American Apartment Owners Association
As property managers, it’s important to take care of your residents, especially during the winter season.
Winter means frequent storms and colder weather (depending on where you live, of course), and it’s a good idea for landlords to check in with their residents more frequently around this time of year to ensure that their units are functioning properly and residents have what they need to weatherproof their home.
If you manage property in a “college town,” you may have a higher number of student renters to manage, and there are a few ways to keep your student residents safe during the winter months.
Firstly, you may want to provide residents with humidifiers when winter sets in. When it’s cold enough that residents leave all of their windows closed, moisture can wreak havoc on the structure of your unit. For instance, too much moisture trapped in a small space (like an apartment) can facilitate mold development on walls and lots of condensation on windows that cause properties to smell musty. This isn’t great for walls, either.
If you give your residents a humidifier to use, show them how to use it! Humidifiers, which collect moist air inside their units, end up filling with water. Once the body of the humidifier is 100 percent full of water, it can’t collect more moisture until someone dumps the water out of the humidifier. Your student residents may not know how to do this so walk them through the basics.
Many humidifiers also make quite a loud sound while in operation, so suggest that students turn them on in the morning before they run up to campus and turn them off later in the day once they get home. This way, they won’t become annoyed with the sound.
If you don’t have enough humidifiers for all of your residents, suggest to them that they find one on their own to use. You can even point them to stores that sell mini humidifiers that may be cheaper than the larger ones.
Most property managers also know that “cooking, heating, and electrical problems are leading causes of home fires,” and home fires are more likely to occur between December and February as noted by Appfolio. Other fires may be caused by candles or personal space heaters. To ensure your student residents avoid creating fire hazards in their (your) home, start by advising them against using a portable heater in their units.
If you’d rather not strip students of their household warmth, simply show residents how to use these heaters safely (such as not running heaters close to flammable material and keeping at least a 3-foot radius between the heater and other items in students’ homes).
It’s hard to pry students away from candles (especially when they come in so many cozy scents like peppermint, cedar, or apple cider); instead of asking residents to quit the candles completely, simply remind students to keep careful watch of their candles as they burn and never to leave the room when a candle is burning.
Multi-day storms can also pose numerous safety hazards for residents when things get windy and rainy. If the outside area around your property is prone to flooding (built on lower ground, for instance), place wooden crates around on the ground so that residents can step on the dry ground when it starts to rain for days on end.
It’s also a great idea to put out old towels in between your residents’ doorsteps (if you manage an apartment complex) so that students can wipe their feet outside before entering their units. This is also a safety measure that can prevent folks from slipping on tile walkways or slippery paths.
It’s generally a good idea to do a check-in with all of your residents when the winter season begins. Send residents an email asking them to make appointments with you in which you perform basic maintenance on each unit. Check to see that carbon monoxide alarms and fire alarms are working properly, check all furnaces, and perform more year-round tasks such as unclogging drains and removing mold or mildew with vinegar. Your residents will appreciate your care for their safety.
Lastly, let residents know to report household issues to you as soon as they arise so that smaller problems do not escalate into larger maintenance issues. When student residents feel cared for by their property managers, they will be more likely to comply with the rules you establish for living in the spaces you manage.
Residents will also be more likely to take care of the property in general, which is great for landlords. The better you can explain the need for extra safety measures during the wintry and wet months, the more your student residents will understand why these measures are in place. Best wishes for a safe winter season!
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Purchasing your first rental property is a big step for any investor. It’s one of the largest assets you can buy, and with a little bit of time and effort, it can be a great way to generate passive income. But before you become a real estate mogul and start building an empire, you should start with the basics. Knowing how to find a house, get a mortgage and fill it with good tenants are all essential aspects of purchasing your first rental property.
Let’s take a look at the steps you’ll need to take to purchase your first investment property, as well as the challenges you may face along the way. While purchasing a rental property is similar to buying a primary residence, there are some unique differences that you’ll need to consider. With these tips and tricks, you’ll have the information you need to make the process as smooth as possible.Is an Investment Property Right for You?
Buying a rental property isn’t for the faint of heart. Not only do you have to consider the mortgage and the operating costs, but you also have to think about the tenants, who can either make or break your investment. There’s usually more risk involved with owning a rental property than investing in the stock market. After all, if you managed to get stuck with bad tenants who don’t pay rent on time, your returns aren’t just reduced – they’re nonexistent. Sure, the stock market may only be pulling in 4% to 5% annually, but you can count on that with some level of confidence. You’re taking a bigger gamble with an investment property.
But with a bigger gamble also comes the opportunity for a bigger reward, and this is especially true for investment properties. In 2016, the average gross yield for rental investors was 9.4%, which is slightly down from previous years but still significant. For some context, the average annual return on the Dow Jones over the last 10 years has been 4.8%. That’s nothing to write home about.
In addition, you have more influence over your investment property than you would the stock market. For example, even if you bought every bottle of Diet Coke in your local grocery store, you probably wouldn’t be able to affect Coca-Cola’s stock price (at least not noticeably). There are so many factors at play. When it comes to the stock market, you’re riding a wave that’s already in place.
