a technology company, says he battled for nearly 10 months to evict a tenant who had stopped paying rent in February on a four-bedroom town house in Arnold, Md.

Mr. Ourand, who lives in nearby Severna Park, says he trekked to court three times to get the tenant to pay up. In October, he says, he was able to oust the delinquent tenant, whom he says trashed the place.

Mr. Ourand says the ordeal cost him roughly a third of his annual investment income on the property. “This is the worst experience with investment properties I have ever been through,” he says. “It was a nightmare.”

Even tenants with clean credit can turn out to be unsavory. Attorney Rachell Horbenko says she had to boot tenants from her Chicago building after waking up in the middle of the night to the smell of marijuana. The tenants were consuming so much, she says, that the smoke had seeped into her six-month-old daughter’s room.

“The room was cloudy,” she says. “I could barely see the crib.” The eviction process took more than three months, she says.

Filed Under: Blog, Property Management Tagged With:

Some real estate sellers better off as landlords

October 13, 2011 By

By Dian Hymer

Hopes of a housing recovery in the second half of 2011 were dashed when low consumer confidence, high unemployment and the debt crisis debacle were exacerbated by Standard & Poor’s downgrade of the United States’ credit rating. In August, S&P demoted the U.S., Freddie Mac and Fannie Mae (two government-sponsored mortgage entities) from AAA ratings to AA+.

The first-ever downgrade of the U.S. was expected to cause interest rates to rise. Instead, it had the opposite effect. Low interest rates have set off a new surge in refinance applications, but it has done little to help most homebuyers who can’t qualify under current strict lender requirements.

Nationally, home prices declined approximately 5 percent between March 2010 and March 2011, according to Fiserv, a company that provides data analysis for the financial services industry. Fiserv expects home prices to decline another 3.1 percent by March 2012 and possibly increase 2.7 percent nationally in the first quarter of 2013.

It’s not a great time for home sellers. That is, unless you’re a homeowner who in lives in Tacoma, Wash., where Fiserv expects prices to increase nearly 25 percent by March 2013, or near Silicon Valley in the San Francisco Bay Area, which is generating jobs at a rapid pace. Otherwise, what should you do if you want or need to move now?

One option is to sell your home, even though the market is soft. But before going to the expense of preparing your home for sale, find out what your chances are of selling in your local market.

Some sellers in hot niche markets are breaking even, depending on when they bought. Others are bringing cash to closing because they can’t sell for enough to cover the loan payoff and closing costs. Others can’t sell at all without discounting the price significantly.

Find out how many homes like yours in the neighborhood have sold recently, along with the sale prices and how long it took to sell. If the market is still declining in your area, plan on selling your home for less than the most recent sale.

How many homes like yours are currently for sale? If there are few and buyer demand is high, the odds are in your favor. Keep in mind that listings that sell in this market are usually in move-in condition. If your home isn’t in great shape or doesn’t show well, are you willing and able to do the improvements that will be necessary to sell?

HOUSE HUNTING TIP: While you’re researching selling, consider whether it makes sense to rent the property rather than sell at this time. The rental market is hot in some spots. Even so, make allowances for tenant turnover, vacancies and the possibility of lower rents in the future.

A major consideration should be whether the prospective rent will cover the costs of carrying the property. Will you need to pay each month to make up the shortfall, or will the property generate cash? If you’ll take a beating on price by selling but you’ll receive a good income from renting, then renting it out might be the best option.

To make sure your property is properly maintained, consider hiring a property manager if you can’t manage the property yourself. Find out if there are any rent control ordinances and how they might affect you.

Consider the tax consequences of converting a primary residence into an investment property. Consult with your financial adviser and accountant to understand how this will impact you tax-wise, particularly if the rent does not cover your carrying costs. And, ask you financial consultants for advice on whether it’s better for you to sell or rent.

THE CLOSING: Finally, if you’re interested in renting only for the short term, you might be better off selling today. The market may stabilize in 2012 or 2013, but it could take a lot longer.

Filed Under: Blog, Leasing, Property Management, Tips and Advice Tagged With: ,

Rental Market Heating Up: Should You Raise Your Rent?

October 4, 2011 By

By All Property Management

The daily headlines make it clear: rental markets across the country are tightening in the wake of the housing market collapse. Record foreclosure rates, economic uncertainty, tougher lending standards, and a major slow-down in the construction of new single- and multi-family housing units have all contributed to high demand for rentals.

With vacancy rates dropping, both investment property owners and property managers are looking forward to putting a little extra cash in their pockets, but here are some compelling reasons to avoid being too aggressive when it comes to raising rents:

The Law

It probably goes without saying, but most states have laws in place to protect tenants from unreasonable rent increases, even those who rent on a month-to-month basis. Before you raise rents, check to see how much notice you need to give, and whether there’s a cap on how much you can raise rent within a given time period.

