American Apartment Owners Association

Including These Words In Your Real Estate Listing Could Boost Your Home’s Sale Price

Thu, 05/31/2018 - 7:47am

If you’ve lived in a home for any significant period of time, chances are you’ve grown attached to many of its fabulous parts, from the kitchen you remodeled yourself to the outdoor pizza oven you’ve spent many late Friday nights crowded around with friends. And — when it comes time to sell — while it might be tempting to write a novella on its greatness in your listing description, in reality, you only have approximately eight seconds to grab a prospective buyer’s attention.

Thankfully, Zillow recently released a report that could help you whittle down your words. The real estate site examined listing descriptions from more than 3.6 million home sales between 2016 and 2017 to identify key terms that are most often shared among homes sold for premiums. (Hint: You might want to talk about your kitchen and baths.)

Of 100 listing terms Zillow studied, the phrase that earned the most bucks was “steam shower,” with homes advertising this feature selling for 29 percent more than homes without it. (Perhaps not all that surprising, considering that Pinterest touted resort-inspired style like “spa baths” among their top home trends this year.)

Coming in just behind steam showers are qualities geared toward home chefs, with listings touting “professional appliances” and “pizza ovens” earning 29 percent and 25 percent more, respectively.

But what interests a buyer — and could make them willing to shell out a little more dough — also depends on the approximate price they’re willing to spend on a home. Homes within the bottom-third price point of all homes, for instance, sold for 40 percent more than comparable entry-level listings when advertised as having “solar panels.” On the other end of the spectrum, the highest-priced homes sold for 38 percent more of a premium when advertising a “Sub-Zero fridge.”

Of course, advertising these features requires actually having them in your home. If that’s the case — or if you’re contemplating adding one or more anyway — it’s helpful to know your investment just might come with a return. Besides, is a pizza oven ever a bad idea?



The post Including These Words In Your Real Estate Listing Could Boost Your Home’s Sale Price appeared first on AAOA.

Categories: RSS

How Digital Transformation Is Changing Real Estate Rentals

Thu, 05/31/2018 - 7:43am

In 2000, Netflix was willing to sell itself to Blockbuster for $50 million. Blockbuster, as an established industry giant with increasing profits, refused the offer. Ten years later Netflix had an eight-figure market cap while while Blockbuster filed for bankruptcy. Blockbuster’s decline is not an isolated incident: Digital disruptors are shifting the marketplace and forcing organizations to change or die.

This process is called digital transformation (DX) and it is increasingly becoming a focus across industries. Unsurprisingly, this effort to transition a company for the digital age is a daunting task. But what is driving DX, what does a successful transformation require and what does this means for the real estate rental market?

I have nearly a decade as an executive in the real estate industry, from running Berlind Properties to starting a technology company aimed at disrupting the rental property application process. I’ve learned throughout my career that technology drives industry change and have been closely studying its effect on real estate. I’ve developed an understanding of digital transformation and identified five key areas that DX will have an impact.

What Drives Digital Transformation?

Digital transformation is often a result of “digitally native” companies such as Netflix, Uber and Amazon that dramatically overhaul the customer experience of familiar industries. As younger generations enter the marketplace, they’re accustomed to technology that is connected, always on and instant.

Take Uber as a case study: Tired of poor taxi experiences, Uber founders Travis Kalanick and Garrett Camp envisioned a world when getting a ride was as simple as tapping a button. As they began developing the idea further, they examined the key customer touch points: car request, driver screening, location tracking and ease of payment. By optimizing for the moments that matter, Uber was able to disrupt an entrenched industry: Uber is now valued at close to $50 billion while the cost of a taxi medallion has dropped more than 80% since 2013. Uber’s presence forces taxi companies to adapt or go out of business.

How DX Is Changing Real Estate Rentals

This consumer-obsessed mindset is changing the real estate market as well. At every step along the process of finding, visiting and leasing a unit, property managers are now focused on enhancing the customer experience. Let’s examine five key industry impacts:

1. Finding A Rental

Landlords are changing the way they list units by adopting digital listings and offering virtual showings to allow prospective applicants to directly search for what they’re specifically looking for. Additionally, emerging companies are aggregating listings across property rental organizations to allow a single source of potential units for applicants. compiles millions of units and averages over 40 million monthly visits, putting pressure on landlords to list their units or risk missing a sizable portion of the prospect market. This leads to a much better experience for prospects, as they can centralize their search and communicate with multiple landlords.

Further, companies like Rentping and Virtual360i are enabling virtual apartment tours. This reduces time and expense for landlords and creates convenience for the prospect.

2. Visiting The Unit

In addition to virtual showings, organizations are adopting online scheduling for in-person visits. By directly linking the applicant to the agent’s schedule, this simplifies the visiting process and allows for applicant self-service. Intelligent systems then contact the agent directly to notify them of the new showing and provide the applicant’s contact information directly.

Tools like EZnet Scheduler and ShowingTime allow landlords and agents to manage their time efficiently and avoid double-booking prospects. These tools also enable landlords to establish prerequisites for apartment viewing, such as providing contact information, requesting an application or even leaving a deposit — all of which help weed out flaky prospects, saving landlords more time.

3. Fraud Prevention

As online applicants increase, it’s vital that landlords are equipped to prevent fraud. From identity theft to fake bank statements, an unprepared landlord runs the risk of accepting bad applicants, which may lead to issues down the road.

In a survey by TransUnion, nearly 70% of responding landlords said they were concerned about fraud from online applications. In response, TransUnion launched ResidentID to confirm applicant identity. Beyond the options provided by the credit bureaus, landlords can use specialized services like Tenant Magic or RentPrep to offload the background check process. Additionally, nascent technologies are intelligently reading applicant materials to uncover doctored documentation.

4. The Lease Application

As my team examined the industry, we realized there was a major area that still needed transformation — the lease application — and set out to usher in the new. To fully shift from a disconnected application, real estate rental aggregators should compile a resident’s application information once and use that to standardize the application process. Similar to the Common Application for colleges, this simplifies the prospective tenant’s workflow and ensures the proper information is passed along to the landlord.

Moreover, smartly designed applications prompt the applicant to provide necessary documentation upfront in order to speed the review process and preempt potential confusion. With examples of accepted documentation and a clear indication of which documents still need to be produced, both the applicant and landlord can have improved clarity.

5. Signing The Lease

Digitizing the application process with a tool like DocuSign enables online verification software to increase efficiency. Rental aggregators can automatically provide necessary documents to the accepted applicant and prompt signatures where needed throughout. These leases are then digitally stored for the landlord, creating an easily accessible paper trail when needed.

Each of these changes improves the process for the landlord, the applicant or both. By designing these processes with the user in mind, real estate rental organizations can find common-sense improvements that transform their industry. If Netflix, Uber and Amazon are any indication, these transformations are necessary to survive in the emerging digital world.



The post How Digital Transformation Is Changing Real Estate Rentals appeared first on AAOA.

Categories: RSS

Best Markets for Single-Family Rental Investment

Thu, 05/31/2018 - 7:33am

With rent prices increasing right alongside home prices in many markets, rental investment can pay serious dividends for those savvy enough to do their homework before they invest. But like the old adage goes, one critical element is “location, location, location.” With that in mind, HouseCanary recently examined the state of rental investment, including single-family, condos, and apartments, to see which markets are hot … and which are not.

In order to make that determination, HouseCanary examined year-over-year (YOY) price growth within the top 100 U.S. metropolitan statistical areas (MSAs) by population, dividing things into three subcategories: single-family homes, condos, and apartments.

So, which MSA featured the highest YOY price growth in the single-family rental (SFR) sector? The Sunshine State should take a bow—not only is Florida home to the top MSA, it also accounts for three of the top 10 entries.

Palm Bay-Melbourne-Titusville, Florida, was the MSA featuring the strongest YOY rent price growth for SFR, coming in at 6.6 percent. The other two Florida MSAs that made the top 10 are Deltona-Daytona Beach-Ormond Beach at 5.8 percent and #5, and Tampa-St. Petersburg-Clearwater at 5.6 percent and #7.

Here’s how the rest of the top 10 broke down:

  • Seattle-Tacoma-Bellevue, Washington—6.1 percent (#2)
  • Stockton-Lodi, California—6.0 percent (#3)
  • Salt Lake City, Utah—5.9 percent (#4)
  • Boise City, Idaho—5.7 percent (#6)
  • Sacramento-Roseville-Arden Arcade, California—5.4 percent (#8)
  • Nashville-Davidson-Murfreesboro-Franklin, Tennessee—5.4 percent (#9)
  • McAllen-Edinburg-Mission, Texas—5.3 percent (#10)

On the other end of the spectrum, here are the 10 MSAs with the lowest YOY rent price growth for SFR, according to HouseCanary.

  • Virginia Beach-Norfolk-Newport News, Virginia/North Carolina—0.4 percent (#100)
  • Harrisburg-Carlisle, Pennsylvania—0.5 percent (#99)
  • Bridgeport-Stamford-Norwalk, Connecticut—0.6 percent (#98)
  • Augusta-Richmond County, Georgia/South Carolina—0.8 percent (#97)
  • Rochester, New York—0.9 percent (#96)
  • Little Rock-North Little Rock-Conway, Arkansas—0.9 percent (#95)
  • New Orleans, Metairie, Louisiana—0.9 percent (#94)
  • Columbia, South Carolina—1.0 percent (#93)
  • Syracuse, New York—1.0 percent (#92)
  • Hartford-West Hartford-East Hartford, Connecticut—1.1 percent (#91)



The post Best Markets for Single-Family Rental Investment appeared first on AAOA.

Categories: RSS

Opinion: 5 things to know about investing in single-family rental homes

Thu, 05/31/2018 - 7:30am

Single-family rental homes comprise more than one-third of all U.S. rental properties — about 16 million currently, with another 13 million new rental households expected to be formed by 2030. Since U.S. housing stock is not keeping up with this future demand, the sector should enjoy a significant tailwind given these favorable supply/demand trends.

Not surprisingly, demand for single-family rentals is at an all-time high and showing no signs of slowing.

There are many attractive characteristics to the single-family rental asset class. For starters, returns have historically moved independently from the stock market, meaning they lack correlation. In fact, data compiled by my company Roofstock show that single-family home prices and stock prices are almost perfectly uncorrelated. This means the ups and downs of the stock market have almost no direct impact on home prices, which tend to change in value more slowly and be influenced by numerous factors such as the strength of the local economy and amount of supply added.

If you’re a newcomer to single-family rental investing, one way to think about it is like an inflation-adjusting bond with an equity kicker. The rental income less operating expenses generates current distributions — like the coupon on a bond — and rents can be adjusted annually, providing inflation protection. Finally, the equity “kicker” comes in the form of building wealth as your tenant pays down your mortgage for you while the property can grow in value over time. It’s entirely possible to get a nice double-digit overall return on your equity over an extended holding period.

Purchasing and owning a single-family rental home is simpler than you might imagine. Here are five tips to get you started:

1. Know your investing criteria first

With any investment, be it stocks, bonds or real estate, you need to know what your objectives are. If you’re focused on safety and security, consider exploring low-risk investment homes that generate steady, reliable yield. An example of this may be a more expensive investment property in a good school district. You’re going to get a lower yield, but you may see better downside protection and less volatility. If you have a longer-term horizon or you’re seeking higher returns, you may want to take on a little more risk. Often, lower-priced homes will be riskier, but you may get higher yields and potentially higher long-term returns.

