American Apartment Owners Association

Landlord To Pay $20,000 To Settle Pet Discrimination Case

7 hours 22 min ago

The owner of several Reno, Nevada apartment complexes has agreed to pay $20,000 to settle allegations pet discrimination and Fair Housing Act violations involving requiring pet deposits from prospective tenants who require assistance animals, according to a release.

The Silver State Fair Housing Council filed four complaints against the owner and manager of Silver Lake Apartments, Vale Townhomes, Oak Manor Apartments and Angel Street Apartments with the U.S. Department of Housing and Urban Development (HUD).  These complaints allege ERGS, Inc. and Silver Lake Apartments, LLC discriminated against prospective tenants who required assistance animals by requiring applicants who required support animals to pay a pet deposit fee.

Under the conciliation agreement, ERGS, Inc. will pay Silver State Fair Housing Council $20,500.  ERGS, Inc., and Silver Lake Apartments, LLC, will also adopt a written policies that are consistent with the Fair Housing Act and provide fair housing training for all employees who interact with tenants or applicants

Kate Zook, executive director of the Silver State Fair Housing Council, told Rental Housing Journal that a woman with an emotional support animal had tried to apply at the apartments and was told they do not accept pets.

The Silver State Fair Housing Council did follow-up testing on emotional support animals and rentals at the apartment complexes. She said they found, “People with emotional support animals were told they do not qualify as a service animal.”

The organization then filed the complaint against the owner and managers of the apartment complexes.

“I hate filing cases,” Zook said. But she said unfortunately sometimes it takes publicity about these issues to get people’s attention. “It is too bad. Somebody has been hurt in this.”

Both Fair Housing Act and Americans with Disabilities Act can apply in these situations.

In addition to the Fair Housing Act’s protections, HUD provided guidance in April 2013 reaffirming that housing providers must provide reasonable accommodations to people with disabilities who require assistance animals. Read HUD’s notice.

Pet discrimination and disability

Disability is the most common basis of fair housing complaints filed with HUD and its partner agencies. Last year alone, HUD and its partners considered over 4,900 disability-related complaints, or more than 58 percent of all fair housing complaints that were filed.

HUD writes in the notice that, “An assistant animal is not a pet. It is an animal that works, provides assistance or performs tasks for the benefit of a person with a disability, or provides emotional support that alleviates one or more identified symptoms or effects of a person’s disability. Assistance animals perform many disability-related functions, including but not limited to, guiding individuals who are blind or have low vision, alerting individuals who are deaf or hard of hearing to sounds, providing protection or rescue assistance, pulling a wheelchair, fetching items, alerting persons to impending seizures, or providing emotional support to persons with disabilities who have a disability-related need for such support. For purposes of reasonable accommodation requests, neither the FHAct nor Section 504 requires an assistance animal to be individually trained or certified.”

“Housing providers are to evaluate a request for a reasonable accommodation to possess an assistance animal in a dwelling using the general principles applicable to all reasonable accommodation requests. After receiving such a request, the housing provider must consider the following:

  • Does the person seeking to use and live with the animal have a disability — i.e., a physical or mental impairment that substantially limits one or more major life activities?
  • Does the person making the request have a disability-related need for an assistance animal? In other words, does the animal work, provide assistance, perform tasks or services for the benefit of a person with a disability, or provide emotional support that alleviates one or more of the identified symptoms of a person’s existing disability?

If the answer to those two questions is “yes,” then the housing provider is to modify or provide an exception to a “no pets” policy.

Read “How to Handle Service Pet Policies Without Discriminating” to learn more.



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Boomers Look To Real Estate To Afford Retirement

Thu, 06/22/2017 - 9:10am

As many as 10,000 baby boomers retire daily. Members of this generation are increasingly looking to real estate to diversify their retirement portfolios and boost returns.

Many boomers have realized their retirement plans are not sufficient and have turned to alternative investments, such as real estate, to compensate. About 30% of baby boomers have no retirement savings and one-quarter have less than $50K saved, according to research by GoBankingRates. 

These boomers, who were born between 1945 and 1964, survived the Great Recession and were raised by parents who survived the Great Depression. They have been employed in a world where pension funds are growing less common and employer-led 401(k) retirement accounts are increasingly more common.

Paying For Predictability

“The alternative investment world doesn’t become more popular until it’s time for people to retire,” The Entrust Group Director of Professional Development John Paul Ruiz said. Entrust provides services for self-directed individual retirement accounts (IRA), which, unlike typical IRAs, allow for alternative investments like real estate. 

Retirees typically want their investments to become more stable before making withdrawals. 

“Many of our clients think, ‘What other types of investments can I hold in my IRA that are outside the securities world because I can’t handle another crash?,’ Ruiz said.

Residential Versus Commercial Investment

Many turn to commercial real estate because the monthly rent they can collect does not undergo the highs and lows of stocks and bonds. Precious metals, notes and timber have also become more popular. Investors recognize residential real estate in core markets typically increases in value with proper maintenance, and owners can collect rent on the asset.

In the commercial world, leases run several years, allowing the stability of collecting rent to transcend smaller cycles, CBRE Managing Director of Global Industrial and Logistics Jack Fraker said. 

Within real estate, single-family homes remain the most popular asset for IRA holders to purchase, according to research from The Entrust Group. In 2016, more than half of the real estate purchases made by Entrust clients were for single-family homes. Last year, more than a quarter of clients purchased multifamily properties, and about one-fifth purchased raw land.

“Within the last 100 years, the best places to put money is in the marketplace and in real estate. One of main reasons [why] is familiarity. You may not ever talk to the money manager of your mutual fund. But with a real estate asset, you can see it; you can meet your tenant,” Ruiz said.

Institutional Versus Individual Investment 

Private, individual investors are not the only ones cashing in on real estate holdings. Institutional investors have increased the percentage of their real estate holdings recently, Fraker said.

“It used to be more like 5% of their assets were in real estate, but has certainly doubled over the last 10 years. That’s good for us [in real estate] because it means more of their money is going into our assets and less into stocks and bonds,” Fraker said. 

Hard assets’ ability to withstand economic cycles better than Wall Street makes real estate a more attractive and less risk-prone asset for investors. 

Looking To Future Generations

When Generation X, the generation following baby boomers (born between 1965 to 1979) begins to retire in greater numbers, The Entrust Group’s Ruiz said he is unsure what their investment patterns will look like. Many of the real estate assets bought by boomers will be inherited by Generation X, and there is not enough data yet to know what Generation X will do with those assets, Ruiz said.

“But there is a new generation of people getting more familiar with self-directed IRAs,” Ruiz said. “Many have accumulated wealth through them, and those getting involved in self-directed IRAs are younger and younger.”


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The Positive Impact of the Interest Rate Hike

Thu, 06/22/2017 - 9:07am

Rising interest rates are one of the real estate market’s soft spots. The increase of the Federal interest rate led to numerous forecasts, many of which report the anticipation a decrease in transaction volume and units coming online. Sean Burton, CEO of investment management and development firm CityView, shared his view on the matter with Multi-Housing News.

MHN: Supply is expected to peak this year. How will this impact the market?

Sean Burton: Although there may be an influx of multifamily housing supply at the national level, which could result in less rent growth in certain areas, in the cities where CityView invests—densely populated, urban locations with strong job growth and severe housing shortages—we believe there is still plenty of room for appreciation. In fact, in many of those markets, such as Los Angeles, it will take years for supply to catch up with demand.

MHN: Construction financing is harder to find. Will this mean that development will slow down as well?

Burton: We are not experiencing difficulty obtaining financing for our projects because the markets in which we invest possess strong job growth, an influx of millennials, and urban renewal. Because our lenders understand that our projects will be met with strong demand when they are delivered to the market, they are willing to provide construction financing. Obviously, in areas where the market dynamics are different, construction financing will be more difficult to come by and will slow development down.

MHN: Do you think the rising rates will trigger more investment or less investment? Are investors in a hurry to avoid the next increase or are they waiting to see how rising rates impact the market?

Burton: When interest rates will rise and by how much are obviously a concern for everyone as it directly affects the economics of a project. However, trying to predict when those moves will occur is a fool’s errand. I don’t think rates will rise dramatically overnight, but rather will slowly creep higher over the course of the next several years.

Also, if rates are rising because the economy continues to heat up, that will drive more jobs and higher rents. As such, all we can do is continue to focus on our core urban markets and be rigorous in our due diligence as we select the projects in which we will invest. If we do that, we can still create value for our investors regardless of the interest rate environment.

MHN: How will rising rates influence real estate prices?

Burton: As a general rule, rising interest rates make it more difficult for people to buy homes, regardless of the actual price of the property. When this happens, there is increased demand for rental properties and this can be a very positive development for the multifamily housing industry.

MHN: Multifamily demand is expected to be robust for the next five to 10 years, while rent growth is slowing down. What should we expect from the multifamily market in the future?

Burton: We believe that rent growth has a lot of running room in our core urban markets simply because these areas are in desperate need of additional housing. In these places, even when new supply comes online, it is just not enough and rent therefore continues to increase. Overall, rent growth may see a slowdown to a more stable pace in the coming years, but as I alluded to earlier, it will very much depend on the specific market.


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Freddie Mac Securitization Could Help the Affordable Housing Challenge

Thu, 06/22/2017 - 9:04am

Freddie Mac has upped the ante on its securitization programs. In June the company issued hundreds of millions of dollars in bonds secured by loans to affordable housing properties.

“That means lower transaction costs and interest rates for long-term financing,” says David Leopold, vice president of targeted affordable sales and investments for Freddie Mac. “Because the securitization was so successful, we will be able to drive down costs.”

Freddie Mac’s securitization program could also have implications for Freddie’s lending to other kinds of apartment properties. “Will this open the door to doing the same thing with other quirky assets?” says Leopold. “It demonstrates that we continue to innovate.”

Some welcome relief for affordable housing projects

Every little bit helps for affordable housing developments, which have been hit with a double whallop of bad news this year. Investors are paying less to buy low-income housing tax credits (LIHTCs), which are the most important source of financing for new affordable housing projects. Tax credits suddenly became worth less to investors as a comprehensive reform of the U.S. tax code seemed more likely to be completed after the November election.

At the same time, long-term interest rates began to rise, along with the cost of many construction materials, digging a hole in the construction budgets of new projects. Projects that rely on tax-exempt bond financing and the 4 percent LIHTCs have been hit especially hard, because those tax credits provide a thinner stream of subsidy.

