American Apartment Owners Association

Prices Rise for Apartment Buildings, But Fewer Properties Sell

Mon, 10/09/2017 - 1:40pm
Investors continue to buy fewer apartment properties than they did last year. Yet prices continue to rise.

“It’s another down month for volume, but prices are still increasing,” says James Costello, senior vice president for Real Capital Analytics (RCA), a New York City-based research firm.

Usually prices fall when transaction activity slows down. But strong rent growth and relatively healthy occupancy rates in the apartment sector continue to attract investors, who are then frustrated by the relatively small number and high asking prices of apartment properties available for sale.

“The last three months have been the same story—it has been another month of disconnect between rising prices and falling deal volume,” says Costello.

Property markets cool off

Investors bought and sold $11.7 billion in apartment properties in August 2017, down 8 percent from the dollar volume spent on apartment properties in August 2016, according to RCA.

August would have been even less busy if it were not for a few giant portfolio deals. The dollar volume of single apartment properties sold dropped 18 percent during the month compared to the year before, according to RCA.

Usually, investors start a new year slowly. So far in 2017, the usual declines have been steeper than normal. Experts say fewer properties are available for sale, especially compared to the peak year of 2015. “The volume of property sales was so big… you can’t do that kind of deal volume every year,” says Costello.

Investors are also getting pickier about the properties they buy and the prices they are willing to pay. “Because the market has changed, investors are seeking yield, and in a market where they don’t anticipate any more cap rate compression, that yield is going to come from rent growth,” says Jeffery Daniels, senior vice president and national director for the multifamily division of Institutional Property Advisors, an investment platform.

That pickiness translates to fewer property sales. “In markets that project lower rent growth due to supply and other factors, we’re seeing less investor activity,” says Daniels.

Cap rates still strong for apartment properties

Even though investors are buying fewer assets, they are paying more than ever for apartment properties. The RCA Commercial Property Price Index for apartments rose 9.9 percent in August compared to the year before.

Prices on apartment properties also rose relative to their income in rents, and that kept the yield on investments in the sector near historic lows. “Capitalization rates are flat or even falling,” says Costello.

Cap rates on sales of garden apartment properties shrank to 5.8 percent in August, down 20 basis points compared to the year before. That’s also a full 90 basis points below the long-term average, according to RCA. Cap rates on sales of mid-rise and high-rise apartment buildings remained stable, hovering at or near the 5.0 percent level for most of the last year and a half.

Buyers are still very interested in apartment properties, keeping prices high and cap rates low. But that interest is not always enough to overcome worries about overbuilding and overpaying for assets. It seems less and less likely that prices will rise as quickly in the future as they have in the recent past. “Buyers won’t have cap rate compression to paper over any mistakes they make in underwriting,” says Costello.

Relatively easy access to financing is also helping keep property prices high and cap rates low. Investors have ready access to debt and equity financing to help them buy properties. Potential buyers can also still find partners who are eager to contribute equity capital to their deals.

“The abundance of equity capital in the multifamily space may keep cap rates down,” says Daniels. “The ability of investors to find financing is still very strong.”



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5 Ways Property Managers Can Contribute to College Student Self-Care

Mon, 10/09/2017 - 1:37pm

Unfortunately, renting to college students is no easy task. Property managers are confronted with the reality that while all college students may not be horrible residents, there are some that tarnish the reputation for all of them.

When renting to students, landlords have to consider certain risks, such as lack of responsibility, increased chance of damages, and sudden lease breaks. As a student, living on your own for the first time is hard as well because of all of the added responsibility and the extra freedom that comes with leaving your parents home and being by yourself.

Though many think that having a positive relationship with your property manager is impossible, there are things that can be done on both the end of the landlord and the student resident that can make the duration of time of the lease more pleasurable. Are you a property manager looking for ways to help your student residents for not only their benefit but for you as well?

Check out my five tips below on how to contribute to student self-care and decrease stress on not only your end but their end as well!

1. Combine amenities

Most students have a hard time maintaining their bills and being financially responsible. Between managing the costs of items needed for school, such as supplies and textbooks, food and groceries, and other expenses such as cable and internet, forgetting to balance bills and being behind on payments becomes easy to do.

To help students balance their bills for rent, electricity, and A/C and heat, combine the amenities into the rent to reduce the number of physical bills for students to keep track of and ensure that you receive your payments on time!

2. Automatic withdrawal

To further secure that you get your rent and additional payments on time, have an option for students to have their payments automatically taken out of their (or the payer’s) bank account at the beginning of the month. Students would then have E-bills that could be paid automatically instead of worrying about sending out payments on time.

In addition to the added benefits for you, students can easily maintain their payment plan on their phones/tablets/and laptops, which can help them keep track of when they need to pay and how much they will need.

3. Rewards

As a property manager, you know that there are some careless student residents that will wreck their apartment and ignore the rules of their signed lease. This can not only cost more for you to fix the damages but also affect the chances of you renting the unit to another resident in the future.

To give your student residents the incentive to treat their unit with respect and according to their lease rules, reward them with gift cards to places that could be beneficial to them, such as a school supply store or Amazon.

4. Security and safety meetings

Campus safety and security around an apartment complex is an important aspect of students and parents deciding whether or not to rent a unit. As a means to make students and parents confident of the security and safety around your unit, hold mandatory meetings with residents and security guards/security team to discuss campus safety around the apartment building.

This can further assure residents that you, as well as the management of your property group, is dedicated to making sure proper measures are taken so everyone is protected.

5. Establish a common area

When it comes to studying, college students appreciate having public spaces to study like the library or a café. In order to further ensure student safety, create a common area with tables and chairs as well as open Wi-Fi for students to work and study. This will inspire other student residents to move into your complex and help keep your current student residents safe as it gives them the incentive to stay inside instead of studying late at night in the library or elsewhere.

Though some student residents can be difficult to deal with, most just want to be able to have a place of their own and learn adult responsibilities. By establishing payment plans, safety meetings, good behavior incentives and open areas, you will be able to facilitate a better relationship with student residents (as well as their parents) and make your job a little easier.

After all, these few options and changes can make your property attractive in the future and help you gain even more residents! As always, good luck!



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These are the fastest-growing cities in America

Mon, 10/09/2017 - 1:33pm

Frisco is the fastest-growing city in America. No, not THAT Frisco with the incessant fog and Golden Gate Bridge (not to mention, locals will scoff if you call it Frisco).

We’re talking Frisco, Texas. The Dallas suburb scored No. 1 on WalletHub’s list of fastest-growing cities in America due to its rapid job and population growth. The city is home to the National Videogame Museum, Dr Pepper Arena (home of the Frisco RoughRiders), and the Dallas Cowboys headquarters. It has a number of other accolades to its name, including Men’s Journal’s No. 1 Best Place to Raise an Athlete in 2011 and Movoto’s best midsize city to move to in 2013.

Here are WalletHub’s 10 fastest-growing cities in America:

Rank City 1 Frisco, TX 2 Kent, WA 3 Lehigh Acres, FL 4 Meridian, ID 5 Midland, TX 6 McKinney, TX 7 Fort Myers, FL 8 Bend, OR 9 Austin, TX 10 Pleasanton, CA

And here are WalletHub’s 10 slowest-growing cities in America:

Rank City 1 Shreveport, LA 2 Jacksonville, NC 3 Fayetteville, NC 4 Decatur, IL 5 Montgomery, AL 6 Baton Rouge, LA 7 Davenport, IA 8 Fort Smith, AK 9 Racine, WI 10 Waterbury, CT

To compile the ranking, WalletHub analysts compared 515 cities of varying population sizes based on 15 key measures of both growth and decline, such as population, unemployment rate and regional GDP per capita over a period of seven years.