With an investment property, though, small changes – such as a new door or some minor improvements to the kitchen – can improve the likelihood of wooing good tenants at higher monthly rents. With investment properties, not only are you riding the wave, but you own the wave. It’s a great choice for that investor who wants a more hands-on opportunity.How to Get a Mortgage for an Investment Property
A big question for people buying a property, whether it’s an investment property or a primary residence, is “How much house can I afford?” Start by looking at a mortgage calculator to get an idea of rates and monthly payments, and then you can get preapproved to see how much money you qualify for. Make sure that you tell your home loan expert that you’re interested in buying an investment property, which has different rules than a primary residence.Get Preapproved First
One of the biggest pitfalls that home buyers of any kind make is searching for a property before securing financing. Let’s say, after months of searching, you find the perfect rental property. But by the time you get preapproved for a mortgage, the house is already under contract with another buyer. Get preapproved now and have the ability to jump on a good deal at a moment’s notice.
Another problem with searching before being preapproved is that you don’t actually know how much money you qualify for. It would be heartbreaking to be looking at houses at one price range, only to find out that you qualify for less. Getting preapproved allows you to make an educated decision about the investment property you plan to buy.Agency Loans for Investment Properties
For an investment property, you’ll likely use an agency loan, which means the loan would be backed by Fannie Mae or Freddie Mac. In most cases, you won’t be able to get an FHA or VA loan for an investment property. The exception to this would be if you purchase a multiple-unit property and plan to live in one of the units and rent out the others. If you’re planning to go this route, you should start by talking to a Home Loan Expert.Requirements for Purchasing an Investment Property
The agency loans available to you will either be a fixed-rate mortgage or an adjustable rate mortgage (ARM). Both of these options have specific requirements when it comes to the down payment and credit score.What Credit Score and Down Payment Do You Need to Buy an Investment Property?
For a fixed-rate mortgage, the minimum credit score requirement on a single-unit investment property is 620, and it will require a 20% down payment. If you have a credit score of 720 or above, however, you are only required to put down 15% on a single-unit investment property.
For an adjustable rate mortgage, the minimum credit score is 620 and will require at least 15% down on a single-family investment property.
If you’re interested in purchasing a multi-unit property, reach out to a Home Loan Expert to discuss the requirements and options.Other Requirements to Qualify
Other than the down payment, the requirements for a rental property are somewhat similar to that of a mortgage for a primary residence. You’ll still need to follow the 2/2/2 rule: provide two years of tax returns, two years of W-2s and two months of bank statements to your mortgage company, as well as have your assets verified.
Your mortgage company will also want you to have six months of mortgage payments in reserve in order to give yourself some buffer room in the event that you go through an unexpected financial challenge.Why Should I Get a Mortgage for My Investment Property?
If you have the means to pay for an investment property in cash, getting a mortgage could still make sense for your situation, especially if you’re planning on getting multiple investment properties. For instance, let’s say that you have $100,000 sitting in the bank. Your first option is to buy a house in cash for $100,000. While you will get a larger cash flow on that investment, it ties up all of your cash in a single place.
If, however, you get a loan with 20% down, you could potentially purchase another house or two at the same price with the remaining $80,000. While your immediate cash flow is lower, these returns will grow in the long-term, especially as rents increase and the mortgages get paid off. You’re building assets at a quicker pace when you go with a mortgage instead of cash.
In the event that you purchase an investment property in cash, there may still be beneficial loan opportunities for your situation. James Milne, a product manager at Quicken Loans, explains that “a large percentage of investment properties in the U.S. are owned without a mortgage, so there is plenty of opportunity to free up cash or take out equity to improve a property. A cash-out refinance is a great option for these clients.” This option can help your investment work for you.How Do I Determine the Potential ROI for My Rental Property?
When looking for a great investment property, the first question you need to ask is “Can I actually make money?” If the answer is no, it’s obviously not a great investment. To see how much money your property could potentially make, you’ll need to consider the return on investment (ROI). The ROI can be calculated by first finding the property’s net annual income. This is the rent money that’s left over after you’ve paid the taxes, insurance, property management fees, expected repairs (plan to spend 1% of the property value on this), potential vacancy periods, HOA fees (if applicable) and any utilities that aren’t going to be covered by the tenant. To find the ROI, take the annual income and divide it by the amount you spent on the property. For example, if the net annual income is $7,500 and you spent $100,000 for the property, your ROI is 7.5%.
Use this calculation to see if each rental property is a good potential investment.What Makes a Good Investment Property?
When scanning neighborhoods for your first rental, there are a few specific requirements you should be looking for. In a nutshell, you want a house that requires low maintenance, has limited vacancies and allows you to have a good rent-to-value ratio.No Fixer-Uppers
One of the biggest mistakes that new real estate investors make is buying a fixer-upper. If the ad says the property “needs a lot of TLC,” just move on to the next house. I’ve fallen for this one myself once and managed to get an “amazing deal” on a house that was missing interior walls, required new plumbing throughout and had a basement that flooded on a semi-monthly basis. There are few worse feelings than realizing that your cash cow is actually a money pit.
The exception to this rule is, of course, if you’re knowledgeable about home repairs. If you have extensive handyman skills (or know someone who does), you may be able to deal with these extensive repairs better than I did. But as a general rule, it’s going to be less of a headache to just purchase a house that’s already in workable condition. And they’re out there. So in the meantime, do your best to resist the allure of a fixer-upper.No Vacancy
If you don’t have paying tenants, your investment property’s not good for much. You want to make sure that your property is attractive not just to any tenant – but to good tenants who pay on time and don’t shove their Cosmo magazines down the toilet (speaking from experience).
