American Apartment Owners Association

5 Pricing Tips to Increase Your Airbnb Revenue

Mon, 02/12/2018 - 9:39am

OK, so by this point you’ve researched short-term platforms, checked your laws, cleaned your place, and taken nice photographs. Now it’s time to set your price.

Go too low, and you’ll look like a sucker; go too high, and your place stagnates among the competition.

No worries, we can help you get the most bang for your buck. Here’s how.

1. Do Your Research

Know your competition. Search Airbnb for similar properties in your neighborhood and review the places (and rates) that are getting booked. This may be way obvious, but if you have a one bedroom, compare it to a one bedroom (and not a private room in a larger place or an entire house). Likewise, if your place has certain amenities (parking, laundry) that others don’t, find other places that share these extras. Consider proximity. Just like in real estate, it’s about location, location, location. So start your search in your neighborhood, and move out from there.

2. Be a Sucker

Price low, then high. Until you have reviews, you lack credibility—so incentivize someone to try you out. For this, we support moving your prices 10–15% below market average. This will help increase your bookings quickly, which will lead to reviews, which will lead to a higher page rank.

We happen to think that Airbnb posts you at the top of search results when you’re new. We believe they do this because they want you to get booked, so you feel good about the service and continue to use it. That said, there’s a lot more competition these days, and being new and undercutting your price may not do the trick. For this, we have also heard about new listings utilizing smart pricing to increase their rank.

Smart pricing is an algorithm Airbnb sets based on local demand and prices. Just this week we heard from someone who listed his new place, manually cut his prices, and was still showing up three pages deep. After turning on smart pricing, he jumped to the third result, even though the price was $5–$10 more than that of his manual pricing. (Side note: we recommend turning off smart pricing once you have a few reviews, because Airbnb will keep your pricing lower than it needs to be to ensure everyone is getting booked and business is booming. After a month or two (or 10 reviews), you’re better off returning to manual pricing.)

3. Post a Higher Rate on a Secondary Platform

Once you know your sweet spot, you should stick to it most of the time on Airbnb (except for during big events, which we’ll discuss later.) That said, there are other platforms that you can also post on, and at a higher rate. The logic to this is that you’ll likely get booked on Airbnb at your set price, so why not list the same place somewhere else (like VRBO) for a much higher rate and see if you have any takers? If someone bites, you can block it on your Airbnb calendar and pick up a few extra bucks. Side note: some other platforms (ahem, VRBO) collect annual fees or charge more per booking, so just make sure you cover that cost when you set your price.

4. Later Dates, Higher Rates

This logic is similar to posting on a secondary platform. Basically, you know that your place is going to get booked once you move it to your set rate, but there’s no reason to do that for bookings in the distant future. If you’re place is booked two to three months out, you should bump those prices up and try to catch the person who is planning a vacation way in advance and may like your listing enough to pay extra. If you don’t get any takers, you can move your prices back down to the normal rate for one to two months out.

5. Big Events, Big Returns

As hotels have long known, people will pay more during big events because they don’t have a choice. You can likely raise your prices around major summer holidays, New Years Eve, three-day weekends, sporting events, big-name concerts, etc.

Good luck, and let me know how it goes!



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Eight Reasons You Shouldn’t Manage Your Own Investment Properties

Fri, 02/09/2018 - 7:59am

Purchasing an investment property is an exciting business venture. If your building is in good shape and you find the right tenants, you stand to earn a lot of money from your rental units.

At first it may seem like a good idea to manage your own property and retain full control over costs, tenants and income. However, self-management can often be a headache: When something breaks down or your tenants are late with rent, you bear the sole responsibility to address it.

Hiring a third-party property management company can be worth every penny, especially if you’re looking to grow your investment business over time. Members of Forbes Real Estate Council shared eight common scenarios in which it makes more sense to outsource your property management tasks.

1. If Real Estate Investing Is Your Side Hustle

If an investor has a full-time job and they are investing as a side hustle, I would suggest hiring a property manager from day one. If the investor is fully focused on real estate investing, it makes sense to bring in a third party once they reach 10 units. At that point, their time is better used looking at more deals versus collecting rents or dealing with tenant maintenance issues. – Ali Jamal, Stablegold Hospitality

2. If You Lack Housing Expertise

Investors should not manage their own properties in situations where they are not familiar with the type of housing being managed. For example, with affordable housing, there is much compliance involved and making a mistake can result in fines. In that scenario, property management is best left to third-party companies that specialize in affordable housing. – Nathaniel Kunes, AppFolio Inc.

3. If You Want To Maximize Your Time As A Passive Investor

Your time is valuable, and technology is opening up many outsourcing options by connecting investors with qualified professionals in property management and skilled labor. Take advantage of every opportunity to maximize yourtime. In fact, investment platforms are allowing people to diversify across several properties without ever picking up a hammer. – Nav Athwal, RealtyShares

4. If You Need To Fill In Skill Or Resource Gaps

Each investor’s access to resources and prior skills and knowledge needs to be reviewed before providing this type of recommendation. It needs to be personalized. An investor who is a handyman likely doesn’t need to pay someone to make repairs. Finding the right tenant can make or break success, so evaluating candidates may be the best area to have help, particularly at first. – Michelle Ames, HorsePower Team Texas/Independent Realty

5. If You Don’t Have Time To Learn The Laws And Run It As A Business

Outsourcing will avoid legal liabilities from Fair Housing and Fair Credit Reporting Acts, state landlord-tenant laws and local regulations. Property managers will have resources that can perform services for less. You’ll also be less likely to lose income from tenants who don’t pay their rent or rents that end up being below market. – Alex Hemani, ALNA Companies

6. If Your Properties Are Located In Different Markets

Using third-party management is usually advisable when properties are located in different markets, as well as when owners don’t have the time or skills required to manage the property effectively. While it is tempting to save the 7-8% management fee typically paid to property managers, there are a host of tasks they take care of to keep the property occupied, cash-flowing and maintained. – Gary Beasley, Roofstock

7. If You’re New To Being A Landlord

You should hire a third-party manager if you’re new to being a landlord and don’t completely understand local ordinances and leasing practices, or don’t have all the contacts needed for repairs and maintenance items. A good third-party manager will know all of the above and you will learn them over time. – Lee Kiser, Kiser Group

8. If You Want To Scale Your Investment Business

If you want a large income property portfolio, don’t self-manage beyond one to two years. After that time, you will be better able to understand “a manager’s perspective.” Your highest and best use isn’t faucet repair or replacing bathrooms. It’s researching geographic markets and establishing competent teams. If you self-manage, ask yourself better questions like, “How scalable is this?” – Keith Weinhold, Get Rich Education



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How Tenant Screening Changed In 2017

Fri, 02/09/2018 - 7:56am

One of the most important things that property owners and landlords can do to prevent problems with renters is to conduct a thorough tenant screening. The best tenant screening reports cover areas like criminal record, eviction history and credit score. Without it, landlords increase their risk of dealing with tenants that have a history of unpaid rent, costly damages and evictions.

However, there were two major changes in 2017 that affected the way that landlords get information from tenant screening efforts.

National Consumer Assistance Plan

The National Consumer Assistance Plan (NCAP) is a joint venture between the three credit bureaus, Equifax, Experian and Transunion. The plan stems from a settlement in 2015 between more than 30 state attorneys general and the three major credit bureaus.

The goal of NCAP is to boost the accuracy of the information on the credit report, among other things. One of the ways they plan to do this is by decreasing the reporting of such public records such as tax liens, parking tickets and civil judgments. So how does this affect landlords?

The new reporting changes are especially critical for landlords because evictions are civil judgments and as of July 1, 2017, they disappeared from credit reports of any prospective tenants. If tenant screening companies provide landlords with just a credit report as part of an applicant’s background check, the landlord will have no insight into that person’s rental history.

Landlords need to check with their tenant screening service to ensure that they are now using an alternative source to discover any eviction judgments on an applicant. There are several national companies that do provide information on forcible detainer and unlawful detainer judgements for tenant screening companies. It’s now the only way that landlords can get information on prior evictions.

Because of the extra cost involved in using a national eviction search, many tenant screening companies are increasing their fees and passing the cost on to their clients. Landlords may have to charge more for their application fees (if allowable in their state) to cover their own costs.

Any landlord that wants a thorough background check on an applicant must ensure that the tenant screening service they now use includes this separate eviction search.

Equifax Breach

One of the country’s largest credit reporting companies experienced a data breach that compromised information for more than 145 million customers. The company experienced unauthorized access to data from May through June and key identity information was accessed, including names, birthdays, social security numbers, driver’s license numbers and more.

Because of the massive potential for identity theft, many consumers placed a freeze on their credit report. With a freeze, potential creditors are unable to access someone’s report without the consumer removing it temporarily. This prevents anyone from opening a line of credit with that information, including identity thieves. However, it also prevents landlords from accessing the info they need to get a complete picture of their applicants.

Landlords need to be aware that identity theft and fraud will be on the rise as a result of the data breach, affecting innocent applicants. They should also know that because many people have put a freeze on their report, their tenant screening company may not be able to access anything without consent.

During the application process, landlords can make things go a little more smoothly with any applicants that have set up a freeze. Many tenants don’t think about unlocking their credit report for a background check on a rental home. Landlords can ask applicants or include a reminder on the application about lifting the freeze temporarily. If the applicant can’t or won’t lift the freeze in a timely manner, landlords may have to move to the next applicant.