Here are WalletHub’s fastest and slowest-growing cities, broken out by large, mid and small-sized cities:


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Detroit council delays action on landlord crackdown

Mon, 10/09/2017 - 1:30pm

The Detroit City Council on Tuesday delayed a vote to toughen its rental regulations, including a controversial measure that would stop landlords from collecting rent if they don’t pass city inspections.

Under current law, units are supposed to be registered and have passed city inspections, including obtaining a certificate of compliance, before they can be rented out. But city officials admit they have let most landlords ignore the rules for more than a decade.

Councilman Andre Spivey, who introduced the changes in May, said his proposal adds “teeth” to the current law and streamlines regulations for landlords who follow the rules.

But during Tuesday’s session, council President Brenda Jones said she was concerned about the property rights of landlords who wouldn’t be able to evict tenants.

“You are telling me someone can stay in my property,” Jones said. “Even if it’s not up to code, I can’t say anything about you occupying my property. I have a concern with that.

“It’s still my property. You are telling someone to stay in my property rent free because I chose not to fix it up.”

After Jones and two other members voiced concerns, Spivey agreed to send the proposal back to a committee for more discussion.

Several speakers, including members of the Detroit Association of Realtors and Richard Clay of the group People for Utilities Reform, told the council the crackdown would hurt small landlords. Clay predicted rents would rise and other owners would lose their properties to foreclosure.

“Detroit’s small landlords desperately need more financial resources to help them comply with city ordinances and keep them in business instead of more fees and fines to drive them out. A spike in inspection-related fees and fines will cause a further, disastrous decline in black home ownership,” People for Utilities Reform said in a statement.

But supporters said the measures were crucial to making sure all landlords comply with safety regulations, including lead poisoning prevention efforts. Lead inspections are a part of obtaining a certificate of compliance.

“We know of landlords who own 300, 400, 500 properties and never registered their properties,” said Mary Sue Schottenfels, executive director of the nonprofit CLEAR/Corps Detroit, which works to prevent lead poisoning.

In 2015, more than 10 percent of children younger than 6 tested in eight Detroit ZIP codes had elevated blood lead levels.

According to city records, about 4,700 addresses were registered as rentals, as of last month,.

It’s unclear how many rentals aren’t registered, though the U.S. Census Bureau estimates the city has 140,000 rental units. City officials estimate that 50,000 rental properties have not been inspected.

“We aren’t trying to send owners into foreclosure or take rent,” Spivey said. “But we do need safe habitable (homes) for people to stay in.”

After a phase-in period, tenants who live in rentals that haven’t passed city inspections could put their rent in an escrow account for 90 days. The measure aims to stop evictions for non-payment of rent, if the owners haven’t complied with city rules, officials said. Landlords have said the regulation likely would be challenged in court.



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Investors Look for Bargains in Undervalued Markets

Mon, 10/09/2017 - 1:28pm

Property values have surged steadily higher in the prolonged recovery. But that high tide isn’t raising all boats as some metros are still falling short of 2007 pricing.

The broader commercial real estate market has regained and surpassed values that existed at the prior peak. The major metros have seen the biggest bounce with values that are 52.5 percent higher than a decade ago, while the rebound has been more modest in non-major metros at 10.8 percent, according to the CPPI produced by Real Capital Analytics (RCA), a New York City-based research firm.

“There are certain markets that are still nowhere near that previous peak,” says Jim Costello, senior vice president at RCA. The firm’s researchers estimate there are still more than a dozen markets where property values are below 2007 levels. Las Vegas tops the list of laggards with average values across property types that, as of July, are 34.3 percent lower than they were 10 years prior. Other metros still battling a steep decline include Orlando, Fla. at 24.9 percent; Sacramento, Calif. at 24.4 percent; Fort Myers/Sarasota/Naples, Fla. at 21.8 percent and Phoenix at 18.4 percent.

Metros where values were driven by the housing boom, such as Las Vegas, Phoenix and parts of Florida, are still feeling the negative impact of the housing bust. The local economies don’t have the same “juice” as they did before, which has a ripple effect on the economy and the demand for space, adds Costello.

Those metros that were hit hard when the housing bubble burst lost more value than other markets and were slower to start their recovery. “So not only have they been digging out of a deeper hole, they have been recovering for much less time than some of the other major metros,” says John Chang, first vice president, research services, at brokerage firm Marcus & Millichap.

In addition, there are a number of metros that have been experiencing a slower recovery due to local economic factors. Midwestern cities including Chicago, Indianapolis and Cleveland have been climbing out of the recession for the past several years, notes Chang. “But they have never had a big pop in their employment growth, and they are also struggling to keep their population in a lot of areas,” he says. The slower improvement in fundamentals has weighed on property values.

Those lagging markets represent both risk and reward for investors. Certainly, investors are treading carefully. Metros in recovery mode do offer a higher level of risk because of volatility and potential softness, especially if the broader economy weakens, says Chang. However, these markets also represent an opportunity to buy assets at more favorable pricing relative to some other areas where prices are now more than fully recovered. In addition, growth in some of these markets is starting to accelerate at this stage of the cycle, he adds. Florida, including markets such as Orlando and Tampa, currently has some of the highest employment growth in the country.

“Some locations in these markets will not regain the values that they had before,” says Eric Enloe, managing director of valuation and advisory services with real estate services firm JLL. Outlying areas in metros that were severely impacted by the housing crisis and don’t have employment drivers, for example, may not regain their prior pricing levels, at least in this cycle. Those markets that have been slower to rebound are creating selective opportunities for investors to buy properties with higher returns, but with slightly riskier profiles. “With pressure and stress in markets comes opportunity,” says Enloe.

Investors really need to “peel back the layers” to find opportunities, adds Enloe. They need to look at the economic drivers that have slowed recovery and growth in some markets, and also drill down into the specific dynamics within submarkets and property sectors, he says. Downtown Chicago’s office sector, for example, has a ton of activity and very aggressive pricing that is higher than it was in 2007. It is a different story in some of Chicago’s suburban office markets, where demand and pricing are lower, but this creates opportunities for value-add investors that are patient, says Enloe.

Even though prices aren’t at previous peak levels, investors are still active in those markets, because there is growth occurring, adds Costello. “Prices might not be where they were at that previous peak, but they are seeing price growth,” he says.



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5 Types of Luxury Residences You Can Own

Mon, 10/09/2017 - 1:25pm

Having a home to live in is one of our basic needs, but if you have the capacity and can afford to get more than the standard home, then you definitely have a lot of options. While most people settle on what their budget dictates, you can opt for any of the luxury residences in your city.

What makes a residence a luxurious one? Houses or other types of residences can be labeled as luxurious, based on certain qualities and features. Some of the common features of upscale properties are the prime location and superb quality interior finishes.

Usually, luxury residences are located in a gated community, whether in major cities or in rural settings. They also give the owners access to exclusive amenities such as an exclusive country club for luxury homeowners. Other qualities are the high-end interior design and finishes such as professional grade or superior quality appliances, marble countertops, customized furniture and closets, and top of the line amenities and facilities, like spa and fitness centers.

If you are in search of a luxury residence, either as a reward for all your hard work or for your whole family to live in, it would help you to know your options. There are different types of luxury residences that you can consider, each with their own advantages and disadvantages. By knowing each type, you can understand better the qualities that you want your future home to have.

1. Condominiums

A condominium, often shortened to condo, is a complex with multiple units, with each unit owned by individuals. The units are surrounded by facilities and amenities that can be used by all the residents of the entire complex. Condos can be considered as luxury residences with their extravagant features such as fitness centers, swimming pools, and security system.

2. Penthouses

A penthouse is a type of luxury apartment that is on the topmost floor of a building. This type is popularly preferred because penthouses offer a scenic view of the skyline and the city’s landscape. They also have other great features such as rooftop decks and balconies, which give them an edge among other types of residences.