Depending on your location, some places just tend to have lower vacancy rates, such as San Jose, Calif., and Fort Collins, Colo., which were both rocking a 0.2% vacancy rate in 2016. You can do some research on the neighborhood you’re looking at, but when it comes right down to it, spend time driving around the streets near your potential property. Simply looking at the level of care given to the houses in the surrounding area can give you a good idea of which houses are vacant and which are not.The 1% Rule
A big question from new investors is “How much should I rent a property for?” Seasoned investors sometimes use the 1% rule, which states that the rent each month should be at least 1% of the purchase price. For instance, if you purchased a house for $100,000, you would need to charge – at the very least – $1,000 for rent. This, of course, isn’t always true for investors, and some will settle for a slightly lower return.
In order to make sure that a potential property can receive that kind of return, check out Zillow, which offers an estimated monthly rental price – called a Rent Zestimate – that will allow you to get a good idea of the rent amounts in the area. It’s not a perfect measurement, and in my own experience, you can usually get a higher amount of rent than what’s listed, but it does give you a ballpark number.Are You a Landlord?
When you start buying investment properties, you need to take some time to think seriously about your ability to manage your properties. It’s a tough job being a landlord – tougher than most people think – and I’ve seen many an investor become overwhelmed by the time it takes to be a good landlord.
Fun fact: Be on the lookout out for this kind of investor. They sometimes burn out under the weight of their landlording duties and just sell their whole portfolio at once. It’s usually a good time to swoop in and buy.
But the point is that not everyone is cut out to be a landlord. It’s an intense and time-consuming line of work, especially if you already have a day job. For this reason, I highly recommend getting a management company to do this work for you. Sure, you’re probably spending 9% to 11% of the rent on this service, but they will take care of the tenants’ needs and collect the rent. And in the unfortunate event that a tenant needs to be evicted, they’ll help handle that process, too. Time is often more important than money, and letting go of this stress gives you the freedom to pursue additional investments.Keeping Track of Repairs
Since you’re making income from this investment property, you’ll be expected to pay income taxes, but the good news is that rental properties offer some great tax benefits. Whether you’re hiring someone to make a repair, paying interest on the mortgage or simply driving to your property, there’s a wide range of potential deductions. Words of wisdom: You’ll need to make sure you keep track of these expenses – which means receipts – on the off-chance that the IRS comes knocking. To get the full value of your investment property, you should be making the most of your tax deduction opportunities.
This is another perk of using a management company. They’ll keep track of all of your rental expenses and send them to you in a nice document during tax season. Once again, the amount of time this saves you is worth the money.Getting Started
While there are many variables to consider when purchasing your first investment property, you should start by doing your research. Look at housing prices and neighborhoods and begin saving for a down payment. And when you’re ready to dive head first into the real estate game, you can start by getting preapproved for a mortgage.
There is a lot of talk about what Millennials want in multifamily amenities—and it usually involves speed, ease and the latest technology—but of course, they are not the only ones to consider this year.
Property owners also recognize the downsizing Baby Boomers as another key demographic. That said, it is important to keep in mind that Boomers, too, are writing their own rules—the “same old” just won’t do when it comes to what they are looking for in an apartment.
And what about the forgotten Gen Xers?
Home ownership for the 35-50 age group is down significantly from just a decade ago. Many successful professionals over 35 are looking to “upgrade” not by purchasing a home, but by choosing an apartment that perfectly suits their needs and desires.
As a property management firm that manages over 23,600 units in 162 properties throughout California and Nevada, we’ve identified some of the most sought-after amenities in 2017, based on each demographic.
Appealing to the “Experience Generation”
As Millennials continue to delay home ownership, renting has become the new normal for this demographic, making them prime apartment residents for owners to target.
Property owners regard Millennials as the “Experience Generation.” That is not only a theory as to why they might be renting apartments longer, but also an indicator of the type of amenities they prefer. Today’s Millennials are seeking more than just a place to stay; they are demanding a truly immersive resort-style living experience.
Millennials also value convenience and flexibility, and will often seek apartment communities that offer high-tech amenities or services.
Providing free coffee in common areas is a simple but appealing touch. High-speed Wi-Fi and USB charging ports are becoming a must.
The fitness center is still a top amenity for this demographic. By providing a modern fitness center, property owners can cater to this demand, while also cultivating a sense of community at their apartments.
It doesn’t all need to be high-tech, though. An exercise studio room can be an appealing multi-functional addition and serve as a common area that fosters social interaction. Offering a few classes a week is also a strong selling point to your potential residents.
Meeting the Modern Family
Often forgotten when talking about multifamily is the group in the middle—the Gen Xers.
The older end, entering their 50s, contains downsizing divorcees and empty-nesters like the Boomers. Younger Xers might continue to rent, especially in urban areas and even if they have kids, due to careers and lifestyles.
Many property owners and developers are targeting the late-30s to early-40s professionals demographic. For Gen Xers, the most talked-about amenities include the latest in high-tech home furnishings and concierge services.
Gen Xers and other age groups with young children also appreciate any family-friendly features. Many families with children will look for amenities like playrooms and family-friendly activities.