The deal

Freddie Mac’s securitization was its first securitization of tax-exempt loans made by state or local housing agencies and secured by affordable rental housing.

The inaugural issuance includes approximately $292 million in ML Certificates backed by tax-exempt loans on 25 affordable housing properties and approximately $18.5 million in ML Certificates backed by taxable subordinate loans on three of the same properties. Both series of ML Certificates are expected to settle on or about June 29, 2017.

The bond sold well. The $292 million issuance scored a yield of 50 basis points over the one-month LIBOR rate.

“Eight years after our first modern K-Deal, Freddie Mac Multifamily continues to expand our securitization series and offload risk to private investors,” says Robert Koontz, vice president of multifamily capital markets for Freddie Mac. “Most importantly, we are bringing increased liquidity to the affordable housing market, a key focus that is at the heart of our mission.”

Freddie Mac remains committed to its affordable housing lending business, which is not constrained by the limits set on its lending by the Federal Housing Finance Agency.

This year, Freddie Mac plan to lend the same amount as it did in 2016—about $6 billion—through its targeted affordable programs to apartment properties that have formal restrictions on the rents of at least some of their apartments.

“We are aggressively seeking affordable housing deals,” says Leopold.


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Existing home sales hit 5.62 million units in May, vs. expectations of 5.57 million

Thu, 06/22/2017 - 8:51am

U.S. home resales unexpectedly rose in May to the third highest monthly level in a decade and a chronic inventory shortage pushed the median home price to an all-time high.

The National Association of Realtors said on Wednesday existing home sales increased 1.1 percent to a seasonally adjusted rate of 5.62 million units last month.

Economists polled by Reuters had forecast sales declining 0.5 percent to a rate of 5.55 million units. Sales were up 2.7 percent from May 2016.

The number of homes on the market rose 2.1 percent, but supply was down 8.4 percent from a year ago. Housing inventory has dropped for 24 straight months on a year-on-year basis.

The median house price increased to an all-time high of $252,800, a 5.8 percent jump from one year ago, reflecting the dearth of properties on the market.

“We have a housing shortage, we may even use the term housing crisis in some markets,” NAR chief economist Lawrence Yun said.

House price gains have also been helped by an unemployment rate that is at a 16-year low. Mortgage rates also remain favorable by historical standards.

At the current sales rate, it would take 4.2 months to clear inventory, down from 4.7 months one year ago. The median number of days homes were on the market in May was 27, the shortest time frame since NAR began tracking data in 2011.

Despite robust demand for housing, the sector has shown some recent signs of strain. U.S. homebuilding fell for a third straight month in May to its lowest level in eight months, the U.S. Commerce Department reported last week.


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2017–2018 Forecast: Class B and C Apartments Will Rule

Thu, 06/22/2017 - 8:48am

Domestic and global investment in multifamily housing is on the rise throughout the United States—especially for Class B and C properties. Several contributing factors have fostered this development, including an oversupply of Class A communities in combination with a drop in demand, the rising cost of homeownership, and millennials entering the market by the millions. In the midst of this trend, foreign investors have begun to take notice and make their own plays on U.S. multifamily real estate.

The end result: Unless we see a drastic shift in the economic climate, Class B and C multifamily housing will have the greatest potential for high returns in 2017 and well into 2018.

Class A Losing Profitability as B/C Market Heats Up Multifamily properties within different asset classes have distinctive drivers of profitability. During times of economic uncertainty or economic downturn, Class B and C properties have an edge over their Class A counterparts. This is because older properties have proven themselves to be more or less recession-proof, whereas newer properties can easily become a liability under the same economic conditions.

While Class A apartments may be located in luxury-grade buildings and can therefore command much higher rents, the properties’ NOIs will remain low if vacancies are high. Under these conditions, even if properties charge high rental rates, the reduced number of tenants results in the properties performing at suboptimal levels. This, combined with current market values—sure to be much higher than those of Class B and C properties—results in low cap rates, meaning less money in investors’ pockets.

As renters are priced out of Class A apartments in a down or volatile economy, vacancies will inevitably increase. And that’s exactly what’s happening today. The national vacancy rate (which takes into account all classes of apartments) rose by 10 basis points in the first quarter of 2017, to 4.3%. Conversely, affordable multifamily housing vacancies clocked in at a low 1.7%.

Class A properties also are costly to build and often come with a high property-tax price tag, making the up-front investment for these properties quite significant. Even so, Class A apartment construction is at the peak of a seven-year high, according to The Wall Street Journal. This has led to a sudden oversupply of luxury apartments, which in turn has made Class A properties less profitable across the board.

Meanwhile, Class B and C properties are attracting a wide demographic, from working-class individuals to millennials entering the market to downsizing baby boomers. These properties are typically 15 to 25 years old and are located in desirable buildings in well-established middle-income neighborhoods. They tend to offer residents the most bang for their buck, attracting renters in a down economy.

Class B and C properties also allow real estate investors opportunities to enjoy a significant lift in NOI by making small property improvements. Examples of these value-adds include putting in communal clubhouses, adding dog parks, and offering community events. These upgrades to B and C apartments can be relatively inexpensive to implement yet can generate higher rents, leading to rapid ROI growth.

Millennials Value Buying Experiences Over Homes Homeownership is becoming less of the norm and more of a luxury. Prices reached a 31-month high in January 2017, resale inventory is low, and new homes in affordable cost brackets are in shorter supply. As a result (and in addition to well-known contributing economic factors such as high student loan debt and stagnant wages), more and more millennials are holding off on buying houses and turning to apartments.

Additionally, many millennials prefer to pay for experiences over buying homes and consumer goods. More than three in four millennials (78%) report choosing to spend money on desirable experiences (such as travel and events) over other purchases, according to event technology platform Eventbrite. This live–work–play mentality further contributes to the millennial generation being a significant driver of apartment demand.

The number of millennials who will reach the prime renting ages of 20 to 34 will increase by 2 million in 2017 and surpass 70 million within the next seven years, according to Yardi Matrix, making this the target demographic for multifamily real estate properties.

Foreign Investors Make Plays More foreign investors are seeing this potential in the U.S. multifamily housing market. According to an analysis by Real Capital Analytics, as reported in National Real Estate Investor, foreign buyers poured a record $91 billion into U.S. commercial assets in 2015, $19.6 billion of which was invested in apartment communities. And through June 2016, foreign buyers invested a record $5.1 billion in apartment communities. To put that number into perspective, over the course of the previous decade, foreign investors averaged a mere $5.4 billion in multifamily product annually.

We’re seeing much of this money coming out of China, as well as Canada and Mexico. Additionally, in the commercial real estate industry, we’ve begun seeing an influx of investors from the Middle East and South Africa, many of whom are pouring money into multifamily properties. The reality is that the combination of a pro-deregulation president and potentially unstable economies abroad is making the current U.S. market especially attractive to investors from overseas, therefore drumming up foreign investment in the U.S. real estate market.

All factors point toward Class B and C housing becoming the darling of the U.S. real estate investment sphere in 2017 and through 2018. Key market indicators such as the increased need for affordable housing by millennials and an increase in foreign investment in multifamily housing underscore the veracity of this prediction.

These properties offer the opportunity for continued growth, regardless of the state of the volatile economy, as well as the potential to invest in small one-time improvements that deliver big-time payoffs.

Under the current market conditions and economic climate, it’s time to admit that Class A properties have been bumped to the B-list, replaced by their more practical—and, now, more popular—B and C counterparts.



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Research: Rental Demand to Escalate by the Millions

Thu, 06/22/2017 - 8:43am

Inventory shortages are weighing down just about every housing market, with supply on all sides—renter- and owner-occupied—on a months-long downtrend. A new multifamily report now estimates that by 2030, some 4 million new apartments alone will be needed to keep pace with demand.

“Apartment rentals are on the rise, and this trend is expected to continue at least through 2030, which means we’ll need millions of new apartments in the U.S. to meet the increased demand,” said Cindy Clare, chair of the National Apartment Association (NAA), in a statement on the report, released recently by the NAA and the National Multifamily Housing Council (NMHC).

Meeting demand will require a minimum of 325,000 new apartments, defined as buildings with five or more rental units, built each year—a lofty endeavor, considering only 244,000 apartments were constructed between 2012 and 2016, according to the report.

The primary catalysts behind the need are the as-ever delay in home-buying and the formation of new renter households as a result of aging and immigration. One million new renter households, on average, were formed each year over the last five.

“Renting is not just for the younger generations anymore,” said Dr. Norm Miller, principal at Hoyt Advisory Services, which collaborated with the NAA and the NMHC on the report. “Increasingly, baby boomers and other empty nesters are trading single-family houses for the convenience of rental apartments; in fact, more than half of the net increases in renter households over the past decade came from the 45-plus demographic.”

Immigrant households, in addition, will have a deeply transformative effect on both the renter- and owner-occupied housing markets.

“Immigration affects rents and home prices far more than it affects the labor market,” said Alex Nowrasteh, immigration policy analyst at the Center for Global Liberty and Prosperity at the Cato Institute, at the 2017 REALTORS® Legislative Meetings & Trade Expo in May. Nowrasteh pointed to increases in home values and rents that parallel population growth, much of it spurred by immigrants.

The report finds that demand, though widespread, will be most felt in sought-after markets in the South and West, including Arizona, Georgia and Nevada, and in markets on the East Coast, such as in New York and Virginia.

“The western U.S. as well as states such as Texas, Florida and North Carolina are expected to have the greatest need for new apartment housing through 2030, although all states will need more apartment housing moving forward,” Clare said. “The need is for all types of apartments and at all price points”—affordable stock included.

Another recent report out of the National Low Income Housing Coalition (NLIHC) purports an inability for renters in every state, earning minimum wage and working 40 hours each week, to afford a two-bedroom rental, giving way to a shortage of 7.4 million affordable units for low-income renter households. Research by the Joint Center for Housing Studies at Harvard University affirms the need, with roughly 6 million older, low-income renter households, as well, burdened.

“Apartments and their 39 million residents contribute $1.3 trillion to the national economy,” said Bob DeWitt, chair of the NMHC.

“The growing demand for apartments…will make a significant and positive impact on our nation’s economy for years to come.”



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Higher prices squeezing both renters and would-be homeowners

Thu, 06/22/2017 - 8:37am

A diminished supply of available homes is swelling prices in large U.S. metro areas from New York to Miami to Los Angeles, squeezing out would-be buyers and pushing up rents as more people are forced to remain tenants.

The trend is pressuring Americans’ budgets, with about one-third of households spending more than 30 percent of their gross income on housing as of 2015, according to a report being released Friday by Harvard University’s Joint Center for Housing Studies.