2. Don’t limit your investment property search to where you live

Consider this: If you lived in Atlanta, you wouldn’t buy Coca-Cola stock simply because its headquarters are local. The same principle applies to real estate investing. If your primary residence, income property, and job are all located in the same area, you have a lot of concentrated risk and are more vulnerable to the swings of the local economy. At Roofstock, an online marketplace for buying and selling leased single-family rental homes, we encourage people to spread risk by investing in markets outside of where they live. (Hiring a local property manager is key here.)

Diversification is just one reason to expand your investment property search. Another is access: If you live in an expensive urban or coastal area with relatively high home prices — the San Francisco Bay Area, for instance — finding an income property that’s cash-flow positive is going to be challenging, to say the least. You won’t be able to find a great income property for $100,000 in Seattle, Denver, or Oakland, Calif., but you can if you focus on the Midwest, South, and Southeast.

3. Separate investing from operations

One of the appeals of investing in single-family rental homes is you can hire strong local property management firms to handle day-to-day management tasks of rent collection, repairs and maintenance, and leasing. Over the past several years, property managers have adopted new technologies and business processes to manage homes more effectively for owners.

While some people do choose to self-manage, hiring a property manager can save you a lot of time and potentially money in the long run. While property management companies typically charge between 7% and 8% of the rent, they manage properties for a living and can work to ensure the property is leased, in good condition, and the tenants are happy. Additionally, using a local property manager effectively allows you to buy properties outside of where you live, as self-managing is difficult if the property is not nearby.

4. Real estate investing is a marathon, not a sprint

You might be familiar with the house-flipping reality TV shows in which a person buys a home, fixes it up, and sells quickly for a profit. While that can be an effective way to make a one-time profit, it’s the exact opposite of how you should approach single-family rental home investing, which is about building long-term wealth. Instead, treat it like a nest egg.

In addition, don’t be overly influenced or reactive to short-term fluctuations in your rental property portfolio. You may own a home for a few months and have to deal with a tenant moving out unexpectedly, but the next tenant might reside there for several years before you have another vacancy. Look at this investment over a multi-year horizon and consider your overall outlays and inflows over that long timespan. If you buy a decent house in a decent area, the returns tend to be quite attractive over time and can add a nice counterbalance to other types of investments.

5. Take advantage of the tools and resources available to you

New developments in technology and data access are making real estate ownership more broadly accessible to the everyday investor. For example, Roofstock’s real-estate-as-a-service platform enables buyers to confidently purchase leased investment properties without needing to physically see them. Other examples of real estate marketplaces that cater to buyers and sellers include Opendoor, OfferPad and Knock. Apps including Cozy, Property Buddy, Mynd and RenTracker can help landlords manage and monitor their portfolios anytime, anywhere. Secure and legal e-signing services such as and DocuSign help to expedite closing paperwork.

The single-family rental home industry currently totals $3 trillion, with 1 million homes trading hands among investors every year. The investment opportunities are ripe, and never has it been less complicated for investors to buy and own homes outside their geographic location.


The post Opinion: 5 things to know about investing in single-family rental homes appeared first on AAOA.

Categories: RSS

Unwelcome guests: Airbnb, cities battle over illegal short-term rentals

Fri, 05/25/2018 - 8:22am

The SUV slowly approaches an apartment complex in a quiet residential section of Miami Beach, Florida. On the second floor balcony, a group is gathered.

Code Compliance Officer Vijma Maharaj approaches, her body camera recording, and tells them she has bad news. The apartment they rented on Airbnb is illegal.

While tourist-dense South Beach, where the major hotels are located, largely allows short-term rentals, it’s a different story in large portions of the residential areas of Miami Beach, where rentals under six months and a day are banned.

The eight guests in this apartment are booked for two nights.

It’s a scene regularly repeated in Miami Beach as the city cracks down aggressively on illegal short-term rentals.

The renters, who book via the major vacation rental websites such as Airbnb, Booking Holdings’ and Expedia’s HomeAway, don’t get cited by the city, but the city usually requires the guests to leave the next day or as soon as they can relocate.

Airbnb said negative incidents like these don’t reflect the overwhelming number of satisfied hosts and guests in 81,000 cities and 191 countries, and its experience successfully working with lawmakers around the world.

From Miami Beach to Los Angeles, local laws vary widely, but complaints about quality-of-life issues caused by illegal short-term rentals are similar, according to public records and dozens of interviews with city officials, residents, analysts and others connected to the home-sharing industry. For years, LA has battled illegal party houses in mega-mansions. Other cities like New York have stepped up enforcement. Boston is pushing back against properties being rented out as commercial operations.

“You can’t throw a rock in the country right now without hitting a city that’s moving to more aggressively regulate short-term rentals,” said David Wachsmuth, an assistant professor at McGill University’s School of Urban Planning, who has studied Airbnb around the world.

“The fines are little bit higher in Miami Beach than in some other cities. But around the country —and around the world, in fact, what we’re seeing is a pretty consistent trend.”

Miami Beach’s law against short-term rentals has been on the books for years, but its $1,500 fine was not a deterrent, so the city increased it in 2016 to $20,000 for the first violation, rising to as much as $100,000 for the fifth.

Airbnb does not have a good record complying with local laws, according to Wachsmuth.

“I think very consistently the pattern that we’ve found is that Airbnb is happy to cooperate with regulators about collecting taxes,” he said. “They’ll collect the taxes to kind of level the playing field with hotels. But they will resist as strongly as possible any attempts to restrict how much actual activity is allowed on Airbnb.”

“The easiest way to stop all of this is if the home-sharing platforms simply didn’t send people into these neighborhoods.”-Dan Gelber, Miami Beach mayor

Two years of code compliance body-camera videos obtained by CNBC show raucous parties and unwitting tourists staying in illegal short-term rentals in Miami Beach, many of them advertised on Airbnb. One sign captured in an illegal Airbnb instructs guests to lie and say they are friends of the landlord if someone asks.

On the sidewalk outside the Miami Beach apartment, Maharaj called the Airbnb host, later identified by Maharaj as Rachel Perrea. As a CNBC camera crew rolls, Perrea falsely said the tourists are her friends and staying in the unit for free.

“Rachel told me you guys are friends and you didn’t have to stay there,” Maharaj asked the Airbnb guests. “Is that true?”

“That is not true,” one guest replied from the balcony.

The building’s owner and the company that rented the apartment were both issued a violation.

That company is Vacayo, which is well-known to city officials. The company and its co-founders are facing a total of $700,000 in fines at four properties in the city, which the company is challenging.

Vacayo is a New York-based management company that rents properties and then leases them to short-term tenants, using hosts to advertise them on platforms like Airbnb.

‘It is predatory’

Miami Beach Mayor Dan Gelber said situations like this are common and not good for the city. Officials from other large cities also have seen similar problems.

“We’re seeing commercialized, predatory companies that are trying to commercialize our residential communities in ways that are damaging to our citizens and our residents and our quality of life,” Gelber told CNBC. “It is predatory.”

“It’s people taking very nice properties, buying them and turning them into essentially a flophouse for as many people as they can put in there to extract as much income as they can in the middle of a neighborhood that wasn’t zoned for that kind of behavior,” the former prosecutor and state representative and senator said.

The city expects it will investigate more than 1,000 complaints of illegal rentals this year, up from more than 800 in 2017. So far this year, $2.4 million in fines have been issued, records show, but only about $183,000 has been collected.

“The easiest way to stop all of this is if the home-sharing platforms simply didn’t send people into these neighborhoods,” Gelber said. “It’s just that simple. They’re the ones who do it and they claim they have no responsibility because, ‘oh, we’re just an internet platform.’ But they’re not.”

In an interview with CNBC, Isabel Berney, co-founder and COO of Vacayo, said the company has exited leases in the prohibited zones.

“Right now, we are not entering any additional units in Miami Beach that are not fully compliant,” she said.

Berney said she was not aware that Vacayo host Perrea had falsely told code compliance that she was renting the unit to friends. “I mean, she probably was just put on the spot and she was probably scared, and I wasn’t aware of what she says.”

CNBC reached Perrea who said, “I’m really sorry but I can’t take this call right now.” The call was disconnected and she did not respond to a follow-up call.

Hosts like Perrea, who work on behalf of Vacayo, are independent contractors, Berney said.

“Ultimately, our whole mission is to help landlords,” Berney said. “We help landlords earn passive income. We’ve saved landlords from bankruptcy, from foreclosure.”

Responding to the CNBC investigation, Airbnb said it has removed listings associated with Vacayo from the site.

Wachsmuth said it would be relatively simple for Airbnb to block hosts who try to rent properties in the city’s prohibited zones. Both London and Amsterdam, for example, limit the number of days someone can rent a property, which Airbnb tracks, he said.

“I think the lesson is simply that the kinds of regulations that actually restrict the short-term rental market, Airbnb is not going to cooperate with that unless their back is really up against the wall,” he said.

‘A people-powered platform’

In an interview at Airbnb’s San Francisco headquarters, Chris Lehane, head of global policy, described the company as “a people-powered platform.”

“We’re a community model. We have about 5 million hosts globally, and a typical host here in the United States makes their home available 41 times a year and makes on average $6,100 a year,” he said.

“I’ve yet to see a program being run by any mayor, any elected official in this time of economic inequality that’s generating $6,100 for a typical middle-class family. All without the expenditure of a single taxpayer dollar,” he told CNBC. “That is what Airbnb is about at its core. Trying to use technology to create economic empowerment.”

“It’s really important to those hosts, it’s important to their economic model.”-Chris Lehane, head of global policy, Airbnb

Miami Beach has a long history with short-term rentals, he said, suggesting the practice should be allowed in the part of the city zoned for commercial use.

“I think what seems to me that would be a common sense solution for Miami Beach — happy to do this if they actually really want to sit down and have a constructive conversation — is you could take that 35 percent of the city that’s a residential area, make that an exclusionary zone. Allow the activity to be able to take place in the 65 percent of the city that’s actually explicitly zoned for this type of activity.”

Asked multiple times about the ongoing illegal Miami Beach listings on Airbnb, Lehane said, “the city council members themselves have talked about the fact that their law doesn’t actually work particularly well, as you probably know. Twenty thousand dollar fines on someone making their home available a few times a year to actually help make ends meet?”

In order to block the existing illegal properties on Airbnb, Lehane said, “that requires having to work with the city. Right? We don’t have a lot of the information.”

He disagreed with city officials who blame Airbnb, saying “Miami Beach hasn’t been willing to sit down and actually engage in a conversation.”

The city’s zoning map, publicly available, shows the areas in Miami Beach where short-term rentals are clearly allowed and prohibited.

Lehane said about 1,000 of the 5,000 hosts in Miami Beach are doing short-rentals on a full-time basis.

“So Miami Beach is certainly not part of our economic model in terms of its impact on us,” he said. “What it is, it’s really important to those hosts, it’s important to their economic model.”

Airbnb provided a list of 52 metropolitan areas ranked by the number of guest arrivals. Miami Beach ranked 18 on the list, and had 1.9 percent share of the total visits for that grouping. The Miami region was listed as the platform’s eighth most popular city for 2018.

Lehane blamed the influential hotel industry in Miami Beach and around the country for blocking the company’s attempts to work with city officials. He said Airbnb has completed more than 400 partnerships around the world, including working with Los Angeles on proposed restrictions to book a short-term rental.

“Miami Beach, up to this point in time, has just not had a serious desire to really want to engage on this, because at the end of the day, as the information that has come out reveals, they’re effectively working hand in glove with the hotel industry, which is incredibly powerful. And a hotel industry that really doesn’t want to see everyday people to be able to use their homes to make extra money.”

