American Apartment Owners Association

Tax Benefits That Landlords Receive

Fri, 10/20/2017 - 5:58am

Posted on Oct 20, 2017

While being a landlord is often a difficult job, the tax benefits that come with owning investment properties help sweeten the deal. Whether you are already a landlord or thinking of investing in property, learn about the investment property tax benefits available to landlords.

 

Mortgage Interest Deduction

Your mortgage loan accrues interest, just as other types of loans do. When you run a property for investment (rather than as your primary residence), you are able to deduct the mortgage interest on your taxes.

Landlords can also deduct interest from home equity loans, which are loans taken out with the intention of improving a property.

Homes must be less than $1 million to qualify for the mortgage interest deduction. Thus, if you own a building assessed for more than $1 million, you can’t take this deduction.

Real Estate Tax Deduction

Landlords also get to deduct real estate taxes paid to the town or city. These taxes may be part of your mortgage payment if you have an escrow account, or you may make quarterly payments to your city. Deducting the real estate taxes allows you to offset rental income.

Home Improvement and Travel Deductions

Whenever you visit your rental property, you can deduct your travel expenses. From gas mileage and rental car costs to airfare or hotel rooms, it’s all deductible — including your meals during your visit.

You’re also able to deduct home improvement expenses, including repairs made for your renters. Whether you repaint in between tenants or hire an electrician to install more outlets, you get to deduct what you paid.

If you pay a contractor over $600 in the course of a year, the IRS requires that you provide a 1099-MISC form. No matter how much you pay the contractor, you get to deduct it on your taxes.

Regarding any money you pay for homeowners association dues, condo fees are deductible on your taxes.

Depreciation Deduction

One of the biggest landlord tax benefits is the depreciation deduction landlords can take for their properties. The depreciation deduction reflects the natural breakdown of your property over time. For residential properties, the depreciation period is 27.5 years. Depreciation affects the home only, not the land on which it sits.

To figure out how much you’ll earn in depreciation each year, divide your home’s assessed value by 27.5. If your home’s assessed value is $300,000, you can claim $10,909 per year in depreciation. This offsets rental income, effectively lowering your tax liability.

Utility Deductions

If you pay any utilities for the rental property, you can deduct what you pay. While your tenants probably pay the utilities, you may be liable for expenses incurred while the unit is vacant, municipal water or garbage bills, or other costs. It’s all deductible, and offsets rental income.

Good record keeping is key when it comes to claiming your rental property tax deductions and providing evidence, should you receive an audit request. Always maintain copies of receipts, bills, travel expenses, mileage logs and other records that show what you spent on maintaining your rental properties

For more tips on becoming a landlord, including ways to maximize your real estate income, become an American Apartment Owners Association member today.

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Want to be a landlord? These are the top markets this fall for investing in rental homes

Thu, 10/19/2017 - 10:07pm

High prices and a tight supply of houses for sale are not exactly the best mix for homebuyers, but they’re even worse for investors looking to become landlords. Sure, both tenant demand and rental returns are also high, but if the cost to get in is too high, the math doesn’t work.

The good news is, as always, all real estate is local, so while the national picture may look bleak, certain local markets still offer lucrative options.

Texas, which continues to see strong growth in both employment and home construction, appears to be a landlord’s dream state.

Three of the top five markets for investors, according to a new ranking by real estate sales and auction company TenX, are in the Lone Star State. San Antonio tops the list, followed by Fort Worth and Dallas.

While home prices are rising fast in Texas, they remain low compared with other hot markets, like most of California. In addition, while Hurricane Harvey did not hit these top cities, the storm exacerbated the state’s labor shortage by creating massive reconstruction needs in Houston. Tight labor will reduce new construction in the rest of the state, squeezing inventory and not only pushing home prices higher but also propping up rental demand.

“If you look at our report probably eight or nine of the top 20 markets in terms of housing performance are in either Texas or Florida,” said Rick Sharga, executive vice president at TenX. “The Florida markets will be more directly impacted because Irma hit everything, but even in Texas, a lot of the construction and labor and materials and so forth that’s been going to build new properties in Dallas and Fort Worth and San Antonio might get diverted to rebuild Houston, and that could have a noticeable impact on home sales and home starts over the next six to nine months.”

San Antonio has clocked strong population growth for six years straight, and its payrolls stand at an all-time high. Fort Worth’s population has also been rising far faster than the national average. Dallas’ economy cooled slightly this year but continues to expand after a recent tech and financial services boom. Home prices there, hovering at more than 50 percent above their pre-recession peak, are still considered affordable with room to grow.

Rounding out the top five are Columbus, Ohio, and Tampa, Florida.

Both offer comparatively low entry costs and high returns. Columbus may seem surprising, given weaker job growth in the Midwest overall, but the city has outperformed its region with both employment and population growth. There’s something of a rebirth happening in Columbus, with additional urban developments springing up outside its downtown, luring new companies and workers.

Tampa’s downtown is also enjoying a resurgence, with massive new development in both residential and commercial real estate. Home prices there continue to climb, but because the foreclosure crisis hit Tampa hard, prices there still undercut those of other popular Florida cities, like Miami and Orlando.

Rounding out the top 10 markets for investors, TenX lists Orlando, Florida; Indianapolis; Austin, Texas; Nashville, Tennessee; and Raleigh, North Carolina.

Some markets that might be harder for investors to swallow: Memphis, Tennessee; Miami; and suburban Washington, D.C. Memphis’ economy has been struggling, and price points there remain high amid an oversupply of housing — especially in luxury condominiums and rental towers.

The more expensive towns of Boston and Philadelphia still offer good returns, and but they struggle with poor demographics and subpar economic growth. As for the West, California presents increasingly difficult challenges for investors, given its high price points for even the smallest homes, especially in the more metropolitan areas renters favor. Likewise, Denver’s prices are rising so fast and inventory remains so tight that investors would have to buy and hold for a long time to see significant returns.

In general, the model for investors has shifted. There is no longer a steady stream of low-priced, foreclosed homes, so they have had to change their plans dramatically.

“What they’re really looking to do now is make money on the month-to-month rent, so, in a lot of cases they’re buying properties at full value,” Sharga said. “In some cases they may even be slightly overpaying for properties, but they’re making it up in the rental income over the period of time.”

Of course, that only works if appetite among potential tenants for single-family homes to rent remains strong and the homes stay affordable.

 

Source: cnbc.com

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Rising Rents Are Stressing Out Tenants And Heightening America’s Housing Crisis

Thu, 10/19/2017 - 3:33pm

The home-buying struggles of Americans, particularly millennials, have been well documented. Yet a recent study by Hunt.com found that the often-proposed “solution” of renting is not much of a panacea. Rents as a percentage of income, according to Zillow, are now at a historic high of 29.1%, compared with the 25.8% rate that prevailed from 1985 to 2000.

No surprise, then, that 58% of the 1,300 renters in the Hunt survey said they felt “stressed” about their rent, or that many respondents said they couldn’t save for future purchases like homes. Rather than the sunny freedom promised by those who promote a “rentership society,” most of those surveyed said that finding a convenient place with the amenities they required – for example, fitness rooms, places for pets and adequate space – was very difficult. Some renters have been forced to euthanize their pets, spend upwards of 50 days looking for a place or move farther from family and friends.

All of this is taking place at a time when the national vacancy rate has fallen to 7.3% (in the second quarter of 2017), from 11.1% in the third quarter of 2009. That trend has continued even with apartment construction in many areas, notably core cities, because the new buildings tend to be too expensive for most renters.

Fuel For A Housing Crisis

There is a strong relationship between high rents and high house prices. Although rents have not risen as much as house prices generally, they tend to attract people who in the past might have become homeowners but instead have been crowded out by the high prices. This essentially brings into the rental market more affluent tenants who directly compete with those with lower incomes.

The result in many places, such as Southern California, is overcrowding. Two-thirds of the places in the United States (municipalities and census-designated places) with more than 5,000 residences and with more than 10% of housing units being overcrowded are in California, according to the American Community Survey.

The rent-related stress also points to a bigger crisis: the decline in the purchase of homes. One of the most prominent reasons for not buying a house directly relates to higher rents: It becomes all but impossible to save enough for a down payment. This also reflects changes in the labor market; service and blue-collar workers, whose incomes have been down in relation to rents, are the most burdened by rising rents. In San Francisco, even a teacherhas been driven into the ranks of the homeless.

The situation is worst in the most expensive markets. In New York City, incomes for millennials (ages 18–29) have dropped in real terms compared with the same age cohort in 2000, despite considerably higher education levels, while rents have increased 75%. New York, Los Angeles and San Francisco have three of the nation’s four lowest homeownership rates for young people and among the lowest birthrates.

According to Zillow, for workers ages 22-34, rent costs claim up to 45% of income in the Los Angeles, San Francisco, New York and Miami metropolitan areas, compared with closer to 30% of income in metros like Dallas-Fort Worth and Houston. Home prices provide an even starker contrast. Dallas-Fort Worth, the nation’s fastest-growing housing market, as well as Houston, San Antonio and Charlotte have prices that are more like one-third those of the superstars.

That helps explain why, according to the Hunt survey, the highest percentage of people who cannot save for future purchases (almost 60%) live on the pricey West Coast. The West Coast also had the largest percentage of people stressed about their rent, followed, not surprisingly, by the East Coast.

High rents may also help explain recent shifts in migration to lower-rent areas. A recent survey by Apartmentalist.com found that the best prospects for renters becoming homeowners are in metropolitan areas like Pittsburgh, Provo, Madison, San Antonio, Columbus, Oklahoma City and Houston; the worst are, not surprisingly, in California, New York, Boston and Miami.

Profound Implications

What emerges from the Hunt study, and other research, is a renting population that may never achieve homeownership. This represents a sort of social evolution from the culture of self-assertion and independence that once so clearly characterized America after World War II and was so important to the unprecedented spread of middle-income affluence. Rather than striking out on their own, many millennials are simply failing to launch, with record numbers living with their parents or forced to shell out much of their income rent.

The implications of high rent, and declining home ownership, could be profound over time. In survey after survey, a clear majority of millennials — roughly 80%, including the vast majority of renters — express interest in acquiring a home of their own. A Fannie Mae survey of people under 40 found that nearly 80% of renters thought that owning made more financial sense, a sentiment shared by an even larger number of owners. They cited such things as asset appreciation, control over the living environment and a hedge against rent increases.

But it won’t just be renters impacted by rising rents. Jason Furman, who served as chairman of the Council of Economic Advisors under President Obama, calculated that a single-family home contributed two and a half times as much to the national GDP as an apartment unit.

The decline in investment in residential properties has dropped to levels not seen since World War II. By some estimates, if we had that kind of housing investment again, we would return to 4% growth, as opposed to our all-too-familiar 2% and below.