Despite the freeze on a credit, landlords should never change their tenant screening practices. When looking for the best tenants, landlords need to get a good idea of what kind of renter an applicant will be. Proper tenant screening will always save landlords time, damages and money. However, in 2017, these two factors just made it a little more difficult for landlords and tenant screening companies to get the background information they need.



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Single-Family Rental Lease Expirations and Vacancy Rates Improving

Fri, 02/09/2018 - 7:52am

Both lease expirations and vacancy rates among single-family rental securitizations showed continued improvement in December 2017, according to the latest data from Morningstar Credit Ratings, LLC.

According to Morningstar, single-borrower, single-family rental lease expirations declined for the second consecutive month, dropping from 5.2 percent in November to 4.5 percent in December. The vacancy rate also continued a downward slide for the second month running, sliding from 5.6 percent in November to 5.2 percent in December. This fits with long-established trends, as typically renters are less likely to move during the winter months. Rents were up 2.4 percent in December, after increasing 2.7 percent in November.

The retention rate for expiring leases dipped slightly, hitting 78.0 percent in November 2017 (which is the most recent data available, according to Morningstar). That’s down slightly from the revised October rate of 79.2 percent.

The average delinquency rate was flat month-over-month, holding fast at 0.9 percent for the third consecutive month.

The Houston, Texas, metropolitan statistical area (MSA) showcased the highest vacancy rate of the top 20 MSAs for the month, dropping from 9.4 percent in November to 8.8 percent in December. In spite of Houston topping the charts, vacancy rates in H-Town actually improved for two months straight, after six consecutive months of increasing vacancies.

The MSA with the second highest vacancy rate for December was Nashville, Tennessee, which declined from 8.0 percent in November to 7.5 percent in December.

The Morningstar monthly performance summary covers 24 single-borrower deals with over 88,000 properties. You can read the full report by clicking here.

For more insights into the state of the single-family rental market, be sure to register for the 2018 Single-Family Rental Summit, scheduled for March 19-21 at the Renaissance Nashville Hotel in Nashville, Tennessee. The event will feature top subject matter experts and skilled SFR practitioners leading discussion panels and training sessions that will answer questions and offer viable solutions related to property acquisition and management, financing, strategies for small, mid-cap, and large investors, and new developments related to technology and professional services. You can find out all the details by clicking here.



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4 Things People Look for in Real Estate Location

Fri, 02/09/2018 - 7:51am

Every real estate professional is aware that location is the most important factor in the value of a property. After all, the neighborhood and value of the surrounding homes are usually the defining factor in pricing a home. Most buyers value a safe, well-maintained neighborhood with good schools. But every buyer is unique. If you’re trying to sell a property that’s not in a prime location, there are several ways you can slant your approach to appeal to different types of buyers.

Walkable Neighborhoods By suburban standards, the average urban property has some serious drawbacks. Yards are small, parking can be an issue, and the curb appeal may be low. Agents who are used to selling expansive homes on quiet cul-de-sacs may think an urban home will be hard to sell, but the opposite is often true.

People love urban locations if the neighborhood is highly walkable. They may be health conscious and want to hit their fitness tracker’s step goal, can actually lengthen your life expectancy. They may be environmentally conscious and trying to reduce their carbon footprint. It may even suit their identities better to be urban dwellers. In any case, if you can stress the walk score of an urban home, buyers will line up to look at it.

Steady Stream of Tenants Properties that are close to universities or large employers can be highly desirable, even if the surrounding neighborhood is a little past its prime. Employees may be interested, but your best market for these properties is often landlords. Renters care less about property values than owners, so it’s easy for a landlord to rent a convenient location even in a declining neighborhood. Stress the steady flow of students or employees who will be relocating and will want to have such a convenient location. Landlords love the idea of a rental property that won’t sit empty for months on end.

Convenience The home you want to sell may not be in the most desirable area, but someone looking for a bargain might consider it if you can show them that the location will be convenient for them. You can use phrases like “less than 30 minutes from downtown,” “easy highway access,” or “lots of amenities in the surrounding areas” to highlight whatever conveniences the home offers.

Future Value There is an ebb and flow to the value of most established neighborhoods. A new subdivision is highly desirable, years later it looks dated, eventually it’s just retro enough to appeal to a certain artsy crowd, and someday it will be historic. Some of the trendiest urban neighborhoods have been gentrified and resurrected from incredible decline. If the neighborhood has even a glimmer of hope, then there’s a chance a highly risk-tolerant investor will be willing to take a chance on it.

The home you’re selling may not have a “good location” by the standard measure, but that doesn’t mean a buyer won’t think the location is perfect. Your job is to anticipate what that person is looking for and use language that will target that buyer.



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NAR: Renters say they want to own a home

Fri, 02/09/2018 - 7:48am

About 75% of current non-homeowners say they would like to own a home one day, and consider it as part of the American Dream, according to the quarterly Housing Opportunities and Market Experience survey from the National Association of Realtors.

However, the reasons why they want to buy a home, or more specifically, one major reason that isn’t a factor in their decision, might come as a surprise.

Trulia’s latest rental analysis shows median rent increased 3.1% in 2017 with much higher increases experienced in key major metro areas. And over the past year, much attention has been given to the rising affordability issues in the rental market.

However, surprisingly, this was not a factor in renters wanting to move into homeownership.

About 24% to 32% of respondents each quarter answered that their main reason for buying a home in the future would be a change in lifestyle such as getting married, starting a family or retiring.

The next top reason, with 26% to 30% of respondents, said an improvement in their financial situation would cause them to buy a home, followed by the desire to settle down, with 12% to 16% each quarter.

Renters do very much expect their rent to increase this year, about 51% answered they expected it will, however it is simply not enough to spur any action. Only 15% of renters said they would consider purchasing a home due to these increases. About 42% of respondents said they will still resign their lease, and another 25% will move to a cheaper rental.

“Housing demand in 2018 will be fueled by more Millennials finally deciding to marry and have kids and the expectations that solid job growth and the strengthening economy will push incomes higher,” NAR Chief Ecomomist Lawrence Yun said. “However, with prices and mortgage rates also expected to increase, affordability pressures will persist.”

“That is why it is critical for much of the country to start seeing a significant hike in new and existing housing supply,” Yun said. “Otherwise, many would-be first-time buyers will be forced to continue renting and not reach their dream of being a homeowner.”

An increasing share of non-homeowners answered that the primary reason they currently do not own is because they are unable to afford it. In fact, 56% of non-owners indicated this as the reason they do not own a home, reaching a new survey high for the fourth quarter.

Many even answered they do not believe now is a good time to buy due to swift home price growth and low levels of housing supply. The share of non-owners who said now is not a good time to buy a home fell from its all-time high of 62% in the third quarter to 58% at the end of the year.

“A tug-of-war continues to take place in many markets throughout the country, where consistently solid job creation is fueling demand, but the lack of supply is creating affordability constraints that are ultimately pulling aspiring buyers further away from owning,” Yun said.

“These extremely frustrating conditions continue to be most apparent at the lower end of the market, which is why the overall share of first-time buyers remains well below where it should be given the strength of the job market and economy,” he said.



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Iowa Residential Landlords – A 2017 Review and 2018 Preview

Tue, 02/06/2018 - 10:31am

Attorney Jodie McDougal, Davis Brown Law Firm

515-288-2500 |

Overall, 2017 was a decent year in terms of new legislation and case law for Iowa landlords. The Iowa Legislature passed two favorable pieces of legislation, and two decisions by the Iowa Supreme Court contained certain favorable law for landlords (while also containing certain less favorable case law). In terms of legislation in 2018, the various Iowa landlord associations are working hard to ensure that 2018 is a positive year for landlords.

2017 Legislation

The 2017 victories include the passage of two pro-landlord bills, previously detailed on our blog: Governor Branstad Signs Two Bills Favorable to Iowa Residential Landlords.

HF134 has been supported by landlords for several years. The bill prevents cities from restricting landlords’ rights to rent to whomever they chose regardless of family relationships. This law was in response to the growing number of cities passing regulations limiting the number of non-family members who could live in a rental property.

HF146 relates to eviction actions. Tenants were previously able to successfully assert certain technical defenses regarding notice of the eviction hearing despite showing up for the hearing, often resulting in the dismissal of those eviction actions; this law prevents dismissals of eviction actions based upon such technical defenses.

2017 Case Law

The Iowa Supreme Court’s decisions in Kline v. Southgate Property Management and Walton v. Gaffey were welcomed by both landlords and tenants for different reasons, with both sides claiming victory from these mixed-bag decisions. When these decisions were handed down, we detailed the impact on landlords: Iowa Supreme Court Hands Down Decisions in Two Iowa City Residential Landlord-Tenant Cases.

In particular, landlords were thankful for the Supreme Court’s decision that certain fees, charges, and liquidated damages included in leases were not “categorically prohibited” merely “because they were set without any consideration of what the landlord’s actual damages and fees would be in each situation,” thereby reversing the district courts’ opinions regarding this issue. The district courts had concluded certain fees[i] were not allowed in leases, while the Supreme Court reversed such decision and held that the legality of such fees should be decided on a case-by-case basis. However, this still leaves some uncertainty for landlords as they consider what is and is not permissible in leases.