3. High Rise Apartments 

These types of apartments are usually found in metropolitan cities where there is a need to construct these types of residences due to the location’s large population. They consist of several stories, with most of the floors built for residential units and the others for commercial or for facilities intended to be used by the residents. High rise apartments may consist of several bedrooms, depending on the unit’s floor area. They are equipped with elevators because of their high structure.

4. Low Rise Apartments

Low rise apartments are smaller compared to high rise apartments, but they can also be luxurious in the sense that they offer more privacy and solitude. They are usually below 115 feet or 35 meters, and consist of fewer floors, though they are still equipped with elevators for convenience.

5. Garden Apartments

In an urban setting, this type of residence can be defined as an apartment on the ground floor where there is an access to an outdoor space such as a patio, a backyard, or a garden as the name implies. It can be considered as a luxury residence as it can offer a sort of calmness and beauty in a concrete jungle. Gardens add beauty to houses with giant pots or boxes planted with beautiful and exotic plants and flowers.

These are just five of the most common types of luxury residences that you may want to consider in your search for a new home. Your choice may depend on the size of the residence, the unique features, or the convenience that they can offer to you and your family.



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Tips For Selling A Tenant-Occupied Property

Fri, 10/06/2017 - 8:02am

Posted on Oct 06, 2017

When you want to sell a unit while it’s occupied by a tenant, relations can turn rocky. Below, learn how to approach a situation when a landlord wants to sell so you get the outcome you want while respecting your tenants’ rights.

What You Need to Know When Putting Up a Tenant-Occupied Property for Sale

While you have the right as a landlord to put up your investment property for sale, you’ll need to respect the tenant’s rights during the lease term.

Tenants have right to quiet enjoyment of the unit. Typically, this means that you, as a landlord, cannot enter their apartment without giving sufficient notice, usually 24 hours’ notice. The same consideration applies to rental showings.

Disturbance of the tenants’ quiet enjoyment cannot be “excessive” by law. While courts have argued over what excessive means, it’s generally safe to show the apartment keeping in mind the normal amount of showings in your area. This might mean four to five individual showings a month, or an open house every weekend. Your real estate agent can walk you through what’s typical for your area.

Note that “excessive” use varies by the renter’s life circumstances. Someone with a baby, who does not work business hours, may be disturbed by frequent showings during the week; whereas someone who is working from 9-5 might not be bothered by daily showings.

Tips for Selling Investment Property With Renters

Tenants can cite a landlord selling their house/apartment without giving them consideration as a reason to break their property lease. If you are relying on rental income to cover your expenses while you show the property, it’s in your best interest to respect the renter’s right of occupancy. If the tenant leaves, you have to cover the mortgage on an unoccupied unit you’re trying to sell without the safety net of rental income. It’s highly unlikely that a renter would want to move into a unit knowing the landlord wants to sell.

In some cases, your existing tenants may be interested in purchasing the property from you. This could be a win-win, provided the tenants are willing and able to pay fair market value for the property.

Since you’ll need to disclose to tenants that you’re selling the unit, you might want to offer them first right of refusal. If they agree to buy it, you’ll keep more money since you won’t have a real estate agent taking commission. The worst-case scenario is, they will turn down your offer and you’ll put the unit on the market.

For more help with selling an investment property, such as calculating a gain on the sale of rental property, join American Apartment Owners Association. As a member of American Apartment Owners Association, you’ll enjoy updated advice for landlords, discounts on products and services, and other benefits.

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

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Property owners beware: Know your city’s regulations before renting out short-term

Thu, 10/05/2017 - 12:10pm

The ability to rent out your property to travelers has never been easier with the advent of websites such as AirBnB, VRBO and HomeAway, among many others.

Through these sites, property owners are able to rent out a spare room, an apartment that’s rarely used, or a vacation home. However, as short-term rental options are becoming more common, cities across the country are responding in different ways. It is important for property owners to be aware of where their city stands.

Ranging from near-outright bans of the practice to embracing the concept, there appears to be no unified front. Many cities, including Cleveland, have largely remained silent on the regulation of short-term rentals. Their municipal codes do not yet expressly permit or prohibit them. Only time will tell as to which option proves to be the most successful.

Cities that choose to regulate short-term rentals often have a licensing requirement. Denver requires that property owners obtain both a lodger’s license and a short-term rental business license if they are looking to rent out their property. The fee is $50 for every two-year period for the lodger’s license and $25 each year for the short-term rental business license. New Orleans distinguishes between the nature and location of the rental property and requires a fee of $50 to $500 a year, depending on which license is required. Fort Lauderdale recently lowered its short-term rental fees by a significant amount. While a standard vacation registration application used to cost $750, it now only costs $350.

Some cities focus on location, density and time period requirements in regulating short-term rentals. Time period requirements can come in the form of the number of days a property can be rented out in a year or on a consecutive basis. The requirements also address the minimum amount of time for the rental.

For example, Chicago prohibits rentals of less than 10 hours. Palm Springs limits the number of consecutive days a home may be rented out to 28. New Orleans restricts the renting of houses to no more than 90 rental nights per license year and bans short-term rentals entirely in the French Quarter. Las Vegas only allows rentals that are at least 660 feet from each other and even forbids short-term rentals in certain large areas outside of the central city.

Many cities also make the distinction between “hosted” and “unhosted” stays. A hosted stay is similar to the nature of a bed-and-breakfast. It is an owner-occupied rental where a guest rents out a room in the host’s home while the host is also living there and in a sense, acting as a chaperone. An unhosted stay occurs when a renter is renting out the entire apartment or house, and the host is not present. It is similar to a hotel, although the host may not even be present in the same city where the home is being rented.

Certain cities have regulations that distinguish between these two types of stays.

For instance, Fort Lauderdale offers a lower renewal fee of $80 for properties that are hosted compared to the $160 renewal fee charged for those rental properties that are unhosted. Las Vegas distinguishes between hosted and unhosted stays in its permitting requirements. An owner-occupied property in a permitted district with fewer than three bedrooms, located at least 660 feet away from another rental, may simply obtain a conditional use verification.

However, if a rental property does not meet these requirements, the owner is required to obtain a special use permit, which requires notifying neighboring property owners and engaging in a two-part hearing process before the planning commission and city council.

For property owners, it is especially important to be aware of your city’s regulations on short-term rentals prior to beginning the rental process. Many cities that have regulations in place have sections on their municipal websites outlining these requirements. Whether it be a license requirement or a limit on the number of days you can rent out your property, it is important to know the potential limitations and how you can comply.


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Trulia warns of shrinking home inventories

Thu, 10/05/2017 - 12:10pm

A new report from Trulia shows housing inventories fell for the fifth straight quarter, pushing home affordability further out of reach for more Americans.

Meanwhile, in some markets across the country, inventory show signs of picking up. Nationally, housing inventory continues to dive. This summer, the number of homes on the market dropped for the fifth straight quarter, extending a slump and dropping 6.7% over the past year. The number of starter and trade-up homes on the market nationwide has dropped by 10.7% and 9.2%, respectively.

In addition, premium home inventory dropped just 3.2% over the past year. The persistent and disproportional drop-in starter and trade up home inventory is pushing affordability further out of reach for homebuyers. Starter and trade-up homebuyers need to spend 1.7% and 0.9% more of their income than this time last year, whereas premium homebuyers only need to shell out 0.6% more of their income.

Starter Homebuyers Face the Biggest Impacts of Declining Affordability 

Falling inventory continues to take a toll on affordability. Starter homebuyers need to dedicate 38.5% of their monthly income to buy a starter home – a 1.7 point increase from last year. While not a hard ceiling, applying for a mortgage with a debt-to-income ratio of more than the 36% guideline used by lenders such as Fannie Mae will make the mortgage approval process more complicated for first-time buyers, especially when factoring in other debt like student loans, credit cards, and auto payments. Most trade-up and premium home buyers, on the other hand, are still in the clear. Each would need to spend just 25.5% and 13.9% of their income to buy a home, respectively.