America’s housing crisis, long tied to ownership, is now extending into rising rents. But the stress that renters are feeling impacts all of us.

 

Source: forbes.com

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What Sets Seattle’s Apartment Market Apart from the Rest of the Country?

Thu, 10/19/2017 - 3:29pm

Thanks to affordability and strong job growth—including in the city’s core—few new apartments are sitting vacant and rents continue to rise.

Multifamily developers have been very busy in Seattle, especially in the core sub-markets around downtown. But thanks to affordability and strong job growth—including in the city’s core—few new apartments are sitting vacant and rents continue to rise.

“Performance remains terrific, despite all the new product that has been added to the stock,” says Greg Willett, chief economist with RealPage, which provides property management software and solutions for commercial and multifamily properties. “Lots of places register very solid expansion of downtown jobs, but Seattle’s urban core growth rate is in a whole different category.”

Vacancies shrink in Seattle

Despite all the new construction, the percentage of vacant apartments has fallen on average. Currently, vacancy is at 4.6 percent, down from 4.9 percent at the end of 2016, according to New York City-based research firm Reis Inc.

“Seattle has seen a lot of construction, but demand has stayed even with construction, so Seattle has not seen any vacancy rate increase,” says Barbara Byrne Denham, senior economist with Reis.

Seattle’s economy is strong—but not strong enough to account for how well the apartment sector is doing there. The number of jobs in the Seattle area has grown steadily, increasing by 2.5 percent since last year. That puts Seattle at number 20 out of the 82 metro areas tracked by Reis. Seattle is doing better than the U.S. overall, where the number of jobs is now just 1.6 percent higher than it was the year before.

Seattle is also attracting new residents because it’s not quite as painfully expensive to live there as in other large cities in Western United States. “What is different about Seattle is that its rent levels ($1,654 per unit) are considerably lower than San Francisco ($2,990 per unit) and San Jose ($2,530), so it’s more affordable for millennials,” says Denham.

Seattle’s urban core leads the market

Seattle’s urban core sub-markets fit within the general theme of the metro area. Developers have opened a large number of new apartments, but employers in the area have also hired a large number of new employees.

Since 2010, developers have opened 21,707 new apartments in Seattle’s three urban core markets: Downtown, South Lake Union/Queen Anne and Capitol Hill. That’s a third (33 percent) of the new apartments that opened in the metro area overall. Another 9,378 new apartments are under construction. “That’s 46 percent of everything under construction across the metro,” says Willett.

New jobs are helping to fill all these new units, led by the expansion of tech giant Amazon. The apartments in the urban core markets are 96.7 percent occupied, and apartment rents are growing at a rate of 6.6 percent a year, according to research firm MPF.

In the South Lake Union/Queen Anne sub-market, where Amazon has its headquarters, rents are growing even more quickly, at a rate of 11.8 percent a year.

With so many more new apartments on the way, occupancy is likely to fall below 96 percent over the next few years, according to MPF. Rent growth should slow as well, with the expected annual increase coming in at around 4.5 percent.

“Even with that moderation, however, Seattle’s urban core forecast is among the strongest in any downtown across the country,” says Willett.

 

Source: nreionline.com

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Does rent control impact crime rates? These economists have the answer…

Thu, 10/19/2017 - 3:28pm

Rent-control policies are a cause célèbre advocated by progressive politicians such as New York City Mayor Bill de Blasio and U.K. Labour Party leader Jeremy Corbyn.

But evidence shows that getting rid of these rules causes a reduction in crime.

The sudden end of rent control in Cambridge, Mass., in 1995 resulted in a 16% decrease in overall crime through the year 2000, according to a new working paper by researchers from the Massachusetts Institute of Technology. That equates to roughly 1,200 fewer crimes a year.

A drop in the number of property crimes (including burglary and shoplifting) and public disturbances (including vandalism, prostitution and trespassing) was largely responsible for the reduction in crime overall in Cambridge during that time. Researchers also reported fewer violent crimes, such as murder, sexual assault and robbery. The decrease in crime was also most acutely felt in the neighborhoods with the highest share of rent-controlled apartments.

Rent deregulation in Cambridge had other benefits

  • Improved public safety following rent deregulation represented an economic benefit to the city of between $10 million and $22 million.
  • Deregulation led to $2 billion-worth of property value appreciation between 1994 and 2005, findings that are supported by previous research by the newly-minted Nobel laureate Richard Thaler.

Cambridge represents a strong test subject for studying the impact of rent deregulation, according to the paper, which was distributed by the National Bureau of Economic Research. The city’s rent control policy was eliminated following the success of a statewide referendum in 1994. Nearly 60% of Cambridge’s voter’s opposed the referendum, indicating strong support for rent control at the time.

Only a third of Cambridge’s residential units were subject to rent control rules, and the ordinance only applied to buildings constructed before 1969. As a result, many of the buildings affected by the change were concentrated in the same neighborhoods, which allowed researchers to determine better the effect deregulation had. The researchers also compared their findings against the nationwide decrease in crime and to other potential causes of the lower crime rate, including proximity to public transit and public housing.

Rent control regulations are rare across the country

Only four states (California, Maryland, New Jersey and New York) and the District of Columbia have rent-control laws on the books either state-wide or at the municipal level, according to the National Multifamily Housing Council, a trade organization representing the apartment industry.

In another nine states, there are no rent control laws on the books — nor are there laws preempting rent control ordinances. The remaining 37 states either have state laws preempting rent control ordinances at the local level or require local governments to get approval from state legislatures to enact such provisions.

Even though rent control laws are rare, more cities across the country have been exploring them, likely a reflection of soaring housing costs nationwide. Voters have succeeded in putting referenda on the ballots in cities like Glendale, Calif., Newark, N.J., and Portland, Maine, that would create or strengthen rent control laws. And activists in cities like Minneapolis and Seattle are pushing for rents to be regulated, even though their state governments have been rent control ordinances.

A recent poll also found that a 55% majority of voters in California’s Orange and San Diego counties supported rent control policies, according to the Orange County Register.

Other studies show that rent control likely doesn’t work

While rent-control policies are aimed at keeping housing affordable, it often has the reverse effect in practice.

There is evidence that renters pay more in rent-controlled cities, according to the Urban Institute, a Washington, D.C., think-tank. These policies generally raise the rents in uncontrolled apartments. “Given the current research, there seems to be little one can say in favor of rent control,” wrote Peter Tatian, a senior fellow in the Urban Institute’s Metropolitan Housing and Communities Policy Center.

One theory for the increase in property values: Studies have shown that the construction of new rental units decreased in many cities after they implemented rent-control regulations, according to the National Multifamily Housing Council. Consequently, the supply of rental properties may not grow to accommodate increased demand in these cities. Many people will remain in rent-controlled apartments and pass them along to family or friends, meaning that fewer vacancies come up. That leaves people looking for housing with fewer options.

Studies have also found that rent-controlled apartment buildings are kept in worse conditions, a reflection of negligence on the part of landlords and tenants alike.

 

Source: marketwatch.com

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Should You Accept Section 8 As A Landlord?

Thu, 10/19/2017 - 3:16pm

If you are a landlord with a few properties or even a massive portfolio to rent out, chances are you’ve wondered to yourself at one time or another whether or not you should start accepting Section 8 housing subsidies for low-income tenants. This can be a difficult choice to make, as many landlords have the idea that opening their doors to Section 8 tenants opens them up to having to accept tenants they would otherwise reject. However, there can be some very significant advantages to becoming a Section 8 landlord, and the cons aren’t as large as some people are led to believe.

Advantages Of Accepting Section 8

The biggest perk of accepting Section 8 subsidies is the fact that a substantial part of the rent money you are owed will show up reliably and on time each and every month. The portion of the rent that the government will pay is dependent upon a few different factors but is usually between 40% and 70% of the total. The rest of the rent will be up to your tenant to pay, but with Section 8 subsidies, you at least know that you will receive rental income monthly, even if your tenant slips into paying late.

Another major advantage to accepting Section 8 is that it opens you up to a whole new market of potential tenants, many of whom can’t afford to rent anything that isn’t subsidized. This can give you a competitive advantage over other landlords in your area who do not accept government subsidies. Contrary to popular belief, you can also screen these potential tenants just as you would any other tenants, and you can even rent your property out to someone without Section 8 just as you normally would. In many ways, the benefit of Section 8 is just as great to landlords as it is to the tenants it assists.

Disadvantages Of Section 8

While few and comparatively minor, there are some disadvantages to accepting Section 8. The first of these is that you may have to wade through some red tape to get accepted. In order to be approved as a Section 8 landlord, you will have to undergo a full home inspection and set your rental rate according to the range of average prices in your area. This isn’t a huge problem for most landlords, but it is something to consider.

If you are a landlord with a portfolio made up of high-value properties in affluent areas, however, Section 8 will probably not be for you. The rents you can get from those paying on their own on these properties will be higher than what the government will allow you to charge in order to be approved as a Section 8 housing provider.

Conclusion

While it will not be for every landlord, Section 8 housing offers great benefits to landlords with one or more low- to middle-priced rental properties. Overall, the benefits outweigh the disadvantages, particularly when you take into account the fact that rental income checks will always show up on time. If you are a landlord with properties that might qualify for Section 8 subsidies, it is a program that is well worth looking into.