Most landlords and practitioners believe that the most negative aspect of the decisions for landlords is that the Iowa Supreme Court affirmed the district courts’ decisions concluding that a landlord is liable for the mere inclusion of prohibited provisions in a rental agreement, even without enforcement of those provisions against the tenant, assuming the landlord’s inclusion was willful and knowing.

2018 Legislation

In 2018, multiple pro-landlord bills have been introduced, so landlords across the state should keep their fingers crossed. By way of example, HSB 542 expands the scope for a landlord’s allowable collection of certain judgments against tenants and HSB 588 provides a method for a landlord to register their properties one time with the municipal utilities in order to avoid liens for past due accounts of tenants for all city enterprise services. There are also certain bills being discussed regarding Fair Housing issues as they relate to service and assistance animals. As these bills progress, we will provide more updates.

[i] Such charges included charges for returned checks, maintenance call charges, liquidated damages provisions for unauthorized pets, fees for subletting, per diem fees for holdover tenants, charges for lockout service calls, charges for replacement keys, and certain other charges/fines for certain lease violations

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As Rents Rise, Advocates in Multiple Markets Push for New Rent Control Laws

Mon, 02/05/2018 - 2:41pm

In November 2018, voting ballots in California might include a question on rent control. Right now, California law restricts the spread of rent regulations on housing built after 1995, in addition to many older properties.

Some housing advocates want to change that. A proposed law that would have allowed more rent regulation died in the state legislature in 2017. Now advocates including the Alliance of Californians for Community Empowerment and the San Francisco Tenants Union are pressing the same proposal as a ballot initiative.

If these advocates succeed, some local governments would probably expand their rent control laws. It would mark one of the first expansions in decades of the housing units covered by rent regulation, though some cities and towns have created other kinds of regulations to protect renter households in gentrifying neighborhoods as apartment rents grow faster than incomes on average nationwide.

The apartment industry is taking notice. “If you are an owner of apartments, rents controls are a very, very scary thing,” says John Sebree, director of the national multi housing group for brokerage firm Marcus & Millichap.

Rules restrict rent regulation

In most parts of the U.S., lawmakers are simply not allowed to create new rules to limit by how much landlords can raise rents at their properties. If local officials want to create more housing for lower-income renters, they have to make deals one at a time with individual property owners, often using affordable housing programs to trade tax breaks or zoning changes for legally-binding promises to keep rents low.

Only five states in the U.S. currently have jurisdictions that have rent regulation or rent control laws on the books: California, Maryland, New York, New Jersey and Washington, D.C.

Even in these states, rent regulation typically does not extend to the rents on new apartment units. In California, the Costa Hawkins law keeps rent controls away from housing built after 1995, in addition to many older properties. In New York, rent stabilization law only applies to housing built before 1974. New York apartments escape rent regulation once their rents rise above $2,700 a month and they become vacant. As a result, the total number of rent-controlled apartments is steadily shrinking.

Another seven states don’t have laws that prohibit rent regulation or rent control, so towns and counties in these states could potentially create new rent laws. Those states include Alaska, Maine, Montana, Nevada, Ohio, Pennsylvania and West Virginia. However, these states are generally not the places where rent regulation is most often proposed and debated. The exception that proves the rule might be Portland, Maine, where advocates recently got a measure onto the ballot to allow rent regulation, in response to rapidly rising housing costs in that city. The ballot measure was defeated.

Throughout the rest of the country, including more than two-thirds of the states in the U.S., state law makes it impossible for local governments to create rent regulations that broadly restrict the ability of landlords to set their rental rates as high as the market will support. In some of these states, advocates for rent control propose changing the law. Illinois, Massachusetts, Michigan and Oregon have all had seen recent efforts to remove their prohibition against rent control laws.

Laws to stop displacement

Multifamily developers often argue that rent regulation that extends to new construction would reduce the incentive to build new housing. In the long run, a smaller number of rental units would increase the competition for housing, forcing rents higher overall.

“If there is a negative effect on housing supply, you’re not really moving the affordable housing discussion ahead,” says Rebekah King, acting director of policy for the National Housing Conference (NHC), a non-profit organization focused on affordable housing.

However, local officials have found other options to protect tenants without using rent regulation. In Portland, Ore., a recent law forces landlords to pay the relocation costs for residents who are forced to move by rents that increase 10 percent or more in a year. Those relocation costs can add up to more than $3,000 per household, according to NHC.

Also, in New York City, a whole series of new laws protect renters from eviction. The city now provides lawyers to tenants threatened with eviction. Renters who live in rent-stabilized apartments are also protected from harassment by property owners eager to drive them out of their units. These laws don’t create new rent-stabilized apartments, but help keep the number of rent-stabilized apartments from shrinking as quickly as it might otherwise.



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4 Ways to Spot a Problem Tenant

Mon, 02/05/2018 - 2:40pm

When renting a property to someone, unfortunately, you have to be a little judgmental. As a part of your job, you have to be attentive to people’s characteristics and background/history in order to determine if they are the best candidate to rent your property to. Most of the time, a majority of the people you may come across to rent to are decent and good candidates that will end up not being of any trouble at all. While this may be the case, however, this doesn’t mean that you won’t encounter a prospective tenant that could be a problem at some point in your career.

Dealing with someone who shows interest in your property but also displays signs that they could prove to be problematic in the future is not easy by any means. Despite this, if you pay close enough attention, you’ll be able to spot the signs early enough which will ultimately make the process easier. If you are a landlord/property manager nervous about detecting the signs of potential problem tenant, check out my five warning signs below!

Before we delve into how to spot the signs, first, it’s important to recognize what the laws are regarding you, the tenant and your jobs. Lindsey Schober of Zillow makes an important note, stating, “Each state and municipality has unique laws and ordinances. Make sure you have a clear understanding of your landlord rights and responsibilities, tenant rights, and the basic workings of specific notices and eviction procedures. Work with an attorney to set up your policies and procedures.” Once you have a decent understanding of your rights as a landlord as well as the rights of any of your tenants, you will not only feel more confident about the selection process, but you will also feel better about handling a tenant in the case they pose a significant problem.

Now that you have an understanding of your rights and responsibilities, you can easily spot these five problem signs of a potential tenant:

1. Payment History/Credit: One of the determining factors when renting a property to someone is having a decent or good credit score. Though it may be unfair at times, many property managers and landlords use credit scores as a means of determining whether or not a tenant can be reliable in their payments and responsible while living in your property. A warning sign of a bad tenant can be a hesitancy to conduct a credit score or a credit score that shows a history of late payments. According to the staff at Upad, if you think you may have a problem, “Speak to the tenant and ask them if there’s a problem and remind them that the rent should always be paid by the due date. However, if you get a couple of late payments in a row, you should ask them directly if they’re having difficulty with the rent and discuss how you can sort this out.”

2. Friend/Family Member: You may be asking yourself, “what could be so wrong about having a friend or family member as a tenant?” Having a friend or family member as a tenant isn’t an instant horror, however, it can be dangerous. Have you ever heard of the phrase, “don’t mix family and business”? Well, there is a reason why that phrase exists. Unfortunately, in some cases when this happens, it becomes hard to uphold your status as the landlord and makes it harder for you to keep your relationship separate. In the long run, try to avoid this so you ultimately don’t ruin a relationship!

3. Criminal History: Background checks are wonderful things; they tell you anything you could want to know about a possible tenant to help narrow down your selection process. If a prospective tenant has a criminal history that makes you uncomfortable, in a majority of states, you can deny them based on their past criminal offenses. However, in states like California, you cannot discriminate against those who have been convicted of nonviolent crimes, according to Erin Eberlin of the Balance.

4. False Contacts: In almost all cases, most landlords/property managers ask for at least one or a few references to help in evaluating a tenant. Most people do not have a problem with this, however, those who can potentially be problem tenants may provide false contacts like friends or family members to pose as references to make themselves look better. To combat this, Chris of LandlordTalking notes, “One of the best ways to avoid this scam is to ask for multiple landlord references, including the current landlord. Come up with some preliminary questions to ask the contact during the interview. What will seem like small talk may actually tip you off to a fraudulent reference.”

While the process of evaluating a tenant may be difficult and exhausting, to notice the signs of a potentially bad tenant will only prove to help you in the long run. As always, good luck!




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The Top Kitchen and Bath Trends for 2018

Mon, 02/05/2018 - 2:38pm

Home building professionals are painting the latest kitchen and bath trends broader than a barn door.

Influenced by the home improvement television craze, farmhouse kitchens have finally overtaken traditional styles, according to the National Kitchen & Bath Association 2018 Design Trends Report released in January at the National Association of Home Builders International Builders Show. The report details what home remodelers, architects, dealers and manufacturers in the U.S. and Canada are specifying and building. Data was collected in August and September of last year.

Farmhouse style overtakes transitional, contemporary trends

Interior features common to farm and ranch houses have caught the eye of Americans while just edging out transitional and contemporary design trends. Elle H-Millard, NKBA’s industry relations manager and design trends expert, says home improvement television helped push the farmhouse style over the top after a long climb.

“The farmhouse is this very warm, cozy style that’s come about in the past few years,” she said. “Wood beams are a signature of that, as well as ship-lap and subway tiles.”

The trade isn’t being bashful about incorporating elements down on the farm into kitchens and baths. Sixty-nine percent are specifying barn door installations, according to the survey.