Signs of Increased Inventory Appear on the West Coast and Florida

Although low inventory has been a persistent national trend over the past few years, relief is on the way for homebuyers in some markets. Of the 100 largest markets, 21 have experienced increases in inventory over the past year, with many showing double-digit gains. However, half of these markets are in just two states: California and Florida. When looking at markets that have shown rising inventory for at least three consecutive quarters, four markets have hit an upward streak: Bakersfield, Calif., San Francisco, Sarasota, Fla., and West Palm Beach, Fla.

“Nothing is permanent, not even low inventory,” said Trulia Chief Economist Ralph McLaughlin. “With notoriously stingy markets like San Francisco, San Jose and Denver showing signs of picking up after prolonged periods of declining inventory, homebuyers in these markets are beginning to see a break in gridlock and should experience more choice in the months ahead.”


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Three Questions To Ask Before You Choose Your Investment Property Location

Thu, 10/05/2017 - 12:09pm

Driving on an empty mountain road towards the setting sun to upcoming 2017. Concept for success and passing time.

When done right, investing in real estate is a proven way to earn income while building equity. But depending on your budget and investing goals, the market that’s right for you may well be in another time zone.

While the majority of people prefer to buy investment homes close to where they live — which makes sense on some level — this method forfeits one of real estate’s best advantages: the diversification of risk.

When does it make sense to broaden your search footprint to a different city or state?

More often than you think.

The way people invest in real estate is very different than it was as recently as a decade ago. Thanks to new technologies and improved data access, buyers can purchase with increasing confidence in top rental markets across the country without physically being there.

If you want to get on the property bandwagon but aren’t sure whether to invest locally or branch out, consider the following:

1. Do you live in a strong rental market?

Not all real estate markets are created equal when it comes to owning an investment property. Some will appreciate rapidly, while others grow slowly and steadily. Some might have attractive gross yields (which represents the ratio of rents to purchase price) but come with higher vacancy rates or more volatility. Certain coastal markets have extremely high barriers to entry and very strong rental demand, while other Midwest and Southwest markets hit the sweet spot between entry price and market rent.

For many investors, finding properties that meet your investment goals close to where you live may prove challenging. Perhaps you live in Seattle, Southern California or the San Francisco Bay Area where the median list price is roughly $670,000–$1.2 million, and current returns are marginal or negative, according to our projections at Roofstock. Or maybe you reside in a hot rental market such as Denver, and typical list prices are starting to crawl above your budget threshold. Rather than over-leverage yourself or throw in the property investing towel altogether, consider broadening your search to other more affordable markets that offer attractive returns uncorrelated to where you live.

Homes in other areas such as Indianapolis, Cincinnati, Memphis and Cleveland might not appreciate as much, but offer attractive entry points in the $80,000–$190,000 range and high 11–13% average gross yields, with the potential for net yields in the 6–7% range or higher, according to our projections. These yields can be even higher with leverage, which is readily available from Fannie Mae and Freddie Mac at attractive rates for individual investors.

As you can see, many variables influence a market’s desirability. When choosing a location, consider your budget, risk tolerance, desired returns and investing criteria. Do you care about higher cash flow? Renter stability? Long-term appreciation? Do you plan on moving there someday?

It’s not so much a question of “Can I invest in rental property,” so much as it is a question of where.

2. Do you seek diversification?

While purchasing an investment property close to where you live is arguably more practical, this leaves you with all of your risk concentrated in one geographic region. By spreading your real estate investments across different markets, you avoid “doubling down” on the same area where you own your primary residence.

For example, if you work at Google, buy a property in Mountain View, California and only own Google stock, you’re putting all of your eggs in one basket. Tying your investment to a different economy allows you to de-couple the risk between where you live/work and your passive investment strategy.

Additionally, if you’ve ever worked with a financial advisor, you know that having a diversified portfolio of non-correlated assets (bonds, real estate, stocks, etc.) is a best practice. This also applies to rental property investing: While your primary residence and investment home(s) may have low correlation to the stock market, they could still be highly correlated to each other if they’re located in the same area.

3. Do you plan on moving down the road?

If your heart is set on eventually becoming a full-time ski bum in Denver, moving closer to family in Nashville or retiring in sunny Phoenix, consider getting your foot in the door now. That way, you can start building equity and collecting rental income, and you can avoid potentially higher list prices when you’re finally ready to move.

There are other benefits to investing sooner rather than later, too. This includes enjoying the substantial tax sheltering afforded by investing in real estate, which allows you to deduct certain operating expenses as well as depreciation on the assets.

And remember, even if home values fluctuate in the years after you buy, rents tend to remain resilient. This means you can more easily ride out cycles in the market as you continue to collect rent on your investment property.

For example, during the five years home prices dropped during the recent housing crisis, average rents for single-family rentals never declined on average, according to single-family rental data from Zillow. This makes sense when you think about it since during that time millions of families lost their homes and became renters, increasing the demand for rental homes.

If you’re able to buy now, I encourage you to team up with a local property manager who cares for your investment and handles the day-to-day responsibilities such as tenant communication, leasing, maintenance, etc. This will allow you to separate investing from operations and view your rental homes more like any of your other investments, not requiring daily TLC.



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How Trump’s Tax Plan Could Upend the Housing Market

Thu, 10/05/2017 - 12:09pm

Homeownership has long been a key component of the American dream, helped along by the fact that it offers some hefty income tax benefits. But the Trump administration and Republicans’ new tax plan will likely result in lower home ownership levels, with more people opting to rent rather than purchase a home.

The tax plan includes significant individual income tax system reforms, including the doubling of the standard tax deduction and the elimination of most itemized deductions, except those for mortgage interest and charitable contributions.

Given the increased standard deduction ($12,000 for single and $24,000 for married taxpayers), many more taxpayers will forgo itemizing and take the standard deduction. Based on an analysis of an earlier House Republican tax reform plan, the Tax Policy Center estimated that 84% of current itemizers would take the standard deduction if it were doubled. Even more taxpayers will take the standard deduction under the recent Trump proposal due to the elimination of state and local tax itemized deduction.

Even though mortgage interest deduction remains, it will no longer have value for current itemizers who would take the standard deduction under the Trump plan. Only the few taxpayers who would still itemize will receive any income tax savings from mortgage interest, however, those tax savings will likely be substantially smaller than under existing tax rules.

The elimination of mortgage-related tax savings for most homeowners, and reduction for others, compounded with the loss of tax savings from deducting property taxes means the after-tax cost of home ownership will increase. A taxpayer in the 25% tax bracket with $11,000 in mortgage interest and $5,000 in real estate taxes would receive tax savings from these itemized deductions of $4,000, or $333 per month, under the current law. The elimination of the home-ownership tax subsidies means that the after-tax cost of home ownership will increase.

The tax reform proposal’s reduction to homeowner tax subsidies could lead to more people deciding to rent homes because it may be a lower-cost alternative to purchasing. Although the proposal lacks specifics, it does not appear to reduce the tax subsidies afforded to owners of residential rental real estate. Rental property owners may continue to deduct interest paid to finance the purchase of rental properties and can deduct state and local property taxes. These items are not considered itemized deductions; instead, they are deductions in computing net rental income. The disallowance of the state and local tax deduction under the Trump plan only applies to an individual taxpayer’s itemized deductions. Given rental property owners will still receive the federal tax savings from both property mortgage interest and real estate taxes, the Republican proposal creates a stark difference in the tax subsidies between owner-occupied homes and rental properties.