 

Source: forbes.com

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Nine Pitfalls To Avoid When Getting New Tenants

Mon, 10/16/2017 - 8:19am

Written by C. Gabriel Lewis

Over the years I have learned a lot about searching for new tenants.  When I purchased my first rental property I had to learn the hard way about what it takes to find good tenants and starting off on the right foot.  Below are nine things you can do to avoid some major headaches when it comes to dealing with rental prospects:

  1. Never take them just at their word.  I cannot tell you how many times I’ve had folks lie to me with a smile.  Some are even good at it to the point they should be professional actors and actresses.  Have them fill out an application and get copies of ID’s and pay stubs.  This would be a good start in verifying if they are being truthful or not.
  2. Never accept work in lieu of rent payment or deposit.  I have found this is one of the most likely to go sour with landlord/tenant relationships.  They will either not do the work, or worse, do the work to poor standards.  This will especially get tricky if you have to evict them later.
  3. Never show a property to a family member or friend.  Yes we live in a busy world, yes they even may be out of town or offshore, but there is NEVER a substitute for the person who will actually move in and pay the rent.  Parents are notorious for this when searching places to live for their kids. Unless they are paying the rent and deposit, don’t waste your time showing it to them or their friends or loved ones.   Ultimately it needs to be a relationship between you and the actual person living there…no exceptions.
  4. Never leave any adult names off of the lease agreement.  If there are two adults moving in, make sure there are two names on the lease.  If there are four, then four names on the lease, etc.  If they say that the other person doesn’t “need” to be on the lease or “comes in from time to time”, then you may want to kill the deal right there.  This is common for those who are trying to sneak in a relative or friend with a checkered past.
  5. Never accept money after signing the lease.  The old saying about money talks and you know what walks is true to form with regards to making sure you get all of the money before or at lease signing.  I learned early in my real estate career that folks don’t always follow through with their word and I was left “holding the bag” with a now-vacated apartment and no money.  To make things worse, I had to file an eviction to get them out which added to my loss of lease and more money out of pocket for court costs.
  6. Never accept a personal check for the security deposit.  You may find this hard to believe but there are folks out there who don’t care if you lose money.  I remember having a gentleman pay a $1000 deposit only to stop payment on it when he changed his mind.  Unfortunately, I had yet to deposit it and when I did, I didn’t get a notice from my bank until ten days later.  Needless to say, it cost me almost a full month’s worth of rent.  Try getting them to pay using a cashier’s check or money order.
  7. Never wait for your tenants to switch over the utilities.  Out of sight, out of mind.  It may not be intentional but tenants will milk every megawatt of power you leave on for them.  Tell them at lease signing the utilities will be shut off the next day (or two if you are feeling nice) and immediately call your local utility company and schedule the shut off after lease signing.  If the tenants do what you told them to do then they will have no interruption of services.  If they didn’t do what you told them to do, shame on them.
  8. Never make empty promises or threats.  Credibility is key when dealing with tenants.  If they feel you are not being truthful or worse, that they can push you around, it will be a long lease period for you.  If you say no pets allowed, make sure you don’t allow pets.  If you say the home will be ready by a certain date, make sure it’s ready by that certain date.  If you follow through with your word, tenants will respect and trust you.
  9. Never hold a property without a full deposit.  Even if they are the “perfect family” do not fall into the habit of holding a property for someone who wants it.  I always tell folks it’s on a first come first serve basis.  If they really want it, or better yet have the means to pay, they will do so.  Do not enable folks to take advantage of you.

Gabriel Lewis is a real estate agent specializing in residential and association management. He is the owner and broker of Titan Realestate Services, LLC located southwest Louisiana and has been assisting homeowners for the last ten years.  He can be contacted via email at cgabriellewis@cox.net.

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Colleges Where It’s Cheaper to Buy a Condo Than Rent a Dorm

Mon, 10/16/2017 - 8:02am

A college education has become more and more unaffordable over the years, with tuition increasing 9 percent between 2011 and 2016. But it’s not just skyrocketing tuition that’s hitting students hard; there are the additional expenses of books, meal plans and the big one—housing. Dorm rooms in the U.S. range in cost from $232 to $1,817 per month, with a median monthly price of $705. It’s a hefty price tag for a college student and it led us to wonder, are there cities where students (or their parents) are better off buying real estate?

It may not make sense in cities like San Francisco where the price for a dorm ($926 per month) is minuscule compared to the high cost of rentals and real estate; the average mortgage on an SF condo is $5,279 per month. But can relief from soaring college costs can be found in more affordable cities?

To find out, we compared the monthly dorm rate at 195 U.S. public colleges with the median monthly mortgage on a condo in each of those cities. We found that at 47 colleges it’s actually more cost-effective for students or their parents to buy a condo instead of rent a room on campus.

We ranked the colleges by enrollment to narrow down the list to the 15 most popular colleges. Because these schools have more students and thus a larger pool of new students looking for housing each year, we determined they would be the best places for investment opportunities.

Rank College City Monthly Mortgage Cost Monthly Dorm Cost Cost Difference 1 University of Arizona Tucson, AZ $545 $811 $266 2 Georgia State University Atlanta, GA $1,116 $1,139 $23 3 University of South Carolina-Columbia Columbia, SC $511 $671 $160 4 Kent State University at Kent Kent, OH $664 $751 $87 5 Louisiana State University and Agricultural & Mechanical College Baton Rouge, LA $731 $837 $105 6 University at Buffalo Buffalo, NY $650 $866 $217 7 University of Kentucky Lexington, KY $730 $876 $146 8 University of Oklahoma-Norman Campus Norman, OK $470 $752 $282 9 The University of Texas at El Paso El Paso, TX $441 $546 $105 10 The University of Texas at Dallas Richardson, TX $693 $769 $76 11 University of Akron Akron, OH $733 $780 $47 12 University of Delaware Newark, DE $605 $813 $208 13 University of North Carolina at Greensboro Greensboro, NC $487 $715 $228 14 Sam Houston State University Huntsville, TX $427 $570 $143 15 Miami University-Oxford Oxford, OH $489 $831 $342

Misty Hurley, a Redfin real estate agent in Tucson, wasn’t surprised to see The University of Arizona at the top of the list.

“I’ve had lots of parents contact me after comparing the cost of renting versus buying a home for their college student,” she said. “They’re often coming from places like Washington D.C., Los Angeles or Seattle, where home prices are much higher. The median sale price in Tucson is $195,000, so well below the national median sale price of $293,000 that Redfin reported in August.”

The downside, she says, is inventory is getting tighter in the city and college students (and their parents) are likely to face multiple offer situations, especially for homes under $200,000.

Rounding out the top five list was Georgia State University, the University of South Carolina, Kent State University and Louisiana State University, all of which are in cities with median home prices below the national average.

In addition to saving on monthly housing costs in these cities, there are other perks to purchasing real estate.

“Homeownership can be a great way to build wealth,” said Hurley. “Students will build equity that they can one day use as a down payment on a move-up home or to pay off student loans. If they choose not to sell right away, they’ll have a piece of property that’s ripe for renting, as there are always new college students looking for rentals.”

Owning a property can also be a great way for college students to get involved with the community and feel like they’re really a part of the city, she says.

There are certain considerations students and their families should keep in mind when deciding to purchase real estate–such as the initial down payment, which was not accounted for in this analysis, the maintenance required to keep up a home and other costs like HOA fees. To find out what a mortgage payment will be on a particular home, scroll down to Redfin’s payment calculator on any home listing.

Methodology

On-campus housing cost data was pulled from the National Center for Education Statistics. We looked only at U.S. public institutions that grant Bachelor’s degrees and that have full-time, first-time undergraduates. We then compared that list to cities where we have condo price data, which left us with 196 public institutions. To calculate the average monthly mortgage, we assumed 20% down, a four percent interest rate on a 30 year fixed mortgage, 1.125 percent annual property taxes plus $70 for homeowner’s insurance.

 

Source: redfin.com

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Careful With That Investment: 20 Housing Markets With Slowing Job Growth

Mon, 10/16/2017 - 7:57am

Close-up of a pensive female face

There are two parts to a successful real estate investment: buying your property and keeping a close eye on it.

If you invested in rental property, you’ll want to keep a particularly sharp eye on the health of the local economy because that links directly to the rental income you’ll receive.

A slowing economy doesn’t necessarily mean you need to take any action. There are limits to what you can do, after all, and a slowdown is often just temporary. Taking the drastic step of selling your investment shouldn’t be considered every time the government puts out a new number ― a lot of those numbers end up being revised anyway, and what do they really measure?

But in the longer term, your income is in fact affected by how many people have jobs in the local economy and how many are moving into the area ― or out. Rents themselves are closely related to income, but the number of people with the right income for your property can change drastically if jobs are scarce.

Because local economies change, you need to have a plan to accommodate the changes that can take place. Maybe your plan is to just sit tight during a downturn, hoping it’s only temporary. Or maybe you took cycles into account when you first made your investment, anticipating periods of higher and lower income. Or maybe you have a complete exit plan with specific triggers. Whatever the plan is, the most important thing is to have one ― and then to monitor your market to see how the current situation fits with your plan.

The national economy has been on a slow downward trend for a couple of years, so it’s not surprising that some local markets have slowed down fairly sharply; others aren’t slowing at all. We’re not yet at a point where many markets are actually contracting ― losing jobs ― but I won’t be surprised if we start to see some of that in 2018.

My company, Local Market Monitor, has sifted through 320 local markets to identify 20 where a significant slowing in growth has taken place.

Local Market Monitor, Inc.

20 Markets That Are Slowing Down

These markets are still adding jobs, but at a much lower pace than last year. This is often ― but not always ― the prelude to stagnation in the local job market or to an outright loss of jobs. As we’ve seen many times before, a poor job situation may be temporary, followed by renewed growth. But it can also signal a longer, even chronic, period of decline that will affect the value of your investment.

Of particular concern is that many of these markets were, until now, adding jobs at a good clip ― usually a spur to housing construction. A larger housing inventory may be coming online just when demand starts falling. You’ll see that home prices have been rising in most of the 20 markets. This will continue; there isn’t a crash just around the corner. But it’s time to be sure that you have a plan for a period of lower income from your property in these markets so you’ll be ready if it happens.

 

Source: forbes.com

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8 Proven Ways to Make Money in Real Estate

Mon, 10/16/2017 - 7:51am
Real estate has produced more wealth than any other industry in the history of time. However, people still remain skeptical about entering into the fray. Most think that they need to start with some sort of capital. That’s clearly not true. The one magic power you do need is to be able to find the money. And we’re often not talking much to open up escrow. If you know what you’re doing, then you can make money in real estate even if you’re just starting out.

Don’t think so? Take the story of Kent Clothier for example. Clothier opened his first escrow for $500. All he did was find a distressed home and a motivated buyer and brought them together. Today, he flips over 1,000 properties and manages 5,000 through his company, Memphis Invest. Dean Graziosi, another one of the most successful real estate investors in the world, has a similar story.

Graziosi grew up in a trailer park. He lived in a bathroom for a year with his dad when he was 12-years old. He had no advantages. No startup capital. No help from anyone. But somehow, he managed to make money in real estate and owns well over 400 properties in his portfolio today. There are plenty of other examples of this as well. The point? You don’t need a lot of starting capital to make money in the real estate industry. But you do need the knowledge and the know-how.

Most people think that it’s easier to make money online than it is to make serious coin in real estate. Well, both are difficult if you don’t know what you’re doing. But when you get a lay of the land and you understand the path forward, you can make strides. Now, here’s what you don’t need to generate an income in the property market, which likely will shatter any limiting beliefs you might currently have about the subject.

You don’t need credit: Even if you have poor credit, there are ways forward if you’re committed enough. Several of the methods discussed in this piece don’t rely on credit whatsoever. In fact, many successful real estate investors such as Justin Colby, Kent Clothier and Dean Graziosi, got rich in real estate while starting with no credit or even poor credit.

You don’t need significant capital: You don’t need capital to make money in real estate beyond a few hundred dollars to open escrow. Of course, this means going for the lower-priced homes or distressed properties and flipping contracts. It also means finding hard-money lenders or other investors that can help you push deals through. This could even apply for home renovations as long as you’re good at finding the money.