Homeownership rates have stagnated in part because high rents have made it difficult for many prospective buyers to amass a down payment for a house.

Here are some major findings documented in the report:



The government considers people who spend over 30 percent of their income on housing to be “cost-burdened.” Those who spend more than 50 percent are considered “severely” burdened.

About one-third of households — 38.9 million — were considered cost-burdened in 2015, down from 39.8 million a year earlier. This was the fifth straight annual decline.

Still, roughly 16 percent of households, or about 18.8 million, paid more than half their income on housing. The share of renters paying more than they can afford varies from city to city. In Miami, it’s 35.4 percent. In El Paso, Texas, it’s just 18.4 percent. Other cities where households were deemed to be cost-burdened include Daytona Beach, Florida; Riverside, California; and Honolulu.

Ryan Welch of Santa Monica, California, is among those feeling stuck between rising rents and home prices. Welch, 32, pays about $1,500 a month for a rent-controlled one-bedroom apartment he shares with his wife. That works out to about a quarter of their monthly income, an affordable portion.

Welch, who works in advertising sales, would like a bigger place with more amenities. But he’s reluctant to leave their apartment.

“I’m nervous to move to a place that’s not rent-controlled,” he said.

Saving to own a home, something he wants to do, has had to take a back seat to making payments on student loans and his car, among other expenses.

“I’d much rather buy, but I can’t come up with the down payment,” Welch said.



The availability of homes for sale has fallen short of demand. Last year, the typical new home for sale was on the market for just 3.3 months, according to the report — well below the average of 5.1 months dating to the 1980s.

All told, 1.65 million homes were on the market last year, the fewest in 16 years, the report said.

The supply is worse for lower-priced homes that would be affordable to typical first-time buyers. Builders have been constructing fewer homes for that segment of buyers.

Between 2004 and 2015, construction of single-family homes of less than 1,800 square feet fell to 136,000 from nearly 500,000, according to the report.

The trends helped boost national home prices 5.6 percent last year, above their housing boom peak. (Prices remained nearly 15 percent below their peak, when adjusted for inflation.)

“Builders are starting to turn more attention to the entry-level market,” Herbert said. “My guess is we’ll see some increase in our supply of smaller, more moderate-cost new housing on the single-family side.”



One striking finding in the Harvard report is the gap in home values that’s widened since 2000, well before the market hit its boom-era highs. When adjusted for inflation, prices in markets along the East and West coasts have vaulted more than 40 percent since 2000. By contrast, values in the Midwest and South have declined.

Among the markets where prices remain well below their housing-boom peaks: Las Vegas, Chicago, Detroit and Tampa, Florida. By contrast, home values have risen far above their previous highs in Denver, San Francisco and Austin, among other markets.

“If you go back to, say, 1970 and you look at the differences in house prices across market areas, they were not nearly as extreme as they are now,” Herbert said. “It’s a function of income inequality and how much the differences in income have grown.”

In addition, regulatory constraints and a shortage of available land limit construction in many areas.



Though apartment construction surged in the years after the housing bust, demand for rental housing has grown even more. The rental vacancy rate fell last year to 6.9 percent, a three-decade low, according to the Harvard report. That’s the seventh straight annual decline.

Much of the apartment construction in recent years has been made up of luxury developments catering to affluent renters rather than to households of modest means.

The number of rental units available for under $800 fell by 261,000 between 2005 and 2015, according to the report. By comparison, the number of units for $2,000 or more climbed by 1.5 million in the same period.



The nation’s homeownership rate has been falling since peaking around 69 percent in 2004. Last year, it hit 63.4 percent, just above the low set in 1965. But the rate appears to be stabilizing, according to the report.

“Even if it is no longer falling, it’s settling in at a rate that’s low by historic standards,” Herbert said.

The rate has grown notably worse for African-Americans, the report found. Homeownership among African-Americans is now at its lowest point since the 1960s and nearly 30 percentage points below the rate for whites, Herbert said.



Construction increased in 2016 for the seventh year in a row, adding 1.17 million houses and apartments. But that was still the lowest growth rate since 2011, the report noted.

Building of single-family homes has been rising faster, up 9.4 percent last year to 781,600 units. Even so, residential construction still trails the 1.4-1.5 million annual rate that prevailed in the 1980s and 1990s, the report notes.

On Friday, the government reported that housing starts fell 5.5 percent in May to a seasonally adjusted annual rate of 1.09 million units.

“We’re still not yet at 1.2 million starts,” Herbert said. “Back in the day, it would have been a bad year during a recession, and we’re still trying to get back up there. We’re certainly not back to normal in terms of supply.”




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Do I Have To Pay For Tenant Housing While I Fumigate Apartments?

Mon, 06/19/2017 - 10:47am

An apartment building owner has to fumigate apartments due to termites and wants to know how to handle the issue as well as the tenants. Here are several things to consider say blogger Richard ‘Monty’ Montgomery.

Reader Question: I need termite fumigation. ​I own property in located in Florida, where termites are a big part of the pest population. I will be selling the five unit building soon, and four units are rented currently. Two of the four units have leases expiring in July. The property has to be tented to exterminate the little buggers. When they fumigate, the building must be empty.

  • Do I have to pay for these four tenants who have pets to stay somewhere?
  • Do I make the reservations for them or do they?
  • How  ​do I control the costs for it?
  • Do I have to send them a letter in regards to this?
  •  How does it work?

Monty’s Answer:​ The answer will assume that your leases do not contain any pest abatement language. Otherwise, your contract documents would provide much of the information you seek. Amending your leases to include a pest abatement clause may improve the property’s marketability. Be certain the lease contains language that conforms with all the state and local building and health laws. Because each state’s laws are different, consulting an attorney practicing in your state is the practical solution to implement the additional lease clause.

According to the website, the discovery of termites has occurred in every state except Alaska. Termite damage is seldom discovered in the drier, higher latitude states while southern and southwestern states experience significant termite damage.

Because you have no pest clause in your lease, you have to create a plan to fumigate apartments based on timing, legal requirements, tenants’ circumstances, the cost to implement fumigation, and more.

Here things to consider if you have to fumigate apartments:
  • Coordinate the fumigation when the fewest tenants occupy the building. Vacant units may reduce your costs. As an example, July is right around the corner, are the tenants with their leases expiring, moving out? If they are moving out, and you have a current vacancy, you will only have to deal with two occupied units. You re-rent after fumigating. You need to talk with your tenants to make a plan.
  • ​Negotiate a daily room rate allowance. A four-day fumigation duration, a hotel room, plus a daily meal allowance per occupant per day, provides you with a per-person per-day cost. Writing a letter in itself is likely not enough information to prepare a tenant for this event. Perhaps a letter that explains your plan and asking for a time to meet and discuss it, or meeting first and then a follow-up letter to confirm the agreement. How long will your structure be tented? Do they offer a guarantee? Will pets be affected on re-entry? Tenants will be interested in gathering this kind of information.
  • Ed Smith, of RE/MAX Coastal Properties in Destin, FL, stated, “The prices for fumigation can vary widely. I would suggest that the landlord call two trusted local real estate brokers for recommendations. Based on my experience, the bigger national firms are often the highest prices, yet not always the best. Three quotes from providers are sensible. Hugely important are the warranties. These will vary tremendously!”
  • Smith also noted that “going from four units to five units can be a factor in some rule changes,” so be confident your advisor understands this difference and researches the law.
  • It may be possible is to sell the building with the termite infestation, and let the buyer deal with it. Offer the building at fair market value, less the cost of the fumigation, less an incentive to the purchaser for managing the work.
  • Tenants may also be the cause of termite infestations, so understanding the impact of state law, health codes and housing regulations is such cases. Furniture has been known to house termites, unreported water penetrations, and other sources of termites’ food source, cellulose, can initiate a new colony. Most often, a landlord’s lack of diligence, ignorance of preventive measures or poor maintenance are the cause.
  • Tenants with health related concerns in some states could resist fumigation with a letter from a physician stating the danger to their patient’s safety. There are a variety of chemicals used in different circumstances to fumigate apartments. Make your tenants aware of the product.
  • Termites can be discouraged with preventative measures such as rain gutter extensions to move water away from the foundation, construction materials that termites do not eat, decorative stone landscaping and other measures.

Now you have some talking points to help you deal with termites both in your lease document and in your building.



The post Do I Have To Pay For Tenant Housing While I Fumigate Apartments? appeared first on AAOA.

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8 Creepy Things Exterminators Wish You Knew About Pests in Your Home

Mon, 06/19/2017 - 7:57am

We love to wax poetic about the idyllic advantages of owning a home: The backyard barbecues! The walls you can paint any color you want! And, of course, the stability of knowing you can stay in a place long-term at (more or less) the same cost each month.

But homeownership also has a dark underbelly, full of scary things we pretend don’t exist when we turn out the lights. The scary truth is you’re not the only one living in your house. Whether you see them or not, you’re hosting a number of nightmare-inducing, creepy, crawly creatures. Sometimes they stay hidden, in dark corners under the house. All too often, they decide to come out and say hi.

Don’t let the pests win! To keep them at bay, you just have to exercise a bit of exterminator expertise. Take back command of your home, and heed these eight things that pest control pros wish you knew.

1. You don’t have to live in squalor to have a pest problem

We often associate mice, roaches, and other pests with unkempt, dirty homes. But you keep a relatively clean house! These wannabe intruders are no match for you, right? Not so fast—even pristine homes can have pest infestations.

Consider this nauseating revelation:

“Mice can survive on just 3 to 4 grams of food per day, so a few crumbs here and there are all they need to thrive in your home,” says Joe Magyar, branch manager at Terminix in Madison, AL. “Good sanitation won’t get rid of them, but a messy house will attract them. So be sure to vacuum floors regularly, wipe down counters, and eliminate access to food sources.”

2. Moisture is the enemy

Food and clutter aren’t the only things that attract pests. Beware of leaky pipes, clogged drains, or anything that creates standing water around your home. But you don’t have to take our word for it. Just get a load of this horrifying anecdote from Kim Kelley-Tunis, director of quality assurance for Orkin in Atlanta.

“One time I went into a house and took a look at the plumbing, which at first glance had a furry appearance to it,“ Kelley-Tunis says. “Upon closer inspection, there were cockroaches living on the piping in such large numbers that their antennae and legs gave the piping this sort of hairy look. When there are that many cockroaches in your home, you have a serious problem.”