In a statement to CNBC, Katherine Lugar, president and CEO of the American Hotel & Lodging Association, said, “Airbnb’s illegal hotels are a growing problem in communities across the country, flaunting basic safety and security standards, zoning rules and taxes while also pushing affordable housing options further out of reach.”

“Instead of supporting common-sense regulations, Airbnb has opted to deploy a massive obstruction campaign of dirty tactics, deceptive messaging and personal attacks against anyone who raises a concern.”

Her statement said that “mayors and state legislators across the country are standing up to Airbnb and taking issue with Airbnb’s bullying, and the endless stream of Airbnb horror stories in the news.” incident, which says Miami Beach is the sixth most booked U.S. destination for domestic and international guests, told CNBC it takes swift action against any host that violates its policy.

For example, during the ride-along in Miami Beach, Maharaj told a young couple who made reservations via that the apartment was in the prohibited zone. The guests immediately alerted, which moved them to another location. The guests told CNBC they were originally booked at a different South Beach address, but informed via email shortly before their vacation to show up at an address in the prohibited zone.

“Upon finding out what this apartment owner did, which is certainly a violation of our terms and how we agree to work with properties, we have removed his property from the website because … we take this very seriously and always work with governments,” said Leslie Cafferty, head of global communications at

Party houses in the Hollywood Hills

While Miami Beach targets tourist rentals in prohibited zones, for years a different issue has plagued Los Angeles: raucous parties in mega homes in the Hollywood Hills and other sections of the city.

Short-term rentals are illegal in Los Angeles for less than 30 days in areas zoned as single-family residential neighborhoods. But that hasn’t stopped homes from being rented for party nights.

“Our neighborhoods have become de facto nightclubs.”-Estevan Montemayor, communications director, City of Los Angeles

In February, the City Council approved an ordinance imposing steep escalating fines on both homeowners and renters who have large parties that disturb neighbors. Violators can face fines of up to $8,000.

The City Council also gave preliminary approval to a new ordinance in May that limits the number of days a host can rent to 120 days a year. Qualified hosts can be exempted from the cap. Only primary homeowners can list their properties for short-term rentals under the new restrictions.

Final approval won’t happen for another several months.

“Overall we wanted to preserve our housing stock, we wanted to get bad actors out of the way, and control party homes that are primarily used for just house parties,” said Los Angeles Councilman Jose Huizar, who chairs the planning and land use management committee.

Lehane said Airbnb has worked with city officials to devise a law that makes sense.

“And I think that’s an example of the type of partnership and deals and relationships that we have done all over the world,” Lehane said.

Nevertheless, Cory Palka, senior captain of the Los Angeles Police Department, Hollywood division, said disturbances caused by short-term rentals are “probably next to homelessness, one of our biggest challenges in Hollywood.”

“Neighbors are furious that this has gotten so wildly out of control that it impedes their ability to have a normal lifestyle here,” Palka said.

Deputy City Attorney Steve Houchin has filed public nuisance civil charges against four Hollywood Hills homeowners since October. Two of these four locations are still listed on Airbnb.

CNBC found another Hollywood Hills home listed on Airbnb as “LA’s premier recording studio and creative space.” Listed at $3,300 a night, the home is equipped with an in-house recording studio, an eight-seat reclining chair movie theater, and a heated pool and hot tub. High-profile celebrities such as rapper Flo Rida are featured posing on the home’s Instagram page, which is known as “House Thirty Three.”

“I’ve never heard anything this loud,” said Natasha Ward, a longtime Hollywood Hills resident who lives on the street just below House Thirty Three. “It’s like being at a concert.”

There are noisy parties one or two times a month, Ward said. Large cars and vans that arrive full of people “gridlock” the narrow road leading up to the house, according to Ward.

Police records show 17 patrol calls to the home since the beginning of 2017. Ten of the calls were for minor disturbance parties and two were classified as group disturbances.

“That is an incredible amount of calls for service,” said Benjamin Thompson, LAPD Hollywood division senior lead officer. “It’s incredibly indicative of the misuse of the kind of public safety danger that is being cultivated at the property.”

Martin Gray, who said he manages the home’s recording studio and listed it on Airbnb, described the property as “not really a traditional Airbnb” and as more of a place “built to accommodate artists and record labels.”

Gray told CNBC he first listed House Thirty Three on Airbnb in January and that there have been a few short-term rentals booked through the platform. Record labels booked the home for March and April and did not use Airbnb to reserve it.

“A lot of the Airbnb stuff was just daily rates,” Gray said.

When CNBC informed Gray that short-term rentals at this Los Angeles address are illegal, Gray said he was surprised and did not know about the prohibition. He said he was unaware of the police calls to the home. The property’s owner did not respond to a request for comment.

“Our neighborhoods have become de facto nightclubs,” Estevan Montemayor, the city’s communications director, said. “And that’s not what they were built for, what they’re meant to be.”

Shots ring out

Further north in the San Francisco Bay Area, an incident in April illustrates the clash between residential peace and quiet and the nightmare next door.

Paul Larson, who lives in Millbrae, didn’t mind when he first heard the house next door was being rented through Airbnb. But then came the loud parties and the fears for his own safety.

In the early morning of April 22, a party with dozens, possibly hundreds, of partygoers culminated in eight loud gunshots.

“It sounded like they were coming from right outside the wall and it really spooked me,” Larson said of the gunfire. “I could hear commotion, I could hear yelling, I could hear scurrying.”

CNBC obtained surveillance footage captured on Larson’s video security system of the private road leading up to the Airbnb house. The videos show guests entering and exiting throughout the day and into the next morning, as well as the gunfire and subsequent commotion.

Police are seen walking and driving past the surveillance camera in the hours before and after the gunshots rang out.

“Nobody from Airbnb has reached out to me or any of the neighbors to apologize,” Larson said, saying it’s a source of frustration. He said he reached out to the Airbnb unit host hours before the gunfire. The host tried contacting Airbnb to voice her concern several times, but kept getting put on hold and never received a response, according to Larson.

“The chance of this happening under just normal circumstances if it was not an Airbnb is basically nil,” Larson said. “It’s all because of the Airbnb.”

In a statement to the mayor, vice mayor and Millbrae City Council, Airbnb said: “We have zero tolerance for this type of behavior and upon learning of this incident, we permanently banned this guest from our platform and suspended the listing. Additionally, we are reaching out to the San Mateo County Sheriff’s Office to offer our assistance.”

Other cities crack down

New York City, which Airbnb lists as its top destination for guests, has some of the tightest restrictions on short-term rentals in the country. It is illegal to rent out an entire residence for less than 30 days in New York City. Short-term rentals are permitted only if the homeowner is also staying there throughout the rental period and there are no more than two renters.

New York Gov. Andrew Cuomo signed a law in 2016 making it illegal to advertise occupancy for short-term rentals in buildings with three or more units. Violators are subject to fines up to $7,500.

But CNBC easily found what appear to be illegal listings on Airbnb in New York.

Wachsmuth was one of the authors of a 2018 report that analyzed Airbnb activity in New York City. The study, titled “The High Cost of Short-Term Rentals in New York,” found that 45 percent of all New York Airbnb reservations last year were illegal and two-thirds of revenue is from likely illegal listings. The report was funded by the Hotel Trades Council, which Airbnb says makes the findings questionable.

“I’ve been doing research on Airbnb for years now,” Wachsmuth said. “And the vast majority of that is independent, university research. And the fact of the matter is that everybody who studies this, almost without exception, comes to very similar conclusions.”

“Cities all across the world are cracking down because they see the same facts that we see. And those are the facts, although they happen to be inconvenient for Airbnb,” he said.

Airbnb faulted the data collection and methodology used to compile the report calling it “deeply flawed and inaccurate.”

In 2017, New York doubled its number of inspections of potentially illegal short-term rentals, said Christian Klossner, executive director of the Mayor’s Office of Special Enforcement.

“The city has dedicated a significant number of resources, we’re ramping up enforcements,” he said.

Court battles

Regulatory efforts in other cities have wound up in court.

Last year, Airbnb and HomeAway, reached a settlement with San Francisco, in which the companies agreed to enforce regulations from 2014 that require hosts to be registered. The companies also will collect data from people who list their units for under 30 days, information San Francisco can use when determining who can register.

The goal of the agreement was to limit the number of “commercial de facto year-round hotels,” said Omar Masry, senior analyst at the San Francisco Office of Short-Term Rental Administration and Enforcement.

“We tend to see a strong correlation with quality-of-life issues, noise and parties,” Masry said about commercially operated listings. He added, they “rarely see this with short-term rentals playing by the rules.”

Since the rules went into effect last September, he said the number of listings has dropped from around 10,000 to 4,000. The city has been working closely with Airbnb to identify illegal listings and remove them from their platform.

“We’ve seen a massive reduction in illegal listings including many folks who we had seen operating … high-volume short-term rentals across the city,” he said.

Commercialized operators

While Airbnb points to scores of hosts who earn extra income from short-term rentals, CNBC found companies around the country who have rented properties from landlords and turned them into Airbnbs.

For example, the New York short-term rental report found that the top 10 percent of hosts earned 48 percent of all revenue in 2017, while the bottom 80 percent earned just 32 percent.

Boston is facing a similar issue as it has one of the highest short-term rental densities in the world, which has grown by 100 units a month since 2015, according to Boston’s Alliance of Downtown Civic Organizations.

More than 70 percent of Airbnb listings in downtown Boston are operated by outside professional companies, according to an analysis by ADCO.

“It certainly has hurt a lot of downtown Boston,” said Ford Cavallari, ADCO’s chairman.

Using data from Inside Airbnb and author Tom Slee, who has collected Airbnb data, the organization found Boston’s Airbnb market has nearly four times more investors operating rentals than other cities, including New York City and Washington, D.C.

“They don’t have the same interest or commitment in the neighborhood so in the end you face a threat to the fabric and quality of life in the neighborhood,” said Martyn Roetter, chairman of the Neighborhood Association of the Back Bay.

A proposed ordinance released in May would impose a 120-night-per-year limit on owner-occupants of two and three family buildings. The limit applies to a second unit. Owner-occupants can use the unit they live in for short-term rentals with no limitations.

The biggest policy change, though, would prohibit investors who don’t live on the property from renting out a unit for a short-term rental.

In a May 15 letter to Boston Mayor Marty Walsh, Airbnb said it has tried to work toward a “balanced solution” with the city.

“We are concerned that despite your administration’s hard work to create meaningful economic opportunities for everyday Bostonians — including building thousands of units of new affording housing — the introduced ordinance would in one fell swoop prevent thousands of Bostonians, particularly renters, who depend on home sharing to make ends meet from doing so,” wrote Williams Burns, Airbnb’s Massachusetts public policy director.

Burns said the proposed ordinance would disproportionately impact renters, discourage tourists and business travelers, and allow “big hotels to continue price gouging consumers.”


The post Unwelcome guests: Airbnb, cities battle over illegal short-term rentals appeared first on AAOA.

Categories: RSS

The ups and downs of month-to-month lease agreements

Fri, 05/25/2018 - 8:15am

Paying for a traditional or monthly lease can put a dent in one’s pocket since it’s a constant expense which weighs on your finances and future investments.

Traditional leases last 12 months, 18 months or 24 months. Property owners operating on a six-month lease is rare and costly. The lease’s structure is too unyielding for tenants who must relocate immediately or within 3 months. The month-to-month lease solves that problem, yet it’s not as trendy as it once was due to the pros and cons below. Still, renters who can find a month-to-month lease property should consider the possibility.

The highsFlexibility

Month-to-month agreements are flexible. Renters need no timetable to leave. Reasons include moving, relocating, becoming a homeowner, construction, marriage, divorce, roommate issue, or a drastic life change. Renters can segue between month-to-month and home/apartment lease easily. Moving from lease to lease is slightly difficult.