You don’t need major assets: There’s another misconception that you need to put up major assets in order to secure a contract or purchase a piece of property. You don’t need this either. You do need to understand how creative financing works. Most people simply stop dead in their tracks because they have this belief about what they need in order to get started.

How to make a living investing in real estate.

When it comes to real estate income, there are two ways to generate cash. You can generate passive income by buying and holding. And you can also generate an active income by flipping contracts, doing renovations or adding value in another area such as putting together property development deals. It might all seem overwhelming at first, but it’s certainly not, especially when you get a lay of the land.

Now, when most people think about making money in the real estate sector, they ask the following types of questions:

How can I invest in real estate with no money? The answer? You can utilize a variety of methods that includes any of the following:

  • Seller financing through lease options
  • Trading fixed assets such as cars, jewelry and so on
  • Taking over someone else’s mortgage payments who might be in a distressed situation
  • Bringing in an investment partner with cash
  • Borrowing from a bank or getting a hard money loan
  • Taking out a home equity line of credit
  • Utilizing a peer-to-peer lending network

How does a real estate investment work? The answer? Real estate investing works on the concept of cash flow, which means that your income has to exceed your outgoing expenses. This is known as a positive cash flow. Now, this can work for both long-term residential and commercial rentals just as well as it will work for short-term vacation rentals.

Is it good to invest in real estate?Absolutely. This is one of the sources (aside from being a business owner) that has generated the most wealth in our history.

What is a wholesale deal in real estate? Wholesale is akin to flipping properties. Except, you never take ownership of the home when you flip real estate contracts. You can learn the specific strategies for doing this from REWW, one of the largest data aggregators for the wholesale flipping market.

With that being said, there are 8 primary strategies for generating a real income in real estate. Whether you can earn a passive income or active income depends on the strategy that you implement.

1. Long-term residential rentals

One of the most common methods for making money in real estate is to leverage long-term buy-and-hold residential rentals. People will always need a place to live. Plain and simple. This means getting involved with rental properties. You need to do the proper amount of due diligence to source your property by keeping three principles in your mind: location, location, location.

Yes, you’ve heard it before, but location is everything when it comes to real estate. Not only does this apply for actually an increased asset value over time, but also in your ability to quickly rent that property to a long-term tenant. When you’re considering long-term residential rentals, look for a great location. That’s more important than the current state of the property itself. In fact, run-down homes in great locations are one of the best investments you can make.

This involves a more traditional approach to making money in the real estate market. It means buying a property with some cash on hand to make a down payment, and actually holding that property for the long term. Now, depending on your personal situation, you can easily grab that property for a very low down payment or even no down payment. That’s especially true if this is a pre-existing, income-producing property.

If there’s positive cash flow in a residential rental, then it makes a great investment. However, you’ll likely not find that too easily, unless the current owner is unloading for personal reasons due to a divorce or other need to liquidate that property that necessitates having some cash on hand.

2. Lease options

Lease options are a great way to get involved in real estate without having to put up a significant amount of capital or even have great credit at the outset. You’re leasing with an option to buy. This tends to work well when the real estate market is climbing because you’re creating a pre-set price that you can later purchase the property at.

If, for example, the property market climbs substantially, you can buy that property at a discount. You could also potentially turn around and sell your rights for that purchase to someone else. The clear bet here is on the bull market in real estate. As long as this is an option you can exercise and not something set in stone that says you have to purchase at the end of the lease regardless, then you can just about guarantee you’ll turn a profit.

3. Home-renovation flips

The fix-and-flip culture has exploded. Thanks to the popularity of home renovation shows, we’re now experiencing a massive boom in the traditional renovation flip market. While there’s certainly a lot of money to be made here, navigating these waters in the beginning can be tricky. When you lack the knowledge or the experience, you could find yourself on the losing end if you don’t select the right home.

Matt Larson has flipped more than 2,000 homes in Iowa and Illinois. Over the course of that time, he’s learned some lessons on what to look for and what not to look for when flipping a home with a renovation. His advice? Go after the ugliest homes in the nicest neighborhoods. That’s where the real value is. But the other difficulty here is not only finding those homes when you’re not well-networked with real estate agents, but also understanding your after-repair value.

How much will the home be worth once you’ve invested in fixes and repairs? To accurately determine that you need a strong relationship with a general contractor and actually tour the property on-site. While buying site-unseen at an auction might seem alluring, unless you really know what you’re doing, you could lose your shirt. But making money on a home-renovation flip, as long as you understand the underlying costs and potential value, is rather straightforward.

John and Julie Wakefield, a husband-and-wife flipping team who’ve done hundreds of flips, say something similar along the same lines. They advise not to bite off more than you can chew. And more importantly. You should look for creative ways to help others. Success as a real estate investor has as much to do with how creatively you can solve problems as it does how well you can crunch the numbers.

4. Contract flipping

One way that you can make money from real estate without having to put up very much capital or credit is to flip contracts. All you have to do is find a distressed seller and a motivated buyer and bring them all together. While locating a distressed seller might seem difficult, Clothier has systemized the entire process for doing this. The trick with contract flipping is to identify the distressed seller and locate a ready-to-go buyer.

By bringing these parties together, you’ve cut out the need to go hunting for a buyer after you’ve entered a contract. That situation presents more risk. Instead, by locating the sellers and the buyers beforehand, you can easily enter into a contract with the confidence that you won’t get stuck having to close escrow on the property.

To do this, you have to be able to identify either vacant homes or homes that are behind on their mortgages. That’s the tricky part. You’re effectively trying to find distressed sellers. But homes that are already vacant are primed for an opportunity like this.

5. Short sales

Short sales occur when the current owner of their home is behind on their mortgage, but the property hasn’t yet entered into foreclosure. In order for this to happen, all parties have to agree to the transaction since the property is being sold off for less than is owed on the existing mortgages. This is a great opportunity to make a quick profit without investing into lengthy renovations.

However, succeeding with short sales or any other default-type auctions, is often tricky. You usually need to pay for the homes outright in cash and sometimes that has to happen sight-unseen. Short sales are better than auctions because you get a chance to check out the home and enter into a negotiation process. Unless you’re a seasoned investor, jumping in without an inspection and complete review could be risky.

Short sales take time. But, they can be well worth the wait. The potential return on a short sale can be instantaneous. Tens of thousands to hundreds of thousands of dollars can materialize as soon as the property purchase goes through. That’s because the bank is engulfed in a bad investment. But don’t expect to steal the property. You’ll have to negotiate a relatively fair price. Depending on how badly the bank wants to unload that property, it could sit around and wait for another buyer, so don’t try to low-ball too far.

6. Vacation rentals

Vacation rentals present a lucrative path to profits in the real estate marketplace. Not only can you make some side hustle income from vacation rentals, but you could potentially make a significant amount of money and build up a substantial passive income stream if you’re in a highly-trafficked tourist locale. Places like Los Angles, Miami and other tourist hot-beds are well known for having high demand for these short-term rentals.

I’ve long been a firm believe in the vacation rental market. The best part? You don’t even need to own the properties to make money. Two of the world’s most successful property management companies that specialize vacation rentals like Joe Poulin’s, Luxury Retreats or Michael Joseph’s, Invited Home, don’t actually own the homes. But they do provide a high-end consumer experience.

How do you participate? Leverage existing relationships with owners in your area. Network with others. Build bonds. Create systems. Ensure the upmost satisfaction and go above and beyond for anyone staying at the homes you’ll manage. And see how you can help to take some of the time and stress off of the present owners’ existing rental businesses. Or, if you have a property, list it on a site like AirBnB, HomeAway, or FlipKey before managing vacation rentals for other owners.

7. Hard-money lending

Hard-money lenders provide short-term loans to people that normally wouldn’t qualify for those loans. Now, in order to participate in hard-money lending, you’ll need some capital behind you. These are loans that are often at high interest rates because they’re for very brief periods. To get your first deal done, you could turn to a hard money lender. If you have a “sure thing,” and you lack the capital, this is your best bet.

However, you could also become a hard money lender. Now, that means you’ll need some capital. And this likely isn’t going to be the first way you start out making money in real estate. But as you build your network, your capital and a solid portfolio of deals, you could provide these bridge loans and make a great rate of return.

Even if you lack an enormous amount of capital, as long as you can successful identify the right deals, provide a small amount of money and generate a high success rate, you can easily find investors to come on board. The interest rates here make sense. There’s more risk, but also far more reward. It’s a way to keep your cash fairly liquid and generate a nice profit in the short term without having to wait years and years for those returns to materialize.

8. Commercial real estate

One of the great opportunities in real estate for making a considerable amount of money is to invest in commercial real estate. Commercial real estate developers focus not only on flipping properties, but also in developing them, adding value to them to increase their net incomes through rehab or renovation and upgrades, but also through consulting on projects that might take more seasoned real estate investors to see to fruition.

Ali Safavid, founder of 5209 Investments, one of the largest commercial real estate developers on the West Coast of the United States says that commercial real estate is one of the most lucrative sources for both income and profits in the real estate market. As long as you can find ways to add value to the exchange, investing in commercial real estate can be one of the largest income generators you’ll find.

People always need office space and retail to run their businesses. These physical locations are bread and butter in the real estate niche. As you grow, you can find ways to open up shopping malls, develop large scale buildings, and more. But you have to start somewhere.

Source: entrepreneur.com

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Ahead Of Super Bowl, City Leaders Debate Short-Term Rental Regulations

Mon, 10/16/2017 - 7:51am

MINNEAPOLIS (WCCO) — In just more than 3 months, the Twin Cities will host millions of visitors for the Super Bowl and new regulations may be in place for those looking for a place to stay on websites like Airbnb.

On Tuesday’s meeting, Minneapolis city council members gave a first round approval to the new proposed regulations.

It would require hosts to get a license through the city and pay a $46 fee to list their home. Companies like Airbnb and VRBO would have to pay a $5,000 dollars to do business in the city.

Over in St. Paul, council members are set to vote on similar regulations on Wednesday afternoon.

Folks renting out their homes would have to pay a $70 annual fee and businesses would pay $7,000 for a short-term rental platform license.

Leaders in both cities agree services like these are needed, along with some regulation.

“Let’s not forget Airbnb and VRBO, they are already taking in customersand clients, so all we are doing is making sure we have a baseline of safety and making sure a new and innovative business can function,” said Minneapolis Ward 3 Council Member Jacob Frey.

“Here in St. Paul, we have tons of hotels and a bunch of great places to stay. Unfortunately, we don’t have enough hotel rooms to accommodate everyone that will be here for this great Super Bowl, so Airbnb, Expedia, VRBO…it’s a great added addition,” said St. Paul Ward 3 Council Member Chris Tolbert.

The City of St. Paul is also considering adding parking restrictions to homes that are being rented out.