3. Pests aren’t just icky—they can also be dangerous

Besides being gross, pests can also do serious damage that could put your house and your family in jeopardy. For example, rats can chew on—and fray—wires, which is a major fire hazard.

“Spotting a rodent issue early and resolving it immediately is incredibly important for this reason, let alone the fact that rodents carry numerous pathogens on their bodies and are known disease spreaders,” Kelley-Tunis says.

4. Secondhand furniture can cause problems

We’re not saying you should pass up that fabulous antique chair you spotted at the weekend’s estate sale, or the storage ottoman you can have for a steal on Craigslist. But just know that those pieces of furniture might come with some special guests.

“Technicians have encountered situations where a homeowner has purchased a new piece of furniture at an antique store and accidentally brought in termites or bedbugs to their home,” Kelley-Tunis says. She stresses that it’s vital to closely inspect any secondhand furniture that you bring into the house.

5. Pests aren’t loners

As much as you want to believe that the huge waterbug you just squashed (in alarmingly close proximity to your blender full of kale smoothie) was just a solo infiltrator, we’re here to break the bad news: It’s probably not the case.

“As a general rule of thumb, where there is one cockroach, there are likely many others,” Magyar says. “Roaches are aggressive breeders, so it doesn’t take long for a small problem to grow to a major infestation. If you wait to call in a professional until you’ve spotted a few of these pests, you may have a much larger problem on your hands.”

6. Poison isn’t foolproof

Matteo Grader, pest control specialist at Panther Pest Control, describes the scene of a homeowner who thought he’d gotten rid of his mice infestation himself. He thought wrong.

“He bought some cheap mice poison from the store and placed it in every corner of his house. The mice had eaten from the poison, but unfortunately they were able to find a narrow place to hide in before they died (which is typical for mice),” Grader recalls. “So the customer thought he got rid of the problem, until one day there was a disgusting smell in his home.

“During the inspection we found that there were more than 10 dead mice trapped inside the walls between the living room and the kitchen,” he adds.

If you insist on using poison, be prepared to call in a pro to remove the remains from your walls or pipes. Blecch!

7. Humane options exist

If the idea of a snap trap makes you feel queasy, or you’re concerned about your pets being underfoot, there are other options (ones that won’t send pests crawling into your walls). For example, PETA offers instructions on how to make humane rat traps. Other experts recommend peppermint oil to deter rodents. There are even humane options for cockroach control, such as putting stoppers in all drains and sealing up spaces between floorboards, under counters, and around sinks. You can also try placing dried bay leaves in your drawers and cabinets to repel them.

8. Don’t wait too long to call in the pros

We applaud you for having the courage to DIY your pest situation. Really, we do. But even the bravest homeowners need to ask for help every now and then. And when it comes to pest control, you should make that call sooner rather than later, says Brian Kelly of Twin Forks Pest Control, in Southampton, NY.

“As an exterminator for the past 20 years, I have seen lots of interesting things people do to try to eliminate pest problems on their own—from a homemade bedbug trap using a mannequin and duct tape to homemade ant traps using the secret ingredient of soy sauce and duck sauce mixed together,” Kelly says. “While these DIY methods might help a bit, it is best to call a professional to get the job done right.”



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81 Staging Tips That Help Buyers Fall in Love

Mon, 06/19/2017 - 7:55am

Staging your house can make you money. Seventy-one percent of sellers’ agents believe a well-staged environment increases the dollar value buyers are willing to offer, according to the National Association of REALTORS® “2015 Profile of Home Staging.”

Just take this real world tale of two condo listings from Terrylynn Fisher, a REALTOR® with Dudum Real Estate Group in Walnut Creek, Calif., who also stages:

Both units were in the same complex. One hadn’t been staged or updated since it was built; the other was staged and had been slightly refreshed (a little paint here and there and one redone bath). Otherwise, both units were the same size and layout. The staged condo sold for about $30,000 more than the unstaged unit, she says. “People couldn’t believe it was the same model.”

Before your eyes turn into dollar signs, keep in mind staging isn’t guaranteed to get you more money. But it’s an important marketing tool to help you compete at the right price, which means you can sell faster. (A study from the Real Estate Staging Association bears this out.)

Related: Why Spending Money on Fancy Bath Salts Can Help Sell Your House

Helping buyers fall in love with your property takes more than running the vacuum and fluffing the pillows: It’s all about decluttering, repairing, updating, and depersonalizing, say real estate agents and stagers.


With help from Fisher and other sources, we’ve compiled the ultimate home staging checklist.

Jump to a specific room or area of the house:

Living Room

  • When placing anything from accent pillows and table lamps, go for symmetry, which is pleasing to the eye.
  • Light it up with lamps. Chic lamps provide both added lighting and appealing decor.
  • Make that fireplace glow. Scrub away soot stains and replace the old screen.
  • If you’re using staging furniture or buying slip covers, choose light colors for an airy, inviting feel.
  • Whatever amount of furniture you have in your living room, remove a few pieces to make the room feel spacious.
  • Use bright, coordinated accessories like accent pillows and throw blankets for a chic splash of color.
  • Help buyers imagine their life in your home. Set the scene by displaying a board game or tea service on the coffee table, and arrange furniture in conversational groups.
  • Let a slideshow of beautiful images play on your television like a screensaver
  • Clear everything from countertops except one or two decorative items, like a vase of flowers or bowl of fresh fruit.
  • Pack up all the dishes except one attractive, matching set. Do the same with glassware, flatware, and cookware, and pare down all other cupboard and drawer items down to the minimum.
  • Freshen up and modernize those cabinets with a fresh coat of paint or stain and new hardware.
  • Seriously evaluate your appliances. Can they look new again with a good scrubbing? Give it the old college try or consider replacing with new models. The Real Estate Staging Association strongly recommends stainless steel. Tip: You can get the look of stainless for the cost of a cheap dinner with stainless films.
  • Remove those fridge magnets and give the door and handles a good cleaning.
  • Scrub dirt, grime, and stains from walls, cabinets, and backsplashes.
  • Clean cabinet interiors, especially under the sink.
  • Clean and organize the pantry, leaving some empty space to make it look bigger. Store items in decorative baskets and display a few jars of fancy jam and other upscale condiments.
  • Empty all trash cans and move them out of sight.


  • Go gender neutral in the master bedroom. Ditch those dainty, floral pillow shams or NASCAR posters.
  • Pack up all but the clothes you’re wearing this season to make you closets look larger.
  • Swap out the motley crew of mismatched hangers in your closet for a set of wooden ones to create a classy, boutique look.
  • Put jewelry and other valuables in a safe spot.
  • Consider giving extra bedrooms a new identity as a home office, sewing room, or another interesting function.
  • Remove televisions or video game consoles from bedrooms to depersonalize and create a serene setting.

Dining Room

  • Let buyers entertain the idea of entertaining. Set out some chic place settings around the table, or a few wine glasses and a decanter on the buffet.
  • Strike a balance between overly formal and too casual with an attractive runner and a few fun, decorative elements — think small floral vases or short candle holders.


  • It’s de-grime time: Scrub and sanitize the walls, floor, shower door — virtually every surface that comes in contact with steam.
  • Spend extra time scrubbing that tile grout and re-caulk around the tub if necessary.
  • If your bathroom tile is dated, try paint instead of replacing it. Start with a high-adhesion primer and either epoxy or latex paint.
  • Remove clutter from the countertop, tub, and top of toilet. Clean surfaces until they gleam.
  • Pack up and hide all your personal products — from medicine to razors.
  • Create a luxury spa look with a fancy soap dispenser, fluffy white towels, decorative baskets, candles, plants, a white shower curtain, and a new bath mat.
  • Fix leaky or running toilets and replace toilet seats.
  • Remove hard water stains on faucets and shower heads. (Try vinegar!)
  • Take a daring sniff of the drains. Odorous? Clean them out, and deodorize with baking soda, boiling water, or vinegar.
  • Time for a new sink anyway? Try a pedestal sink to optimize precious bathroom space.

Walls, Windows & More

  • Have a dark corner or hallway? Brighten it up with a decorative mirror.
  • Neutralize the walls. If any rooms are painted in dark colors, repaint white or beige.
  • Paint adjacent rooms the same color to make the whole space feel larger.
  • Fill nicks and holes in walls, and touch up with paint.
  • Sorry, wood paneling. It’s time. Paint over paneling with a neutral color. To really cover your tracks, use wood filler between panels and paint over the entire thing.
  • Make sure every switch plate and outlet cover matches and looks brand new.
  • Wash the windows, inside and out. Repair any holes or tears in screens.
  • Replace those family portraits with interesting art placed strategically throughout the house. Avoid leaving dead space on walls.

Throughout the House

  • Declutter! Consider it pre-packing for your move. Box up books, clothes, and personal items and place them (neatly!) in the garage or — better yet — a rented storage unit.
  • Don’t forget to include memorabilia in those decluttering bins. Family photos, diplomas, and the kids’ artwork should all go.
  • Keep closets, basements, and attics as empty as possible to maximize the appearance of storage space.
  • Transform underused areas of the house — the alcove under the stairs or the end of a hallway — into functional spots. Add a desk to create a mini office, or a chair and small bookshelf for a reading nook.
  • Swap dim lights for high-wattage bulbs.
  • Check every door, drawer, and cabinet to ensure they open and close easily. Swap out any faulty — or dingy — hardware.
  • Damaged or aging hardwood floors? Replace damaged boards with new wood, sand down the entire floor, and re-stain.
  • Do a deep (deep, deep) clean. Hire a professional cleaning service to clean your home from top to bottom — including carpets — before viewings.


  • Hang attractive house numbers that are legible from the road.
  • Brighten up your porch with fresh paint or stain.
  • Add a fresh coat of paint to the front door, preferably red, black, blue, or wood stain, so long as it complements the trim and doesn’t blend, says The Real Estate Staging Association. Steer clear of unconventional colors like purple.
  • Buy a new doormat to welcome home buyers.
  • Power-wash the house exterior, walkway, steps, driveway, and porch until everything sparkles.
  • Make sure the locks and doorbell function.
  • Make that mailbox look clean and welcoming, or get a new one.
  • Plant lots of colorful blooms in attractive pots and planter beds.
  • Trim back trees and shrubs from the approach to the front door.
  • Whip that yard into shape with fresh sod or new seed
  • Store yard equipment and children’s toys out of sight.
  • Repair shaky banisters.
  • Get a hammock (or bocce ball game or raised fire pit) to show off how fun your yard can be.
  • Dress up any imperfect planting area with mulch.
  • Make sure entryway lights function and are free of cobwebs and insects.
  • Hide trash cans, recycle bins, and garden hoses.
  • Don’t forget your outdoor living space. Stage your patio like a second living room, with fashionable furniture, accent pillows, an outdoor rug, and other patio-friendly decor.