Providing easy access to washers and dryers, and outdoor areas that are fenced-in, can also appeal to parents, even if not necessarily kid-specific.
The Price is Right for Boomers
There is no question that property owners should, if they aren’t already, be targeting the Baby Boomer generation. The number of Boomers downsizing to apartment units is booming, and in three years, this group is expected to make up one-fifth of all multifamily renters.
Even though they are often downsizing, space can be a deciding factor because Boomers want (and can often afford) larger living spaces. This can apply to both their individual units as well as their common areas.
Millennials value innovative services and features, but at the end of the day, Boomers are the ones who will pay more for what they want, making them an important demographic to consider when owners reposition and market their apartment communities.
By investing in state-of-the-art fitness centers and common areas, and offering free fitness classes or other social activities, property owners can cater to this older demographic, which in turn will boost resident satisfaction and drive retention.
The Bottom Line
Across all demographics, the best amenities should serve to meet residents’ basic needs as well as foster an emotional connection. By providing a competitive amenity package, owners can attract and retain tenants, which in turn will drive long-term revenue.
The amenities that generate the best ROI depend heavily on which demographics of residents you’re looking to retain or attract.
By integrating amenities that cater to each demographic, property owners can significantly enhance the resident experience, which in turn will drive retention and boost the bottom line.
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Fannie Mae has priced its first resecuritization of multifamily mortgages on energy-efficient buildings.
The $1 billion FNA 2017-M2, which priced Wednesday morning, is Fannie Mae’s second GeMS REMIC of the year. It included two tranches that are backed by 30 loans originated under Fannie Mae’s green program and individually securitized.
It’s another sign that the financing of energy efficiency is moving into the mainstream of the capital markets.
Fannie Mae began offering loans that help owners of older apartment buildings make upgrades in 2012; it started securitizing the individual loans shortly thereafter. In 2016, the government-sponsored enterprise issued $3.5 billion of green multifamily mortgage bonds. That’s still a small portion of its multifamily MBS, which totaled $55 billion last year. But it’s now feasible to include the green MBS in resecuritizations, which are running at $1 billion a month or so.
“The M2 represents one more step in Fannie Mae’s journey to realize social, environmental and financial benefits through its innovative financial tools and business strategy,” Chrissa Pagitsas, Fannie Mae’s director of multifamily green financing business, said in a press release.
She said the collateral included both loans secured by buildings with a green certification such as LEED, Energy Star, or Green Globes, as well as loans financing improvement intended to reduce a buildings’ energy or water consumption by 20% or more.
“The end result will be better quality housing with a lower environmental impact and positive cash flows,” Pagitsas said.
Josh Seiff, Fannie Mae’s vice president of capital markets and trading, said in the same press release that a number of new investors who focus on green and socially responsible investing participated in the deal.
All classes of FNA 2017-M2 are guaranteed by Fannie Mae with respect to the full and timely payment of interest and principal.
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The Denver-based landlord says Airbnb is helping tenants break its ‘no short-term rental’ rule.
Here’s a huge one for the ever-growing pile of lawsuits filed by and against Airbnb. Apartment Investment & Management Co. (AIMCO) has sued the rental service for “helping tenants breach their leases,” according to The Wall Street Journal. Denver-based AIMCO, one of the biggest landlords in the US, owns and manages over 50,000 apartments across the country. Real-estate research firm Green Street Advisors told the WSJ that this is the first time Airbnb has been sued by a major landlord. Other apartment owners might now feel emboldened to follow suit if the service refuses to cooperate with them.
The plaintiff says short-term rentals are against their leases, and Airbnb is helping its tenants break that rule. It also says the practice of renting to transients creates unsafe conditions for other tenants and that it has suffered loss of income, property damage, nuisance and disturbance.
AIMCO Chief Executive Terry Considine said in a written statement:
“It is not acceptable to us that Airbnb actively promotes and profits from deliberate breaches of our leases, and does so in utter disregard of the disrespectful and unsafe situations created for our full-time residents and their families.”
Last year, the company tried to make the service more palatable to landlords by giving them a cut of the revenue, but that was apparently poorly received. We’re guessing AIMCO was one of those who weren’t particularly moved by the attempt at building a relationship. The apartment owner now seeks an unspecified amount of damages and wants the court to forbid Airbnb from listing any of its properties on the website.