The shift to farmhouse designs is one of only a handful of changes in the last 12 months for the kitchen and bath market, which was estimated at $147.3 billion in 2016.

Induction cooking appliances gaining ground on gas

Some of the differences in the past year, Millard says, are movement away from kitchen islands that look like furniture and a retreat of the mid-century modern and industrial style. Also, even though gas cooking appliances are still king, popularity of induction ranges and cooktops are on the rise.

Sixty-seven percent of respondents said that induction cooking appliances are now trendy, a sign that home dwellers, especially Millennials, want healthier lifestyles, she said.

“I see induction cooking perhaps taking over the gas realm in the near future,” said Millard, a regular at the London Design Week. “I’ve spoken to many chefs that work for manufacturers and they use them personally in their homes. They have traded in gas appliances for induction. I really do see that moving forward. There are safety issues there, there are some things that induction is really taking the lead on, as well as being connected to our homes.

“We also may see a rise in steam cooking. There is nutritional value added when we have steam cooking in our homes, which then lends us to the next point which is wellness and freshness that’s included in some of our appliances. We’re looking at food preservation and how we can keep are food fresher for longer with less chemicals.”

Light colors, painted wood cabinets and quartz still dominate

Meanwhile, whites and grays continue to dominate walls, home buyers prefer painted cabinets (and wood is still popular), good lighting is important and quartz surfaces dominate granite.

The transformation from granite countertops to quartz continues, and it’s even creeping into the bathroom. Quartz is overwhelmingly the preferred surface with 94 percent of designers saying they are using it compared to granite (65 percent). Ninety-one percent say quartz is just as trendy in the bathroom.

Also, stainless steel, brushed nickel and chrome kitchen faucets are trending high, reinforcing Americans’ desire for light and neutral colors.

Elsewhere in the kitchen, column refrigeration units are gaining momentum. Also, 75 percent of respondents said that wine refrigerators are popular among home owners.

“The column refrigeration units are really taking a surge with being trendy in the industry,” Millard said. “There is more flexibility, more mobility. It gives designers more freedom to create a different aesthetic.”

Millard said microwave warming drawers, which can offer a dual purpose in outdoor spaces, are gaining momentum.

“Some people are using those to warm towels for swimming and other things,” she said. “We’re starting to see some unique developments with some of these appliances.”

Connectivity of kitchen, bath technology offers advantages

As far as technology, flat screen TVs, docking stations and distributed audio are still popular in the kitchen. It’s much the same in the bathroom but not as widespread. Only a small percentage of U.S. homeowners already have wall-mounted TVs in their bathrooms, lighting controls connected to their mobile devices or music in the shower.

Millard is unsure of the future of kitchen and bath technology but said connectivity offers definite safety advantages.

“You now have gas cooktops that are connected to you,” she said. “If you leave your burners on you get an alert on your phone. So now there is a safety issue that can be resolved, which can mean a reduction in insurance, etc. As long as technology is being used smart and not just to be for the sake of having some additional technology, I do see that as a big increase in the industry.”

Not unlike the kitchen, transitional and contemporary bathroom styles are preferred among U.S. homeowners. For the second consecutive year, traditional-style bathrooms ranked third.

For bathroom floors, the industry is leaning toward porcelain tile over ceramic tile and stone. Under-mount sinks are twice as popular as integrated vessel and trough sinks.

Also, free-standing bathtubs continue to be a favorite.

Millard says the industry may be on the cusp of a toilet revolution with more smart commodes available from manufacturers. Health is a factor.

“The smart toilet is something that is important. There is an infection reduction that can happen there. With universal design, you can help people save on money with their health insurance just based on pure infection, and they look awesome.”



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Cash Flow Killers To Your Real Estate Investment

Mon, 02/05/2018 - 2:37pm

Every seasoned investor should be familiar with the obvious expenses that go into a rental analysis when determining if a potential investment property will be profitable. There’s the mortgage, the taxes, the insurance, the reserve fund, the maintenance; if all these add up to be less than the monthly rent, leaving you with a 6-8% profit, you have a good case for a profitable investment.

But what about the other factors involved with owning a rental property that don’t have a clear dollar amount associated with the bottom line? To help you determine the full financial picture of an investment, I’ve put together a list of some of the biggest cash flow killers that will eat into the profitability of your real estate investment.

Cash Flow Killers To Your Investment

Your real estate investment will only be successful if you keep profits high and avoid these cash flow killers. If your rental property is turning out negative numbers, consider these factors and how to adjust your management style to make your investment more profitable.


Vacancy is an obvious negative in your cash flow analysis of a good investment. If you don’t have a tenant paying rent, it’s on you to cover the mortgage, insurance, taxes and maintenance. All these expenses are real bills that need to be paid each month, regardless if your property is occupied or not.

Prioritize occupancy by providing a desirable property and great customer service to your renters. You can avoid vacancy by creating a housing environment for happy, long-term tenants, limiting the amount of time you property generates zero income.

Bad Management

Bad management goes hand in hand with vacancy. Using a property manager will limit the time you need to personally spend earning passive income on your investment, but if your property manager creates a negative experience with your tenant, you will set yourself up for increased vacancy rates and high tenant turnover.

A bad manager can end up costing you more than a vacant property. If the manager doesn’t handle maintenance requests properly, you could end up with an expensive repair. A bad manager will also try to nickel and dime you for repairs and additional services. Check the management agreement to make sure any additional services and repairs are outlined and your expectations are clearly defined before starting to work together.

When looking for a property manager, check online reviews to see what actual renters say about the manager. Are there signs that the renters are happy? Do managers respond to repair requests? A pattern of the same complaints could be a sign that this particular manager will mishandle your investment and end up costing you money in the long run.

Bad Tenants

Your No. 1 priority for a profitable rental investment is finding good tenants. Make sure you or your property manager properly screen future renters by accessing quality tenant screening reports. Do not rely on your gut or a story from a “nice-looking” renter. Check verifiable reports to get an honest picture of your future tenant.

Landlords and property managers can legally review a renter’s credit report, eviction history and criminal background with the rental applicant’s permission. A tenant screening package for all these reports generally cost between $20-$30, which can be paid for by the tenant with a rental application fee.

When you rent to a tenant with an unqualified rental history, you run the risk of property damage, late payments, endangering the neighborhood or other tenants and non-payment of rent. All of these risks can create a headache for the property owner and can end up costing you time and money in eviction paperwork and legal proceedings.

Don’t assume that you can just evict a bad tenant to solve the problem. Evictions are a lengthy legal process, sometimes taking between a few weeks to a few months, during which you will not be collecting rent on the property and increasing your risk for property damage.

The Wrong Insurance

Owning rental property requires a different type of insurance than a standard homeowners policy. A landlord policy typically includes two types of coverage: property and liability. We’ve seen an increasing need for the right insurance policy in the past year with the devastating wildfire damage in California and hurricane flooding in the south, creating the need for total reconstruction of properties.

If you are transitioning one of your primary residences into a rental property, it’s extremely important to change your insurance to the right policy. If you do not have the right type in place, accident coverage will be on you, the owner, to cover the cost. For a total house reconstruction, this can mean hundreds of thousands of dollars in repairs. Beyond landlord insurance, there are actually seven types of insurance polices landlords should seek information about, including flood insurance and lost rent insurance.

The Bottom Line

Limiting vacancy, prioritizing great management, renting to qualified tenants and verifying proper insurance are some of the most important things an investor needs to accomplish to create a profitable investment opportunity. Other areas that can negatively impact your bottom line include deferring maintenance and sneaky HOA fees and policies.

When you invest in rental properties, you need to consider the likelihood of vacancy and whether your management style will guarantee good customer service, best practices and qualified tenants. If you fear that you will not be able to generate a positive cash flow at all times, you are setting yourself up for a risky rental situation.




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5 Reasons to Get a Prelisting Home Inspection

Mon, 02/05/2018 - 2:36pm

A home inspection is traditionally known as a part of the due diligence process when a home is under contract with an intended buyer. A professional home inspector will visit the home and conduct a thorough review of the structure, noting any deferred maintenance, defects in the building and the remaining useful life of major appliances and systems such as the air conditioner and water heater.

Depending on what the inspector finds, the results can have a powerful impact on the sale of the house. The buyer can ask for repairs or updates to be made, try negotiating on the sale price or walk away from the deal.

To avoid the unpleasant surprises a home inspection may bring to light, homeowners looking to put their house on the market can opt for a prelisting home inspection, which provides sellers with a thorough report before the home goes on the market. Sellers have the opportunity to make necessary repairs before potential buyers start touring the property and to avoid a deal that falls through due to structural or maintenance problems that could lead to other potential buyers steering clear of a property that has issues.

“The homeowners would do the same diligence as if they were going to buy the house,” says Frank Lesh, executive director of the American Society of Home Inspectors.

A prelisting inspection costs the same as one conducted while a property is under contract – ranging between $200 and $475, according to HomeAdvisor, depending on location and whether the inspection includes special checks like those for radon or termites.

Even in a hot real estate market where buyers are snapping up available homes quickly, a prelisting inspection can help reduce the chances a deal could fall through and get you closer to selling your home for the price you want in the time frame you need. Here are five reasons you should consider a prelisting home inspection before putting your house on the market.