Additionally, unlike homeowners, rental property owners receive tax savings through the deductibility of maintenance costs and depreciation. The rental property owner may also avoid tax upon the sale of the property if it is exchanged for another property. The Trump proposals may also further benefit rental property owners through the reduced tax rate of 25% on partnerships and other pass-through entities commonly used in the real estate industry.

Although the owners are the ones who actually receive the tax savings from the various allowed deductions, the tenants likely benefit, albeit indirectly, through lower rental rates. In a competitive market, the rent charged to the tenant should be lower due to the tax benefits afforded the rental property owners.

In summary, residential rental properties, like owner-occupied housing, currently receive tax subsidies under existing tax rules, but the Trump tax plan significantly shifts the tax system to favor rentals over owner-occupied homes. This could result in increased cost of home ownership and lead to more people deciding to rent. The dramatic increase in the relative tax advantage for residential rental real estate could lead to increased home rentals in your neighborhood. Maybe it will be cost-advantageous to sell your home to a residential real estate firm and lease it back?

Unfortunately, the tax reform proposal provides limited policy justification for many of its changes. While there might be a compelling argument to eliminate or reduce, owner-occupied housing tax subsidies, it is also important to simultaneously evaluate the tax subsidies provided to rental property owners. Should the tax system treat owner-occupied homes differently than rental properties? If so, how differently? These important questions should be part of the tax policy debate with consideration also given to the consequences generated from home ownership relative to rentals.



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How to minimize friction when you co-own a vacation property with numerous family members

Thu, 10/05/2017 - 12:09pm

Q: Eight members of my family, cousins and siblings currently share ownership in a summer cottage in Maine. Our current rules have worked fine for more than 80 years, but as the family ownership expands things will ultimately get more difficult. We are considering drawing up an LLC or some type of trust. I am concerned an LLC would have a lot of ongoing expenses. What would you recommend?

A: The underlying structure is less important than the understanding the family members have in how and when to use the cottage in Maine. The question we’d have for you is whether you know who the exact owners are and how their ownership is held.

We have a suspicion that the eight family members each own an 1/8 interest in the cottage, and as each family member dies, his or her interest is divided among his or her heirs. Yes, that system can get quite complicated and can lead to ownership problems. But if you have a good understanding of what rights each owner has and what each owner’s obligations are, you can then decide what to do with the ownership structure.

So, on the one side you have the rules, responsibilities and obligations of all owners; on the other side you have the actual way you own the property. On the rules, responsibilities and obligations, you need to set that down on paper so that everybody has a clear understanding. While you may all own 1/8 interest in the home, you also need a mechanism to vote to decide how things get done, who’s running the cottage, who pays for what, and who has the ultimate decision-making power, etc.

All these decisions can cause friction in families; but if the rules are written down, then everybody can understand where things stand. You also need a buyout clause so that if there is a disgruntled family member, that family member can sell his or her interest at a valuation that’s decided by a predetermined mechanism, and the rest of the family members can buy the disgruntled family member’s interest in the cottage.

In the real estate investment world, a limited liability company (or LLC) might work well for you. Each family could own 1/8 interest in the company units of the LLC, and each family would decide how those interests would get passed down from one generation to the other. Ultimately, you will end up with the same problems as the ownership interests are diluted and more and more people are involved.

LLCs do have a cost to set up and have annual fees as well to maintain, and you may also have IRS tax returns to file. We’d probably suggest that you talk to an attorney in your area to help sort through your ownership issues and help you make the right decision for all of you.

We tend to favor the idea of setting up a living trust to hold the ownership of the cottage. Living trusts have a one-time setup fee and usually don’t have annual fees; you may encounter federal income tax issues with LLCs and living trusts, but the transfer of ownership from the families to the LLC might trigger the most issues for federal income tax purposes.

Since you own the cottage in your names, if you “sell” or transfer your interests to the LLC, that transfer may be a sale. If it is considered a sale by the IRS, you might have to pay taxes on any appreciation the property has had. On the other hand, if you transfer your ownership interests to a living trust or other like document, you might avoid the issue of the transfer being considered a sale and avoid having federal income tax issues at this time.

So for tax reasons, setting forth the rules of ownership and other issues relating to owning the property, you should talk to an attorney or estate planner to go over your situation and make the best decision for all of you. We hope you all can agree and make a unanimous decision.



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This app aims to be the Uber of rental brokers

Thu, 10/05/2017 - 12:06pm

A new real estate tech company wants to disrupt the current market and become the Uber of apartment rental brokers.

Cribitt — already running in New Jersey — is now launching in Midtown West and coming to Brooklyn.

Co-founder Stephen Steiner, an experienced real estate investor and manager, says renting an apartment was inefficient in that it typically took a lot of phone calls to coordinate a viewing because of the numerous parties involved.

Along with the renter, these parties could include the spouse or partner, roommates, any guarantors — such as parents — plus the broker; and often, Steiner says, the renters were noshows.

“I thought I could do it better, and I embarked on this journey to connect a renter and agent in a very immediate way,” Steiner said.

While Cribitt can be reached on the Web, it’s all about the functionality of the app. Now, when the parties are together, you open the app, click the unit you want to see, and Cribitt will instantly send the request to one of its 52 city brokers.

A broker will respond and like Uber, it provides the name, photo, cell number, location and arrival time on the app map.

To apply for the apartment, forms can be filled out and the application fee paid, right in the app.

To view a different apartment, you can keep working with that broker or ask the app to set up a tour at the next building with another broker.

There is no charge to look and rental fees are similar to the ones charged by other agencies. “No fee” listings are paid by the building owner.

Steiner, who is also trying to lure new part- and full-time hires, says his fee split is higher: 90 percent rather than a more common 50 percent — and he’ll help folks get their state salesperson licenses.

One thing to keep in mind is that Cribitt only has access to the approximately 7,000 “open” listings and not those controlled by other brokerages.


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Should I Buy An Investment Property In A Flood Zone?

Mon, 10/02/2017 - 9:56am

Through late August and into early September, Hurricane Harvey, a Category 4, devastated parts of Texas and Louisiana. Next, it was Irma, a Category 5 hurricane, that hit numerous islands off the coast of the Southeastern United States, eventually making landfall in Florida. That same week, Hurricane Jose grazed several Caribbean islands, stalled in the Atlantic Ocean, then began making its way to the East Coast. It’s possible that the U.S. will be affected by three catastrophic hurricanes in a period of less than a month.

The damage incurred by the first two hurricanes was apocalyptic. With over 80 deaths from Harvey, more than 60 deaths from Irma and hundreds of thousands of displaced families and businesses, the aftermath will remain significant for years to come. Certainly, our thoughts are with those who were affected by the hurricane.

The economic losses caused by the hurricanes are also shocking. Preliminary estimates for Harvey and Irma damages are in the hundreds of billions. And to make matters worse, a large portion of the economic damage is on properties without flood insurance.

Therefore, as real estate investors, we must take the possibility of flood damage into account when considering an investment. A property located in a flood zone by no means automatically disqualifies a potential investment. However, it will require additional upfront due diligence on your part so that if a hurricane or flooding occurs, you have your bases covered and your investment isn’t negatively affected.

Should I buy flood insurance? 

For a property that is in an area designated a high risk for flooding and will be purchased with a mortgage, it is required by federal law to have flood insurance.

However, with Hurricane Harvey, neighborhoods not considered flood zones were impacted. Since flood insurance wasn’t required, many families will have to bear the tremendous financial burden themselves. According to FEMA, more than 20% of flood claims come from properties not located in high-risk flood zones. Therefore, if an investment property is on the border of a flood plane, you may still want to consider buying flood insurance.

For information on flood hazards and official flood maps, use the FEMA Flood Map Service Center. This tool allows you to enter an address or area to obtain the most up-to-date flood map. And when in doubt, contact a local insurance agent to determine if the property is at risk for flooding.

How much does flood insurance cost?