St. Paul city council members are set to cast their final votes on the regulations on Wednesday.

In Minneapolis, council members will vote at their meeting on October 20th.

There could be some final tweaks to the rules before everything is said and done.

Airbnb released a statement Wednesday:

“Airbnb and our hosts are thankful to Minneapolis and Saint Paul policymakers for continuing to address this complex issue in good faith. We want to partner with them on commonsense and fair regulations.”

 

Source: minnesota.cbslocal.com

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Apartments Rents Are Growing the Most in Former Housing Crash Cities

Mon, 10/16/2017 - 7:45am
Apartment rents continue to grow more slowly than before. The cities where rents grew the most in 2016 are still top cities for rent growth this year, but their lead is getting smaller.

“A year ago there was a pretty big spread between Houston, which had rent growth of about 1 percent, and Sacramento, which was much larger –nearly 12 percent,” says Jay Denton, senior vice president with data firm Axiometrics.

Today, no major metro areas have annual rent growth of more than 10 percent. Rents are still growing the most in markets with new jobs and relatively few new apartments. Many of those markets are cities and towns that were hit hard by the housing crash. These are often places that have been growing in population. In addition, apartment developers have built relatively few new units in housing crash cities like Sacramento, Calif., and Las Vegas, creating less competition for apartment properties.

Rents grew just 2.2 percent on average in the U.S. over the 12 months that ended in the third quarter, according to a survey of 121 markets by research firm Yardi Matrix. That’s the slowest rate of increase since April 2011.

However, rents are still growing on average. “We don’t believe it’s time to turn out the lights on the expansion in the multifamily sector,” according to Yardi. “Job growth and social and demographic trends foretell strong demand for the next few years.”

Meanwhile, the markets where rents grew the most quickly 2016 have slowed down the most in rent growth in 2017. For example, Sacramento still boasts the strongest rent growth in the United States. But its lead is shrinking. Apartment rents in Sacramento grew by 6.9 percent over the 12 months that ended in the third quarter 2017, according to Axiometrics. During the same period a year before rents rose by nearly 12 percent.

Part of the reason for the limited rent growth in Sacramento is that while the city’s population is growing quickly, much of the net migration is from immigrants who are taking relatively low-wage jobs. “You see service workers. Their salary and wages are quite low, but they are renting,” says Douglas Ressler, director of business intelligence for Yardi Matrix. These workers are not able to pay double-digit rent increases year after year. Sacramento also benefits from an influx of people priced out of the San Francisco Bay Area.

Yet the high rents in Sacramento are also supported by the relative lack of new construction. Until recently, developers had built relatively few new apartment communities in Sacramento. Developers built a huge number of new homes there during the housing boom, which took years to be absorbed after the crash. “Because of the oversupply of housing, some of the hottest markets in the last real estate cycle took the longest to recover,” says Denton.

Local zoning restrictions also make it difficult to build apartments in many parts of the Sacramento area. Many jurisdictions explicitly favor single-family houses, says Ressler.

Another housing crash city, Las Vegas, experienced the second fastest growth in apartment rents. Apartment rents in Vegas grew by 5.8 percent over the 12 months that ended in the third quarter 2017, according to Axiometrics. “Las Vegas had a longer, deeper downturn than the rest of the real estate market,” says Denton. “It is just at a different place in its real estate cycle. Other markets have had a lot of construction.”

Developers have finally begun to put new product on the market—3,500 new apartments will open in 2017, according to Axiometrics. These new apartments are already slowing down the pace of rent growth in the city. However, the apartment market in Las Vegas is likely to remain healthy. In 2018 developers will only open 1,700 new apartments, while the city is creating about 30,000 new jobs a year.

The rest of the list of markets where rents are growing the most quickly is crowded with cities that suffered deeply in the housing crash. Orlando, Fla., is number three on the list. Average apartment rents grew by 4.8 percent there over the 12 months that ended in the third quarter, according to Axiometrics. San Diego is number five, with rent growth of 4.5 percent.  Jacksonville, Fla., is number six, with rent growth of 4.4 percent.

 

Source: nreionline.com

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Airbnb gets into the apartment game

Thu, 10/12/2017 - 11:34am

Most landlords don’t allow tenants to sublet their apartments on Airbnb. That’s because it typically comes with increased risk and no profit for them. But a major landlord in Florida is trying something new: working with Airbnb.

Airbnb said Thursday that it’s partnering with Newgard Development Group to allow for short-term rentals in a 324-unit building in Kissimmee, Florida. Tenants who live in this building can freely put their apartments on Airbnb for up to 180 days per year. The catch is that they have to share the income with Newgard.

This partnership “eliminates barriers by encouraging home sharing and creating solutions that work for everyone,” Newgard CEO Harvey Hernandez said in a statement.

In just under a decade, Airbnb has gone from a website for couch surfers to having a massive online presence. It lists millions of homes for rent in almost every country on earth. That growth, however, has come with challenges.

The company has waged extended battles with landlords, regulators and housing advocates in major cities around the world, including San Francisco, New York, Paris, Berlin and Barcelona. So, over the past year, the company has been working to make nice with lawmakers while also shift its business model.

Airbnb has gone from being solely a home-rental service to a semi-travel agency, in which travelers can book excursions and make restaurant reservations through its site. It’s also acquired smaller companies like the high-end vacation rental service Luxury Retreats. The new partnership with Newgard appears to be yet another way Airbnb can broaden its focus.

“This partnership shows how landlords, developers and Airbnb can work together to create value for everyone and better serve tenants,” Jaja Jackson, Airbnb’s director of global multifamily housing partnerships, said in a statement.  “Together, we’re making it easier for more hosts to share their space.”

Airbnb and Newgard are branding their partnership as “Niido.” Under this approach, they will give Newgard residents tools for renting out their apartments on Airbnb, such as a “Niido” app that helps with guest check-in, cleaning and linen service.

The companies said this is just the beginning. They plan to continue working together to design new “Niido” apartments and buildings built specifically for subletting to short-term renters and tourists. The designs will have features like keyless entry and shared common spaces.

“As the cost of living increases, apartment renters are under intense financial pressure,” Hernandez said. “Niido’s unique multifamily home-sharing model provides a powerful solution to this ongoing problem by delivering extra income for tenants while creating enhanced experiences for their guests.”

 

Source: cnet.com

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House-Flipping Horror Stories That Will Make You Very, Very Afraid

Thu, 10/12/2017 - 10:51am

These days, it seems like everyone wants to make a fortune flipping houses—and it’s not hard to see why. Reality TV makes rehabbing look like a fun, quick, and easy route to big, big profits.

Reality check: As any pro can tell you, this is not always the case. To set the record straight, we asked industry experts to share their more traumatic house-flipping horror stories, and the lessons they learned on those jobs.

Read on for some of the scariest real estate nightmares you’ll ever hear. Remember to keep the lights on!

The case of the missing cabinets. And dishwasher. And fridge.

“One of the worst flips I have experienced involved being burglarized three times. I was rehabbing a corner unit in a low-income neighborhood. We were almost finished with the rehab when we noticed the cabinets had been stolen off of the walls. A few days later, the dishwasher was gone. Two days after that, the refrigerator was missing, too!

“We found the culprit when pulling up to the property early one morning and seeing our refrigerator sitting in the neighbor’s front yard. After going over there to confront the buyer, we found him installing our cabinets into his kitchen. We recognized him: He’d posed as a contractor to give us an initial renovation estimate. We didn’t take his bid, but on his way out he broke the handle on the garage door to prevent it from locking. After that he started using the garage to enter and take whatever he wanted.” – Carol Sankar of Carol Sankar Enterprises, Charlotte, NC

Lesson learned: “Today, we have cameras, alarms, and have started working in areas where there is a consistent police presence,” adds Sankar.

When flipping, it’s important to put safety in place to protect your investment. As in the case of Sankar’s broken handle, it’s also a good idea to regularly check your doors and windows for signs of tampering.

———

Here’s what happens when you hook up a toilet to the kitchen sink

“In one of the first houses we ever flipped, we used the cheapest contractors we could find instead of the most qualified. I came to regret that decision while hosting our first open house when a prospective home buyer visited the restroom and found out the hard way that the bathroom pipes had actually been rerouted to the kitchen sink. When he flushed the toilet, its contents started spewing out of the kitchen faucet. It doesn’t get more horrifying than that!” – Allen Shayanfekr, CEO & co-founder of Sharestates, Rockville Centre, NY

Lesson learned: When hiring a contractor, the cheapest route can be risky—and can result in higher expenses when you have to repair shoddy work. Use the most qualified workers for the job. Read reviews, ask to see photos of comparable projects they’ve completed, contact references, and verify that the contractor has been licensed according to your state’s requirements. And factor this expense into your original budget; that way you know you have the cash and won’t feel forced to cut corners.

———

What happens when workers go AWOL

“We were working on a property that was going to be a home run of a flip. I bid the work out to a project manager and everything went smoothly, at least until the floors went in. I eventually noticed that part of the floor was uneven, so I asked the manager to fix it. Instead, he had his team just continue. By the time I checked again, he’d laid down all the flooring with no corrections, then walked off the job, leaving us with a huge mess to fix.” – Andrew Thomas Greer of Andrew Thomas Greer Real Estate, San Diego, CA

Lesson learned: When flipping houses and hiring help, it’s always wise to visit the property often to keep an eye on how things look. As soon as you spot a problem, make sure it gets dealt with. Setting up a payment schedule with the project manager before starting the work will help you protect your asset and give contractors an incentive to keep working until the job is done.

———

A flip is never finished until it’s finished

“Two weeks out from closing, the temperature unexpectedly plunged to below freezing—and since the heat wasn’t turned on in time, a pipe burst in the home and 4 feet of water filled the basement. The damage was extensive; we had to replace the water heater and furnace and bring in water damage specialists to save the hardwood floors. Needless to say, we had to postpone the closing.” – Mark Ainley, GC Realty Investments in Bartlett, IL.

Lesson learned: Don’t mentally put a property on the back burner because it’s on its way to closing. Assign someone to visit the property regularly to make sure that everything remains in working order, especially in conditions where it’s inadvisable to leave a property unattended, such as cold temperatures or heavy rains.

 

Source: realtor.com

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The 5 Biggest Mistakes Real Estate Investors Make and How to Avoid Them

Thu, 10/12/2017 - 10:41am

Real estate has always been one of the great equalizers in wealth creation in the U.S. As a tangible asset with generally low barriers to entry, people from all walks of life and income levels have succeeded in building real estate empires.

The numerous success stories coupled with the potential for lofty returns make the asset class tantalizing, but taking the plunge into real estate investing is not something to be taken lightly. Investors breaking into real estate should conduct a substantial amount of research and diligence before getting started to help safeguard against rookie mistakes.