For Pet Owners

  • Scrub those pet stains on the carpets and rugs until totally gone or replace them if necessary. Try cleaning formulas made especially for pet odors.
  • Pet odors soak into your best friend’s favorite things. Completely remove pet beds (or Fido’s most-loved couch), blankets, toys, play structures, food bowls, and the like.
  • Use air fresheners that eliminate odors, rather than simply mask them. There’s nothing worse than the smell of artificial pine with kitty litter undertones.
  • Repair or remove any furniture that’s been scratched or gnawed on.
  • Clean all pet “presents” from the yard.
  • Keep cat boxes immaculate and hidden away, or — better yet — see how your feline-loving friends feel about a temporary houseguest and remove litter boxes altogether.
  • Remove any dog or cat doors. Pets? What pets?
  • When you leave the house for a viewing, take all the furry (or feathery or scaly) residents along with you.
  • Make a pet hair sweep the last thing you do before you leave the house.

Day of Showing

  • Add a seasonal touch. Simmer cinnamon sticks in the fall and set out fresh cut lilacs in the spring.
  • Tidy like you’ve never tidied before.
  • Avoid cooking any food for your own meals, but do bake some cookies or other baked goods to leave a welcoming aroma behind.
  • Take off. After all that staging work, you deserve a trip to the spa while potential home buyers are busy falling in love with your house.




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Why Student Housing Is Making the Grade

Mon, 06/19/2017 - 7:50am

Across the U.S., the student housing market is surging. Fannie Mae and Freddie Mac recorded their highest-ever lending volume for the category in 2016, and development is on the rise, as well. New players have entered the field, ranging from conventional multifamily players to large pension funds and private equity investors.

On the supply side, developers delivered about 43,000 new beds last year, representing a 20 percent year-over-year increase. The trend is continuing this year as sales maintain a record pace, and market players expect the strong performance to continue into 2018.

Opportunities and Challenges

Student housing development has specific requirements, as proximity to campus is typically a must for attracting the top rental rates and occupancy that ensure maximum return on investment. Many players feel that the prime locations have been thoroughly picked over, and that potential development sites are limited. However, this trend is opening up potential for projects in smaller campus areas and tertiary markets that offer both strong enrollment growth and a wide choice of development sites.

With competition for land heating up, construction costs on the rise, banks underwriting loans more strictly and some markets turning to later leasing cycles, the student housing market presents its share of challenges. However, these hurdles breed opportunity to find yields in alternative areas and markets, as well as to drive new ways of incentivizing student populations and maximizing rental rates and absorption.

Financing Trends

Since the November 2016 election, Treasuries have continued to rise and spreads have compressed significantly. Interestingly, this environment has left cap rates largely untouched while also squeezing some returns.

Some common financing products include:

  • Debt service escrow for deals that close in the spring and summer, which consists of a one-time escrow calculation based on lease-up numbers as of May and June. Once occupancy is confirmed in the fall, funds are returned to the borrower.
  • Also gaining traction are forward rate locks, which allow borrowers to lock in rates in the spring and close deals in the fall when paying residents start generating revenue. Going this route carries added cost, because borrowers hedge risk for a current rate and hold the burden of ensuring that the property leases up as planned.
  • CMBS lenders have been more competitive but have still offered wider pricing in the student housing space during the past three months than Agency spreads. That provides opportunities for borrowers in smaller markets where Fannie Mae and Freddie Mac are less likely to get involved.
  • Life insurance companies also continue to grow their participation in this category. However, their preference for maximum leverage of 65 percent tends favor major metros, like Phoenix (home of Arizona State University) rather than smaller college markets like Knoxville, Tenn., or Lubbock, Texas.
  • Balance sheet lending continues to be a significant source of capital, typically taking the form of non-recourse bridge loans for deals not ready for permanent debt or properties that are being leased up or are in transition.

Bullish Outlook

While occupancy and rent trends for fall 2017 remain to be seen, current signs suggest increasing opportunities for growth. However, the number of new beds will likely decrease slightly in 2018 and 2019.

While the rise in online courses raises questions about the impact on enrollment in four-year institutions, this does not appear to be a factor or a replacement for the traditional college experience. Also, the so-called student loan bubble that caused some fears about the future of student housing investment does not appear to be affecting assets, thanks largely to parental guarantees.

With cap rates in the low- to mid-5 percent range for core product within walking distance of campus, expected rise gradually in 2017, along with T-bills, development of higher-density, urban properties will likely continue. These would largely incorporate ground-floor retail, as well. A bullish approach is still the order of the day in student housing, as investors capitalize on growth opportunities as well as on innovative options for financing and deal structure.



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What You Need to Know About Short Sales and Foreclosures

Mon, 06/19/2017 - 7:48am
Short sales and foreclosures are two distinct types of transactions that share the common denominator of being distressed properties, which involve a mortgage lender. They are not interchangeable terms. Although most people do not realize there is a distinction between the two. Many home buyers start a search for short sales and foreclosures in the hopes they can buy a cheap house, either for investment purposes or to occupy as a residence. They believe they can save a lot of money or buy a home for much less than market value. When buyers call me to say they want to buy a short sale or a foreclosure, I give them the reality check. That truth is they probably will not save any money since banks tend to value both short sales and foreclosures at market value, with an allowance for condition. However, there are also exceptions, and every so often the situation will be just right, like Goldilocks and The Three Bears. It’s more the exception than the rule, though. One of the best ways to save money when buying a home is to buy that home under market value. Many factors go into buying a home for less than it is worth, and it can be a long road. To get started, let’s examine the differences between short sales and foreclosures. Basic Features of a Short Sale Property
  • A short sale house is a home that is not owned by the bank. However, in order for the sale to close escrow, the bank must approve the sale.
  • Title is still in the name of the homeowners, and the owners often live in the property because they can’t afford to go anywhere else.
  • The homeowners may or may not be behind in their mortgage payments, because delinquency is not always a requirement.
  • There must be a documented hardship letter. That hardship is not always financial such as a loss of employment or forced retirement. The hardship could be health-related, or the sellers could be getting divorced or facing incarceration.
  • Some short sales involve reverse mortgages signed by sellers who have died or second loans that were discharged in bankruptcy but never released.
  • Although the home is not necessarily underwater, most short sales involve paying less than the full amount to the lender. A seller can also qualify for a short sale if the equity is insufficient to pay all of the costs of sale such as commissions and closing costs.
Basic Features of a Foreclosure Property
  • Foreclosures are homes that are owned by the mortgage lender or, if the mortgage was insured or guaranteed, then the property is owned by a government entity such as Fannie Mae or Freddie Mac or HUD.
  • There are various ways a lender can acquire title to a foreclosure property. The most common way is by foreclosing on the homeowners for non-payment of their mortgage. Although a bank is allowed to foreclose for other reasons such as the procedures offered when a homeowner sells the home to another individual without paying off the loan. Subject-to sales are no longer allowed. Banks can also take title to a foreclosure property through a deed-in-lieu of foreclosure or a court action.
  • When banks take title to a foreclosure property, they evict the occupants and secure the home. Generally an asset management company will shut off the water, maybe board up the windows and doors and change the locks. This is why foreclosures are often an eyesore in the neighborhood.
Terms of Foreclosures and Short Sale Transactions Almost every short sale and foreclosure is sold in its AS IS present condition. Some banks will invest in fixing up foreclosure homes because the banks realize they can increase their profit by rehabbing, but many banks sell the home in the same condition the previous occupants left it, however deplorable. There are sometimes extenuating circumstances under which a bank will allow a price reduction for a major defect, but that is typically rare. You may ask, for example, for a reduction or credit to replace a furnace or the roof, but if the market is hot and another buyer might pay cash, the bank will probably reject that request. The main difference between a foreclosure property condition and a short sale home condition is the foreclosure’s condition could be unknown. The foreclosure home could be vacant for months, even years, during which mold or water intrusion can occur. Sometimes owners trash the home or fail to maintain it properly when the home is in foreclosure. In comparison, short sale sellers tend to take better care of their homes, and they can provide disclosures to the buyer. Another difference is a foreclosure property can generally close within 30 days. A short sale, which requires bank approval, can take 30 days to 3 months, on average, just to get the short sale approval letter, and then another 30 days to close, so twice as long at minimum. Where and How to Buy Foreclosures Unless the bank is small and local, it is unlikely to offer a foreclosure home for sale to the public. Banks generally dispose of their foreclosures in 5 ways. With the exception of the bulk sale method, most of the ways banks sell their foreclosures involve a profit to the bank.
  • At a trustee’s auction or sheriff’s auction. This procedure is a bidding process that takes place on the steps of the courthouse or other public building. Typically the offers must be cash, and the bank sets a minimum reserve price. If there are superior liens, the buyer assumes responsibility for those liens. Buyers at an auction often do not work with a real estate agent.
  • In a bulk sale to private investors. These can be homes that were not sold at an auction or homes the bank never put up for auction. The bank will package these homes in groups and sell the entire package to an investment buyer or company at a steep discount.
  • Through an online auction company. Many of the online home auctions place a reserved bid at which the home will not sell if the reserve is not met. They often require the buyer to pay a premium bonus such as 5 percent over the offered price as a fee to the auction company. The original sales prices are often below the reserved bid price and can appear deceiving. Most of these websites allow your own agent to represent you.
  • By listing the home with an REO agent and offering the home for sale in MLS. The REO agent works with the bank’s asset manager and prepares a BPO. The agent assesses condition, and allows for a deduction for its AS IS condition, so the home is basically listed at market value. Your agent can represent you.
  • By placing the home for sale on its own website portal and allowing electronic offer submissions. This is more common with government entities. The banks will also pay your agent to represent you.
Where and How to Buy Short Sales A buyer or investor is not permitted to buy a short sale directly from the homeowner. In fact, many short sales require the buyer to sign an arm’s length affidavit that states there is no pre-existing relationship between the sellers and buyers. I have had banks reject a short sale because the buyer was a neighbor who lived near by. Further, some parties may object to this practice and they withhold that information from the bank. They might sign an arm’s length but secretly fail to disclose a relationship with the seller. In states like California, that action could constitute short sale mortgage fraud which, if so, permits the bank under California Civil Code 580e to rescind the release of liability offered to the seller. You should hire your own real estate agent to represent you when buying a short sale. That agent should not be the listing agent. You deserve your own representation. Besides, bank tend to reduce the commission to listing agents who practice dual agency in a short sale. Your agent should determine for you how many banks and liens are involved in order for you to adequately prepare for the wait for short sale approval. Your agent might also want to verify the seller qualifies for a short sale. Although not every short sales require a seller hardship, most do. TIP: Banks might present you with a counter offer and ask for a higher price. If the property requires repairs, you might be successful with closing on your accepted sales price if you present the bank with a couple of documented estimates and photographs.