Compared to the economic burden placed on those without flood insurance, it’s relatively inexpensive. A study conducted by FEMA found that just one inch of interior flooding can result in nearly $27,000 in damage. The amount reaches over six figures if the flooding is a few feet or more.

Contrast that to the typical cost of flood insurance. According to Cincinnati Insurance board director Ron Eveligh, a flood policy with $250,000 in coverage will run you about $500 a year for a residential building. So, to determine if a property in a flood zone is a good investment, it is vital to account for the cost of flood insurance during the underwriting process.

If the addition of the monthly expense results in a financial return that’s outside your investment goals, you need to pass up on the deal or investigate ways to increase income or decrease expenses elsewhere. In other words, plan for flood insurance the same way you do for other expenses, like maintenance, property taxes, and vacancy.

How do I buy flood insurance?

Damage from flooding is not covered under your basic homeowners’ or renters’ insurance. It must be purchased separately, and you can only buy flood insurance through an insurance agent. If a property is in a high-risk flood zone, it will require flood insurance before a lender will close on the loan. So, the purchasing of flood insurance will need to be taken care of prior to close in that case.

If a property is not in a high-risk flood zone, but it’s either in a moderate to low-risk flood zone or just outside the border of a flood zone and you want a quote for how much insurance will cost, it’s a good idea to reach out to your local insurance agent for a quote. If your insurance agent doesn’t offer flood insurance, you can request an agent referral from the National Flood Insurance Program Referral Call Center by calling 1-800-427-4661.

In general, owning investment property requires proper planning. With underwriting, lender communications, inspections, etc., your list of duties fills up quickly. However, do not neglect to determine if the property is at risk of flooding.

Taking the time to figure out if a property needs flood insurance, how much it costs and the process of obtaining it upfront can save you tens of thousands of dollars and a huge headache should disaster strike.



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Renters Deny $30,000 in Damages. Who Pays?

Mon, 10/02/2017 - 9:45am

KNOXVILLE, Tenn. (WVLT) Broken glass, holes in walls and destroyed vanities: that’s what one landlord walked into after his tenants left.

“You can see they took the fronts off the cabinets, they broke through the countertops, they smashed dents and holes in the tile, so in doing that, literally everything has to be replaced in here,” the landlord, who wants to remain anonymous, said.

The landlord’s granite countertops in the bathroom were destroyed, and there are holes in the doors and walls of the once quaint family home. When the landlord confronted the tenants, they denied having anything to do with it.

“If I had to do it all over again, I would have done my due diligence first in regards to I would have run a background check. A lot of time, I think people don’t want to spend the money to do it, but it’s a smart thing to do so you kind of know exactly what kind of renter you’re going to get,” said the landlord.

According to Knoxville property manager Debra Davis-Johnson, that’s the first step landlords need to check off before handing over the keys.

“If you do the homework on the front end, then more than likely you won’t be taking a chance. You don’t want to take chances on who you put into your property,” Davis-Johnson said.

A local attorney said when there’s intentional damage beyond wear and tear, it becomes a crime.

“If it amounts to felony vandalism, then the law can get involved. It’s no longer just a breach of a civil contract. It’s an actual intentional act by a tenant to destroy property,” Banks & Jones attorney T. Scott Jones said.

Now, this landlord is not simply left with thousands of dollars in damages, but every day that passes with this house off the market, the landlord is losing even more money and potential tenants.

Davis-Johnson said a solid contract and frequent walk-throughs could have prevented situations like this one. It’s something the landlord regrets not doing enough.

“What I should have done, maybe every couple months, do a little walk-through, so you can kind of see what you’re getting as a renter,” said the landlord. “You know someone that’s lived in the house a little bit, are they taking care of it? Is there garbage all over the place? I didn’t allow my renters to smoke in the house, but I can clearly see they did smoke in the house, they smoked in the garage, you know there’s 100 cigarette butts sitting in the garage.”

“It’s the landlords’ preference to how often do they want to do, but anywhere from monthly or bi-monthly but it is something that you want to go inspect that home maybe once a month, once every three months,” said Davis-Johnson. “That’s one of the other key things that a landlord wants to make sure that they have a good solid contract on the front end that covers who is responsible for what.”

The landlord’s house is in the process of being rebuilt, and according to the insurance adjuster, the landlord is hit with 22 pages worth of damages. From broken appliances, to paint on the wall, that damage totals more than $30,000.


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Affordable Housing Developers Face New Challenges

Mon, 10/02/2017 - 7:46am
Affordable housing developers are facing more obstacles to building new projects, even though the need for affordable housing seems to grow stronger every year.

“We believe affordable housing production, that is, the development or preservation of projects financed with Low Income Housing Tax Credits (LIHTCs), will be at best flat to last year,” says Richard Gerwitz, co-head of Citi Community Capital, a community lending and investment arm of Citi.

The most important government program that helps fund new affordable housing—the federal LIHTC program—is providing less funding in 2017 than it did in prior years. At the same time, developers of all types have to pay more to compete for workers, construction materials and development sites. All that adds up to the likelihood that fewer units of affordable housing will start construction this year compared to 2016, even though the need for affordable housing may have never been greater, according to numerous studies and reports.

Tax reforms cast a shadow on affordable housing

The possibility that Congress will succeed in a comprehensive reform of the federal tax code has lessened the value of the federal LIHTC, the most important tool to finance new affordable housing development and recapitalize older affordable housing properties.

It now seems likely that the LIHTC would survive potential tax reform—prominent Congress members from both parties have co-sponsored proposals to expand the program.

“We strongly support the Affordable Housing Credit Improvement Act of 2017 (S. 548), which over time would increase the allocation of 9 percent LIHTC by 50 percent, which would provide critically needed capital for the development and preservation of affordable housing,” says Andrea R. Ponsor, executive vice president for policy for Stewards of Affordable Housing for the Future (SAHF), a non-profit collaborative of 13 multi-state affordable housing developers.

However, if Congress succeeds in passing tax reform, the new law is likely to reduce the corporate tax rate from 35 percent to 15 percent. That could be positive for the economy, but would reduce the need for corporations to invest in tax benefits like the LIHTC.

“A potential reduction in corporate tax rates, and other tax code changes being discussed in Washington, has caused a drop in tax credit pricing, leaving many planned projects short of the funds needed to allow them to proceed,” says Gerwitz.

Immediately after the election in 2016, the market for LIHTC froze as investors struggled to predict what the corporate tax rate is likely to be after potential reform. “In light of inaction by Washington, most investors have settled on a 25 percent, no adjusters tax rate,” says Lori Little, director of capital markets and investor relations with the National Affordable Housing Trust, an affiliate of SAHF that provides LIHTC equity.

Many investors that had paid close to a dollar per dollar rate in LIHTCs lowered their pricing to the mid-80 cent range. For a hypothetical development project selling $10 million in LIHTCs, that could mean a loss of more than $1 million.

If Congress settles on a corporate tax credit rate, the LIHTC prices will likely change again. “This will cause another pause if serious discussion and decisions occur,” says Little.

Costs keep rising

Meanwhile, the cost of construction is getting more expensive. “Land, labor and material costs continue to rise in most markets,” says Gerwitz. “These problems will undoubtedly become more acute in Texas and Florida, with the potential for a ripple effect in other parts of the country, given the need to rebuild from the recent hurricanes.”

Housing officials have responded by putting limits on how much subsidy they are willing to contribute to affordable housing, forcing developers to find ways to build without additional costs to their construction budgets.

“I am hearing that costs are increasing while state agencies are imposing cost per unit caps,” says Little. “Developers are talking about how they can cut costs and some of the nice market-rate like accessories…. We have had several projects that addressed cost increases by reducing units.”

Developers are also working with their local officials to make their plans to build affordable housing work.