Advance notice. Every house comes with its fair share of quirks and problems, and you’re probably at least vaguely aware of a few of them – a window that lets water in when it rains or bowing floorboards in one corner of the dining room, for example. If you’re planning to put your property on the market, an inspection report ahead of time will help you see all the potential problems together, including some you may not have known about.

The prelisting inspection gives you the knowledge to do with it what you will – make repairs or updates or reflect any deferred maintenance in your sale price, explains Drew White, founder and owner of AmPro Inspections in Colorado Springs, Colorado. “[Sellers] have all the cards – they’re not going to be blindsided by any major finds from the buyer’s inspection,” he says.

There is a caveat: Once you have the report in your hands, you can’t completely ignore a problem. If your inspector finds cracks in the foundation, you’ll be required to disclose that information as a known defect to the buyer, or fix it before anyone puts an offer in.

“You know the old saying, ‘Ignorance is bliss?’ Now you can’t do that,” Lesh says.

DIY option. For simple repairs, however, the prelisting inspection gives you the added benefit of being able to take on projects yourself. When negotiating with a buyer, necessary repairs will typically require you to bring in professionals for all work done, even when the fixes are simple.

“There’s a lot of do-it-yourself projects that the homeowner can do where it’s satisfactory, it’s not going to be an issue,” White says. “If the buyer’s inspector finds it – let’s say there’s an electrical outlet that needs to be replaced or some simple plumbing – they’re going to typically mandate that a professional electrician or plumber do it.”

An outlet replacement or tightening a washer on a faucet – both simple projects homeowners can do – could be a couple hundred dollars for a pro to complete, White says.

Contractor of choice. For those bigger projects that do require professionals to come out, time is also on your side when your home isn’t yet on the market. “They get time to use the contractors they want,” White says.

Rather than needing to find a roofer in a specific time frame to appease the buyer, you can shop around for the right price, availability and skill to ensure you’re satisfied with the work.

Informed pricing. Of course, there are some projects you’re just not willing to take on. If you can’t afford to fix a foundation issue with your house or you don’t want to invest the money to replace cracked tile in a bathroom when you know a buyer will completely renovate it anyway, you don’t necessarily have to take care of the repairs. Instead, “that can be reflected in the price,” Lesh says.

Work with your real estate agent to establish the right sale price, taking into account whatever issues you can’t – or aren’t willing to – fix before putting the house on the market. Your final sale price will be lower, but it may be better than paying for repairs that won’t be fully recouped by a buyer’s offer.

Buyer may accept results. The fact that your house has already had an inspection can have its own appeal for buyers and can serve as a plus if included in marketing descriptions of the house. Especially in a tight seller’s market where buyers have to fiercely compete with each other, you may see more buyers willing to accept the prelisting inspection report and forgo an additional inspection during the due diligence period, moving the process along faster.

Some home inspectors provide a warranty with their inspection reports. AmPro Inspections is one such company, White says, which helps some buyers feel more comfortable because the warranty can be transferred to the next owner. He says homebuyers accept the prelisting inspection roughly 50 percent of the time.

That doesn’t mean you can expect buyers to accept the prelisting report as the only inspection. It’s like buying a used car from a private individual, Lesh says. While the seller’s mechanic may say the car is in great shape, you’ll likely want a mechanic you trust to look at it, too.

Plus, if any significant amount of time passes between that first inspection and the buyer’s offer, more problems could have popped up, especially in winter, Lesh says: “Are the conditions going to be the same in April as they are in January? Probably not.”



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10 Rental Property Red Flags You Should Never Ignore

Thu, 02/01/2018 - 8:25am

What are absolute deal breakers when it comes to a rental property? Technically, the answer is there are none—or just about none. Every piece of property has a value. Although, as Brandon Turner noted about one deal on the podcast I was lucky enough to be on, “…no matter how I did my numbers, in the end I always came back to they got to pay me about 15 grand to buy this house.”

Sometimes that value is negative.

A better way to put it would be “major red flags” when it comes to rental properties. But before we get to the list, a major clarification is necessary. This list won’t include things like “the HVAC is shot” because that’s just a matter of what price to make an offer at.

These are problems are structural in nature. And by that, I’m not talking about the actual foundation of the building, but something that is relatively unalterable about the property. Some of these problems may be at least partially fixable at a reasonable price, such as the point on storage. Others are not, such as the location or floorplan. But these are not items you can simply and easily add to a repair list and make them go away.

With that in mind, let us begin our list:

1. The Proverbial War Zone

I wrote an article about how to analyze the crime risk for a potential deal that I would recommend reading to evaluate which areas are proverbial war zones. Furthermore, I wrote another article on why most investors (and all newbies) should avoid properties in D areas. The gist of it is that properties in such areas will usually cost more to maintain than the rent they bring in. And the risk is much higher, to boot.

Remember, square foot for square foot, a new roof or furnace will cost the same in D neighborhood as it does in an A neighborhood. If the rent is too low, it simply won’t cover the cost of such repairs. And add to this that crime is more common in these areas. It will take a long time at $500/month in rent to cover the cost of an A/C condenser that decides to grow legs and walk off. Tenants in these areas are also more likely to fall behind on their rent or do significant damage to a unit. While there are plenty of good tenants in rough areas, unless you specialize in these types of rentals, really rough areas should be a deal breaker.

2. Terrible Schools

Often, terrible schools go hand in hand with war zones, but no always. Some areas, particularly densely urban areas, have bad schools but some quality areas where most of the people who live there send their kids to private schools. While I personally find this dynamic to be tragic, there’s not much you can do about it as a real estate investor.

Bad schools is definitely more of a red flag than anything that would resemble a deal breaker. But after safety, the most important thing people look for when looking to rent a property (at least a family-sized property) is the quality of the school district. So keep this in mind. is a good place to go to evaluate any given school district.

3. Houses With Only One or Two Bedrooms

I hesitated to even include this because it is absolutely not a deal breaker. But it is worth noting that one and two-bedroom homes are not what any family is looking for, so with these types of houses, you will generally have a more transient clientele. Now, with some such houses, you can add a bedroom, which can be a great value-add. But with others, there simply isn’t the space. Small houses can be risky, and the tiny houses movement is too likely to be a fad to be worth investing in as rental property.

That being said, I have heard of one investor who specifically looks for one-bedroom homes and rents (mostly) to elderly people, and he does very well with it. For our part, we have plenty of two-bedroom houses, and they do just fine. But you definitely need to know what you are getting into with such homes.

4. Huge Units

A 3,000 square foot house does not often make for a great rental. Again, this is not an always proposition, though. But for the most part, the maintenance and turnover will be much higher on such large properties simply because of the sheer size of it. Furthermore, most people looking for such a house will be buyers, not renters.

We find our sweet spot to be around 800 to 1,500 square feet for houses.

5. Huge Lots and Rural Properties

I put these two together since they tend to go together. Now, a big lot is a good thing. But if you are looking at anything too large, especially over an acre, I would start to get nervous. For one thing, that’s a lot of yard maintenance to deal with upon turnover. Furthermore, most people don’t want to take care of such a large yard themselves, so you will turn off a good number of potential tenants. Or you may get a tenant who simply won’t take care of the yard, and then you will start getting letters from the city.

Rural properties are also difficult to manage since they will generally be far away from you. I’m not a fan of rural properties in general (although, for some, I’m sure it’s a very profitable niche). But my advice would be that if you want to invest in rural properties, they make for better flips than holds most of the time.

6. Any Sort of Environmental Problem

OK, another major disclaimer—this could be a goldmine for a savvy investor who will buy what others won’t. But if you have toxic waste dump or an underground leaking oil drum or the unit is going through meth abatement, unless this is your specialty, move on to the next one.

7. Tiny Bedrooms or Kitchen

There are some instances where you can fix a tiny bedroom or kitchen by removing a wall here and adding a wall there. But often, there’s no economically good way to do it. Some old houses are just designed in a way that makes me think the architects were on LSD—even though that drug hadn’t even been invented when those properties were built. I’ve seen massive and useless hallways connecting one tiny bedroom to another in a 1,200 square foot house with no conceivable way to add a third bedroom. It’s endlessly frustrating.

But it’s important to note that potential tenants do not decide on which property they are going to rent by plugging the amenities and specs into a spreadsheet and running a logarithmic, covariate algorithm that takes the least-squares regression of the hypotenuse to determine the best value. They make their decisions based on emotion and livability. Tiny bedrooms are a huge turnoff for anything other than the third bedroom, which is often used as an office, library, or nursery. A master bedroom is a huge plus, but the first and second bedroom need to be of decent size (at least 10 feet by 10 feet or something equivalent).

And they say that kitchens and bathrooms are what really sell houses. I think the kitchen is particularly important, and a tiny kitchen that cannot be expanded or opened up is a huge turnoff. Not necessarily a deal killer (remember, every property has some value), but it’s a big red flag.

8. Awkward Layouts

Can you only get to the bedroom from the kitchen? Is the only bathroom right next to the kitchen? Can you only access the garage from a bedroom? Is the only door to the backyard through a bedroom? Is the second bedroom only accessible from the first (which, I should note, means it’s not a bedroom)? Is the only access to the unit’s only bathroom through one of the bedrooms in a unit that has more than one bedroom?

Maybe you can fix these problems by moving a wall or whatnot. Maybe you can’t. If you can’t, that is a major problem that seriously affects the properties sale and rental value. And tenants, like homeowners, generally don’t like awkward properties.