In the modern age of information, access to a variety of resources is plentiful. The old adage that “failure is the key to success” may be avoided on a personal level by learning from the experiences of other investors to make smarter decisions going forward.

While there’s no denying that experience is a great way to learn, you can leverage a number of resources to avoid common mistakes. Here are five of the most common mistakes made by new investors and how to avoid them in your next deal.

Limiting yourself to a specific market. When it comes time to choose where to invest, your home market may feel like the safest place to start because it’s familiar, but that doesn’t necessarily mean it is the best option. Opportunity doesn’t have borders, and that should always be a consideration as you look for your next investment.

For example: It’s tough for someone living in an expensive metro area like New York or Los Angeles to find long-term rentals in their immediate area that generate strong yields, let alone get over the high barrier to entry from a price perspective. There are dozens of other markets across the country that are displaying economic stability, strong housing demand and high returns, so why eliminate those markets from contention?

Advances in technology, data and services have been a critical development in allowing investors to research and enter markets across the nation as they search for better investment opportunities.

Thanks to the institutional investors that have entered the single-family residential sector, there are now a growing number of national and regional service providers that provide resources to small investors in a way that historically didn’t exist.

Accessing these service providers across the country offers investors transparency and clarity into opportunities outside of their home markets, empowering them to transact in top-performing investment markets and feel secure in their team and decisions.

Over- or under-renovating. Understanding the level of renovations a rental property needs is key to a successful deal. Real estate investors should aim to renovate to the level of local market condition and realize that renovations can vary from neighborhood to neighborhood, even in the same city.

Regardless of the condition of the property, understanding the scope of the renovation is a bespoke analysis that requires focus. Investors may find themselves in a difficult situation when they renovate beyond what the market dictates. If all the homes in an area have tile countertops, adding granite countertops probably wouldn’t be a worthy investment as it wouldn’t cater to the typical renter or owner in that neighborhood. This could limit the return on investment by only having a marginal impact on the rental rate or sale price.

You may avoid over- or under-renovating by simply talking to your team of local professionals, including a real estate agent, property manager, contractor, etc. They are market experts and should be able to help you decide on worthy improvements.

You can also tour other houses in the area when possible or use online resources to see photos and scope out the local competition. Doing your diligence before initiating any renovation projects may boost your returns and protect you against wasting time and money on the wrong renovations.

Not understanding how debt works. Real estate investors typically use debt for two reasons:

  1. To expand their buying power. Rather than spending $100,000 of equity on a single property, financing can allow that same $100,000 to go further by spreading it out among several properties with a smaller down payment on each property.
  2. To improve returns. If an investor is able to obtain debt at a lower interest rate than the net yield of investment, the levered return of the investment is higher than if it was paid for with cash.

Both functions of leverage may be very attractive, but obtaining debt does not come without its risks, which is what novice investors should be wary of.

Less experienced investors may take on expensive debt that charges a higher interest rate than the investment yields. In that situation, you will experience negative cash flow, as the net income of the real estate investment is less than the monthly debt service. Now you’re forced to take money out of pocket to make up for this shortfall in order to keep the loan current and avoid defaulting.

The best way to avoid this scenario is to crunch the numbers of a deal and confidently know that the property will generate enough revenue to cover the loan amount. It’s also important to have a deep understanding of the costs and expenses that will be included in the operation and maintenance of the property.

Doing everything yourself. Most investors take on their first few deals as a part-time opportunity in addition to their primary profession and try to tackle the investment without any outside help. Given the lack of time available coupled with general inexperience investing, it’s not surprising how often people fail when employing this strategy.

It can be a challenge to stay on top of all the moving pieces involved in a real estate investment when it is your full-time profession, so what chance do you have if you’re only dedicating a few hours per week to a property?

Starting a real estate investment without focus or the right resources can put even the best deal in a bad position. Instead, before getting started make sure to have a clear scope of work, a strong understanding of what a property requires and someone assigned to complete each task.

Managing the project proactively rather than reactively can be a saving grace in real estate investments. It allows for you to assemble the right team who will be able to help keep your investment goals on track. Again, don’t reinvent the wheel. Leverage the experts you have at your disposal who can provide you with support.

Not saving for repairs and maintenance: The final common mistake that investors make is not having realistic expectations as far as maintenance costs and capital expenditures. Most sophisticated investors will set aside at least 2 percent of the value of the property into a reserve account on an annual basis for these potential costs.

Novices tend to set nothing aside and are in a tough situation when a major repair is needed or when replacing a critical component, as they don’t have the capital necessary to complete the work. Remember, everything in your investment has a lifespan and will need to be replaced eventually.

The best place to start when taking on any type of new project is with preparation. By knowing the most common pitfalls and having a plan in place to avoid them, new investors can find success in real estate investing.

Whether flipping houses or purchasing long-term buy-and-hold rental properties, investors who do their diligence are much more likely to find repeat success. While no deal is perfect and everyone is bound to make a mistake or two, those who learn from them and set up processes to avoid making them again in the future put themselves in a position to succeed going forward.

Source: realestate.usnews.com

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Guide: Renting-To-Own For Landlords And Tenants

Thu, 10/12/2017 - 10:32am

Posted on Oct 12, 2017

While there are many benefits of being a landlord, the time may come when you want to sell. Rent-to-own is one approach to help you sell your home — especially if your investment property won’t stand out in a crowded real estate market. Learn what rent-to-own homes are, as well as their benefits and disadvantages.

What Is a Rent-to-Own Home?

A rent-to-own home allows qualified tenants to rent for a lease term with the option to buy your home at the end of the lease. In terms of how to rent-to-own a home, it takes a special lease agreement outlining the terms and conditions.

Renters need to put down a type of deposit, called an option fee. The option fee, which ranges from 2 to 7 percent of the home’s value, is not refundable if the tenant decides not to purchase the home.

Once you enter into a rent-to-own home agreement, you’re locked into it. If you receive another offer for your home while you have rent-to-own tenants, you cannot accept it. Before you decide to offer your home under a rent-to-home agreement, look at the full benefits of rent-to-own as well as the disadvantages.

Rent-to-Own Benefits

If you want to sell your house but haven’t been able to, rent-to-own can solve your problem.

If you moved but weren’t able to sell your home before the move, you might be carrying two mortgages. Renting out the home you no longer live in can help cover your mortgage payments so you can make those monthly payments on time, meeting your financial obligations and maintaining good credit.

When your tenants are considering buying the home, they may be more likely to take care of the property. Even if they don’t buy the home at lease end, your home should still look good.

For tenants, rent-to-own can be an attractive way to become homeowners, with a little time and money. Tenants with bad credit, who may be unable to qualify for a mortgage, can delay the mortgage application process and improve their credit during the lease period. When the lease ends, they should be able to apply for a mortgage and buy the home.

Rent-to-Own Disadvantages

Tenants aren’t obligated to buy with a rent-to-own lease, so at the end of the lease, you could be stuck with a house you need to sell. Or, you could wind up with a tenant who breaks the lease or causes property damage, then declines to buy the home.

If home values go up, you cannot revisit the agreement and increase the price of your home. You could wind up selling your home for less than you otherwise would had you rented the house and waited for the market to improve.

For tenants, rent-to-own results in rent above market rate as well as “rent credits,” extra money that’s put toward the down payment. If you decide not to buy the home, you’ll lose rent credits and the option fee.

Rent-to-own isn’t right for everyone, but it might be exactly what you need. To learn more about rent-to-own and other topics affecting landlords, and to receive the lowest price on landlord-tenant formsjoin American Apartment Owners Association.

Disclaimer: All content provided here-in is subject to AAOA’s Terms of Use.

 

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As California burns, here’s what you need to know about fire insurance

Thu, 10/12/2017 - 10:30am

Most homeowners insurance policies cover fire damage. But heads-up: That’s not the whole story.

If you live in a high-risk area, such as near a canyon, you may need to pay more for additional coverage.

And if, God forbid, a fire has devastated whole communities, such as what we’re seeing now in Northern California, your home-replacement dollars could be stretched thin as costs soar for everything from materials to labor.

“All those commercials about insurance companies offering peace of mind when things like this happen — those are just ads,” said Amy Bach, executive director of United Policyholders, a San Francisco-based advocacy group.

“In reality, insurance policies are written by teams of lawyers, and it can be rough for homeowners,” she said.

Most homeowners insurance covers both your home and all property within. More than 90% of homeowners buy coverage, according to recent estimates, and as many as 40% of renters purchase insurance for their belongings.

After the recent drought turned California into a huge pile of kindling, insurers racked up billions of dollars in fire-related claims. Some, such as Allstate, stopped writing new policies. Others, such as Farmers and State Farm, became choosier about homes they’d cover.

The insurance industry says it’s ready to handle claims from the fires now raging statewide.

“Insurers will 100% be there for homeowners,” said Nicole Ganley, a spokeswoman for the western region of the Property Casualty Insurers Assn. of America, a trade group. “Insurers are moving very quickly to help policyholders.”

Be that as it may, coverage may not always be easy to obtain.

Homeowners in high-risk areas who can’t find coverage in the open market may have to turn to a state-sponsored program called the California FAIR plan. FAIR covers up to $1.5 million for a structure and its contents, which in some cases won’t be enough for full replacement of a lost home and property.

If there’s one takeaway from the blazes now causing widespread damage in the Golden State, it’s for homeowners and renters to make sure their coverage is up to date — and that nothing sneaky has made its way into your policy.

Narbeh Shirvanian, a Glendale lawyer who handles fire-related claims, said it’s not unheard of for an insurer to change the terms of a policy during the renewal process.

“It might be disclosed,” he said. “But let’s be honest, nobody really reads all this stuff.”

As a result, you may find that you’re shouldering more of the risk than you originally thought.

Shirvanian also warned of seemingly arbitrary responses to fire claims. If a structure burns down, then all legitimate insurance claims will be honored.

But what if there’s a wildfire nearby and your home is impacted by smoke and ash? Will your homeowners coverage pay for the cleanup?

“We’re seeing issues with smoke and ash damaging homes and insurance companies playing games,” Shirvanian said. “One year they do one thing, one year they do something else.”

It’s very important as the economy recovers from the Great Recession to be mindful of rising property values. Yes, that’s great from a maybe-I’ll-sell perspective. From a fire perspective, it can be a whole other thing.

Replacement costs you locked in for your insurance policy may no longer reflect current conditions, meaning you may have to reach into your own pocket to make yourself whole.

Also, widespread fire damage will be felt in the market in the form of rising costs for materials such as wood and concrete, and almost certainly higher labor costs as contractors take advantage of supply-and-demand situations.

A smart idea is to pay a little extra for what’s known as an extended replacement cost endorsement. This is basically additional coverage intended to accommodate at least a portion of any unexpected cost increases.