No penalty

Tenants don’t pay a penalty for breaking the agreement. Renters only deal with paying next month’s rent if they don’t leave by the 15th of the current month or the 1st of next month. Home and apartment leases require a fee and/or paying rent for the remaining months for breaking the lease before agreeing to the terms. This is because a typical contract lasts the entire duration with endless stipulations, so breaking it before the end has consequences.

Lovely lodging

Today’s month-to-month apartments are stylish and chic, assuming tenants can afford it. Short-term apartments and corporate apartments use the month-to-month system, and many provide furniture. This is ideal for renters who don’t have belongings or prefer to keep belongings in storage until it’s time to relocate or their home is move-in ready.

The lowsUncertainty

Renters gain flexibility at the expense of sacrificing money and uncertainty. Month-to-month agreements cost more than traditional leases because of it. Renters can leave at any moment, and the property owner’s strategy is to strike while the iron is hot. Besides higher rent, renters must worry about the proprietor’s aspirations too. Proprietors can equally terminate the lease at any moment for any reason. It’s difficult to find accommodations when renters have 30 days maximum to move.

High vacancy

The proprietor may experience vacancy and financial drought. There is no set time for another tenant to fill the vacancy after the previous one leaves. Sadly, this invites unwanted vandalism. When another tenant does fill the void, the landlord may raise the rent to recoup money lost during the vacancy. Meanwhile, it’s obvious renters pay more for furnished apartments. Don’t expect free month’s rent, special offers, or free prizes upon entry because the stay is temporary, not long-term. Since property owners lose tenants continuously, these apartments need something else like lease apartments to keep them afloat.

Very expensive

Lastly, property owners can raise the rent when it’s convenient provided the owner gives the renter notice first. The renter can accept the increased payment or leave within 30 days. This effective strategy works as it gains additional money from tenants or removes a problematic tenant without legal recourse. Conversely, a long-term lease locks the rent rate in for the duration of the contract. Owners can raise the rent when the lease expires, saving renters money.

Property owners view month-to-month renting as a risk not worth the reward, hence the decline. If month-to-month option fits the narrative, expect to research thoroughly for short-term apartments. Today’s month-to-month rental agreements are short-term contracts, and renters/tenants must understand the benefits and consequences first before signing one.



The post The ups and downs of month-to-month lease agreements appeared first on AAOA.

Categories: RSS

Interest Rates and Real Estate Investing

Fri, 05/25/2018 - 8:12am

A recession is coming. But not quite yet. Certainly, we’ll see another recession but for now, the Federal Reserve continues trying to keep the U.S. economy balanced with moderate inflation and moderated economic growth. Their primary tool for doing this is the federal funds rate. Back in March, the Federal Reserve raised interest rates by a quarter of a percentage point and signaled that the central bank is on track to raise rates twice more in 2018. The rate increase in March marked the sixth time since the financial crisis that it has raised rates. At the conclusion of its May policy meeting, the fed left interest rates unchanged. Currently, U.S. interest rates are at 1.5 percent to 1.75 percent, the highest in a decade.

Increasing interest rates certainly affect the real estate investment business. If you are borrowing money as a mortgage to become a landlord, your business costs will increase but rents are also likely to continue increasing. If you are borrowing money to rehab and flip houses, your cost of interest will increase but it is still a seller’s market with selling prices on the increase (although slowing and expected to slow further).

Lending Money Is Where the Money Is At

As always, there is risk when it comes to any kind of investing, including real estate investing. One way of minimizing that risk while increasing earnings is by becoming the lender as interest rates rise. Great sources of funds for this are IRAs, 401ks, and other retirement accounts. The secondary lending market (alternative to bank loans) has become much stronger over the past several years.

While the federal interest rate remains extremely low and bank mortgages are around slightly above four percent and heading higher, private lenders are earning between eight and twelve percent. Of course, with that comes a higher degree of risk. Earning the higher interest rate means lending to higher risk borrowers. However, investing retirement funds in a first mortgage provides a high level of security when it is secured by the house or other property. Security can be further increased by loaning no more than 70 percent of the property value and requiring the property buyer to invest the other 30 percent. Naturally, the lower your risk, the lower interest rate you’ll be able to charge.

Alternative Retirement Investing

Investing retirement funds is not limited to Wall Street stocks, bonds, and mutual funds. There are many alternatives. One is a self-directed IRA that can be managed by a third party such as PENSCO, one of the dominate self-directed retirement account custodians (you can learn the significant difference between custodians and administrators at this link). These types of accounts allow you to invest your retirement funds in alternative investments such as real estate. You can either directly purchase the real estate or loan money secured by real estate. You can also buy stocks in private companies and have many other investment opportunities.

There are very specific rules that you must follow when making alternative investments. One of the most important is that you can’t invest in a company that you personally own/operate nor businesses owned/operated by direct family members. That’s where a self-directed IRA custodian comes in. You can place your retirement funds in a trust with the custodian and direct the custodian how you want your money invested. Unlike a financial adviser, custodians won’t give you investment advice. You have to specifically tell them where you want to invest. Just like a traditional IRA, you don’t financially benefit until you reach retirement age. But upon retirement, you can sell your assets and begin drawing your retirement pay.



The post Interest Rates and Real Estate Investing appeared first on AAOA.

Categories: RSS

Study: Which Property Type Has the Best Price Growth?

Fri, 05/25/2018 - 8:07am

Part of the American dream is owning a home—and another part is establishing a business so you can be your own boss. Whether you’re fixing and flipping or buying and holding, you’ll want to understand price growth in any market where you’re investing so that you’ve got a good idea of how your asset is appreciating (or not).

HouseCanary examined the top 100 metropolitan statistical areas (MSAs) in the United States by population and looked at which ones had the highest year-over-year price growth for three property types: single-family homes, condos, and apartments. We found that all property types are seeing price increases in certain parts of the country, which also correlates with U.S. Census migration data.

Home is Where the Cash is

The single-family home (usually surrounded by a white picket fence) is the quintessential symbol of housing in America. It’s where you can raise your two-plus kids and give a dog space to run around the yard, and in some metro areas, single-family homes are a better investment than other types of property.

Most of the housing stock in the United States is represented by single-family homes. Generally speaking, home prices are growing faster in Florida and the West than they are in the Southeast and Northeast parts of the country.
Condo in the City

We see this pattern reflected in the best markets for condos, too. Condos are multifamily units that are available for individual sale and ownership. Unlike an apartment building, a condo building is managed by a homeowners’ association (HOA) and allows for individual ownership of units, while an apartment building is owned and managed by an individual or company and does not allow individuals to purchase units, instead renting them out either short-term or long-term.

Note: One MSA in the top 100 by population (Buffalo, New York) was excluded from our condo research because there weren’t enough condo properties to draw a year-over-year price growth conclusion.

Price growth for condos is generally higher across the board than price growth for single-family homes—but not everywhere. So although condos might seem like a less risky, more lucrative investment than single-family homes, it really depends on where you’re looking.

The Data in Apartment 13

Unlike condos, apartments cannot be purchased by individual buyers; instead, they are owned by a company or individual and rented out unit by unit, either to long-term renters or short-term occupants (like vacation rentals). But like condos, price growth has been higher for apartments than for single-family homes—and also like condos, if you don’t choose your investment market wisely, then you might end up buying an asset that decreases in price year-over-year instead of increases.


Condos and apartments tend to increase in price more than single-family homes in areas where the population is growing, but they’re not always a safe bet—condo and apartment prices can decline year-over-year in markets where population growth is slow or markets where more people are migrating out than are moving in.

Price growth is strongest in the West and in Florida, and less robust in the Southeast, while parts of the Northeast may require even more digging to find a good investment deal. Pay attention to where people are moving and try to secure investment properties in those markets if you’re hoping to make the most money from your real estate investment upon sale.



The post Study: Which Property Type Has the Best Price Growth? appeared first on AAOA.

Categories: RSS

Fast Facts for Managing Prospective Renters’ Expectations

Fri, 05/25/2018 - 8:01am

Surveys gauging how renters use technology to rent and live at apartments are taking on a sense of urgency at SatisFacts and Because more renters are finding their homes on mobile, tablet and desktop applications, the leading multifamily research firm is going back to the well more often.

Since the first technology-oriented survey emerged in 2011, consumers are spending more time online prospecting for apartments. Enough that SatisFacts is monitoring what is becoming the norm in multifamily every two years.

Lia Nichole Smith, SatisFacts Vice President of Education and Performance, recalls that apartment hunting required much more legwork when she started in multifamily 16 years ago.

“Before people would jump in their cars with their apartment book, spending a whole Saturday going around with dog-eared pages, collect all the information, tons of paper and all the leasing folders that we would give them,” she told an audience at the Texas Apartment Association Education Conference & Expositionin San Antonio. “But we are starting to see more people spend time up front doing their own research, going online to look at websites before making contact.”

Seven years ago, before Smith climbed from a role in Operations to join SatisFacts and help lead research, the company wanted to get a better feel for the emerging trend of online renting. The 2011 Online Renter Study asked renters nationally to rate the importance of using technology to find their next home, earning a 3.87 on a scale of 5.0.

A follow-up in 2015 yielded a surprising 4.01.

“We revisited the survey in 2015 and were very shocked at the dramatic difference that had taken place as people looked for help to find an apartment,” she said. “We didn’t want to wait another four years, because who knows what might happen.”

In 2017, SatisFacts released its third Online Renter Study in six years and the rating climbed again, this time to 4.15, including a nation-leading 4.33 in Texas. The next study is slated to launch the end of this year.

The surge explains how renters feel about multifamily’s ongoing shift to technology, Smith said. The lead survey question asks the importance of an apartment community being committed to utilize the internet and new technologies to enhance communication, service and the resident experience.

“With a 4.15, the narrative here is that it is important,” she said.

In survey vernacular, over 4.0 means that it’s getting very close to extremely important. Thus, the array of available technological tools that include online renting, payment portals and community bulletin boards is becoming more desirable.

“Over time, residents are saying that because life in general has become more technology driven, I need that to be present in every aspect of my life,” Smith said. “Things like having a portal where residents can pay rent on line (are important). If you do not have a really robust resident portal, if you don’t have the online options for your residents you’re going to have a tough time going forward when it comes to retention.”

And if a resident can’t find those convenient features, they’ll go somewhere else, she added.

“As rents go up, your residents are expecting more. We’ve got to make sure residents are getting their money’s worth.”

Generally, more renters are signing leases online. When asked last year if they had rented their current apartment without visiting the community first, 12.7 percent said they had, compared to 4.1 percent in 2011.

Also, when prospects use technology they want to control communication and have as little face-to-face contact as possible. LiveChat, Skype and Facetime are not and continue to drop in favor of email and texting for younger and older audiences, Smith said.

“Least important is live chat,” she said. “They don’t want to be sold yet. They’re not ready yet to start interacting with you. I think we will see that shift a little bit, but renters want to gather as much information on their own. They want to make the first move.”

That means that websites must be more about information and less about marketing, she said. Because prospects typically have their minds made up about what they are looking for they really want to know if a community has it, what it looks like and if it’s affordable.

Once they lease, residents want an open door to communication. A whopping 94 percent favored using a portal if the community offered it and 83 percent said they’d use it to rent online. More than three-quarters say they want to fill out service requests online rather than make a phone call to the front office or maintenance line.

“That’s a huge number,” says Smith.

“The desire for remote contact is widespread,” she added. “They want as little face-to-face interaction as possible. Personal interaction is saved for escalated issues. The ones who come into office have more urgency than someone who has a general question.”