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Decor that Adds Value to Homes

Mon, 06/19/2017 - 7:46am

A home’s price is based on many factors that can’t be changed, such as location, square footage, and age. While these fixed factors may seem like an end-all-be-all, you can present your client’s home in other ways that may add perceived value for buyers. A full overhaul or shiny new kitchen are not the only options — choosing the right home decor can go a long way in bringing buyers.

Here’s a look at some top accessories and decor choices that are easy to snag and that just might help your clients reach that perfect selling price.


Ask any designer: Decluttering a home is one of the most effective ways to get it off the market and into the hands of a buyer. A cluttered, messy, cramped space can instantly detract potential home buyers. After all, how can they visualize their family in this new home when all they can picture are piles of junk and countertops filled with toiletries? Clutter may also send the message that the home does not provide enough room for the buyer’s needs.

Show buyers that your client’s home offers plenty of space for all of their belongings. External storage, like a pretty chest, a shelving unit, or an armoire is a great way to add a decorative element while allowing more room to store paperwork, movies, linens, desk supplies and other unattractive items that don’t add to the space. Internal storage, like decorative metal bins or wicker baskets, are perfect for decluttering bathroom cabinets and closets where buyers may sneak a peek. Now you can present a more airy feel and cleaner sight lines in the home.

Window treatments

Whether it was in our first college apartment or an old family vacation rental, we’ve all experienced just how uncomfortable it is to be in a space with dusty, weathered, outdated window treatments. Next to decluttering, window treatments can make a big difference in breathing new life into a home. The right window treatments can highlight and complement the home’s best features — from its natural light to backyard views — and can offer the top selling points of built-in privacy and improved energy efficiency (high on the list of many potential buyers).

Advise your client to replace broken and outdated blinds with new blinds, cellular shades or roman shades. They’re easy to install, and with a wide variety of finishes available, they’re a versatile and functional choice. Drapes are also a quick fix, especially in living and dining rooms. They add vertical interest and cohesiveness to a room, showing buyers a refined space.


It’s important to make the home appealing and cozy to visitors, but with a polished look that gives buyers something to aspire to. Replace any well-loved duvet covers, bath towels, rugs, pillows or throws with fresh ones. Swap out overstuffed bookcases with carefully placed books, baubles, and a piece of art or two. Tuck away stacks of old magazines and remotes, and adorn tables with a chic tray and a few coffee table books.

It’s all about introducing fun yet neutral accessories that add to the overall theme of the house without filling the space with too much clutter. Show buyers how their new home could be a showpiece, and it’s sure to add to their perceived value.

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5 Tips Real Estate Investors Need to Know to Find Good Deals

Mon, 06/19/2017 - 7:43am

With real estate prices reaching ever-higher highs in large swaths of the country, the availability of deeply discounted properties is drying up. And that means it’s getting tougher for real estate investors and home flippers to find great deals worthy of their time and cash.

“There are fewer foreclosures to buy, but there’s more interest in buying foreclosures,” says Daren Blomquist, senior vice president at ATTOM Data Solutions, a real estate data firm. “Competition, even at the foreclosure auction, is pushing prices up.”

Bank-owned property sales, foreclosure auctions, and short sales still made up 16.9% of single-family home and condo sales in the first quarter of 2017, according to ATTOM. But that’s down from 20.3% of sales a year ago.

“Back in 2007, you were getting 20% off the actual value” on bank-owned property sales, Leland DiMeco, owner and principal broker at Boston Green Realty, told ATTOM’s Housing News Report. “Now you have them selling for 5% off, if that.”

So how can established and aspiring real estate investors and home flippers find a real deal?

Tip No. 1: Be proactive and look for off-market properties

Some landlords prefer to quietly shop around their properties to investors instead of listing them publicly. This way, the owners don’t upset any tenants currently living there.

“There is quite a bit of the pie that does get moved around, legitimately, but just off-market,” DiMeco told ATTOM.

So would-be investors shouldn’t wait for property owners to find them—they should find these folks themselves.

“If you like a neighborhood, you can go knock on doors,” Blomquist says. There might be “homeowners who may want to sell and don’t even know they want to sell yet.”

Tip No. 2: Act fast and pay with cash

There are still deals to be had—if you act quickly, says real estate investor Brandon Turner, author of “The Book on Investing in Real Estate With No (and Low) Money Down” and “The Book on Rental Property Investing.” He owns 52 rental units in 18 properties and has flipped about a dozen homes in Grays Harbor County in Washington.

“You have to work faster than everyone else,” he says. “I try to make an offer within 24 hours of a new listing coming on the market—the same day, if possible.”

Paying all cash can also sweeten the deal for sellers who might have multiple offers, he says.

Tip No. 3: Don’t ignore potential tear-downs

Real estate investors might not initially see the value of buying an overpriced, small, or run-down home within the city limits. But many of these homes in desirable locations can be sold to a developer to be torn down. Then a multifamily building or larger home can go up if the zoning permits it. And that can translate into some serious moolah.

It requires some vision and a bit of a leap of faith. With a potential tear-down, “it may not be a good deal to buy it as a single-family home. But if you can buy it for what it could be, it can be an excellent way to find value and deals,” Turner says. However, this approach is not without risks and obstacles.

“If you’re going to build a new house, it takes a good while to get all the permits,” he adds. “The danger is if the market begins to decline, you might be unable to sell it.”

Tip No. 4: Seek out nasty, smelly homes

Investors shouldn’t shy away from hardcore fixer-uppers and “nasty” homes, says Turner. That’s because there is not as much competition for these potential diamonds in the rough. Many lenders won’t issue loans on these properties if they’re in really bad shape.

“The stinkier the house, the better,” Turner says. “Smells are easy to fix. A good coating of oil-based primer, new carpet, and cleaning will take care of almost any smell.”

He typically looks for the “nastiest house in the nicest neighborhood,” he says. Even homes in need of serious TLC can be profitable if they’re in the right location.

“You can’t fix a neighborhood, but you can fix the house,” he says.

Tip No. 5: Look in another city or state

Many would-be property investors living in pricey parts of the country would love to become landlords—but can’t afford to do so in their own cities. So they can consider buying in lower-priced markets such as the Midwest.

“Look in other geographies that aren’t in your backyard,” Blomquist says. Focus on places that are growing “that still have a lot of lower-priced inventory available.”

But they should make sure to do their homework first to make sure they understand the neighborhood they’re buying in and who their potential tenants or buyers would be. This includes how much they can realistically charge.

Landlords might need to hire property management services if they can’t afford to get there quickly if something breaks. And that eats into profits.

Remember, becoming a real estate investor is still risky

Despite the stinky homes, investing in real estate might seem like a glamorous way to make a little extra cash—just look at all of those home flippers on HGTV! But in reality, it’s not risk-free.

Landlords sometimes have tenants who trash homes or don’t pay the rent on time. Flippers might encounter permitting problems or find costly structural issues in homes that cost quite a bit more than expected.

“We’re in a booming housing market. Everyone’s confident if they buy a piece of real estate it’s going to go up in value,” says Blomquist. “That’s true for the long term.

“This housing boom is on a lot more solid foundation than what we saw 10 years ago,” he says. “But you have to be very cautious because, in the short-term, we have seen … that prices sometimes do go down.”



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Preserving Affordable Housing: Best Practices

Thu, 06/15/2017 - 11:46am

America has a deep shortage of affordable housing, and, every year, the situation seems only to worsen. That makes it more important than ever to preserve the homes we already have in affordable housing programs.

But affordable housing developers can’t buy every affordable housing property that’s up for sale in order to keep these buildings in stock, or repair every affordable building burdened with deferred capital needs. What the industry can do, however, is ensure the best chances of preserving affordable housing by following six recognized best practices.

1. Be Prepared to Overcome Prior-Use Restrictions Every old apartment building is different, and that’s especially true of those with a history in government programs. Such properties often entail layers of obligations and use restrictions built up over the years from a huge variety of federal, state, and local programs. “There’s a nearly infinite number of flavors [of programs],” says Ethan Handelman, vice president for policy and advocacy for the National Housing Conference, a nonprofit advocacy and research organization supporting the affordable housing community.

Consequently, the first step in recapitalizing any affordable housing is to fully assess any limitations that come with all of a property’s old agreements, subordinate mortgages, and deed restrictions. “You have to understand everything layered onto the property before trying to recapitalize,” says Handelman.

2. Plan for Long-Term Capital Needs Affordable developers need to assess how much renovation a given property will need—and how much time the rehab will take. “Our rehab projects vary from a few thousand dollars a unit to $100,000 per unit,” says Neal Drobenare, senior vice president of acquisitions for The NHP Foundation (NHPF), a nonprofit organization dedicated to preserving and creating affordable multifamily housing. “We see things that [range from needing] some sprucing up to those that are gut rehabs.”

A recapitalization plan will also need to account for keeping the property running smoothly until the next time it can recapitalize. “Most subsidized properties go through some kind of recapitalization every 15 to 20 years,” says Handelman.

That long time frame is based on the 15-year compliance period for federal low-income housing tax credits (LIHTCs), the biggest source of affordable housing financing.That’s a long time compared with market-rate buildings, which typically get a fresh capital infusion every five to seven years when the properties are sold and renovated or refinanced after the completion of the expiration loans, whose terms are usually 10 years or less.

Unless a building was poorly designed from the start, it’s often more efficient to renovate the apartment than demolish it and start from scratch. “It’s rare for us to see projects that are candidates for demolition,” says Drobenare. “The numbers work best for us when buying a property and performing gut rehabs.”

3. Move Quickly to Win the Bidding Wars In strong housing markets, affordable housing developers often need to move quickly to compete with other potential buyers. These include investors who can “hold properties until the affordability restrictions expire—especially in markets like New York, California, and Washington, D.C.—and then sell the properties for significant profit or operate them as market-rate transactions,” says Cory Mian, vice president of real estate development for the nonprofit Preservation of Affordable Housing (POAH).