You can also purchase additional coverage for code upgrades. For example, the rules might have changed for electrical systems or insulation since your house was built. Code-upgrade insurance will protect you from so-called betterments that your basic policy might not address.

“Insurance companies have had enough experience with fires in California to do a good job of resolving claims,” said Bach at United Policyholders. “But that’s still not always the case.”

I strongly advise homeowners and renters to take their smartphones and walk around their homes shooting a video of their belongings. This can provide helpful evidence if an insurer disputes, say, that you owned a state-of-the-art home-theater setup.

If you have to evacuate, save all receipts. Many homeowners policies include so-called ALE coverage, as in “additional living expenses,” which will include costs such as hotel rooms, food and rentals.

For more info, you can reach out to the state Department of Insurance via their consumer hotline: (800) 927-4357.

 

Source: latimes.com

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Who is the next disruptor in the vacation rental industry?

Thu, 10/12/2017 - 10:19am

Travelers have been staying in vacation homes for centuries, but it wasn’t until the emergence and disruption of VRBO.com and Airbnb that the industry became a mainstream lodging alternative. According to Phocuswright, 32 percent of U.S. travelers reported staying in a private home in 2015, up from 8 percent in 2010. This triple-digit growth has attracted attention from the entire travel sector, as evidenced at the Skift Global Forumlast week in New York, during which every hotelier and OTA CEO addressed the subject of vacation rentals.

Vacation rental managers and homeowners have been battling—and, arguably, profiting from—disruption for the last eighteen years.

When VRBO.com was founded in 1999, homeowners in traditional vacation destinations (beach, mountain, lake, and theme park-oriented locations) found a marketing channel to reach a mass audience of travelers and no longer relied on professional property managers for bookings. In 2008, Airbnb was created, and by 2011, the company had become a global powerhouse initiating a cultural shift in travel and a marketplace for shared lodging options and privately-owned urban accommodations.

Since then, the vacation rental industry has experienced fast growth and consolidation with Expedia, Priceline, Airbnb, and TripAdvisor taking early leads by acquiring vacation rental channels and competing for market share in this rapidly-evolving travel sector. In addition, metasearch platforms and multi-destination vacation rental management companies are emerging and expanding, backed by millions of dollars in venture capital funding, with hopes of creating big-brand names for privately-owned accommodations.

Even with consolidation, the vacation rental industry is ripe for disruption.

Consumers still find it incredibly difficult to search for and book vacation rentals. Moreover, homeowners and managers experience friction using the latest marketing channels, property managers are challenged with scaling operations across destinations, and the industry has yet to adopt standards that rival the hotel and cruise industries.

Consequently, hoteliers, OTAs, and investors are chasing the next source of disruption in the fast-growing industry.

Where are the gaps and friction? In all phases of the transaction between the homeowner and the traveler, friction, gaps, imbalanced distribution of profits, and struggles with managing customer expectations still exist in the sector. Challenges and potential areas of disruption include:

  • Marketing Dependence
  • Booking Path Optimization
  • Brand Recognition
  • Scalability of Property Management Services
  • Standardization to Meet Customer Expectations
MARKETING DEPENDENCE

Vacation rentals are largely privately owned and managed by local companies which possess little brand recognition. As a result, these owners and managers have been increasingly forced to rely on online marketplaces as a primary source of bookings, and the expense of using these channels in rising.

However, while vacation rental managers and homeowners are dependent on OTAs, OTAs are dependent on Google.

According to Skift, “Combined, Priceline and Expedia likely spent $5.8 billion on digital advertising in 2016… Assuming that a few percentage points of spend is on Facebook and a few is on other channels, we can estimate that around 70 percent of Expedia and Priceline digital ad spend went to Google. This would amount to just over $4 billion in 2016; this includes both AdWords and the much smaller metasearch part of Google.”

This spending on digital advertising translated to 33 percent of gross profit for the two travel giants.

Google travel executive Oliver Heckmann told Bloomberg that he has the tricky job of keeping online travel agents happy while building increasingly competitive services for consumers. These advertisers need Google as much as the Alphabet Inc. unit needs them, but he’s always mending fences.

“If I look at the industry, everybody is sort of collaborating and competing with each other,” he said, while dismissing concern about a larger threat from Google. “I want to get a margarita every time I have to clarify that misunderstanding.”

The current level of marketing dependence in the industry points to potential disruption. Vacation rental suppliers are spending 20-25 percent of their profits on digital marketing channels (including OTAs), and OTAs are spending a third of their profits on digital marketing.

If a new player can find a way to insert itself between search engines and bookings for vacation rentals, there is a significant margin up for grabs.

BOOKING PATH OPTIMIZATION

The vacation rental industry has not yet identified the best booking path for individually-owned vacation homes.

OTAs are forcing a booking path that mirrors the hotel booking process. However, in contrast to hotels, vacation rentals are a “considered purchase” (Defined as a more complex buying decision with a high degree of financial and emotional risk which requires more investigation and comparison prior to a transaction than booking a hotel).

OTAs have implemented processes over the last year to eliminate contact between the traveler and the homeowner or manager. These actions have caused an uproar among vacation rental owners and managers as the new process fundamentally changes how vacation rentals are sold.

On one hand, as a “considered purchase,” the rental traveler has more questions when booking a multi-bedroom home for a multi-night vacation than they do when booking a standardized hotel room; and owners and managers have a need to talk to customers to set expectations and convey critical information about the property.

On the other hand, many homeowners and managers are slow to respond to requests for information causing anxiety and difficulty for travelers. Each owner or manager who does not respond immediately to an email, chat, or phone call pushes the entire vacation rental industry further into the hands of OTAs.

The difference in the booking path between vacation rentals and hotels presents a challenge that, to date, has not found a solution.

 

BRAND RECOGNITION

OTAs have created a booking path that mirrors hotels—with one notable exception. OTAs still prominently display the hotel brand, while they have removed the brand name for vacation rentals.

Airbnb, Expedia-owned HomeAway, Priceline, and TripAdvisor have proactively taken bold steps to insert themselves between travelers and the homeowner or manager by masking customer information, becoming the merchant of record, and eliminating any mention of the brand name or homeowner.

The idea of creating a big-brand global name for vacation rentals was first attempted by ResortQuest. Through many iterations, the idea proved to be unsuccessful at the time.

Alex Nigg noted in his article, Fighting 800 lb Gorillas, in the fall issue of VRM Intel Magazine, “Simon Lehmann, formerly of Phocuswright, at VRMA (Europe) in Amsterdam, said building a brand is an exercise in futility for a VRM. If he is correct, day-to-day operational management of properties will become the key competitive advantage of property managers.”

The fact that no company has been able to build a sustainable, recognizable brand in vacation rentals does not mean it is impossible.

 

SCALABILITY IN PROPERTY MANAGEMENT

Several multi-destination property management companies are raising funds and attempting to consolidate supply into managed brands. These companies have the objective of decreasing the cost of management by implementing technology solutions and scaling processes. However, the vacation rental industry is difficult to scale. As evidenced by reviews, these companies are challenged with maintaining a high level of quality and cleanliness while scaling operations for several identifiable reasons.

First, these new companies are more willing to add inventory to their portfolios that other local companies have declined to service. Business development employees are incentivized by adding homes, not adding quality homes. As a result, the base level of quality is difficult to manage. Second, the multi-destination management companies are focused on technology and—at least in the short-term—are struggling to accomplish automation without sacrificing quality and service. In time, automated solutions will improve and adapt; but the process has been slow, and learning curve is steep. For example, a number of multi-destination companies sought to replace housekeeping inspectors with mobile photos taken by contracted housekeepers. Most soon discovered that mobile photos cannot replace an inspector in gauging cleanliness.

Scaling services for successful vacation rental management has not been perfected, and opportunities for disruption continue to exist in developing multi-destination processes that decrease expenses, maintain quality, and encourage guest loyalty.

 

STANDARDIZATION TO MEET CUSTOMER EXPECTATIONS

The vacation rental industry has struggled to adopt meaningful standards for accommodations. In some vacation rental destinations in the US, homeowners still require guests to bring their own sheets. In many others—including some of the largest property management companies—linens are being washed in the home between stays by housekeepers without any attention to laundry safety standards. In kitchens, many homeowners leave food in cabinets and refrigerators and cleaning supplies in easy reach of children. The industry also does not having any exit postings or safety instructions, which make it vulnerable to regulations and attacks by hotel advocates and lobbyists. This lack of standardization offers an opportunity for industry disruption that has the potential to make or break the sector.

 

WHO WILL DISRUPT THE INDUSTRY?

In spite of the many challenges facing the industry, vacation rentals as a mainstream lodging alternative are here to stay. Where there is friction in the booking process, challenges with scaling operations, a lack of a strong brand, needless marketing spending, and a need for standardization, many opportunities exist to disrupt the sector. The one thing we can say with certainty, the evolving story of vacation rentals continues, and there is ample room for new players and solutions we have yet to discover.

 

Source: vrmintel.com

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10 Simple Tips on Dealing with Difficult Tenants

Wed, 10/11/2017 - 3:54pm

Managing Difficult Tenants and Preventing Tenant Lawsuits if Possible And Other Asset Protection Safeguards

By Nate Bernstein, Attorney at Law

LA Real Estate Law Group 

Use psychology and positive energetic communication rather than brute force and intimidation.  

  1.   Sometimes the tenant’s problem and grievance has escalated because they cannot reach a manager or owner by phone and they are playing phone tag.   The issue is one of poor customer service.   If the problem cannot be resolved on the phone,  have you or your manager set up an in person sit down meeting with the tenant and let both sides state their concerns and grievances.  Show some empathy for the tenant.   Avoid name calling, confrontation, shouting, and personal attacks.  Sometimes a tenant just wants an in person meeting to be heard and to vent-  which may in fact diffuse the situation.

 

  1.  Follow up the in person meeting with a written plan of action- either what management will do or what the tenant has to do with a realistic estimated time frame.    The written plan of action can be in the form of an email or a letter.   If you make a promise in a letter, please make sure you fulfill that promise with action.

 

  1.   Many issues can be resolved with a well drafted rental agreement or lease agreement, addenda, and apartment rules.  In addition to the basic lease agreement- there should be an addendum that addresses-    Issues such as what types of pets can a resident have ?  What is the policy on comfort animals ?   How many parking spaces does a resident get  ?    Does a resident have an assigned space ?    What is the policy on barbecuing from the tenant’s deck  ?   Don’t forget that bed bug addendum !!  I will leave it to your imagination to address areas of conflict for common areas or in apartment units.

 

  1.   Enforcement of house rules and regulations should be consistent- if you give out one assigned parking place to a single tenant- don’t give out 2 parking places to another single tenant.