Smith expects renters to further embrace technology and online tools in the future. In return, multifamily operators have to make the leasing process as simple and crystal-clear as possible, starting with the website.

“It’s all about transparency,” she said. “Because your renters are looking at multiple sources and collecting information upfront, there has to be transparency. This is who we are, what we are about.”

Important information they can’t find in a deformed apartment listing booklet.



The post Fast Facts for Managing Prospective Renters’ Expectations appeared first on AAOA.

Categories: RSS

7 Ways to Get a Loan for an Investment Property

Thu, 05/24/2018 - 5:07pm

Over the past three years, home flipping has regained its popularity as real estate investors started dipping their toes into the market. It’s no surprise that home flipping was at an 11-year high in 2017, according to Attom Data Solutions, a property database curator. It said $16.1 billion went toward the purchase of homes for flipping that year.

As a real estate investor, knowing how to get a loan for an investment property can be a big deal. It can mean the difference between success and failure. If you’re interested in expanding your real estate empire — whether you’re flipping houses or using an investment property to generate regular cash flow as a landlord — it’s important to understand your options.

Here are seven options to consider for funding your investment property purchase or upgrade.

1. Home improvement loan

For the most part, getting a home improvement loan makes sense if you’re upgrading something you’ll keep for the long term.

“The only way I see it working is if this is your one project for the year,” said Sam Wilson, a real estate investor and co-owner of Southern Home Buyers.

Home improvement loans also can be useful for income-producing properties. If you rent out properties that you’ve had for a while, you might have enough equity to get a loan based on the rental property’s value. However, if you borrow too much or lose a tenant and can’t cover the payment, you could end up losing your property.

Wilson pointed out that a home improvement loan can come with perks, such as a lower interest rate, but the drawback is it takes time to get through the system.

“Do you have 30 days to wait around for the bank to underwrite you, appraise the property, and get it through their loan department?” he asked.

If you’re working within a short time frame, you might not have time to take advantage of a home improvement loan. You’ll need to find other solutions.

For those who can afford to wait for the process to play out, a home improvement loan can be helpful, Wilson thinks. It might not be the best option if you need to complete a project quickly so you can flip the house, or if you have a small window of time before a new tenant moves in.

2. Home equity line of credit

Rather than relying on getting a new home improvement loan, Wilson suggested people use an existing home equity line of credit.

“If you have a home equity line of credit on your primary residence, you could utilize it as soon as you need it,” Wilson said. “There are no completion hurdles to overcome for more funds, and no waiting around for projects to start.”

Having that capital available at a relatively low interest rate is a huge advantage. Because the line of credit is based on your primary residence, you don’t have to worry as much about the difficulties that come with trying to persuade a bank to fund an upgrade if you’ve invested in a fixer-upper.

As with a home improvement loan, it’s possible to get a line of credit based on your long-term investment property. If you have enough equity built up in an existing rental property, you can use it for collateral instead of relying on your primary residence.

“With a true investment project, like a home you’ve bought cheap but needs lots of work, it’s going to be in such a condition that most banks won’t lend on it beyond its current value anyway,” said Wilson. “That can make getting a home improvement loan impractical for any real estate investor.”

The downside to using a home equity line of credit from your primary residence or your rental property is that you are putting your investment at risk. If something goes wrong and you can’t make payments, you could lose your home or your income-generating property.

3. Cash-out refinance

Looking for a way to get more out of your existing equity? A cash-out refinance can be one way to get the money you need.

Refinancing your home or rental property could result in a lower interest rate and payment. Also, with a cash-out refinance, you can increase your cash flow, based on the equity you have.

The downside is that, as with a home improvement loan, you’ll have to wait for the appraisal and underwriting process to work itself out. You might not have the time for that. Also, if your investment property doesn’t have enough equity to provide the funds you need, you’ll have to use the home you live in as the source of equity.

Using your primary residence for a cash-out refinance if you’re buying a property to flip can be risky. You could end up losing your home while being stuck with a fixer-upper that isn’t habitable.

4. Hard money lending

Many people focus on traditional bank lending when trying to figure out how to get a loan for an investment property, according to Lucas Machado, a real estate investor and the president of house-flipping startup House Heroes.

Instead, he pointed out, many real estate investors turn to more creative home loan solutions such as hard money lending.

“This is used a lot by investors who flip homes,” said Machado. “The investor borrows from private individuals or businesses to fund their real estate investments.”

These nontraditional loans often are higher than the current value of the home, so there’s money left over to make upgrades that enable investors to sell the home quickly. The hope is that the home sells for much more than its purchase price after the improvements are made. The loan can be paid off and the investor has a little capital left over so they can move on to the next project.

With hard money lending, though, Machado explained that you usually need to bring some of your own capital, typically a 20% down payment. You probably will pay a higher interest rate because hard money lenders put their own finances on the line. Also, many of these alternative mortgage lenders have provisions that allow them to repossess the home if you don’t make payments on the loan.

5. Partnership

Do you know people who have a lot of capital available? If so, you could enter into a partnership with them to get the money you need.

“One common form of partnership for real estate investing is when one partner supplies the funding and the other brings the opportunities,” said Machado. “The partners then split the profit upon completion of the project.”

This option also might work if one partner has very good credit and can secure a loan, while the second partner manages other aspects of the investment. However, you need to come to an agreement with your partner to make this work. You both need to be happy with the distribution of profits in proportion to what you bring to the table.

6. Seller financing

If you’re buying a home, you might be able to convince the seller to finance the deal, Machado said.

“Even though the seller doesn’t make money at the time of the sale, they could receive the advantage of ongoing income while you pay off the loan,” he said. “However, you might have to pay a higher price for the home and pay a higher interest rate because they offer creative financing.”

When using seller financing, you run the risk of putting some money into the home to fix it up or bear some of the administrative costs that come with being a landlord. You could lose that money if you can’t make payments and the seller repossesses the home.

7. Personal loan

Is your home improvement project relatively small? You might benefit from an unsecured personal loan for home improvements. If you’re a real estate investor looking to make upgrades for tenants, you can get a personal loan fast and at a reasonable rate if you have good credit.

Personal loans don’t require an appraisal, and some lenders, such as Avant, can send the money to your account within a couple of business days. Borrow the amount you need to upgrade the home and move on to the next project.

Personal loans often are unsecured, so you don’t have to worry about losing the property. However, you might not qualify for a personal loan large enough to complete a total remodel, so the option might not make sense if you’re an investor trying to flip a fixer-upper.

How to get a loan for an investment property

No matter your situation, you need to present yourself as a good risk.

When getting a home improvement loan from a bank or an online personal lender, you need good credit to gain access to the best rates and terms.

As you approach hard money lenders or work with a partner or seller for financing, you need to show that you’re smart and hard-working. You can get a loan for your investment property without having good credit, but you have to prove you have a plan to be profitable so that nontraditional lenders can have confidence in you.

If you’re considering a loan based on equity instead of a personal loan, it’s important to ensure you have enough value in your home to qualify for your desired amount. As a result, you could end up taking out a home equity loan on your primary residence. As Wilson pointed out, this can be a good way to access ready money, but you have to be careful that you don’t lose your home.

There are options for real estate investors looking for a little leverage to help increase profitability. Whether you need a home improvement loan to upgrade a revenue-producing rental property or you hope to buy a home to flip it, research your options and decide which one works best for you.



The post 7 Ways to Get a Loan for an Investment Property appeared first on AAOA.

Categories: RSS

The Challenges of Residential Instability

Thu, 05/24/2018 - 5:06pm

Homelessness is a critical issue facing the nation, but a new report examines the challenges of “housing instability,” and how communities can intervene to deal with the problem before it reaches the point of homelessness.

That’s the topic of the Urban Institute report “Family Residential Instability: What Can States and Localities Do?” authored by Brett Theodos and Sara McTarnaghan of the Urban Institute and Claudia Coulton of Case Western Reserve University. The report is compiled from a roundtable meeting convened by the Urban Institute and the Annie E. Casey Foundation, drawing upon the insights of “more than 40 practitioners, advocates, public officials, researchers, and funders” who “shared practical insights about successful strategies and pitfalls of policy and program solutions to address family residential instability.”

As the report points out, there are many problems faced by families who may not yet be homeless, but who are suffering from residential instability. Moreover, the reasons behind this residential instability can vary significantly depending on both the individual and the region where they are located, among other factors.

The report first focuses on a factor related to residential instability—residential mobility. Moving isn’t necessarily a bad thing, but the report defines residential instability as “when the frequency of residential mobility in a household or individual is high or occurs over short intervals.” Residential instability can also be a sign of housing insecurity, “which refers to households that have difficulty remaining adequately housed because of problems affording or maintaining their housing.” The report continues to say that “Mobile households frequently have periods of homelessness, including living on the streets, in shelters, or doubled-up temporarily.”

The Urban Institute report found five primary contributors to residential instability: neighborhood dynamics, housing unit conditions, household characteristics, metropolitan area and housing market dynamics, and cross-cutting systems (such as “the availability of housing assistance and other social safety net supports, the criminal justice system, and labor markets”).

The report explains that those affected by residential instability are often forced by circumstance to accept whatever housing they can find, and “they often end up in worse housing conditions and drained of financial resources.” Low-income families, in particular, are often forced to move frequently and have less control over where they wind up, which can affect both the parents and children within a family.

So, how can communities help address the problem of housing instability? One key factor is working to improve housing supply and availability—no easy feat, given how many markets are currently struggling with housing inventory shortages. “States and localities can work toward these aims by supporting landlords, creating sufficiently strong landlord-tenant laws, and enforcing housing codes,” states the report. The Urban report also recommends communities make use of federal resources, focus resources on the segments of the housing supply most in need of resupply, and work to preserve and subsidize existing affordable housing.

The report also highlights the importance of examining both landlord-tenant laws and the enforcement of housing codes. “Rather than simply enforcing housing codes in ways that cause greater displacement, more proactive engagement of code enforcers in low-income neighborhoods is needed,” the report states. “Smarter, more effective code enforcement will rely on both carrot and stick approaches to address housing quality and conditions. Smarter code enforcement will hold people accountable and provide low-cost financial loans or grants for landlords who lack the resources make needed improvements. This may be in exchange for limiting the rent increases which can result from upgraded properties.”



The post The Challenges of Residential Instability appeared first on AAOA.

Categories: RSS

Best & Worst States to Flip a House

Thu, 05/24/2018 - 5:06pm

Flipping houses often sounds like easy money: Buy an older home, do a little fixing up, make it look pretty and sell it shortly thereafter. However, it’s not that easy — especially if you live in a state where house flipping just isn’t that profitable.

If you want to start flipping homes, give yourself the best chance of success by doing your research. The five best states for house flipping are Tennessee, Pennsylvania, New Jersey, Louisiana and Colorado, according to a recent GOBankingRates study.

The study looked at the median list price, how long it took to flip a house, the average gross profit and the average return on investment of each flip. Lower prices boosted a state’s ranking because you don’t have to tie up as much capital. States with faster average flip times also ranked higher because the sooner you can get your money out of one flip, the sooner you can reinvest it in another home. Of course, the higher the returns, the better the states fared in the rankings.

The best states for flipping houses are primarily in the East, with Colorado being the only state completely west of the Mississippi River to make the top 10 best states.

The worst states for flipping are predominantly landlocked states west of the Mississippi, with Mississippi the only state in the bottom 10 located east of the Mississippi River. Hawaii found its way into the bottom 10 due to its high housing costs to even buy a house, and it’s the only state in the study west of the Mississippi that isn’t landlocked.