Obviously, it doesn’t mean the property is worthless, but it is another major red flag.

9. No Storage

Say you have a three-bedroom, two-bathroom house with no garage, basement, or bonus rooms. You need to note that the lack of storage is a big negative to potential tenants. Not a deal killer, of course, but a red flag nonetheless. The best remedy, we have found, is to add a shed in the backyard. Both Home Depot and Lowes sell such sheds at reasonable prices. But this is an imperfect solution at best. So be careful with a house that has no storage.

It’s safer to buy apartments with minimal or no storage, particularly with smaller units, as 1) the tenant doesn’t need a lawnmower or anything like that since they are not responsible for the lawn and 2) it’s less likely to be a family living there, so the person likely has a lot less stuff.

10. Local Governments That Hate You Simply Because You Exist

OK, that may be a bit of hyperbole. But it’s extremely important to know how landlord-friendly any municipality you intend to buy in is. Some cities require landlords to have annual property inspections, which are both expensive and arduous. Are you willing to put up with that? Other cities, particularly on the East Coast, have eviction laws that are so strict, it can take three months or even longer to evict a non-paying tenant. I’ve even heard of it taking as long as a year, especially if the tenant knows how to game the system.

For a rather extreme example, here’s how Global Property Guide describes the eviction process in the Netherlands:

“Landlords can only give notice in strictly defined cases, and it is extremely difficult for owners to evict tenants once they are established. Only the judiciary, and not the landlord, can terminate the contract, and only after the landlord has given notice of from three to six months. Where the contract is for a fixed period of time, he is restrained from giving notice except towards the end of that period.

“Limited arrears in payment of rent are in general insufficient grounds for a rescission of the contract; only an order for payment can be achieved. In the case of arrears of up to three months, rescission will be denied. Nuisances committed by tenants tend not to be a good basis for eviction; they tend to be denied by tenants, and the court procedure is costly.”

If there’s anyone from the Netherlands who would like to correct me on this point, I’m all ears. But for now, I’ll probably pass on investing there.

On the same note, HOAs can be similarly difficult and anti-landlord in some communities. We’ve all heard of the petty tyrants that have rises to power in some HOAs. Such properties are generally to be avoided.


To wrap it up, it’s once again critical to remember that there really is no such thing as a deal killer. After all, I for one would be willing to buy any property in the country if they paid me a billion dollars to do it. But there are major red flags that will kill most deals. When looking for rental properties, the above list are some of the big ones to watch out for.



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New California Law Clarifies Condominium Owners’ Right To Install Solar Systems

Thu, 02/01/2018 - 8:11am

Effective January 1, 2018 a new law makes it easier for a California condominium owner to install a solar energy system on the roof the building in which he or she resides. The law also covers the installation of such a system on a garage or carport adjacent to the building that has been assigned to the owner for exclusive use.

The new law is the result of Assembly Bill 634 (Eggman). It was approved by the Governor on October 15, 2017. It amends Sections 714.1 and 4600 of the California Civil Code. It also adds Section 4746 to the Civil Code.

The California Solar Rights Act of 1978 established that it was state policy that any provision of a Common Interest Subdivision that prohibits or restricts the installation of a solar energy system is void and unenforceable. The Act did allow Homeowner Associations (HOAs) to impose reasonable restrictions. AB 634 was said to provide further guidance on what would be “reasonable.”

The passage of AB 634 prohibits an HOA from establishing a general policy prohibiting installation of a solar system on the roof of a building in which the system owner owns a unit.

The new law also prohibits requiring a vote of the members owning units to approve the installation of such units. Generally, the law requires a vote of the membership to grant anyone exclusive use of what is normally common area. This law exempts solar units from that requirement.

The new law requires that each unit owner in the building be notified of any applicant’s application to install a solar unit on the roof of the building. It requires that they be notified, but it does not require their approval.

There is now a legal obligation for the owner of the system to “maintain a homeowner liability coverage policy at all times and provide the association with the corresponding certificate of insurance within 14 days of approval of the application and annually thereafter.”

AB 634 included a provision that allows the HOA to require the applicant for the system to submit a solar site survey, conducted by an appropriate professional, showing the placement of the system and “including a determination of the usable solar roof area among all owners sharing the same roof, garage, or carport.”

The HOA may also require the owner and all successive owners to be responsible for any damages to the common area or other units, and costs for any maintenance and/or repairs of the system.

Finally, the owner of the system may be required by the HOA to disclose the system and its related costs to any prospective buyer. Of course, common law disclosure responsibilities would require this anyway.

AB 634 was opposed by the California Alliance for Retired Americans. I don’t know why.



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Apartment Renters Continue to Dominate Many of the Nation’s Cities

Thu, 02/01/2018 - 8:09am

In close to half of the largest U.S. cities, the majority of households now rent rather than own their primary residence, according to a new report from RENTCafé, a Yardi company.

The share of households that own their homes has now declined to the level last seen in the1980s and early 1990s. That’s been great news for the multifamily sector, as those would-be homeowners have filled up apartments.

The homeownership rate is likely to stay at roughly its current level for the foreseeable future due to recent changes in the tax code that favor renting over buying and the high cost of for-sale homes.

“Where we are right now is closer to the long-term average than in recent years,” says John Sebree, national director of the national multi housing group with brokerage firm Marcus & Millichap. “It’s going to stay within a healthy range.”

Renters dominate in more cities

Renter households now make up the majority in 42 of the 100 largest cities in the U.S., according to RENTCafé. That’s up from 20 cities where renters dominated within city limits in 2006. By 2016, renters took over in 22 cities, including key markets like Chicago, San Diego, Detroit, Austin, Texas and Sacramento, Calif.

Homeownership declined steadily in the years from 2006 to 2016. First, millions of homeowners lost their homes to foreclosure in the financial crisis. In subsequent years, new households were more likely to choose renting over buying because new houses were typically too expensive for first-time homeowners and financing was hard to find.

“Over the 10-year period we analyzed, rentership growth outpaced homeownership in 97 of the 100 most populous cities,” according to RENTCafé. The total U.S. population gained approimately 23.7 million people during the past decade. At the same time, the number of renters increased by 23 million and homeowners by less than 700,000.

The percentage of households that live in a home they own fell to its lowest point—62.9 percent—in the second quarter of 2016. That’s down from a peak of 69.2 percent in the second quarter of 2004, according to the U.S. Census.

Homeownership levels start to rise

The homeownership rate had begun to recover slightly in 2017 and reached 63.9 percent by the third quarter of last year.

That’s partly because the millennial generation is getting a little older. More millennials are reaching the time of life when people are more likely to buy homes. The oldest millennials, born in 1980, are now turning 38 years old. The peak birth year for millennials was 1990, and that cohort is now turning 28.

However, the recovery in the homeownership rate may stall in part because of the recent reform of the federal tax code. Because of the Tax Cuts and Jobs Act, passed by Congress in December, millions of homeowners will no longer deduct the interest they pay on their home loans from their taxable income, instead opting to take the increased standard deduction in 2018. For wealthier households, who are more likely to itemize their deductions, the maximum amount of mortgage interest they can deduct shrank by about a quarter.

Similar tax changes in the U.K. had some measurable effects. “It didn’t affect homeownership in the long-term, though it did tick down in the short-term,” says Hans Nordby, managing director for CoStar Market Analytics and CoStar Portfolio Strategy.

However, even without the changes in the tax code, the cost of new housing is still too high for many potential homebuyers. “It’s the price of the home that is the limiting factor,” says Nordby. In many markets, the sites once available for new residential construction have been built out and zoning rules restrict the creation of new housing.

“The homeownership rate will not rise much, if at all,” says Doug Ressler, director of business intelligence for Yardi Matrix. “Single-family and alternative home construction will remain at a low point since the plotted home sites do not support workforce housing.”



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Here’s how much your home remodel will pay you back

Thu, 02/01/2018 - 8:04am
  • Remodeling spending is expected to approach $340 billion in 2018, a 7.5 percent increase over last year, according to Harvard’s Joint Center for Housing Studies.
  • More homeowners may be remodeling, but those that do high-end projects are seeing less value in those remodels.
  • The average payback in a home’s resale value is 56 percent of the cost of the remodel.

As home prices and mortgage rates rise, more and more homeowners are choosing to stay put and remodel.

Yet, depending on the project, some of the returns are diminishing. Remodeling spending is expected to approach $340 billion in 2018, a 7.5 percent increase over last year, according to Harvard’s Joint Center for Housing Studies.

“Steady gains in the broader economy, and in home sales and prices, are supporting growing demand for home improvements,” said Chris Herbert, managing director of the Joint Center for Housing Studies. “We expect the remodeling market will also get a boost this year from ongoing restoration efforts in many areas of the country impacted by last year’s record-setting natural disasters.”

More homeowners may be remodeling, but those who do high-end projects are seeing less value in those remodels — that is, the expensive upgrades and additions are paying back less in the resale value of homes, according to an annual cost versus value report from Remodeling magazine.

“It’s not clear if this is a sign of nervousness among real estate pros in the face of a booming housing market or if nationwide affordability concerns are leading pros to question the value of renovations that would make a house even more expensive at resale – particularly with the new tax law regarding the deductibility of mortgage interest and state, local and property taxes,” Craig Webb, editor in chief of Remodeling, wrote in a release.