Multifamily occupants nowadays are becoming more concerned about cutting down their house energy footprint and save on electricity bills and therefore look for energy-efficient units for rent. In an effort to attract as many prospective tenants as possible, rental property owners hire professional renovation and construction services provider to convert their rental property into energy-efficient housing units. As roofing system plays a key role in maintaining energy efficiency of a building, this post discusses top three solutions to make your existing roofing system more energy efficient.1. Light-colored Shingles
Dark roof can significantly increase the temperature of your multifamily or commercial property. On an average summer noon, a dark-colored asphalt roof may reach the temperatures between 150-175 degrees fahrenheit. This coerces the air conditioner installed in the building to consume more energy and provide cooling. Asking your multifamily renovation general contractor to use light-colored shingles along with white roof coating can help reduce the temperature of the roof by 50 to 60 degrees, thereby reducing the energy consumption by air conditioner to maintain the temperature.2. Roof Insulation
Due to poor roof insulation your multifamily property is forced to consume more electricity by air conditioner during summer season. During winters, it will take more energy to keep the thermostat working and keep the house warm. You must, therefore, get your multifamily renovation general contractor to insulate the roof, because a well-insulated roof keeps the air intact inside the room, thereby reducing energy consumption during both winter and summer season.3. Highly Reflective Top Coats
Zeroing down on the right type of roofing material can be tricky, because it depends on a number of considerations such as the building type and climate conditions. Irrespective of the type of roof you choose for your multifamily property, highly reflective roof coats provide excellent UV protection to your rooftop. Such coatings also deliver a cooler and comfortable environment inside the building with less air conditioning usage, which ultimately result in reduced utility bills.Conclusion
Development of multifamily business involves large sums of money whether undertaking a multifamily housing renovation or a energy-efficient roof installation project. As the type of roofing material you choose has a great impact on the utility bills of your rental units, it is important to hire competent multifamily renovation general contractor. A professional multifamily development company is well equipped and highly experienced to help you choose the right roofing material based on several key factors, such as the type of roof and prevalent climatic condition. Lastly, read customer reviews before hiring any roofing contractor in your area or go through their previous work.
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The affordable-housing crunch worsened last year. In the final quarter of last year, Americans spent the highest share of their incomes on mortgage payments since 2010, according Zillow. The economy’s improvement after the housing crash generated new buyer demand for housing, even though the homeownership rateremained historically low.
Simultaneously, incomes rose slowly, and affordable housing inventory — especially in populous cities — did not match the demand. This combination inevitably drove home values higher.
And as of late 2016, affordability worsened further as interest rates began their post-election climb from historic lows.
Zillow estimated that a typical homebuyer could expect to pay 15.8% of their income on a mortgage at the end of 2016, the highest share since 2010. California was home to the markets where the highest shares of income were used to pay mortgages: Los Angeles, San Jose, and San Francisco.
“Nationally, mortgage rates still have room to grow before the share of income needed to pay the median monthly mortgage reaches the historical average, but many more expensive coastal markets are either close to or have exceeded what has been considered historically affordable,” Gudell said in a report released on Thursday February 16.
The Bankrate.com 30-year fixed national average mortgage rate on election day was 3.53%. On Friday February 17, it was at 4.04%, according to Bloomberg.
Post-election, the expectation for higher rates pushed some prospective buyers into the market to lock in lower rates, contributing to a further increase in home prices.
“As mortgage rates rise, buyers will face higher financing costs and already expensive homes will come with even higher monthly mortgage payments,” Gudell said.
There may not be much to constrain the rise in home values. Economists expect the Federal Reserve to raise interest rates slowly, and so overall borrowing costs could remain historically attractive for some time, providing demand.
On the supply side, existing homeowners that declined to move to avoid higher rates may continue to stay put. The National Association of Homebuilders said in January that existing inventory fell for a 19th straight month in December. If demand falls because rates are rising, inventory may not rise at a fast-enough pace to cool home prices.
In most major markets, home-value growth contributed more to higher mortgage payments than interest rates did, according to Zillow.
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Have you been considering jumping headfirst into the housing market, not because you need a place to live, but because you want to own a rental property? According to a National Association of Realtors survey, investment-home sales climbed to around 1.09 million in 2015, which represents a 7 percent increase from the previous year. If numbers like these—plus the growing mainstream popularity of television shows that feature residential investments—tell us anything, it’s that more people are getting inspired to purchase rental properties of their own.
The journey to successful rental property ownership is fraught with risk and possible reward. Here are a few issues worth thinking about before actually acquiring any assets of your own.
Are You Ready? There are many pieces of the puzzle to consider here: financial, physical, mental, and even emotional. Managing property will inevitably include its share of headaches, challenges, and delicate situations. As Casey Fleming, a mortgage professional in the San Francisco area, phrased it: “Do you have the stomach for being a landlord? Stuff’s going to happen that just really ticks you off.”
Consider if you’re in a stable and ideal position to be taking on extra responsibility, and if you’re willing to get involved in the entire process beyond the front-end purchasing decisions.
Higher Down Payment Investment properties don’t qualify for mortgage insurance, so you’ll generally need at least a 20 percent down payment to secure financing. Loans usually cost more for investment properties, so make sure that your savings, debts, and emergency fund are in order before you even start to look at potential residences.
Making It “Rentable” Conditions among rental properties vary widely, and buying a “fixer upper” comes with a lower initial price tag, but may require you to sink quite a bit of money into large-scale repairs. Every aspect of the property must be considered and quoted, including the foundation, plumbing, electrical systems, core structure, and more. Many states have highly specified requirements that you’ll have to fulfill before even thinking about renting it out to a tenant. Here are just a few examples of small changes that add up over time if you have to enact them:
-Front and back entrance handrails: $1,300 -Front and back doorframes: $300 -Front and back deadbolt installation: $50 -Legal code inspection: $35
And that’s just the legal portion of your due diligence. Whether tenants will find the space appealing and actively want to rent it is another story, depending on how competitive the market is. You could lose money on a property that’s technically livable but outdated, so aesthetic and functional upgrades are another cost to consider.