The best states also have much faster turnover times for their flips. Among the top 10 states, the average days to flip is 180. Among the bottom 10, flips take an average of 203 days. While 203 days might not sound like a lot of time, that’s over three weeks more per flip. Plus, if you’re borrowing the money to buy each home you flip, that’s 23 more days of interest you have to pay on potentially a few hundred thousand dollars.

In Tennessee, which took the top spot in the study, the average flip time is only 147 days. In Wyoming, which has the slowest turnover time, it’s 231 days — an 84-day difference. Mississippi, the worst state in the study, averages 220 days but fared the worst in the study because it had the smallest average gross profit and average gross ROI of any state.

Here are the 10 best states for house flipping:

RankStateAverage Listing PriceDays to FlipAverage ProfitAverage ROI1Tennessee$268,692147$57,600132.7%2Pennsylvania$224,090199$105,190162.4%3New Jersey$372,916207$102,300141.6%4Louisiana$232,610166$71,866104.2%5Colorado$538,477176$74,300155.6%6Maryland$369,454198$109,617109.6%7Virginia$341,015184$91,78399.3%8Florida$406,803151$59,91783.0%9Illinois$277,163196$77,317110.0%10Kentucky$213,848172$55,241107.8%

And here are the 10 worst states for house flipping:

RankStateAverage Listing PriceDays to FlipAverage ProfitAverage ROI1Mississippi$195,390220$9,8754.3%2Hawaii$905,687198$76,26627.7%3Montana$314,959223$30,32612.9%4Wyoming$291,855231$33,47518.0%5South Dakota$238,163188$17,75026.1%6Idaho$349,000182$26,60614.6%7Utah$440,946194$49,29527.9%8New Mexico$254,798203$43,86326.6%9North Dakota$226,863208$54,93439.6%10Missouri$204,506179$36,47547.3%

Methodology: GOBankingRates evaluated all 50 states using a combination of relevant metrics, including 1) median home listing price, sourced from Zillow; 2) average number of days to flip a house, 3) average gross profit on house flip; and 4) average gross return on investment on house flip, all sourced from ATTOM Data. The last three metrics were available on the metropolitan area level; thus, the average was taken of the largest metro markets in order to approximate the state level. If three metro areas weren’t available, two were used. Kansas, Maine and Vermont are excluded due to insufficient data.



The post Best & Worst States to Flip a House appeared first on AAOA.

Categories: RSS

Looking for new investment? Owning rental home almost as lucrative as stock market

Thu, 05/24/2018 - 5:05pm

Millions of Americans who own rental homes count on the income they receive from rent but may not know how they stack up as investments.

A new study might change that.

Single-family homes in large U.S. cities have generated returns of about 9% annually on average, according to the study, which examined results from 1986 to 2014.

That would make rental homes almost as potentially lucrative as stocks and considerably more so than bonds, deposit accounts and other conservative instruments. Single-family rental homes are worth an estimated $2.3 trillion.

That 9% historic return was higher than I would have thought but isn’t a huge surprise.

Yes, there are risks

But becoming a landlord isn’t without its risks — from deadbeat tenants and periodic market slumps to changing tax laws and natural disasters.

The researchers included both income/rents and capital gains to estimate overall or total returns for single-family rental homes. That’s similar to the way investment-research services routinely incorporate both dividends and share-price changes to calculate total returns in the stock market.

Still, it’s an approach that hadn’t been used much before on single-family rentals, researcher Andrea Eisfeldt of UCLA’s Anderson School of Management said. Andrew Demers of Structured Portfolio Management in Stamford, Conn., was the study’s other author.

“The crazy thing is that a lot of the previous studies talked about capital gains or yields or how expensive rents are but not (incorporating all those components as) total returns,” Eisfeldt said in an interview.

In the study, about half the overall returns came from rental income and half from property appreciation. In other words, part of the return, rental income, comes while you own the property and the rest, any capital appreciation, when you sell.

To derive net rental income or yields, the researchers subtracted many types of common landlord expenses including repairs/maintenance costs, insurance, property taxes and homeowner association fees while factoring in occasional vacancies and credit losses. Some of this information came from Census Bureau reports.

These ongoing expenses consumed about 40% of gross rental receipts on average. Expense results for individual properties could vary considerably from that.

An example cited by the authors assumes a 2,000-square-foot home bought for $200,000 would generate annual rental income of about $19,400.

Representative annual expenses include $2,700 for property taxes, $1,300 for repairs/maintenance, $1,150 for property management, $810 for insurance, $810 for HOA fees, $625 for vacancies/credit losses and $370 in leasing fees.

That would leave an owner with $11,635 after expenses.

Of course, this assumes no mortgage interest, as some landlords buy for cash or convert properties from personal use. But if you must borrow, that would add a big expense, probably the largest.

Racking up big gains

Where are the most profitable areas to buy rental property?

This answer was surprising to me because you would think the best housing results would have come from expensive metro areas such as New York, Los Angeles and the San Francisco Bay Area.

Those areas did tend to produce the largest capital gains, but heartland cities tended to have larger returns from the rental/income component. That’s partly because net rental yields tend to drop, in percentage terms, as housing gets more expensive, according to the authors.

Of the 30 big metro areas studied, single-family rental homes in Miami topped the list with an average annual return over the 28-year study of 12%.  Tampa, Houston and Pittsburgh tied for second place with a 10.2% annualized return.

San Francisco, Minneapolis and Nassau/Suffolk counties in New York were in the middle, with returns of 9.1%. New York City and Boston, two of the priciest markets, tied for last at 7.1%.

Eisfeldt said the 28-year study period was long enough to glean insights about rental-home returns, noting that it encompassed “two or three boom/bust periods,” including the housing crash from 2008 to 2011.

The researchers also found that returns tended to be higher in lower-priced neighborhoods within cities. Eisfeldt explained that in terms of “gentrification,” or the tendency of housing in moderately-priced areas (though not necessarily slums) to rise in value if nearby neighborhoods are doing well.

Your investment strategy

The study sheds light on rental homes as an investment category.

Given the long decline in the nation’s homeownership rate, from near 70% a dozen years ago to 64% today, more Americans find themselves renting. About one-third of renters lease single-family homes rather than apartments.

At the same time, institutional investors are paying more attention to this area, which continues to be dominated by mom-and-pop owners. In recent years, a few real estate investment trusts, or REITs, have gotten into single-family rentals.

REITs provide passive investors with a means of gaining exposure to many properties from around the nation at relatively little cost (compared to buying houses or condos directly) and without needing to get their hands dirty with daily management hassles.

REITs could be of interest to people who might own and occupy their home but who don’t have any real estate exposure beyond that one property. However, REITs do have management costs that eat into returns a bit.

As noted, those historic returns of 9% from single-family homes don’t quite measure up to the stock market’s long-term record. Yet the risks are generally lower, or at least different, from those involving stocks, bonds or other investments. Bonds historically have delivered total returns of around 5%.

For this reason, single-family home rentals could provide a nice diversification element within a broader portfolio, Eisfeldt noted.


The post Looking for new investment? Owning rental home almost as lucrative as stock market appeared first on AAOA.

Categories: RSS

Apartment Market Weathers the Storm of New Supply

Thu, 05/24/2018 - 5:04pm

Demand remains strong, but the number of new apartments opening has been trending higher than the number of apartments absorbed.

Apartment landlords can no longer raise rents like they used to. So many new apartment units are opening that the percentage that vacancy is inching higher across the country.

This year “will likely remain challenging for many landlords and apartment investors,” says Victor Calanog, chief economist and senior vice president in the New York City office of data firm Reis Inc.

Strong demand for apartments has helped limit the damage from new supply. Apartment rents are likely to keep growing on average through 2019, even though rents are not growing nearly as much as they used to.

“Short of a recession—which not even the Federal Reserve’s Comprehensive Capital Analysis and Review projections are expecting any time this year—apartment fundamentals will likely weather this storm,” says Calanog.

Strong demand shields apartment markets

Robust demand absorbed more than 200,000 apartments over the year that ended in the first quarter of 2018, just as it has for the last 17 consecutive quarters in the core 150 markets followed by data firm RealPage, Inc., based in Richardson, Texas.

“Apartment demand remains remarkably robust, buffering the industry from vacancy spikes and allowing operators to maintain solid growth as the up-cycle enters into its ninth year,” says Greg Willett, chief economist for RealPage.

Over the last nine years, strong demand has led to the absorption of more than 2.1 million apartments, more than the 1.8 million new apartment units developers built over the same period.

Demand remains strong, but the number of new apartments opening has been trending higher than the number of apartments absorbed. Developers are expected to open a little more than 300,000 new units a year through 2019, matching the current high level of production, according to RealPage.

“Supply levels are peaking, but won’t decline materially any time soon,” Willett says.

All the new development is putting stress on the apartment sector. “Vacancies have been rising since late 2016 as a veritable avalanche of new supply (a record high for some areas) works as a counterbalancing force,” says Calanog.

The overall market is still relatively healthy, despite the new supply. Of the apartments in the U.S., 95 percent were occupied at the end of first quarter in 2018. That’s equal to the occupancy rate the year before and down just 10 basis points from the quarter before, thanks to a particularly strong performance in the month of March, according to research firm MPF.

High occupancy rates are helping keep apartment rents high and rising. “Rent growth—while below the cycle’s peaks—has outperformed many investors’ expectations,” says Willett. Same-property rents for new leases climbed 2.6 percent in first quarter compared to the year before. That’s about the same as the rate of rent growth has been over the last four quarters, according to RealPage.

Strong outlook

Demand is likely to continue to be strong, though not quite enough to fill all of the new units coming on-line. “We don’t expect demand will quite keep pace with supply, but the gap will be narrow enough to maintain healthy fundamentals,” says Willett.

Apartment occupancy rate is likely to drop to the mid-94 percent range, according to RealPage’s forecast through 2019. That’s down slightly from 95 percent in the fourth quarter of 2017. It’s also a relatively healthy level.

Rents should grow by more than 2.0 percent per year on average over this period. “Class-A and urban portfolios are expected to perform materially softer, while suburban and class-B appears positioned to thrive,” says Willett.

Developers have generally opened the largest number of new apartments in the markets that have also had the strongest demand for new apartments. “Charlotte, Nashville, Austin and Salt Lake City led the pack – all recording growth of more than 30 percent in their occupied unit count,” says Willett.



The post Apartment Market Weathers the Storm of New Supply appeared first on AAOA.

Categories: RSS

Your Neighborhood Zoning Laws Could Be A Path To Profits

Tue, 05/22/2018 - 7:06am
Your Neighborhood Zoning Laws Could Be A Path To Profits

Do you know what the zoning laws are near your rental property? While this may seem irrelevant to property management concerns, zoning can impact your income streams — and these laws can change on a regular basis. Below, find out how neighborhood zoning laws can be your path to profit as a landlord.

Understanding Zoning Types

While the terms used vary from state to state, zoning categories typically include:

• Single-family residential
• Multifamily residential
• Commercial
• Industrial
• Open space — e.g., parks

Your city’s planning department will have zoning information for all neighborhoods, so it’s easy to check before you make an offer on a property.

Why Landlords Should Care About Neighborhood Zoning Laws

With any investment property, your goal should be profit. Zoning laws dictate what type of development is allowed in the neighborhood, and they suggest how the city views the area. If it’s zoned strictly residential, chances are, the neighborhood won’t change much. That might be nice if you want an easy source of reliable income. Though if your landlord mindset is growth-oriented, you’ll realize the income potential for a residential neighborhood will only increase when rent prices climb.