 

  1.   If you have a smaller rental operation that does not have an in house maintenance staff- you should have your trade and repair contractor’s information handy and on speed dial.  The basic ones are plumber, painter, air conditioning- heating repair, pest control, handy person, and appliance repair.  A handy person who is a “jack of all trades” is invaluable but can remedy many problems in the unit.  The tenant will really appreciate a fast response from you when they need basic repairs that  affect the habitability of the unit.    Use porch.com to get leads for trade persons such as plumbers.

 

  1.  Sometimes if the property manager cannot resolve the problem by an email, phone call, or in person meeting, an attorney letter can be an effective tool to calm the tenant down, call for an enforcement of rules and get a plan of action in place.   The attorney can also offer formal mediation as a solution, and see if the tenant wants that approach.  The attorney letter can provide an important disciplinary function to deal with certain tenants, but not all.

 

  1.   Sometimes a recitation of black letter law- a local ordinance or state law or even a case that is directly on point from the California Supreme Court can show a tenant that you know the laws and you are in compliance, and can prevent a lot of arguments.

 

  1. If you have tried the in person meeting, and other tenants are complaining about a situation, you can also serve a “Three Day Notice to Perform Covenant or Quit” that addresses a rental agreement violation.   Before you do this its important to document the facts of the problem- who, what, where, how, when, and have the contact information from witnesses, such as other tenants.   These other tenants can testify at trial against the problem tenant, and is key for having corroborating witnesses.   The notice should also track local rent control ordinance requirements.

 

  1.  Have a policy whereby tenants purchase a renter’s insurance policy.  At least offer this as an option.   This type of insurance can pay for a loss for damage to a tenant’s personal property, and can provide a fund to pay for losses that the landlord can avoid.

 

  1.     Due the aggressive advertising practices of personal injury attorneys on television and billboards- tenants have plaintiff’s lawyers on speed dial.  You have to be prepared for this type of claim.   Have current liability insurance in place with high limits and broad coverage- any tenant, whether injured or not, can sue you or your company virtually for any reason- it does not mean that the case has merit.   If the claim or loss is covered under the insurance policy, the insurance carrier will have to defend the lawsuit, and indemnify you up to the policy limits.

Copyright 2017 Nate Bernstein, Attorney at Law. LA Real Estate Law Group. All Rights Reserved.

The author of this article, Nate Bernstein, Esq., is the Managing Counsel of LA Real Estate Law Group, and a member of the State Bar of California and his practice concentrates in the areas of complex real estate litigation, commercial litigation, employment law, and bankruptcy matters. The contact number is (818) 383-5759, and email is natebernstein44@gmail.com.  Nate Bernstein is a 22-year veteran Los Angeles real estate and business attorney and trial lawyer. Mr. Bernstein also has expertise on bankruptcy law, the federal bankruptcy court system, creditor’s rights and debtor’s bankruptcy options. He previously served as Vice President and In House trial counsel at Fidelity Title Insurance Company, a Fortune 500 company, and in house counsel at Denley Investment Management Company. Nate Bernstein created www.laquiettitleattorney.com, a leading educational resource on quiet title real estate litigation. Nate Bernstein is a local expert on real estate law and economic trends in the real estate and leasing market, business law, and bankruptcy law. Nate has personally litigated more than 40 major real estate trials, and has settled more than 200 complex real estate and business cases. 

Any statement, information, or image contained on any page of this article not a promise, representation, express warranty, or implied warranty, or guarantee about the outcome of a legal matter, and shall not be construed as being formal legal advice. All statements, information, and images are promotional. All legal matters are factually specific, laws change on a daily basis, and courts interpret laws differently. No express or implied attorney-client relationship shall be inferred from any statement, information, or image contained any pages of this website. No attorney-client relationship is formed until the client or the client’s representative, and the attorney signs a written retainer agreement.

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How to Mitigate Risk as a Landlord or Airbnb Host

Mon, 10/09/2017 - 2:17pm

Landlords face a variety of potential downsides – receiving unexpected insurance claims, getting stuck with a big repair bill or, in the worst-case scenario, finding themselves saddled with a large legal judgment after an injury or accidental death.

But perhaps the toughest lesson for rookie landlords to learn is how to not be burned by tenants who can’t pay the rent or won’t pay on time.

Tips from a Landlording Pro

Veteran landlord David Dweck, head of the Boca Real Estate Investment Club in Coconut Creek, Florida, says he’s adopted an approach that’s polite and professional but also unwavering.

“It’s not a friendship; it’s a business relationship,” Dweck says.

Dweck starts with a thorough screening before he allows a prospective tenant to even tour a property. He wants to see proof of a job and a credit score of at least 640; although, he’ll consider an applicant with a lower score if it’s due to owing money toward student loans or medical bills. He also checks tenants’ personal and professional references.

To further drill down into prospective tenants’ profiles, Dweck uses a rental application that asks several unusual questions: Do you own a vacuum cleaner? Do you rent or own your furniture? The answers help him gauge just how risky a tenant might be.

Dweck also insists on an initial payment of the first month’s rent, the last month’s rent and a security deposit. “I never negotiate that – ever,” he says.

Dweck’s also clear with tenants that he’s strict about late rent payments. He encourages tenants who hit financial turbulence to contact him before they miss a payment rather than avoiding his calls and hoping he doesn’t notice.

If a tenant hasn’t paid their monthly rent by the fifth day of the month and doesn’t respond to his phone calls, Dweck files a notice with the local court system communicating his intent to start eviction proceedings in three days. If the rent still isn’t paid, Dweck turns the matter over to his eviction attorney.

Dweck’s reliance on personal questions and three-day eviction notices to prompt a rent payment may be too heavy-handed for some landlords, but it serves as a reminder that everyone renting out a home needs to do background checks on every prospective tenant and set clear limits with their tenants.

A crucial step for the background check is to ask for a copy of each prospective tenant’s driver’s license or state-issued ID card; some brazen scammers have used other people’s names and Social Security numbers in order to pass a credit and criminal background check for renters.

Limit Landlord Liability

Among his other risk-management strategies, Dweck suggests that a landlord form a limited liability company (LLC) for rental properties, rather than personally owning homes. That move helps protect the landlord from personal liability in the case of a lawsuit. However, you should do this with the help of an attorney, since changing the status of your property could void your title insurance or trigger other consequences you may not anticipate.

Speaking of liability, Dweck advises against renting out homes with swimming pools – the legal risk seems too steep to him. According to data from the Centers for Disease Control and Prevention, more than 3,500 people – on average – unintentionally drown every year. Dweck knows of one landlord who was hit with a multi-million-dollar judgment after a death in a backyard pool.

Dogs are another area of potential risk. Dweck allows most types of dogs and insists on meeting the pet before he approves its (and its owner’s) tenancy.

Less Stress for Airbnb Hosts

If getting paid is the major challenge for landlords, Airbnb hosts say they don’t have to worry about that particular problem. Airbnb stresses that it collects money from guests up front.

“I’m never really concerned about the financial aspect because Airbnb makes sure the guest pays the bill even before they step over the threshold,” says Kevan Full, an Airbnb host in Easton, Maryland.

Full’s Airbnb space is a converted corn crib (a ventilated building for storing ears of corn) on his property on Maryland’s eastern shore. He and his wife, Chris, host guests for $110 – $125 a night.

No Guest Parties Allowed

While the Fulls don’t fret about getting paid, they are careful about who they allow to stay at their home. The risk-management process starts with a property description written to discourage rowdy guests.

“We’ve mitigated risk by being very clear with our description,” Kevan says. “We’re quite clear that it isn’t a place to party.”

The couple also doesn’t allow for automatic reservations on Airbnb. Instead, they require guests to request a stay. That gives them a chance to look at guests’ profiles and weed out people with poor reviews or who seem to enjoy partying.

Kevan says he has never experienced major damage to his property, just the occasional stuff that requires a minor paint job.

“People are typically very kind to the space,” he says.

Airbnb host Cindi Sherman, who rents out the top story of her home in Westminster, Colorado, also takes pains to play down the party possibilities of her place. She forbids smoking and affirms that even though Colorado is a cannabis-friendly state, her home isn’t. Instead, Sherman offers family-friendly features such as baby gates and a playpen.

She requires a hefty security deposit of $325, and her living area is separated from the Airbnb space by a door with a lock. She says her most common loss occurs when hand towels and washcloths are stained by makeup.

Mixed Feelings About Airbnb’s Insurance

In another bit of assurance, Airbnb says it provides each host with $1 million of insurance coverage for property damage.

Former Airbnb landlord Scott Shatford says he had a good experience with the hosting site’s insurance coverage. Shatford was renting an apartment in Santa Monica, California when he got a call from a guest reporting a stolen car and stolen luggage.

“I was like, ‘This has got to be a practical joke,’” Shatford, who now runs AirDNA, a Denver-based short-term rental industry data collection firm, recalls.

It was no joke, but Airbnb cut the guest a check for the full amount, he says. Shatford later determined the theft was perpetrated by a former guest who lived nearby and had copied a key to the unit.

From the experience, Shatford learned two valuable lessons: First, be suspicious of Airbnb guests who live in the same town as your Airbnb rental and who book at the last minute. Second, ditch traditional locks with keys for digital locks that issue a new combination for each guest.

But not everyone is sold on Airbnb’s insurance coverage. Cindi Sherman says after hearing other hosts gripe about the quality of Airbnb insurance, she shopped around for her own coverage.

“The hoops that need to be jumped through to get Airbnb to actually pay out on their coverage are incredible,” Sherman says. “From what I see on social media, hosts trying to get damage covered by the Airbnb insurance have a ton of constraints that can be pretty tough to complete given Airbnb’s timetable for claims.”

She says Airbnb requires hosts to provide photos of the damage, original receipts for any damaged goods and repair or replacement estimates 14 days before the next guests check in for their stay.

“Some hosts have same-day turnarounds, so the ‘before the next guests check in’ clause would cause them to have to cancel that next booking, which reflects poorly on their ratings and causes lost income,” she says, adding that incidents like this create a Catch-22 situation.

Sherman also says it was difficult finding home insurance coverage that accommodated short-term rentals.

“We were almost canceled for having an Airbnb property because traditional insurers didn’t want the risk.”

Hosting Guests Takes Work

Kevan says his biggest surprise to date as an Airbnb host is the time commitment. Crafting a professional property listing with high-quality photographs takes time. So does cleaning the space for new guests, monitoring reservations and cancellations and otherwise communicating with customers. He estimates he spends two – four hours a day on his Airbnb gig.

“It is a lot of work,” he says. “You have to be willing to work on it.”

Are you a landlord? An Airbnb host? What tips do you have for folks considering a similar path? Let us know in the comments!

 

Source: quickenloans.com

The post How to Mitigate Risk as a Landlord or Airbnb Host appeared first on AAOA.

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