“Housing demand is acute—it’s a bright, flashing red. More local governments and states are recognizing that,” says Cynthia Parker, president and CEO of BRIDGE Housing, a developer and manager of affordable housing. Local officials can help by smoothing out the process of entitlements, providing funding and in some cases, providing development sites.



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Housing, meet your next homebuyers – Generation Z

Mon, 10/02/2017 - 7:37am

In its most recent study, Zillow Group examined the newest generation to enter the housing market – Generation Z.

Wait, what? Already? Aren’t they even old enough to enter the housing market?

As it turns out, yes, they are. Generation Z is considered to be those born from 1995 to 2010, meaning the oldest in the generation are now 22 years old.

The Zillow Group Report on Consumer and Housing Trends 2017 shows this new generation now makes up more than 21% of the U.S. population and is the most ethnically and racially diverse generation in our history. And they are beginning to enter the housing market – as renters.

However, this generation is just as likely as older generations to say owning a home is a key component of the American Dream. In fact, 57% responded that they already considered buying a home while looking for their last rental.

So, what defines this new generation? What makes them tick? The report showed they work hard to win a home and even submitted more applications than any other generation at 3.1 versus 2.5 applications for all renters.

But despite the higher number of applications submitted, they also move more quickly through the process and spend the least amount of time searching. Generation Z typically spent less than one month searching for a place to live.

“It’s encouraging to see that Generation Z is inheriting the same notion of what home means as their parents and Millennial siblings,” Zillow Chief Marketing Officer Jeremy Wacksman said.

“These tech-savvy, yet risk adverse renters are bringing their social personalities home, desiring communal amenities geared toward bringing people together,” Wacksman said. “They prefer living with others to living alone, and they put their vast social networks to work during every step of the rental search process. As they mature and look toward homeownership, it will be interesting to see how their aspirations and preferences will shape the housing market.”

Currently, the housing market is still focused on Millennials, realizing they don’t all live at home with their parents and are actually less likely to live at home than Baby Boomers were at that age.

And while some studies show factors such as student debt could delay some Millennials from homeownership for up to seven years, more and more they are becoming the driving force behind housing demand.

In fact, a study late last year from Ellie Mae shows that not only are Millennials buying homes, but they are also refinancing.

Zillow’s study shows Millennials poured about $514 billion into the U.S. housing market over the past year and became the largest generation of homebuyers. However, they do continue to struggle with affordability constraints.

More than half of young first-time buyers, about 53%, make multiple offers to buy their home, and only 39% of Millennials can give a down payment that’s 20% or higher. Many of them, about 21%, put down 5% or less in order to secure a mortgage.

The study shows that even as Millennials are looking for a home, 62% of them accept that finding one is not a sure thing, and look for rental homes at the same time. In order to find their home, 37% answered they were forced to go over budget, compared to 29% of all homebuyers.

“In many cities across the US, the housing market is extremely competitive, especially for first-time buyers who are looking to purchase a starter home. Young buyers often start their careers in fast-growing cities in which the market is particularly tough, and they’re trying to save for a down payment while making record-high rent payments,” Zillow Chief Economist Svenja Gudell said.

“The Zillow Group Report gives us a behind-the-scenes look at how young buyers, in particular, are finding resourceful ways to cope with high home prices and fierce competition,” Gudell said. “Whether it’s searching for a rental as a Plan B, looking outside their preferred neighborhood, or cobbling together a down payment from multiple sources, these buyers are willing to try every trick in the book in order to find a place to call home.”

Overall, for every generation, homeownership is out of reach for many, according to the study. More Americans are renting now than at any point in history, and 40% of families with children at home are renters.

Renters typically face higher monthly payments than those that own their home, and 79% of renters who moved in the last year responded that their rent increased before they moved. In fact, 57% of those that moved said this increase was the reason they moved.

What’s more, about 37% of renters who have not moved in the past year answered they can’t afford to go anywhere else.

At a recent black-tie gala in the Los Angeles area, one panelist for the I Survived Real Estate event commented that rent prices are becoming unmanageable.

“Home prices may not be at an all-time high compared to incomes, but rents are,” said John Burns, John Burns Real Estate Consulting CEO.

The 2017 Zillow Group Report is the second annual survey of U.S. home buyers, sellers, owners, and renters, and asked more than 13,000 U.S. residents aged 18 to 75 about their homes – how they search for them, pay for them, maintain and improve them and what frustrations and aspirations color their decisions.



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4 Tips for New Condo Owners

Mon, 10/02/2017 - 7:29am

BROOKLYN — When moving into a new development, there are many aspects of condo life that can’t be gleaned from touring a model apartment.

Buyers getting their new keys may find themselves faced with unforeseen issues when their buildings transition from the developer’s control to that of their condo board, like what to do with construction defects and how to figure out a building’s budget and expenses.

More and more New Yorkers are finding themselves embroiled in these fraught situations as a wave of new condo construction or gut rehabs continue to wash over the city — especially given the uptick in small, self-managed condos in areas like Red Hook, Park Slope, Greenpoint and Harlem.

“A lot of these eight-unit, full-floor condos are having problems with faulty construction and repairs three or four years later,” said Rebecca Poole, who teaches a course for self-managed buildings at the New York chapter of the Community Associations Institute (CAI), an international nonprofit dedicated to helping condos and co-ops.

Seeing the need for owners to get answers on these sorts of issues, Big Apple CAI is starting to do outreach in different neighborhoods to connect co-op and condo boards to each other to act as resources. It is also hosting a seminar on Thursday at the Pierhouse in Brooklyn Bridge Park entitled “Avoid New Construction Blues.”

Here are tips from some of the experts participating in the event.

1. Be prepared for construction defects.

“It’s inevitable there are going to be construction defects. It’s just the nature of the business,” said Stephen Lasser, an attorney from the Lasser Law Group.

Common building defects tend to involve waterproofing issues, whether it’s a leaky window or roof, he noted.

The bigger and more reputable developers tend to address the problems quickly, Lasser said. The smaller ones, often “looking to cash out as quickly as they can,” might not be as responsive.

“You need to act quickly if there’s a problem,” he said, noting that different developers have a range of warranties. “Usually the warranties are time-limited. So, if you don’t address the issue sooner than later, you may be out of luck.”

2. Expect some disorganization from a new board.

Developers retain control of a building until a certain percentage of units are sold, whether it’s 75 percent or sometimes even 100 percent, explained Kenneth Jacobs, a lawyer with Smith, Buss & Jacobs.

“Sooner or later, there will be a transition to the board and the developer will give up control,” he explained. “Unfortunately, [developers] are colonialists: They don’t make it a point to educate the new board. They just say here are the keys.”

The board is entitled to a significant amount of financial information and other materials from the developer — including service contracts, warranties, and building plans — which often proves difficult to obtain.

“One of the biggest problems is that none of the documents have been written with governance in mind,” Jacobs said. “The focus is on ‘How can I sell apartments,’ not ‘How can I make this a good community for governance.’”

3. Take an active role in your building’s community.

While the developer is still in control, apartment owners who aren’t on the board tend to feel a sense of powerlessness from the time they move in.

They often develop a renter’s mindset, said Jacobs, suggesting a way around that is to start a tenant association from the get-go.

As the new boards — filled with volunteer owners — find themselves having to make policies on everything from leasing rules to noise and pets, it’s a big adjustment for the other owners in the building.

Many don’t view themselves as partners with the board, which Jacobs said is a mistake, since working together and figuring out what’s best for everyone’s property values is important.

It’s a “condo myth” that residents don’t need to be involved or abide by rules, he said.

“People think, ‘I bought a condo and I can do whatever I want,’” Jacobs noted. “That’s not true. You’re a member of the community and a partner with everyone else. You can’t have loud parties, make any alterations [you want to], lease to whoever you want. There are rules.”