Time to Get Hands-On When issues arise for your tenants, you have a few choices. You can either show up with your toolbox that you hopefully know how to master, or you can rely on contractors and third-party service professionals to take care of repairs, upgrades, and exterminations. Property owners who don’t want to be on call at 3 a.m. to personally address a shower leak or to handle a dispute often seek assistance with day-to-day duties. Entrusting property management can take a load off of landlords in areas like tenant screening and approval, maintenance requests, and collecting rent.
Assuming Risk and Finding ROI Here’s where you’ll want to whip out the calculator. You need to come up with a realistic return on investment (ROI) calculation before you consider signing your name on the dotted line. Certified Financial Planner Tim Sullivan recommends searching for properties with a potential ROI of 14 percent or higher. How exactly do you calculate your ROI? For the first year, use this formula: (Total estimated net income from property) – (annual principle) / (Down payment + rehabilitation costs). It can get complicated, so it may be wise to enlist the help of a financial planner.
Inching closer to buying your very first investment property is an exciting ordeal. Make sure you consider all possible issues with obtaining and operating rental properties first so it’s smooth sailing once you decide to forge ahead.
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San Francisco and San Jose are at the top of their cycles, and Ten-X said it is time to sell multifamily assets in those two high-priced cities. Sacramento is the best place to buy multifamily assets with rising rents and low vacancies. Thousands of units are expected to be delivered in San Francisco this year, and some developers have had to make hefty concessions to get their recently delivered multifamily projects leased up. San Francisco will remain a top real estate market, but the apartment market may be past its cyclical peak, according to Ten-X. The research firm expects vacancies to rise to 8.3% by 2020. San Jose is in a similar situation, with vacancy increasing 4.1% with an oversupply of housing. Rent growth is slowing down — increasing only 1.5% last year. Comparatively, rents increased 10.3% in 2014. Rents in Sacramento increased by 8.3% year-over-year and vacancies are extremely low at 2.1%. Vacancy is expected to remain low even with tons of supply hitting the market over the next three years, according to Ten-X.
San Francisco and San Jose are not the only markets with oversupply. Along with New York City, Miami and Milwaukee, these top “sell” markets have been a part of the shift toward urban centers over the last 10 years. Developers responded by flooding certain metro areas with units, Ten-X chief economist Peter Muoio (above) said. Ten-X Research calculated a record 260,000 units were completed last year with another 250,000 to flood the market this year nationwide. Absorption remains strong nationally, but new supply could drive vacancy up to 5.6% this year before surpassing 6% during a forecast cyclical downturn heading into 2019. “While many larger metros appear to have reached a critical mass of supply and are now seeing fundamentals begin to cool, a strong economy and more limited development continue to make multifamily an attractive bet for investors across the country,” Muoio said. Nationwide, effective rents were up by 3.8% year-over-year in the third quarter with vacancies down to 4.3%. Cap rates increased 10 basis points to 4.9% over the second quarter. Top “buy” markets could boast double-digit increases over the next three years. These markets, including Sacramento, Las Vegas, Atlanta, Phoenix and Dallas, have robust local economies and a steady influx of new jobs and are attracting residents willing to rent in a large metro region over homeownership.
Top “Sell” Markets
SAN FRANCISCO Q3 2016 Rents (per unit): $2,465 Expected 2020 Rents: $2,257 Change: -8.4% A reliance on the volatile tech industry makes San Francisco risky for multifamily investors, but San Francisco remains a strong real estate market overall. NEW YORK CITY Q3 2016 Rents (per unit): $3,405 Expected 2020 Rents: $3,064 Change: -10% Ten-X Research expects New York’s rents to fall over 5% by 2018 with vacancies rising as supply increases in Brooklyn and Queens. SAN JOSE Q3 2016 Rents (per unit): $2,048 Expected 2020 Rents: $1,946 Change: -5% Even though the local economy is expected to grow, Ten-X expects multifamily investment returns to be flat through 2018 before entering a decline. MIAMI Q3 2016 Rents (per unit): $1,269 Expected 2020 Rents: $1,327 Change: +4.6% Vacancies in Miami are rising and reached 4.7% last quarter. Rents reached all-time highs, but growth is slowing. MILWAUKEE Q3 2016 Rents (per unit): $919 Expected 2020 Rents: $957 Change: +9% Slow job and population growth will keep Milwaukee’s economy in a mild rut. Vacancy may reach as high as 7% by 2020 with more supply hitting the market.
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No property owner ever gets into real estate wanting to go through the eviction process, but sometimes it is the best way to solve a problem and protect your investment property. Learn when evicting a tenant might be your best option and how to evict a tenant legally.When to Evict a Tenant
You must have a legitimate reason for evicting a tenant, such as failure to pay rent or violation of the terms of the lease.
If a tenant damages the property, ignores rules regarding smoking, subletting or pets, or creates a safety hazard, you have cause to evict.
Legally, you must be able to prove the renter did something wrong. This is where a strong lease comes into play: It’s much easier to evict a tenant if you have a good lease that clearly outlines what tenants may or may not do, when rent is due, and what will happen if a tenant ignores the lease.
Assuming you have a valid lease agreement, you can evict tenants once they break the lease or fail to pay rent on time. Decide if it’s worth initiating an eviction over something. A renter who usually pays on time and is considerate may not need to be evicted over one late payment, whereas a chronically late renter may need to go.What Happens in the Eviction Process
Even if tenants owe you money, you cannot evict them without going through the proper legal channels. Nor can you harass tenants, change the locks, or move their possessions. If you undertake one of these actions out of spite, it could invalidate your eviction.