Other buyers can crowd out mission-driven affordable housing developers even if they don’t intend to take the properties out of their affordable housing programs. Many investors now aim to simply hold on to their fully occupied properties and enjoy the steady income from subsidized rents without investing much in the long-term condition or maintenance of the buildings.

To win the bidding wars, affordable housing developers now often line up capital that allows them to buy first and arrange a full financing package later, often including a reservation of LIHTCs.

“Today, it’s rare to be able to close directly into a LIHTC transaction; sellers won’t wait,” says the NHPF’s Drobenare. Several years ago, the Foundation and other developers joined together to create a $50 million fund to acquire properties. “Funds such as ours, as well as lines of credit for quick-strike purchasing, have become the norm, not the exception,” he adds.

Even with capital sources like these, there are limits to the prices affordable housing developers can reasonably pay for a property. “For acquisitions, we have to look at the overall reasonableness for the area,” says Lori Little, director of capital markets and investor relations for the National Affordable Housing Trust.

Perhaps because affordable housing developers are careful not to overpay for properties, they pass on many of them. “As a rule of thumb, for every purchase we make, we have to evaluate 20 projects,” says Drobenare.

Affordable developers also must be careful when they acquire a distressed property, because the capital to fix any serious problems might not be available for a long time. “Quality owners don’t want to own subpar properties while they await funding for the much-needed rehab,” says POAH’s Mian. “Especially owners that pride themselves on maintaining attractive, updated buildings.”

Wise developers, then, are patient and wait for the opportunity that makes sense. Those who lose properties to other investors may get another chance at the same property later on: Many investors pay too much to buy affordable housing properties and are later forced to sell or default. “This is much harder than it looks,” says Little. “Frequently, properties are sold again.”

4. Get the Community on Your Side Any renovation of older apartments will have to consider the surrounding community, as well as residents living at the property, to gain their support. Building consensus for affordable housing can be challenging in neighborhoods beset by NIMBYism, for example. Including local residents and political leaders in the renovation process can go a long way toward achieving acceptance and, ultimately, success.

5. Focus on Energy Efficiency Affordable housing properties often can be greatly improved with better insulation, energy-saving appliances, and other energy-efficient, sustainable-design features. “Funders are requiring it, but it also can make a huge difference in property operations,” says Drobenare.

Water savings, in particular, can provide a boost to a property relatively quickly— with a comparatively small investment of cash. “It’s not unusual for us to see 25% water savings, even before the start of a major rehab, by implementing a low-cost water-savings plan,” says Drobenare.

Even features that don’t seem to pay for themselves immediately can contribute to a property financially by helping it operate more smoothly during potential lean times in the future.“Capital dollars invested in this direction can lead to more-efficient operations, thereby leaving more cash flow to be used for ongoing maintenance issues,” says Mian.

Energy efficiency is also a priority for nonprofit developers on a mission to serve low-income families, since many of the benefits flow to the residents. “Keeping energy costs low is even more important for low-income households,” says Drobenare.

6. Partner With Other Developers To successfully recapitalize a property, affordable housing developers need experience; these transactions are too complicated to improvise. That doesn’t mean inexperienced developers should stay away, however. Community groups acting as developers often partner with more-experienced parties that have preserved similar affordable housing properties in the past.

Developers new to affordable housing can also hire individual consultants and experts who understand the challenges ahead, whether the task be applying for LIHTCs, restoring a historic building, or navigating complicated local building codes and zoning laws. The key in any case is to make sure your development team includes professionals who have the experience you’ll need to succeed.

With affordable housing so sorely needed today, preserving what we already have, in addition to building new projects, will be crucial in the ultimate goal of providing housing for everyone.



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What to Consider Before You Buy a Vacation Home

Thu, 06/15/2017 - 11:45am

It’s that time of year, when legions of vacationers decide they want to take the plunge and buy a second home. And this year, perhaps, it may be especially true: The economy is firming up, interest rates are still relatively low and investment accounts are brimming.

So consider this a reality check. Whether people are looking for a spot to enjoy themselves, rent to others or resell for a big profit, there are many mistakes that could bring them big headaches or cost them a lot of money.

Experts and homeowners warn newbies, for instance, that they may end up putting in a lot more work than they expect—and taking on a lot of frustration—to keep renters happy. They can easily run afoul of rules laid down by local governments or homeowners’ association, or find themselves facing unexpected costs. And there’s no guarantee the rental or resale market will stay strong enough to justify the expense.

“Costs of owning and renting a vacation home can be very high,” cautions longtime real-estate investor Todd Huettner, owner of Huettner Capital, a Denver real-estate lender. “The hassles and costs of short-term vacation rentals are higher than most people expect….People are way too optimistic about rent rates, vacancies, management fees, maintenance costs and home-value increases.” Owners who live far away can also be surprised by climate-related issues like damaging snow loads in the mountains or corrosion from salt air at the beach, he says.

Caveats aside, many people have already sealed a deal. After slumping in the years after the financial crisis, prices of vacation properties are back where they were in 2006, a National Association of Realtors survey found. The median sales price of a vacation home rose by 4.2% in 2016 to $200,000, following a 28% gain as the housing recovery gathered steam in 2015.

And, of course, bad experiences aren’t universal. Many who work hard enough at managing their vacation properties can’t say

“I bought a vacation home because Lake Tahoe was either too expensive to book for a last-minute weekend or I couldn’t find any vacancies,” says Sabrina Robinson of Santa Cruz, Calif., four hours from Tahoe. She says she rents her vacation condo to tourists year round, devotes about two hours a week to managing the property, mostly to deal with cleaners and renter inquiries, and covers her mortgage and utilities with about $20,000 in annual rental income. The homeowners’ association does outside chores.

But even those who are successful have to put in a lot of effort to make it work—starting with careful thinking and planning before they take the plunge. Here are things potential buyers should consider, whether they are buying for pleasure, renting or as an investment.

Buy it for the right reason. The Realtors association surveys find that the primary motivation for a vacation-home purchase is vacationing. And many experts think that’s the best way to approach the deal. Rental income is so unpredictable it should be viewed as gravy, they say, and buyers certainly shouldn’t rely on it to cover their mortgage and other expenses. And the market is too unpredictable to expect to profit on a sale.

The approach with the fewest risks, many experts say, is for buyers to pick a place they will enjoy and focus on that as their top priority.

“Our buyers today are buying for a number of reasons, with the No. 1 reason being lifestyle and use,” says Nick Cassini, senior vice president of sales and marketing for Four Seasons Private Residences in Anguilla.

John Banczak, executive chairman of Turnkey Vacation Rentals, a property-management company, says that people who buy as a lifestyle choice “are the people that realize they love spending time in one place, may even retire there, have done the research and made the decision a second home is for them. Getting additional revenue through rentals is the icing on the cake.”

Pick a location that’s good for business. Although rental income shouldn’t be the top priority, it’s still going to be crucial for many buyers. So as with all real estate, location is key.

Sale prices and renter demand vary dramatically even within a given community, and not just because a beach-front property is going to be much more desirable than a property just a few blocks inland. For instance, a lot of construction may mean the location is hot—or that a glut will depress rent rates and sales prices.

“The owners that are most displeased are ones that rush the purchase decision because they are blinded by their dream,” says David Angotti, co-founder of, a vacation-rental listing site in Tennessee. “For example, they fail to understand location, view, features and other amenities are critical to the overall revenue, and just want a vacation home.”

Another aspect of location to consider: how far the spot is from the owners. The National Association of Realtors says 57% of vacation properties are at the beach or lake, with the median distance 200 miles from home—far enough to require spending money for a manager and caretaker. Little chores an owner would do himself or herself at home can thus get costly.

“In our experience, living close is really helpful if something goes wrong, but there are a huge number of services out there to hold keys, offer concierge services or otherwise help if you live further away,” says Laura Hall, communications director for Kid & Coe, a vacation-rental website. “So anything is possible if you’re willing to pay for it.”

Don’t delude yourself about costs and profits. Even if rental income is only a secondary goal of buying, pros urge a clear-eyed analysis of the expenses involved.

Among the common rookie mistakes are focusing on purchase price, rental rates and recent market trends, and counting on more renters than are likely. Doing that means missing out on other crucial considerations that can eat away at earnings, such as costs for cleaning, management, routine maintenance and repairs. In some hot markets, homeowners-association charges can exceed $1,000 a month. Then there are real-estate taxes, insurance costs, utilities and perhaps state sales tax on rental income.

The same holds true for buying a property with the intent to sell it. Experts warn that only a reckless buyer expects a vibrant market every year. From the end of 2007 through 2012, primary-home prices dropped by 14.8%, vacation properties by 23%, the Realtors’ group says. Sales of vacation homes dropped in 2016 to 721,000, off 21.6% from the 920,000 in 2015. Mr. Cassini says there are fewer speculators in today’s market compared with the prerecession boom.

And, to underscore the risks, in 2016 foreclosures and short sales—when the lender settles for less than owed—accounted for 38% of vacation-property sales, compared with 9% for primary residences.

Don’t get tripped up by local rules. Local ordinances and homeowners-association rules can reduce the pool of potential renters. The association, for example, might ban pickups, motorcycles and pets, or mandate how much or how little time a property can be used for rental.

Then there are government regulations that may limit an owner’s flexibility. Will owners be able to ban college students planning to party on spring break? Possibly. But antidiscrimination laws limit whom they can say no to, forcing them to rent to guests they don’t want, like people with rambunctious toddlers that can boost cleaning costs or annoy neighbors.

Have a plan for getting renters. Finding, vetting and negotiating with renters is more work than many owners are willing to take on. So, many use a service to bring in business. But it’s important that owners understand what these services involve before they sign up. Real-estate agents often charge 18% to 25% of the rent, and sometimes much more, usually deducted from rent passed to the owner. And their contracts may even require commissions on renters who owners find themselves. They provide damage insurance and bar renters who have posed problems for other owners.

These days, many owners use online services like Airbnb, HomeAway and TripAdvisor ,but this industry is no longer a simple subscription-based advertising service. These outlets, which usually charge on a sliding scale depending on the rent rate, are evolving into full-service operations: They not only handle renters’ payments, but provide insurance to protect owners and automatically remind renters of payments due and return renters’ damage deposits.

Some listing services also dictate cancellation policies and other terms that many owners like to control themselves. And some listing sites withhold contact information from the owner and prospective renter until renter payments are received, to hinder off-site deals to avoid “service fees” that can cost renters hundreds of dollars for a week-long stay.