For those who remodel, the average payback in a home’s resale value is 56 percent of the cost of the remodel, but for those who replaced things like garage doors or windows, the payback is a much higher 75 percent. That is according to real estate professionals surveyed by the magazine.

Those values change, however, depending on geography. After all, all real estate is local. The highest remodeling returns are on the West Coast, where the average payback is 64 percent of the cost. In the Mid-Atlantic, that falls to 51 percent.

As for types of renovations, external changes are paying back big time. Things that increase curb appeal, as well as outdoor living, are seeing the greatest increases in payback value: garage door replacement (up 18.6 percent), wood deck additions (up 17.7 percent) and manufactured stone veneer installation (up 15.7 percent).

Those that saw the least gains in value were interior projects: Master suite additions (down 14.7 percent) and major kitchen remodels (down 10.9 percent).

Homeowners who decide to rein in their big ideas are also seeing bigger returns. Minor kitchen remodels pay an 81 percent return, while major high-end kitchen remodels just 59 percent. It’s the same for bathrooms. Why? Taste. Not everyone likes the latest expensive trend. They do like appliances and fixtures that are functional and new.

“You might want a kitchen that looks like a 1980s replica from ‘Stranger Things,'” Webb said, referring to the television show. “But the person you’re selling to might hate an avocado and burnt orange color scheme. So regardless of what you spent, to the prospect that kitchen needs to go.”


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Mayors of 14 major cities and CEOs want more federal money for affordable housing, homeless services

Thu, 02/01/2018 - 8:02am

The mayors of 14 major cities are joining with a number of CEOs to call on the federal government to invest more money into affordable housing and homeless services.

The coalition is launching an effort called “Mayors & CEOs for U.S. Housing Investment,” which the group bills as a “first-of-its-kind coalition of local government and business leaders collaborating to advance public-private partnerships that tackle affordable housing and homelessness and actively oppose current funding cuts.”

The group includes the mayors of Los Angeles, Oakland, Sacramento, San Diego, and San Francisco, California; Mesa and Phoenix, Arizona; Little Rock, Arkansas; Aurora and Denver, Colorado; Washington, D.C.; and Philadelphia, Pennsylvania.

The effort was initiated last year by San Francisco Mayor Ed Lee, who died suddenly late last year.

“An affordable place to live should be within reach for everyone in America who dreams of making a better life for themselves their family,” said Los Angeles Mayor Eric Garcetti. “Too many cities across the country are facing an unprecedented housing crisis. We are here to call on leaders in Washington to develop new revenue streams and incentives that communities need to build and preserve the affordable housing that all of our communities deserve.”

The mayors are joined in the initial effort by the CEOs of AirbnbSutter Health, and GHC Housing Partners, one of the nation’s largest affordable housing providers.

“Airbnb is built on the foundation of creating community through belonging and we’re honored to stand with a bipartisan group of mayors and businesses from across the country dedicated to improving communities by addressing affordable housing and homelessness,” said Nathan Blecharczyk, co-founder and chief strategy officer of Airbnb. “Our experience has shown the best solutions are often the result of the public and private sectors working together, and so we are particularly proud to be working with this coalition to identify and fund innovative ideas that work.”

The group is calling on the federal government to enact four policy changes:

  • Maximize funding for existing federal programs that work, like Section 8 Housing Vouchers, Continuum of Care Homeless Assistance Grants and Community Development Block Grants.
  • Issue new, competitive HUD-HIIRO (Housing Innovation, Investment and Reform Opportunities) grants modeled after the Department of Transportation’s successful TIGER grants, designed for local communities to reward innovative thinking and collaborative, cross-sector projects to combat homelessness and affordable housing problems. These types of programs have proven to leverage local investment to provide strong social and economic returns.
  • Build on the successful HUD-Veterans Affairs Supportive Housing model through HUD-PASS (Partnerships Accelerating Supportive Services), which would pair HUD vouchers with Health and Human Services programs to help families and individuals experiencing homelessness who have mental health issues and other barriers to assistance.
  • Create a Housing Stabilization Fund – a pool of funds within HUD that can provide one-time, short-term emergency housing assistance to households below 80% of AMI.  Funds would be initially allocated to communities by formula, and subsequently on a pro rata basis adjusted for performance. There are many low-income renter and owner households which, while generally able to afford their homes, still lack any cushion when faced with a housing emergency. For these households, the loss of a job or a health emergency can result in eviction and a downward spiral of housing instability that often ends in homelessness. Unfortunately, there is no consistent housing program, fund or tool to help prevent such losses.

“I am proud to join the Mayors and CEOs for U.S. Housing Investment coalition in our bipartisan campaign effort representing geographically diverse urban, rural and suburban municipalities,” Phoenix Mayor Greg Stanton said.

“A lack of affordable housing can put a local economy at a competitive disadvantage as many employers have reported that a lack of affordable housing makes it more difficult and costly to recruit and retain employees,” Stanton said. “Affordable housing payments can significantly increase the residual income that households have at their disposal, which allows local businesses to gain from the increased buying power.”

Oakland Mayor Libby Schaaf added: “Mayors and business leaders have a unique understanding of the needs in the community, and the economic barriers which hold cities back from reaching their goal of creating stable and thriving communities. The creation of a bipartisan coalition made up of elected officials and CEOs, working in concert with nonprofit leaders and policy experts, will send the strong message to our federal government that investing in affordable housing and programs to prevent homelessness, will lead to economic growth, a better trained and prepared workforce, and stronger, more resilient cities.”


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How New Rules for Section 8 Voucher Payments Mean More Mobility for Voucher Holders

Mon, 01/29/2018 - 1:58pm

While officials currently at the highest levels of government may be delaying or undoing initiatives to end housing segregation, local public housing authorities now have a powerful tool to that end. Starting this year, local public housing authorities all over the country will be allowed to offer higher Section 8 rental assistance voucher payments to landlords in more affluent neighborhoods.


As research from Raj Chetty and others have shown, the “zip code effect” is real. When families are given the chance to move from a poor zip code to an affluent one, children do better in school and eventually land higher wage jobs and more stable careers. But for many poor families, making that move is not possible because rents in affluent neighborhoods are out of reach; rental assistance vouchers, which pay the difference between 30 percent of a tenant’s income and the fair market rent for the unit, only go so far.

Previous Department of Housing and Urban Development rules required local housing authorities to calculate those fair market rents based on rents across the entire metropolitan area, which is too broad to capture local market conditions. As a result, voucher holders remain largely concentrated in the same high-poverty neighborhoods. But a new rule, set to go into effect this year, could change that by changing how housing authorities calculate fair market rents. It’s likely to change the makeup of neighborhoods as lower-income people gain more mobility, and it’s causing a scramble among housing authorities rushing to respond to the rule.

“It’s a lot to digest”

In 2012, in a few metropolitan areas, the department began to test new rules that set voucher payments by zip code, a system known as small area fair market rents. Vouchers would pay higher in more affluent zip codes and less than they currently pay in less affluent zip codes, more closely reflecting local market conditions. The department issued a final rule in 2016, mandating new zip-code based voucher payments for local and state housing authorities in 24 metropolitan areas, while allowing other housing authorities the option to use the new rule, starting in 2018. But under new housing secretary Ben Carson, last August the department suspended the implementation of the rule. A lawsuit ensued; in December in an injunction ordering HUD to implement the rule as originally planned.

“Suspending this rule was yet another attack by this Administration on communities of color. By restoring this rule, this injunction is a key step towards expanding equal opportunity in all aspects of American life,” said Sherrilyn Ifill, president and director-counsel of the NAACP Legal Defense and Educational Fund, in a statement announcing the decision. The organization served as co-counsel in the court case.

The timing of the decision has set off a scramble among the housing authorities in the 24 major metropolitan areas affected. The new voucher payment levels must be in place by April 1. For smaller housing authorities especially, it may be an administrative burden to shift from having one voucher payment level across an entire metro to dozens, perhaps hundreds of different zip-code-based voucher levels.

“It’s a lot to digest for something that was put on hold and now suddenly is moving forward,” says Thomas Stagg, a partner at Novogradac & Company, an accounting firm and consultancy that specializes in affordable housing and community development.

According to Stagg’s analysis, there are 3,880 zip codes in the 24 metropolitan areas where the new rule applies. Out of those, Stagg found, 1,663 zip codes (43 percent) will see rental assistance voucher payments increase, while 2,263 zip codes (57 percent) will see voucher payments decrease. Some 368,000 current voucher-users live in those 24 metropolitan areas, Stagg reported.

Crucially, thanks to heavy advocacy from affordable housing advocates, the final rule does have built-in measures to protect existing voucher users from having their payments abruptly reduced. Under the final rule, existing voucher holders have up to two years before housing authorities reduce any voucher payments. At their own discretion, housing authorities may lower payments sooner—but no matter when they do so, the voucher payment cannot decrease more than ten percent of the preceding year’s value.

“A lot of existing tenants are going to want to stay where they are, while some are going to want to move, and in the first few years of implementation we want to protect anyone from sudden changes due to the rule,” says Philip Tegeler, executive director of the Poverty & Race Research Action Council, which has been advocating for the small area fair market rent rules, and also served as co-counsel in the court case leading to the injunction.

That said, Tegeler notes, local public housing authorities have a lot more legwork to do.