4. You shouldn’t have to subsidize the water and electricity bills of ground-floor retailers.

For condos with retail tenants on the ground floor, it’s important to know if the commercial spaces have their own sub-meters for electricity and water.

“It doesn’t sound sexy, but there are lawsuits all over the place on this,” said Annette Murray, an accountant with Wilkin & Guttenplan. “The residential unit owners should not be subsidizing the commercial spaces.”

Untangling the expenses between the residential portion of the building and the commercial spaces — whether they’re restaurants, shops, garages or hotels — can be tricky.

Murray has seen fights over the sharing of elevators and lobbies and how to pay for repairs and maintenance of common spaces, noting that offering plans are sometimes vague on how the expenses are shared.

“It can get complicated,” she said, “but if it’s handled correctly at the beginning, it’s a lot easier.”



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Top Four Surefire Factors That Increase Real Estate Values

Mon, 10/02/2017 - 7:23am

Real estate flipping can bring in significant profits — even after the typical 20–25% renovation cost piled on top of the property’s initial purchase price. It may also result in a lame break-even, or worse, financial loss. Therefore, if you are planning to invest in real estate soon, it helps to be able to identify possible promising points and pitfalls associated with a property that interests you.

When I invest in property to flip, I do my best to ensure there are positive signs with community, transportation and schools that will decrease the days on market when the completed home is listed. Here are four factors that have been recognized as crucial dynamics to real estate property valuation.

Derelict Urban Neighborhoods

Have you been mulling over investing in real estate properties, developing them and then selling them for a huge profit? Then look at the run-down urban areas, most especially those situated snugly around upper-class neighborhoods, suggests the paper “Endogenous Gentrification and Housing Price Dynamics,” published in the Journal of Public Economics. When buying real estate for an investment, location certainly is everything. After studying data in 29 metropolitan districts, researchers discovered that shabby houses that bordered affluent neighborhoods increased their value more than those similarly dilapidated properties located farther away from high-end neighborhoods, as they come with amenities that are likely going to be available to nearby blocks once real estate developers enter the picture. One way to identify a neighborhood or an individual home that has potential to be renovated and resold is to look for signs of major exterior repair. A few examples of exterior repair are an aged roof, lawn overgrowth and heavy wear on the siding.

Public Transit Stations

The findings of the paper “Value of Transit as Reflected in U.S. Single-Family Home Premiums,” which appeared in a 2016 issue of the Transportation Research Record: Journal of the Transportation Research Board, have implications for real estate investors and homeowners living close to public transport. As the demand for in-town living increases (baby boomers downsizing and millennials demanding accessibility to local events and work), proximity to public transportation is incredibly important. In fact, the homes that I build near train routes sell the quickest — assuming, of course, the demand in the area is high. The good news also is commercial and multi-family real estate properties will also see an increase in demand resulting in longer-term tenants and higher rents.

Green Buildings And Solar Homes

In real estate, it pays to be environmentally friendly, according to “Green Certification and Building Performance: Implications for Tangibles and Intangibles,” published in an issue of the Journal of Portfolio Management. An in-depth analysis of 10 years worth of data involving hundreds of American and Canadian energy-efficient and sustainable commercial building operations showed that such real estate firms and offices have more satisfied tenants and enjoy relatively higher occupancy rates, higher tenant renewal rates and higher rents. BOMA BESt, LEED and Energy Star were the certification programs used by the researchers in their painstaking analysis of green buildings and the corresponding revenue those buildings bring to their landlords.

Traditional Calendar Schools

Over 50,000 housing market transactions were analyzed, and the results are conclusive for residential real estate investors: multi-track year-round calendar schools negatively affect home prices. In fact, in Wake County, North Carolina, there was a 2% jump in home prices for real estate properties assigned to schools adhering to the traditional calendar system. That was the finding in “The effect of multi-track year-round academic calendars on property values: Evidence from district imposed school calendar conversions,” published in the Economics of Education Review. The moral of the story here is simple: Parents want to send their children to good schools. Finding opportunities in a good school district means the home is worth more.

A misstep in real estate investing can hurt big time. So it pays to seriously consider the implications of the above four research findings when you are looking at real estate properties to buy or sell.



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5 “Must Knows” Before Hiring A Property Management Company

Thu, 09/28/2017 - 1:37pm

Contributed by: PropertyAdvantage

Congratulations! You are taking your first steps into becoming a property owner. New property owners can proceed in one of two ways: they can manage properties themselves, or they can hire property management companies. Running the show yourself enables you to keep a larger share of the income. However, it requires a substantial investment of your time; time that would be better spent working, securing another rental property, and with your family.

A management company allows you to earn the income from your properties with minimal effort on your part. A management company will earn its keep by leasing your property, managing your residents, securing new residents, and handling maintenance. The property management company is your conduit from your residents to you – it is important that you hire the best company with the most experienced property managers to help your tenants and day-to-day management.

The San Diego rental market is unique. There are high numbers of students concentrated in La Jolla, central San Diego, and downtown. A substantial portion of San Diegans are transplants from other states and central and northern areas in California. Moreover, many residents are accustomed to certain amenities such as parking and dishwashers. Understanding the character of San Diego, the people who live here, and the quirks in each neighborhood are critical to building a successful property rental business.

Your property management company should come equipped with this knowledge and the capability to leverage it to your benefit. To help identify competent property management companies, here is a list of five things to consider:

1. History and Reputation

Research the company. Does it publish a blog? How long has it been in the real estate industry? Ask for a list of the properties they manage, and ask if you can contact a few of their clients as references. A solid full-service property management company should have years of experience (to indicate that they can navigate the ups and downs of the real estate market), a broad portfolio indicating it knows how to lease in a variety of different locales, and a solid reputation.

Everything is recorded and shared these days. Spend a few weeks researching a few different management services. You can start with Yelp, Angie’s List, and the San Diego Union-Tribune. However, don’t overlook the endorsements of current and former clients, no one knows a company better than someone who used to do business with it.

2. Services Plans and Rates

Familiarize yourself with the service and payment plans. How does the management service expect to be paid? There are numerous methods of payment including set percentages, profit sharing, and fixed monthly rates. You can also negotiate bonuses if they secure new residents quickly and multipliers if they can retain residents long-term.

Finally, what services do they offer? Do they provide maintenance, client concierge, and marketing? Do these services cost more or are they included? Use this information to compare and contrast companies and what you need for your investment property.

3. Cooperation with Residential Property Owners

You are the one ultimately responsible because it is your property. You don’t want to get into bed with a company that will ignore your concerns, “junk” your emails, or delete your texts. Ask the company about its communication policy with their rental owners. As the references to their experiences, how did they like the company’s responsiveness?

Preferably, the company should have a set policy and procedure for responding to client concerns. Some companies use a native messaging, and email system and others provide you with a point of contact.

Clear communication is key for all parties involved with residential property management. Professional property management companies will give you the peace of mind you need as a landlord.

4. How does the company market your property?

Don’t just rely on vague techniques or technologies. Ask how the company will help you directly. What will the property management company to get your property onto the market and with a reliable tenant in as short as time as possible. Does it work with real estate agents? What listing services does it use? Does it have its listing service?

How do the managers at this company identify residents? What processes will it use to weed out potentially troublesome residents? A troublesome resident can tie up your rental property for months (it takes about six months for unlawful detainer actions to complete). Therefore, the best strategy is to avoid those problems altogether. Hiring a professional property management company is an easy way to ensure that the day-to-day operation of your rental property is accounted for.

5. Cooperation with Residents

Similar to communication with property owners, what procedures and policies will the property management company use to communicate with your residents? Does it have a set policy and procedure? Is there a messaging system? Unhappy tenants can damage your property and are harder to retain.

You want a property management company that is committed to customer service to you and your residents. Ask for specifics, what will they do for your investment property or how will your property fit into their overall operations?



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