An eviction notice informs tenants that you’ll be evicting them, thus kick-starting the legal process. Since you’ll need proof that you served the notice of eviction to the tenant, it’s advisable to tape a notice to the apartment door and send a second copy of the notice via certified mail.
The eviction notice states the grounds for eviction (i.e., past-due rent) and any action the tenant can take to avoid eviction (such as paying back-due rent by a given date). Before you serve tenants with an eviction notice, check your state’s laws. States typically have a waiting period between serving tenants and filing a lawsuit.
Once the waiting period passes, you can retain a landlord-tenant lawyer and file for eviction. If the renter fails to show up in court, you’ll be granted the eviction. A judge will set a date by which the tenant must move out; if the tenant is not gone by that date, you can hire the local sheriff to forcibly evict him or her. If the tenant disputes the claim, a lawsuit can drag on for several months before a judge makes a determination.
While the formal eviction process is time consuming, it must be followed. As a best practice, download an eviction notice that was reviewed by independent attorneys, and retain a lawyer if a tenant does not respond to your eviction notice.Download an Eviction Notice Today
At American Apartment Owners Association, we provide free and low-cost forms for landlords that are reviewed for accuracy and legality by a team of landlord-tenant attorneys to help property owners comply with eviction laws. To get your landlord forms at the lowest price, become an American Apartment Owners Association member today.
Disclaimer: The information provided herein is for advisory purposes only and AAOA takes no responsibility for its accuracy. AAOA recommends you consult with an attorney familiar with current federal, state and local laws.
Today, we’re talking with Brad Larsen, Founder/Owner of Larsen Properties in San Antonio, about The Top 10 Property Management Mistakes and How to Learn From Them. These tips will help avoid the pains of growing a property management business. We are excited to bring in Brad, who:
- is a retired army captain.
- earned a master’s degree in business administration.
- runs a property management company in the ultra-competitive San Antonio property management market.
Larsen Properties started in 2011 and has already emerged as a market leader in the San Antonio area. Brad will share 10 mistakes that he wished he had known about when he first started Larsen Properties.#10 – Waiting Too Long to Hire Business Development Talent
Larsen Properties waited until they reached 250 homes under management before hiring a business development manager for their company.
Brad was first introduced to the idea of hiring a business development manager from the Leading Property Managers of Australia. This is one of the first things you must do if your intention is to grow. As a business owner, you are doing so many things from payroll to operations that you simply cannot commit to dealing with 4-5 appointments/week. Also, Brad recommends on not waiting too long in implementing a solid CRM platform, like LeadSimple, to systemize follow-ups to help your property management company. Combining those two areas will help your business development manager effectively do their job, as well as you being able to passively oversee the activity that is going on with your lead generating efforts.
Think about compensation as well because your model needs to be sustainable. Do a base salary and a percentage or a commission based on the lifetime value of that client. You want a motivated sales person, not a converted Realtor.
A great tip to convert a higher rate of deals is to consider having a portfolio manager go with your business development manager to appointments so that the potential client can meet the person who would be their point of contact. That helps a conversation start about tenant handover procedures, what will happen to get a home ready for the market, etc. Speaking the language is important, and the prospective owner will appreciate talking to someone who will actually manage the property.
Larsen Properties recommend that 100 homes is when you should start to seriously consider hiring a business development manager. At that point, you have more than enough to manage and you have enough income coming in from management agreements that can help you pay for that talent investment.#9 – Not Establishing Metrics Early
Larsen Properties started a spreadsheet a few years ago that helps them track metrics
Track your metrics religiously every month. You can make adjustments quickly and discover where you are spending incorrectly. Key performance indicators (KPIs) that Brad likes include:
- Staffing to revenue ratio – staffing expense costs compared to annual revenue. The magic line in the sand is around 50 percent, and it might fall between 40 or 60 percent. If your total revenue is $1 million and your staffing expense as $500,000, that’s half of your revenue spent on staffing. It’s where it should be. Smaller companies can run their staffing at about 40 percent. If you’re above 60 percent, you want to look at that metric and see if you’re spending too much on staff.
- Sundry income to management revenue ratio. Sundry programs are small programs like eviction protection, early termination fee, late fees, rental guarantees, and any other things you may have against your management fee revenue. In Australia, it’s tracked at .25. So, for every management dollar you earn, you could/should be earning an additional 25 cents of additional revenue. At Larsen Properties, they’ve managed to earn 70 cents on every dollar above and beyond their management and leasing fees.
Pro-tip: One of the ways Larsen Properties is able to earn 70 cents on every rental revenue dollar is by charging a pet administrative fee. That covers the property manager’s ability to cover any damage that a pet causes above and beyond the security deposit. It’s a creative way to earn that sundry income.#8 – Not Joining NARPM Right Away
It took Brad 2-3 years before he got really involved with NARPM
NARPM – the National Association of Residential Property Managers – provides resources, leadership, and mentors. A lot can be learned at broker-owner conferences and other events. You learn how your peers solve common problems in innovative ways. Check out NARPM.org if you’re not a member yet. There are state chapters as well, which provide excellent speakers and opportunities. You also get facetime with vendors, which helps you get to know the people behind a product/service.#7 – Not Establishing Enough Points of Difference
You need to create some points of difference between you and other companies. It should be easy for you to attract a specific category of clients who have a unique need; you can be the company that:
- Has an in-house maintenance company.