“It’s going to require some effort on the part of public housing authorities to go into areas where they’ve previously been priced out to establish relationships with landlords … to take full advantage of the rules,” Tegeler says.

Early lessons

The Chicago Housing Authority, whose housing choice voucher program assists 47,000 voucher-holders paying rent to 14,000 landlords, offers some early lessons for how housing authorities can make the new rule work.

Thanks to a HUD demonstration program called Moving to Work, the Chicago Housing Authority is one of a few around the country that previously gained the authority to create its own version of small area fair market rents. The demonstration program allows participating housing authorities to pool other federal housing funds with their rental assistance funding to support creative and locally responsive rental assistance programs.

So since 2011, the Chicago Housing Authority’s voucher program has been able to pay above metropolitan-area fair market rent on behalf of voucher holders who choose to move to opportunity areas, which the authority currently defines as census tracts in Chicago where fewer than 20 percent of residents have income below the federal poverty level and fewer than 5 percent of the existing housing is subsidized. The authority has also designated some census tracts with low poverty, moderate subsidized housing, and rising rents or incomes as opportunity areas. The authority now sets voucher rent based on other market-rate units in the same census tract, never going below fair market rent for the metropolitan area.

The Chicago Housing Authority’s designated opportunity areas, shaded orange. (Credit: Chicago Housing Authority)

Currently, the Chicago Housing Authority’s upper limit for new vouchers is 150 percent of the Chicago metropolitan area’s fair market rent, although previously it paid as high as 300 percent. All told, as of September 2017, the authority was administering about 1,800 vouchers paying above fair market rent in its designated opportunity areas. That’s an average of 291 voucher holders moving into designated opportunity areas a year. The record was the 2014 fiscal year, when 638 voucher holders moved into designated opportunity areas—that was the last year the authority could go up to 300 percent of fair market rent.

Even with higher payments, it’s never a guarantee that landlords in higher opportunity areas will accept vouchers. While Cook County (which includes Chicago) is one of a number of states or localities that has outlawed discrimination against voucher-holders (known as source of income discrimination), such laws remain difficult to enforce, making ongoing landlord outreach a necessity. The Chicago Housing Authority has aimed to connect with landlords through regular workshops and briefings. This year the authority also plans to equip tenants with literature they can show to potential new landlords.

Another piece of the puzzle is financial. Last year, the Chicago Housing Authority also began to offer landlord incentive payments, worth up to one month’s rent upon the first payment of a new voucher. It’s intended to help compensate landlords for the extra time a unit might remain vacant while going through the process to lease up a voucher-holding renter.

“We’re recognizing that our lease-up process can take longer,” says Kathryn Ludwig, chief housing choice voucher at the authority. “You have to get through the request for tenancy approval, our inspection, and you might have to address a housing quality issue followed by another inspection.”

There is some concern that, in some areas, the new zip code-based fair market rent rule still won’t result in vouchers that pay enough for voucher holders to move into higher opportunity areas. For example, in Charlotte, North Carolina, the housing authority found that zip-code-based rents weren’t going to be sufficient in many areas. That may be because of lags in market data used to calculate the new rent values, or because zip codes are still too large an area to accurately reflect local market conditions.

Under the final small area fair market rent rule, local housing authorities participating in the Moving to Work demonstration program may elect to be exempt from the rule, letting them keep or create local versions of small area fair market rents. That will be the case for Chicago, as well as Charlotte, which is beginning to set up its own local program. The Philadelphia Housing Authority has also expressed its intent to use its Moving to Work exemption.

The availability of higher voucher payments in higher opportunity zip codes also promises to make new affordable housing development in such areas more financially feasible, enabling more existing affordable housing developers to work in those zip codes. In areas that implement small area fair market rents, affordable housing developers can take out larger loans to acquire pricier properties, knowing they’ll be able to lease to tenants with vouchers that pay enough to make projects pencil out.

The National Housing Trust has been embarking on just such a strategy, bringing some market rate buildings into affordable housing status in cities like Washington, D.C. The nonprofit’s real estate development team says three of its current D.C. properties will soon see significant increases in rental income from vouchers. The nonprofit also anticipates the small area fair market rent rule will help future affordable housing projects in other zip codes across the country where it has been looking to make acquisitions.

“We think there will be some [affordable housing development opportunities] that don’t already exist under the current fair market rent regime,” says Ellen Lurie Hoffman, federal policy director at the National Housing Trust. “Small area fair market rents should really help communities that are trying to come up with strategies to reduce segregation.



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The Best and Worst Cities for US Renters

Mon, 01/29/2018 - 1:58pm

If your company operates a building in Scottsdale, Ariz., you might have some of the happiest residents in the country.

Apartment List recently released the results of the third annual Apartment List Renter Survey, which analyzed 45,000 responses from renters around the country, to rank which cities have the highest renter satisfaction. Respondents gave their city an overall score, on a scale of 1 to 10, based on 11 factors, including affordability, job opportunities, commute time, and safety.

Over 60% of renters reported individual satisfaction with the recreational activities, pet-friendliness, and commute time in their areas. The four factors most closely tied to overall satisfaction are safety, job opportunities, social life, and recreational activities.

The top-rated cities for renter satisfaction along with Scottsdale are Plano, Texas, and Cambridge, Mass., which all ranked highly for safety and a low crime rate, and Huntington Beach, Calif., where residents cited satisfaction with available recreational activities.

Among large cities, Raleigh, N.C.; Minneapolis; Boston; and Virginia Beach, Va., earned the top scores for renter satisfaction, but small and mid-sized cities tended to receive better overall scores—38% of them received an A- or higher, compared with only 24% of large cities. (Apartment List calculated the overall satisfaction grades using the average city ranking [from 1 to 10]. It calculated category satisfaction grades using the percentage of residents who were “very satisfied” or “somewhat satisfied” with that aspect of life in their city.)

Satisfaction differs among demographics, too. Renters with children, for example, gave Hollywood, Fla.; Tampa, Fla.; and Austin, Texas, top scores for satisfaction, due to good job opportunities and quality of schools, while millennial renters were most satisfied in Boulder, Colo.; Madison, Wis.; and Arlington, Va. College towns, including Cambridge, Mass.; Boulder, Colo.; Provo, Utah; Ann Arbor, Mich.; Madison, Wis.; and Raleigh, N.C., were rated highly for their social life.

Renters were least satisfied in Detroit; Tulsa, Okla.; Oakland, Calif.; and Tucson, Ariz., all of which scored poorly for safety and crime rates, as did Stockton, Calif.; New Orleans; and Memphis, Tenn., where renters reported feeling unsafe. Respondents were the most dissatisfied with job opportunities in cities in Southern California and the Southwest that were hard-hit by the recession, including San Bernardino and Santa Ana, Calif.; Glendale and Mesa, Ariz.; and Albuquerque, N.M.

Affordability remains an issue with renters across the country. Only 38.4% are satisfied with the cost of living in their city. However, the report also found that, despite overall displeasure with affordability, the cost of a rental is weakly correlated with overall satisfaction. This indicates that renters choosing to live in expensive cities are satisfied enough with other aspects of their city to express overall satisfaction.

View the report and find more details on each city and factor here


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Single-Family Rental Lease Retention Strengthens as Rents Rise

Mon, 01/29/2018 - 1:55pm

The latest single-family rental research from Morningstar Credit Ratings, LLC shows the rental market following familiar trends in the closing months of 2017, with more renters choosing to renew their expiring leases and delinquency rates holding steady.

Morningstar’s Single-Family Rental Research Performance Summary shows lease expirations across single-borrower, single-family rental securitizations declining between October and November 2017, dropping from 6.5 percent to 5.2 percent. The retention rate for expiring leases in October 2017 (the latest data available at the time of the report), increased to 79.3 percent in October, up from 76.4 percent in September.

Both of these stats reflect a general trend of tenants typically preferring not to move during the winter months. This correlates to a typical slowdown in homebuying during these colder months, which could present opportunities for single-family rental investors to find inventory that will provide a good return on investment, according to a December report by HouseCanary.

Morningstar also reports that the average vacancy rate also declined in November, dropping to 5.6 percent from 5.9 percent in October. The Houston metropolitan statistical area (MSA) retained the highest vacancy rate among the top 20 MSAs, unsurprising given the impact of Hurricane Harvey during the fall of 2017. However, after six consecutive months of increases, Houston’s vacancy rate did finally decrease to 9.4 percent in November, down from 10.0 percent in October. The Nashville, Tennessee MSA came in with the second highest vacancy rate for November, increasing to 8.0 percent from 7.6 percent in October.

On average, rents rose 2.8 percent in November. In Houston, however, rents dipped in November for the third consecutive month. September saw a decrease of 0.8 percent, October a 0.4 percent drop, and November a 0.6 percent drop. According to Morningstar’s report, “The rent declines could be in response to the increase in vacancy rates Houston has experienced as the market adjusts. Hurricane Harvey may have partially contributed to the Houston rise in vacancies and decline in rents, but the rise in vacancies started before the hurricane hit.”

According to a December 2017 report by Harvard University’s Joint Center for Housing Studies, increased demand and low inventory have driven a demand for rental properties, especially among wealthier people who could afford to purchase a home if they so desired.

All of this is presenting tons of opportunities for the savvy investor in 2018. You’ll be able to find out more during the Single-Family Rental Summit, happening March 19-21 at the Renaissance Nashville Hotel in Nashville, Tennessee.


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