Avoiding Turnover

Even with long vacancies a diminishing possibility in most areas, if you raise the rent and your current tenant moves out, just the cost of getting an apartment into shape to be rented to a new tenant can quickly eat into your profits. Make sure to factor the cost of repainting, cleaning or replacing carpets, advertising the property, and a vacancy of at least a few days into the equation when you calculate the advantage of raising rents.

Price-to-Rent Ratio

In many areas, house prices are falling, the glut of foreclosed homes on the market is predicted to hold prices down for at least the next two or three years, and there is no shortage of inexpensive housing stock available for purchase. Many people who could afford to buy these properties are simply choosing to rent—fearing declining house values—but if the rent you’re charging crosses a certain threshold, it might start making more sense for these potential buyers to risk a purchase.

One common way to calculate whether it makes sense for someone to rent your property or to buy their own is to multiply the rent you’re charging by 12, then divide the price of a comparable property by this number. So, for example, if you’re renting out a three-bedroom home for $1000 per month and a comparable property costs $130,000, you divide $130,000 by ($1000 x 12) and get an index of approximately 11. It’s widely thought that where the index is 15 or less, it makes more sense for a consumer to buy, rather than rent.

Choosing the Best Renters

Pricing your property slightly under market rates in a climate of high-demand is guaranteed to attract a lot of interest, allowing you to choose from the widest possible pool of potential renters. With so many people struggling financially due to economic hardships of one kind or another, the ability to choose the best tenants is a huge advantage when it comes to maximizing your profits.

Filed Under: Blog, Leasing, Property Management Tagged With: , ,

The new real estate boom: rentals

October 1, 2011 By

By Brian Davis

Home prices and sales may be flat, but the rental industry is booming. The percentage of renters is on the rise, the number of households is increasing, and more Americans are downsizing, all of which point in a single direction: rents are on the rise.

At the peak of the housing boom, homeownership in America reached an all-time high at 69.2 percent. Today that number has plummeted to fewer than 67 percent, which may not sound like a huge drop, but that represents roughly 3 million households that were owner-occupied and are now tenant-occupied.

The high foreclosure rate has accelerated the transition toward leasing, but there are a myriad of other trends coalescing to boost demand for rental housing.

For the first time in 40 years, demand has been shifting toward smaller dwellings, coinciding with a shift in demand toward urban centers. Baby boomers are considering downsizing, moving toward areas with more amenities, and members of Generation Y are just hitting their single, urban-living years.

Only the relatively small Generation X is in the buy-a-large-house-in-suburbs category, which means the demand for the traditional single-family home with a white picket fence is weak.

The number of households in the U.S. was artificially stifled during the “Great Recession,” as people took on roommates, moved in with family, or remained with their parents longer than they would have otherwise.

It’s estimated that 1.2 million young adults moved back with their parents from 2005-10, which does not include the number of adults who moved in with roommates or those who would have moved out of their parents’ houses but didn’t because the economy was so bad.

Now, however, these artificially joined households are separating, the vast majority starting with a lease agreement.

Rental vacancy rates are sharply on the decline as well. In the first quarter of 2011, rental vacancy rates had dropped to 6.2 percent, according to Reis Inc., which tracks nationwide residency data. This figure is down sharply from the 8 percent vacancy rate just one year earlier.

That, of course, means that rents are on the rise. Reis tracks data for 82 metropolitan areas in America, and of those, 75 experienced increased rents from early 2010 to early 2011. Furthermore, the nationwide average rental amount rose from $967 in early 2010 to $991 in 2011.

Each of these indicators are entire topics in themselves, but the bottom line is that the rental industry is on the rise, and some real estate experts believe that its growth will accelerate rapidly over the next three to five years.

Apartment-building construction is already responding to the growing demand for rental housing, but with so many construction firms either out of business or licking their wounds, it’s anticipated that there will be a rental housing shortage in many major cities around the country over the next few years.

Filed Under: Blog, Leasing, Property Management, Real Estate Tagged With: , , , ,

Choosing the Right Property Manager

September 26, 2011 By

By All Property Management

Choosing the right property management company from among the dozens in your area can seem like a daunting task. But with some careful planning and good interviewing techniques, you’ll be well on your way to turning the complex, time-consuming job of managing your rental property into a passive (for you) revenue stream.