Watch out for tax traps. Federal tax rules offer deductions for mortgage interest, property tax, insurance premiums and many other expenses on second homes. But the rules are complex, and the biggest breaks generally go to owners who use the property no more than 14 days a year themselves, reducing benefits for owners who want to use their property heavily. And when it comes time to sell a rental, profits are likely to be taxed as long-term capital gains—and not sheltered like profits from a primary home—although many owners avoid that by converting a rental to a primary residence in retirement.

Your renters may do more vacationing than you. Business and pleasure don’t always mix, experienced landlords say. For maximum rental income, owners have to offer their properties during the peak summer or winter season, which may be when they want to use it themselves.

“If you’re going to essentially be competing with people interested in renting your home, then you aren’t…going to have much success,” says Adham Sbeih, CEO of Socotra Capital, a real-estate investment and lending firm based in Sacramento. “Even if you’re only trying to use your home for a week or so out of every summer month, that can create enough conflicts that it significantly reduces your ability to consistently rent the property out.”

Gail Lynne Goodwin, who owns two properties near Montana’s Glacier National Park, warns of things like “having a larger cleaning bill than anticipated” or a “guest from Florida that wants to set the heat at 80 degrees.”

Brace yourself for tenant demands. Renters expect perfection and won’t tolerate little annoyances that homeowners come to live with, like a balky ice maker or sticky door, and renters have no long-term stake in the property.

“Expect all the unexpected that arises when multiple people are rotating through the property and treat the property from the ‘I’m on vacation’ mind-set,” says Victoria Shtainer, an agent at the Compass real-estate firm in New York City who specializes in the Hamptons.

There’s also the question of guests who do things owners aren’t anticipating. Gail Lynne Goodwin, owner of two luxury rentals in and near Montana’s Glacier National Park, warns about things like “having a noisy guest that disturbs your neighbors, having a larger cleaning bill than anticipated, having a guest from Florida that wants to set the heat at 80 degrees, etc.”

And when owners use the property themselves, they may end up spending a lot of time with tenants on the brain. They may have to end their own visits emptying drawers, changing sheets, storing family photos and making trips to a storage unit with items they don’t want renters to use, like bikes, kayaks or the family silver.

So is buying a vacation rental a good idea? It can mean putting a lot of money at risk, more work than many buyers anticipate and headaches with renters. But those who have picked good properties in hot locations and have an ability to roll with the punches say they’re happy.

“Having a second home has been a dream come true and has also paid for itself,” says Ms. Robinson, owner of the California vacation home.



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Thinking Of Buying Rental Property? Here Are Five Things You Should Know

Thu, 06/15/2017 - 11:33am

It seems like such a difficult way to make a dollar. You have to buy a property, fix it up, figure out what rent to charge, find renters, deal with repairs, upkeep, late payments, complaints from the tenants, complaints from the neighbors, citations from the town, and also have a lawyer on standby in case an eviction is necessary. Then start again every time you get a new tenant.

On the other hand, in most cases you’ll receive monthly payments like clockwork, never hear a peep from your tenants, easily find new ones when necessary, and get a return on your investment that’s protected from interest rates and inflation, is almost risk free, and is higher than you can get from stocks or bonds unless you’re a hedge fund manager.

And if you ever decide you don’t want to be a landlord anymore, you can easily sell out at a higher price than you paid to begin with. Try doing that with a bond.

Dealing with the tenants is your problem, no getting around that, but let’s discuss some of the financial and strategic aspects of your investment.

First, on the tax front, not only are all your cash expenses – including broker fees and management fees – deductible for your federal taxes, so is the depreciation of your property. Calculated over 27.5 years on a straight-line basis, depreciation protects the first 3.6% of your annual return from taxes. With returns around 5 or 6 percent right now (2017), that’s a big deal. Calculation below.

Second, leverage. If you can borrow money at a lower interest rate than the return you otherwise get from the property, the return on the portion you provide is higher. Calculation below.

Third, what about rents? Do they swing like home prices? How much can you raise them? And what’s the right rent to be charging in the first place? Each property is different and so is each location, so it depends. You should go online and see what other landlords are asking for a similar property in the area. You can ask local brokers, but take their answer with a grain of salt – they’d rather get the commission at any rent rather than have you hold out for a higher one.

You can and should raise your rent every year. Inflation eats into your real revenue if you don’t keep pace. Rents don’t swing like home prices can; they rarely go down and usually rise a bit faster than inflation. If the neighborhood around your property changes, you can see rents rise even faster – and sometimes fall. This is one of the opportunities you have and one of the risks you take.

Fourth, and one of the biggest reasons people like to invest in rentals, what’s likely to happen with the value of your property down the road, when you consider selling it?

Two economic developments are in your favor right now. More and more people will be renting in the future, so the value of rental property in general will be rising. And the recession of 2008 brought home prices in many markets lower than they should be, so even after prices rose in the last few years, there now (2017) are still plenty of places where you can get a good deal.

Apartment buildings and homes split into multiple units also will benefit from strong demand over the next decade, but single-family homes will probably benefit the most – depending on which market they’re in – because a lot of people who can’t afford to buy a house still want to live in one.

A single-family rental on a piece of land in an attractive neighborhood gives you several options when you want to sell. It can be sold as an established rental, it can be sold as a single-family home, and it can be sold as a knock-down that a builder will level to put up a new one – most of the value in homes is in the land, not the structure. Because there has been very little home building since the 2008 recession, the value of single-family homes will increase at above-average rates over the next decade – if you’re in the right market.

Fifth, you do need to look strategically at the market where you intend to invest. Often that’s the market you know best – the one you live in – but also consider other markets with good potential. You can make a good investment in almost ANY market, but HOW you invest, what price you should pay, what time horizon you should consider, and what exit plan you need, will depend on the economic characteristics of the local market. No room to discuss that here, but see my article, “How To Develop A Localized Real Estate Investment Strategy”

Finally – and another cop-out – how much should you pay for your investment? Again, no room for that here, but see my article, “Price Your Rental Property Based On The Risks You Are Taking.”

The Depreciation Calculation

If you’re renting out a $100,000 property and your cash return is $5,000 per year, and your tax rate is 20% your after-tax cash income is $4,000 without depreciation. But after deducting $3,600 of depreciation your taxable income is only $1,400, your tax paid only $280, and your after-tax cash income is $4,720.

The Leverage Calculation

Lets say the pretax return on a $100,000 property is $6,000. At a 20% tax rate, the aftertax return is $4,800, a 4.8 percent return on your investment. But if you can borrow half the money at 4 percent, you can deduct $2,000 in interest from the pre-tax $6,000, pay 20% tax on $4,000, for an after-tax return of $3,200. Since your investment was only $50,000, your return is 6.4 percent.



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Why buying a condo at 29 was a financial windfall

Thu, 06/15/2017 - 11:12am
Four years ago, Sam Saslow purchased a condo in Denver at the urging of his parents. It turned out to be one of the best financial decisions he’s ever made.

At first he was nervous about the $164,000 purchase. A bidding war broke out and he ended up going slightly over his budget.

“I was worried I was buying at the top of the market,” he said.

Turns out, his worries were unfounded.

He just sold the condo for $285,000, $121,000 more than he originally paid. That’s a nearly 74% price increase in just four years.

“I’m laughing now,” he said of his nerves as a first-time buyer. “I couldn’t possibly have timed the market better.”

The windfall allowed him to upgrade from the 685-square-foot condo to a 2,700-square-foot home with a garage and basement that he and his wife recently purchased for $402,500. The profit from the condo sale allowed them to put 20% down and still have money available to furnish the home and cover renovations.

“I don’t think I will ever see an investment as good as that. It set me up for pretty major wealth creation long term.”

The Denver housing market is one of the hottest in the country, with 8.4% year-over-year price increases in March, according to the latest S&P CoreLogic Case-Shiller Index.

The rapid rise in home prices does give Saslow some hesitation with his new purchase. “We all saw what happened to the housing market and I lived in Florida and saw a lot of people get caught with their hand in the cookie jar.”

But he said the lack of buildable space and the steady inflow of new residents makes him feel the city would be “insulated” from a potential slowdown.

Saslow was 29 when he purchased the one-bedroom, one-bathroom condo in Congress Park. He put down 3%, and the purchase cost him $7,000 out of pocket. To outbid the other buyers, he had to raise his offer twice.

“Rents were rising so quickly and I was still pay way less on the mortgage than the people renting the same units in my building.”

As a homeowner, Saslow watched as other units in his building sold at higher price points and saw his tax assessment steadily rise.

When he decided it was time to put the condo on the market, he originally thought about pricing it in the $250,000-$255,000 range. But his agent wanted to go higher at $275,000.

“I thought that was crazy,” he said. “But we’ve worked together and I trusted her … we went for the top of the market.”

They got four offers on the condo. The first offer came in within 48 hours of the listing hitting the market, and they didn’t have to hold an open house. They got three offers on the condo that they considered.

Every bid offered a 20% down payment and a personalized letter. The winning bid offered $285,000 with a guarantee of $280,000 if the condo didn’t appraise.

“There is no way I could have afforded that house if I hadn’t gained equity and that condo hadn’t appreciated that way.”



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Most Home Flippers Aren’t Who You Think

Thu, 06/15/2017 - 11:05am

You may not suspect that you have clients who are interested in home flipping.

While home flipping has long been considered an activity conducted by high-powered institutional investors who are looking to score big in real estate, the data show a different story. More than two-thirds—69 percent—of the 44,000 single-family homes and condos flipped in the first quarter of this year were by investors of the mom-and-pop variety who completed just one flip during the quarter, according to an analysis from ATTOM Data Solutions.

Mid-tier investors, completing two to nine flips during the quarter, accounted for 20 percent of all home flips in the first quarter. Top-tier investors, who completed more than 10 flips during the quarter, accounted for only 11 percent of flips.

“But the pyramid turns upside-down when looking at the average purchase price of homes flipped and average time to complete a flip, indicating the mom-and-pop flippers are getting the worst ‘deals’ and taking longer to flip,” notes Daren Blomquist, vice president at ATTOM Data Solutions. “This probably makes sense intuitively given that professional volume flippers are more experienced at both negotiating discounts up front and at having a defined process in place to complete the rehab and market the home for sale.”

The average purchase price for a mom-and-pop flipper was $208,410 in the first quarter compared to $187,871 for a mid-tier flipper and $153,274 for a top-tier flipper. Further, a mom-and-pop flipper took an average of 194 days to complete the flip, compared to 158 days for a mid-tier flipper and 138 days for a top-tier one.



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