Mixed-use areas are zoned for both residential and commercial use. Neighborhoods with a mixed-use residential zoning can hold homes and businesses. New homes going up in the area are likely to be multifamily properties, such as luxury condominiums with ground-floor retail spaces. Over time, the character of the neighborhood will change; this is where the path to profit for landlords lies. As the neighborhood becomes more desirable, you can raise rents.

While it can take years for a mixed-use neighborhood to get the sort of quality-of-life neighborhood spots that will appeal to renters (such as coffee shops or yoga studios), a purely residential neighborhood won’t get those amenities.

How Zoning Affects Profit

When you understand how zoning affects future development, you can evaluate neighborhoods where you are thinking of investing in property.

Generally, mixed-use neighborhoods are beneficial for landlords, because they draw renters who want to live near urban amenities. Not only does this make it easy to fill vacancies, access to amenities often means you can charge more for the apartment.

As the neighborhood changes, property values often increase, which leads to higher real estate taxes. Higher taxes cut into the profit you earn for every property. As long as you can receive enough rent to cover your expenses and the higher taxes, you will win. If taxes go up while you have tenants on a fixed lease, you will take a financial hit until you can raise the rents.

There are downsides to development, as well. If other homeowners cannot keep up with higher taxes and their mortgage payments, foreclosures could spike. A high neighborhood foreclosure rate can cause your property value to dip. Alternately, if developers overestimate demand and there is a glut of available units, your property’s value can decline, as well.

Zoning can only tell you part of the story. Compare a neighborhood’s zone with other factors — from crime rate to availability of public transit — to decide whether to pass or put down an offer.

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

The post Your Neighborhood Zoning Laws Could Be A Path To Profits appeared first on AAOA.

Categories: RSS

The Benefits Of Having A Blog On Your Rental Property Website

Tue, 05/22/2018 - 7:02am
The Benefits Of Having A Blog On Your Rental Property Website

Blogs have the potential to drive significant traffic to your property’s website, helping to fill vacancies quickly. Yet it takes time to create high-value blog posts. Explore the pros and cons of adding a blog to your website, so you can determine whether the rewards of blogging will be worth the cost and effort.

Advantages of Blogging for Your Rental Property Website

The main advantage of blogging is increased traffic, as long as you’re blogging often enough. Frequency is key: A study indicated that companies blogging 16 or more times per month received three-and-a-half times as many leads as companies blogging four or fewer times per month.

By focusing on evergreen content over newsy content, you can help ensure your blog is relevant long after a particular event has passed. The best blog content is aimed at your target audience, which is the general renter audience your properties attract. Perhaps your rentals are near a college, so professors and students comprise the bulk of potential tenants. If so, you can speak to their concerns — whether it’s public transit, free parking or the best restaurants that offer free delivery.

Blogging’s low price tag (it’s free, unless you purchase images or hire a writer) is appealing to property managers on a shoestring budget, who may not be able to afford to advertise their listings.

If the rental market is crowded, any competitive edge over other landlords can help you fill rentals quickly. Thus, it may be worth your while to blog, so you can differentiate your listings from others on the market. By blogging about amenities in common areas, posting tours of refurbished units, or showcasing neighborhood amenities, you can build interest and demand. The next time there is a vacancy, you may be able to fill it immediately using leads generated from your blog.

Disadvantages of Blogging for Your Rental Property Website

Expect to spend a lot of time blogging to see a payoff in terms of traffic. Landlords who manage their properties may decide they simply do not have time to blog. While you can hire a blog writer to create content for you, this represents an additional expense that some may be unable or unwilling to pay.

Along with the time it takes to blog, consider that blogging doesn’t translate into overnight traffic the way advertisements might. If you have a vacant unit you need filled ASAP, blogging isn’t the best way to attract tenants fast.

While cost and time are the main drawbacks of blogging, the rewards outweigh the downsides. If you create high-value blog posts, they will continue to advertise your property in perpetuity. Unlike an ad, which you must pay for every time you need to advertise, blogging is cost-effective and adds value over time, even if you discontinue blogging.

Blogging is one way to market your rental property, but there are many other methods you can use, too. By combining several marketing approaches, you can generate more interest and get units filled whenever you have a vacancy. American Apartment Owners Association offers educational webinars and landlord resources that can help property owners make the most of every rental.

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

The post The Benefits Of Having A Blog On Your Rental Property Website appeared first on AAOA.

Categories: RSS

Doing the calculations on purchasing a rental property

Mon, 05/21/2018 - 9:00am

The mistake most new wannabe landlords make is they pay market price for any old home on the market. Any house at any price won’t necessarily make for a good rental.  Step one to successful rentals is to buy the house at the right price based on market value and rental income. You need to find the bargains.

There are two hurdles you need to clear to ensure you’re buying at the right price. First, you need equity in the home on Day One to ensure a margin of safety and that the property will make money or at least break even each month.

Two Calculations to Determine Your Purchase Price

Calculation 1 — Your total property acquisition costs should be no more than about 80 percent of what the home is worth once it’s repaired. That means the purchase price plus closing costs plus renovations expense should be equal to or less than 80 percent of the home’s market value. Is a deal like that easy to find? No, but home flippers have to find a house even cheaper than that, so it’s very doable. Realtors will bring a deal to you before they bring it to a flipper because they know you’ll pay a little more.

Why is the 80 percent important? It gives you instant equity that is powerful in wealth building and safety. Also, 80 percent of the value is usually about what a bank will let you refinance a home for, so you can feasibly refinance all your money out of the deal to repeat the process the following year. Paying 80 percent of the home’s market value helps – doesn’t guarantee – your rental income will exceed your expenses each month, giving you positive cash flow.

If you have a property financed at 90 percent or more of its value, it’s usually pretty hard to make money each month from the rent.  You’ll also run the risk of being over leveraged which makes it difficult and dangerous to buy more properties.

Make sure you know your expenses. Holding costs such as taxes, insurance, utilities, maintenance, management, vacancy and HOA fees typically equal between 35 percent and 55 percent of your gross rent. Note that doesn’t include your mortgage payment.

Now does 20 percent equity guarantee you’ll have a positive cash flowing property? No, it doesn’t. This is a rule of thumb, a starting point. Depending on the market and prevailing rents, you may be able to get away with 15 percent equity or you may need to get 25 percent or more. In most of the Washington area, you’ll likely need much more than 25 percent equity to make a rental house cash flow.

Calculation 2 — The monthly rent on the property needs to be equal to or greater than 1 percent of your total property purchase cost. I actually shoot for about 1.2-1.4 percent. For example:

  • Purchase price = $65,000
  • Closing cost = $3,000
  • Renovations = $12,000
  • Total property costs = $80,000
  • $80,000 x 0.01 = $800

In this scenario, your monthly rent needs to be $800 or more per month to justify that property cost. So, as a very general rule, you need to get $1,000 of monthly rent for every $100,000 of property cost, not market value. It’s very hard to get that in most of our area.

If you know a property will only rent for $1,000 per month, then you know you can only pay about $100,000 for that home. So you can work the number frontward and backward.



The post Doing the calculations on purchasing a rental property appeared first on AAOA.

Categories: RSS

One landlord’s advice for those who want to purchase rental property

Mon, 05/21/2018 - 8:50am

“Location, location, location” might be the mantra when selecting a promising house or condominium in which to live. But when it comes to purchasing rental homes, other factors also weigh heavily, according to one Phoenix landlord with different types of properties in Las Vegas.

These include keeping a place occupied with responsible tenants and controlling costly repairs.

“The maintenance/repairs really punched me in the nose last year,” wrote Jeremy Kisner in a blog about his landlord experiences. “We had to resurface the pool, repair an HVAC unit and fix a significant plumbing problem.”

But it could have been worse, Kisner noted in the blog and in a follow-up interviewwith The Arizona Republic. Both properties he owns with his wife, Angela, were occupied all last year, and the couple has low-interest mortgages on them.

Kisner, a certified financial planner at Surevest Wealth Management in Phoenix, used their experience with the properties, and last year’s numbers , to draw some observations about what makes a sound rental investment.

Both rentals are in Las Vegas. One property, which he calls the “good rental,” is worth about $260,000, generated $15,600 in total rents for the year and had yearly cash flow of $1,161 after expenses.

The biggest costs were mortgage expenses ($12,420) and property manager fees, ($1,248). The remaining expenses totaled $771 for maintenance/repairs, HOA fees, trash collection and more.

The other property is worth more ($400,000) and generated higher rental income ($26,100), but he considers this the “bad rental” because it incurred bigger costs and resulted in a negative cash flow of $11,270.

The costs included mortgage expenses ($25,224), property-management fees ($2,088), maintenance/repairs ($6,868) and HOA/trash/miscellaneous ($490). Also, the Kisners paid $1,340 for pool servicing and $1,360 for gardening on this property.

In both cases, he included property taxes, insurance and loan interest as mortgage expenses. He didn’t include depreciation, a deduction that helps shelter income taxes for landlords while they own their homes. (Cumulative depreciation deductions become taxable when a property is sold.)

Kisner ignored depreciation because he wanted to focus on the cash flow generated.

Importance of appreciation

As was noted in a recent UCLA study, Kisner found that higher-priced properties don’t necessarily make the best rental investments.

 Also, his calculations don’t include home-price appreciation. When coupling price gains with ongoing rental income, the outlook brightens. He assumed the two properties rose about 3 percent in value last year.

“If we add 3-percent appreciation, plus the amount I paid down the loan, the total return improves substantially,” he said.

Kisner also sees a shortage of starter homes nationally, which he predicts could boost the appreciation potential for rental properties and other dwellings.

Kisner agreed with the study’s authors that rental real estate can help diversify a portfolio that includes stocks and other financial assets, and he noted that paying down a mortgage each month is a form of forced savings.

Still, he cautioned that mortgage interest can be a big cost for landlords who need loans.

“You are typically very lucky to have break-even cash flow on residential rentals if you have a mortgage,” he said.



The post One landlord’s advice for those who want to purchase rental property appeared first on AAOA.

Categories: RSS

The single-family house: An American icon faces an uncertain future

Mon, 05/21/2018 - 8:47am

“A man is not a whole and complete man,” Walt Whitman claimed in 1856, “unless he owns a house and the ground it stands on.’’ In a little more than a century, the single-family house helped make America something new in the world: a nation of suburban homeowners.

Cape or ranch, colonial or contemporary, the house — more even than the car, the skyscraper or the Hollywood movie — is the American idol.

But now, demographic, political and meteorological changes are calling the future of the single-family house into question.

Its critics say that the house is too sprawling in a time of climate change, too expensive in a time of economic inequality and just too boring for many city-dwelling Millennials; that more of us should live closer together, in neighborhoods near mass transit, with less need to drive and more chance to interact.

Its defenders say the single-family house is what most people want, if not what professional planners, social reformers and academics — the elites! — want for them. And they say that construction of new houses on empty land at the edge of the metropolis offers working- and middle-class people the best shot at the American dream.

But the image of the house is clouded by Houston’s experience with Harvey; by the need in California and elsewhere to both cut greenhouse gas emissions and build more housing; and by the Millennial generation’s looming decision about where to settle.

  • In Houston, famed for its rapid construction of relatively affordable, market-rate single-family houses, the ravages of Hurricane Harvey have raised questions about the wisdom of paving so much of the floodplain and drainage areas.
  • In California, where single-family house prices are drifting beyond the reach of the middle class, a proposed law would promote multi-family housing and discourage sprawl, effectively declaring YIMBY — yes in my backyard.
  • Across the nation, members of the Millennial generation, the largest in history, face two questions: Do you want a single-family house? And can you afford one?
House, sweet house

If Whitman was the poet of the single-family house, its polemicist is Joel Kotkin, a former newspaperman who lives and teaches college in suburban Southern California. Three years ago, he founded a Houston-based think tank, the Center for Opportunity Urbanism, to extol the low-regulation, low-tax school of real estate development.