Before deciding which companies to put on your short list, sit down and identify your needs and goals for the property in question. Do you need full property management services, or do you want help with only certain aspects of your business, such as leasing? Do you need a manager to live on-site? Would you prefer to work with a large company that has multiple locations and lots of resources, or would you rather work with a more boutique business, where you’ll likely receive more personal attention?

Once you’ve decided on your criteria and narrowed your search, take a close look at the following aspects of any property management companies who make your final cut:

Company focus: While many property management companies are willing to take on a variety of property types, it’s also not uncommon for a company to have an area of particular expertise, or to heavily preference managing certain property types. It’s also not uncommon for a property management company to focus heavily on a particular skill set, such as marketing properties, providing regular inspections, or handling the administrative aspects of running an income property. When you’re evaluating a property management company, you’ll want to make sure that your interests and those of the company are aligned.

Management systems: Regardless of how long they’ve been in business, a good property manager will be able to easily describe her proven methods for securing rental payments, performing routine maintenance, complying with regulations, handling emergencies, resolving disputes, and other critical tasks.

Cost structure: Good property management companies will make it easy for you to understand what the total monthly cost of their services will be. When you’re reviewing the contract, make sure you understand what tasks are included in the stated monthly, hourly, or project-based fee, and look out for excessive potential additional charges.

Availability: Like it or not, property management is a 24/7 undertaking. The company you’re looking at should have plans in place for handling any emergencies that arise outside of standard office hours.

Customer service: Keep in mind that your property management team will not only be servicing you, they’ll be representing you when dealing with your customers, the tenants of your property. If they lack professionalism or attentiveness in this area, it will cost you money in the end. If you can, observe the company you’re interviewing in action, and be sure to get familiar with their customer service policies.

Filed Under: Blog, Leasing, Property Management Tagged With: ,

10 Reasons to Hire a Property Manager

September 22, 2011 By

By All Property Management

If you’ve owned income property for any length of time, you know that managing a rental can be financially rewarding. At the same time, you’ve also likely discovered that property management requires a large commitment of time and effort.

While it may make sense to take the do-it-yourself approach if you’re a handy person, live close to your property, and don’t mind devoting several hours per month to the task, in many cases this just isn’t practical—especially if you hope to expand your business. With this in mind, here are some critical tasks a property manager can help you with:

Setting the right rental rates: While looking through the classifieds to see what other landlords are charging for similar properties is a fine way to ballpark your rent price, a good property management company will conduct a thorough market study in order to set a rental price for your property, ensuring that you achieve the perfect balance between maximizing monthly income and maintaining a low vacancy rate.

Collecting and depositing monthly rent payments on time: If you’ve ever worked in a billing department, you know that securing payment from clients can be difficult, not to mention awkward. Property management companies have efficient, tried-and-true systems in place to effectively collect rent and maintain on-time payments. You’ll find this particularly important if you have a limited number of properties, and collecting payments on time is crucial to maintaining your cash flow.

Marketing and advertising your property: Through long experience, a property manager will know exactly where to market your property and how to craft compelling advertising materials—a significant advantage when it comes to filling your properties quickly and avoiding long vacancies.

Finding the right tenants: Experienced property managers are experts at finding good tenants, and will take care of all the details, including the securing all criminal background and security checks, running credit reports, verifying employment, and collecting previous landlord references.

Managing tenants: In addition to finding good tenants, a property management company will manage all aspects of the tenant-landlord relationship. The property manager will handle both routine and emergency maintenance, take care of routine inspections, and manage any situations where conflict resolution is required.

Managing vendor relationships: Property management companies have relationships with maintenance workers, tradesmen, contractors, suppliers, and vendors that it’s almost impossible for an independent landlord to duplicate. Not only will your property manager get you the best work for the best price, they’ll oversee any necessary maintenance projects.

Ensuring that you’re in compliance with housing regulations and property laws: There is a multitude of applicable laws and regulations to abide by when renting and maintaining your rental property. These include local, state and federal regulations, as well as fair housing regulations (such as the ADA). A property manager can help you avoid lawsuits by keeping your property up-to-date and in compliance with these regulations.

Enabling you to invest in geographically distant properties: If you manage your own properties, you’re pretty much limited to investment opportunities within a tight radius of your own home. By hiring a property manager, you can take advantage of investment deals in any location you wish.

Maximizing the profitability of your time: By having a property manager take care of the day-to-day aspects of running your income property, your free to spend your time identifying further investment opportunities or otherwise furthering your career.

Maximizing the profitability of your money: Most property managers charge a percentage of your property’s monthly rental rate in exchange for their services. The rate typically runs anywhere from 8-12%, which is generally less than the money you save by hiring a professional to take care of your property.

Filed Under: Blog, Property Management Tagged With:
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