He says the future of American cities can be summed up in five letters: T-e-x-a-s. Last year Houston and Dallas were No. 1 and 2 nationally in single-family building permits, with about 35,000 each; the next closest metro was Atlanta, at 25,000.

Nationally, single-family home construction, eclipsed by multi-family starts after the housing market crash a decade ago, regained primacy two years ago. Single-family home builders’ confidence hasn’t been as consistently high since 2005. Home ownership has stabilized around 64%.

Kotkin says that although people love its space, privacy and convenience, the house is under attack as “an environmental hazard’’ by those who’d take us back, he says sarcastically, to ‘’the good old days when we were herded together in tenements.’’ He calls renters unable to afford a house “the new serf class.’’

Kotkin and his COU colleagues disdain many of the building and land-use rules that, according to the National Association of Home Builders, add $80,000 to the average house price. And he hates measures such as “urban containment boundaries,’’ like one that seeks to limit sprawl outside Portland, Ore.

He likes sprawl, which he says signifies a healthy housing market. Construction of houses on empty, relatively cheap land at the edge of a metro area — “greenfield’’ development of forests, prairie, desert and farmland — keeps down prices throughout the rest of the metro market.

Only sprawl, he says, can deliver the American dream.

Harvey and the house

Houston is the nation’s largest city with no municipal zoning. The county in which it sits has logged the nation’s highest population growth in eight of the past nine years. The metro motto could be, “When in doubt, build.’’

As a result, much of greater Houston — an area three times the size of greater London with half the population — has been paved over, compromising the region’s capacity to absorb storm rain and floodwater.

Houstonians, Chronicle columnist Lisa Falkenberg wrote after Harvey, “have come to tolerate and even expect … policies that favor developer profits over public safety.’’ An installment in a Chronicle series on the flooding said Houston’s laissez-fairedevelopment formula “suddenly had a death toll in the dozens and a price tag in the billions.” Harvey, it concluded, “was Houston’s reckoning.’’

And maybe not just Houston’s.

Another columnist, Mike Snyder, wrote that “developers all over the country are rethinking the nature of suburban development with an eye toward greater density and environmental sustainability.’’ Even Minneapolis is thinking about allowing “fourplexes’’ in areas zoned single-family residential.

Kotkin, however, says “a wave of anti-suburban jihadism’’ sparked by Harvey would scapegoat developers, even though the epic rains would have created a disaster regardless of how Houston was developed, and even though the areas with the most sprawl did not suffer the worst flooding.

It seems unlikely Houston will throw its housing formula out with the floodwater. It’s also unlikely that formula will go unchanged. Already, the city and county have raised mandatory house elevations and required more homes to have flood insurance, which will make new ones more expensive.

“This is an inflection point for Houston,’’ says Bill Fulton, director of Rice University’s Kinder Institute for Urban Research. “In the future, home construction will still be less expensive here than on the coasts. But it will be more expensive than it used to be.’’

My old California home

Once, the single-family house was as much a symbol of California as the golden bear. But its precarious status these days is illustrated by state Senate Bill 827, sponsored by a senator from San Francisco named Scott Wiener.

Wiener’s bill is an aggressive attempt to address two problems: high housing prices and vehicular air pollution. The measure would override local zoning to allow developers to erect taller and larger housing structures near mass-transit stations and stops. Buildings four to eight stories high could be constructed in neighborhoods zoned single-family residential, and such houses could be torn down and replaced with several smaller structures or one larger one.

The bill is notable for its opposition — a coalition of neighborhood preservationists, civil rights groups and environmentalists, who feel it’s too heavy-handed.

Wiener says he’s open to changes in the bill. But Kotkin is among those who finds the whole idea misguided; he argues that new, denser housing will inevitably be more expensive than what it replaces.

To Kotkin, SB 827 is another example of state officials’ tendency to put other priorities ahead of middle-class housing aspirations.

The governor, Jerry Brown, is firmly in the opposing camp. In 2015 he spoke in favor of using “the coercive power of government’’ to fight sprawl. And last year, referring to climate change, Brown said, “People still don’t get it. It’s not just a light rinse. We need a total, I might say, brainwashing.’’

The Millennial moment

A few years ago, many planners and developers said Millennials were different. They preferred dense, walkable, urban neighborhoods to the suburbs in which they grew up and accepted less living space as part of the bargain.

But even then, surveys showed that while Millennials might be happy apartment dwellers at the moment, in the future they saw themselves in a suburban house — especially if they had kids.

And now, with the median age of the Millennial generation around 28 — two years from the traditionally median age of first-time home buyers — the problem is supply and price.

This year, work will start on about 900,000 houses. But the projected demand for such homes is between 1.2 and 1.3 million, according to the homebuilders association.

And fewer of those built are starter models. From 2002 to 2009, 44% of new single-family homes were $200,000 or less. Last year that ratio was 13%.

In a survey by Mayflower movers, two in five 18-to-35-year-olds said they’d moved to a city with no intention to settle there but to move after a period of time, often to find more affordable housing. The term for such vagabonds: “vacation movers.’’

Last of the builders

By the start of the 20th century, the single-family house —surrounded by a yard and sitting on a street with other such houses — had replaced the rowhouse as the home to which most Americans aspired. Builders like Bill Pulte made that hope a reality.

When World War II ended, little housing of any type had been built since the early 1930s. Veterans were sleeping in Quonset huts and converted trolleys, on relatives’ couches and fire escapes. By 1947, 6 million families were living doubled up.

Pulte started building in 1950, the summer after he graduated from high school, with a bungalow on the outskirts of Detroit.

Inspired by Levitt, who was building thousands of houses at Levittown on Long Island, and by Henry Ford, the master of assembly line production, Pulte built more and larger houses. He developed his first subdivision in 1959. By 1995, Pulte was the nation’s largest homebuilder.

When Pulte died last month at 85, he was among the last living members of the generation of builders who created the single-family suburb. He’d also lived long enough to see their creation called into question.




The post The single-family house: An American icon faces an uncertain future appeared first on AAOA.

Categories: RSS

The Eviction Machine Churning Through New York City

Mon, 05/21/2018 - 8:37am

When Neri Carranza went to see the apartment on West 109th Street in Manhattan, she folded money into the pocket of her blue jacket, just in case she liked the place. This would be the first apartment she had ever looked at, the first time she could make a home of her own, paid for with the earnings from her first job, at a glass factory. And the apartment was exactly as her friend from church had described it: small but comfortable.

So on a freezing Sunday in 1956, Ms. Carranza, then 32, with a crown of black hair and a fierce desire for independence, moved into the narrow two-bedroom apartment. She made it her own, cleaning and decorating every Sunday, planting yellow roses and hot-pink geraniums in window boxes, painting the walls white when they needed a new coat. As landlords came and went, Ms. Carranza stayed, becoming a fixture in the largely Latino neighborhood.

Ms. Carranza in the 1950s. She became a fixture in her neighborhood, staying in her small two-bedroom apartment as landlords came and went. Then the Orbach Group snapped up her building and 21 others nearby. Ángel Franco for The New York Times

“I had everything I ever wanted,” Ms. Carranza said.

But one day in 2010, when she was 87, Ms. Carranza learned that her new landlord wanted to evict her for what seemed like the most nonsensical reason: She supposedly didn’t live in her own beloved home.

She was hardly the only tenant facing eviction by the owners, the Orbach Group, a New Jersey-based company that had recently paid about $76 million for her building and 21 others nearby, a Monopoly move that effectively snapped up most of the residential real estate along a block of West 109th Street. Orbach had filed eviction suits in housing court against scores of her neighbors in rent-regulated apartments.

What happened to Ms. Carranza and the others shows how New York City’s housing court system, created in part to shelter tenants from dangerous conditions, has instead become a tool for landlords to push them out and wrest a most precious civic commodity — affordable housing — out of regulation and into the free market.

What You Need to Know as a Tenant

New York’s housing system can be complicated to navigate. Here’s a quick primer on what your rights are and how to exercise them.

Rent-regulated apartments, often the only homes in New York that people of modest means can afford, are vanishing as gentrification surges inexorably through the city’s neighborhoods. Mayor Bill de Blasio, now in his second term, has staked much of his legacy on alleviating this crisis of disappearing affordable housing and rising homelessness.

Yet the city’s efforts to create new affordable housing are locked in a duel with a countervailing force: powerful incentives for landlords to do everything possible to take existing affordable apartments away.

It’s not just that the city’s booming population and economy have spawned a wildly lucrative free market. The entire structure of tenant protections — while probably still the nation’s strongest, at least on paper — has been steadily eroded by landlord-friendly laws adopted in Albany and haphazard regulation.

Landlords, especially the corporate owners who control an increasing share of the market, follow a standard playbook to push tenants out. That is often the first step toward raising the rent enough — beyond $2,733.75 a month, under current rules — to break the shackles of regulation. Owners may offer tenants buyouts to leave. They may harass them with poor services and constant construction. And, sometimes on the flimsiest of evidence, they may sue them in housing court.

It is impossible to say how many evictions are unjust. Many people sued for eviction do owe some back rent, and some tenants certainly abuse the court system, remaining in their apartments for months without paying. For small landlords, such tenants can mean fiscal ruin.

But an investigation by The New York Times illustrates how the Orbach Group and other mega-landlords exploit a broken and overburdened system. In one of the busiest courts in the nation, errors often go uncaught and dubious allegations go unquestioned. Lawsuits are easy to file but onerous to fight. Landlords have lawyers. Tenants usually don’t, despite a new law that aims to provide free counsel to low-income New Yorkers.

Landlords rely on what amounts to an eviction machine. A cadre of lawyers handles tens of thousands of cases a year, making money off volume and sometimes manipulating gaps in enforcement to bring questionable cases. Punishable conduct is rarely punished.

Process servers, required to notify tenants that they are being sued, sometimes violate the law. Among tenants whom servers had supposedly talked to in person, The Times found several who were abroad at the time. One had been dead for years.

Judges sometimes unwittingly ordered the eviction of tenants who had no idea they had been sued.

“When they sent the marshal, they never gave us no notice,” said Zanden Alzanden, a Yemeni immigrant who was evicted from his home in the historic Dunbar Apartments in Harlem when he was in the hospital in January 2017. “Nothing on door, ever. Only that day, the marshal coming in, my son and an old guy sitting in there: ‘Boom boom, get the hell out of here.’”

To see what happens when vulnerable New Yorkers are cast into this eviction bureaucracy, The Times analyzed a database of more than a million housing court cases filed between 2011 and mid-2016. The Times also interviewed hundreds of tenants, lawyers and tenant organizers and examined in detail more than a thousand housing court cases from the past decade. It looked especially closely at two places: the Orbach buildings on 109th Street and the Dunbar Apartments two miles uptown.

What emerged were often-overlapping modes of harassment: by landlords’ fraudulent or exaggerated claims, by disrepair and by overall court dysfunction.

About 232,000 cases were filed last year against tenants, roughly one for every 10 city rentals. Most tenants were accused of owing back rent. But in many cases, tenants were sued for rent they did not owe. Sometimes they had paid, only to have landlords claim that the checks mistakenly remained uncashed or had been lost in the mail; sometimes they were sued for money owed by a government program. Sometimes, tenants withheld rent only because much-needed repairs had never been done.



The post The Eviction Machine Churning Through New York City appeared first on AAOA.

Categories: RSS