- Does videos that no one else does.
- Offers an eviction protection program.
- Works in a specific part of town.
- Offers a single point of contact. (Larsen Properties’ point of difference)
- Specializes in working with investors.
As you can see, there is probably something you already offer that the rest of your competition does not. There has to be a way to create a point of difference between you and your competition that will set you apart from everyone else who is managing homes. At Fourandhalf, we can personally attest that companies that are able to differentiate themselves with a unique value proposition usually see the best results. Work out how to differentiate yourself, especially before you launch a big marketing plan. (This is something Fourandhalf can help you with.)#6 – Making Bad Hires
Brad admits that his strong suit is not in hiring people.
At some point, everyone will make a bad hire. The old adage, hire slow and fire fast, holds up, however, there is no perfect solution. A few ways to conduct interviews is by:
- Do a panel interview after the initial telephone interview. Have your general manager and one or two other employees interview prospective new team members, and have a discussion about who to hire.
- Turn the process over to someone else who will be good at hiring the right people.
- You can also use a PEO, which is a payroll provider company that contributes HR help. You’ll get benefits at a much better rate.
There are performance concerns and culture concerns. Low performance is easier to measure and coach. A culture fit can be more difficult to address. That’s where having many different people interview a prospective employee can help. You want to understand the personality and make sure there’s a drive and a competence that will help your company. To put it simply, you want to hire people who care.#5 – Dealing with the IRS
Larsen Properties kept getting hit with fines before instilling quarterly audits to keep things accurate.
Make sure your 1099s are in order to send your owners every January. Go through your process, make sure it’s watertight, and make sure you have good taxpayer identification numbers for the people you manage because the IRS will fine you on every incorrect one. This can be a headache. Larsen Properties tempered these fines by instilling quarterly audits to help keep things accurate.
You also want to file all your tax returns for your LLCs, if you have those set up. When you have an LLC with no revenue, it can be easy to forget to file. Get a good CPA who can manage this process for you. What seems like a little thing can lead to a huge IRS fine. A good bookkeeper will save you money.#4 – Handling Vendors/Maintenance
Larsen Properties had to downsize their maintenance department to be more profitable
Everyone is going to have to do maintenance and there are different ways to handle it. If you run an in-house maintenance company, stay small or go big. Don’t be in the middle because you won’t make money. An in-house maintenance guy with a van might be all you need and that is what Larsen Properties does with a portfolio of 600 doors. The middle is having two to five staff members working on maintenance. The reason this didn’t work for Larsen Properties, is that over the course of a year, you will have downtime and it will kill your profits. Keeping all your staff people busy full time when you’re a medium sized maintenance company won’t work. If you have 15 or 20 maintenance trucks out on dispatches all the time, you’ll make money. However, the middle range is not profitable.
Talk to vendors who you’re looking to hire and secure discounts from them. Most software programs allow you to pay vendors a discounted rate. You have to negotiate that rate. Maybe you get an invoice for $100, and you have negotiated a 10 percent discount with a vendor. So, you write a check for $90, and now you have a 10 percent margin of profit just by doing that one thing. It can work up to thousands and even hundreds of thousands of dollars. Maintenance and management go hand in hand, so a preferred vendor list will help you from the very beginning.#3 – Not Embracing Yelp and Google and Review Sites
Larsen Properties has a 4.8 average with 160 5-star reviews on Google
Make sure you’re present on Yelp, Google, Angie’s List, the Better Business Bureau, and any other review site available to you. Get past the point that you’re mad at Yelp. Everyone complains that anyone can say anything about you on Yelp. Turn your attitude around and embrace the review platforms. In the long term, they will probably be white noise. People will put a diminishing value on them, because at some point it all evens out.
Right now, you want to embrace review sites and make yourself stand out. It’s another good point of difference to have great reviews. Most of your clients and tenants are happy, but they won’t review you without you asking.#2 – Failing to Implement
Brad learned quickly that by not implementing new and innovative ideas, that he would be losing money.
This is almost the biggest mistake you can make. If you fail to recognize a good idea and use it in your business, you’re missing a huge opportunity. If you see something at a conference and it sounds like a good idea, but then you go back home and forget about it, you’re making a mistake.
For example, Larsen Properties learned about tenant liability insurance at the Minneapolis National NARPM convention. He learned how one can earn thousands of extra dollars a year by implementing a program like that. It was a no-brainer. However, if he hadn’t implemented that immediately, he would have been out thousands of dollars over the past couple of years.
Write things down with a pen and paper. It can be easy to take notes on your phone, but writing something down physically is a tactile response and it will stay in your brain. Then, organize those thoughts later on and you can get to work. Complete the things that will make you more revenue.#1 – Utilizing Set-It and Forget-It Instead of Measure and Improve
Good companies can fail in growth by thinking that they will hire a marketing company and stop thinking about marketing. Or, maybe they’ll implement Appfolio or Rently and think they don’t have to do anything more. Business growth requires that every system is always providing measurable indicators.
Make sure your employees are responsible for certain aspects of your business and you can compensate for performance. Everyone should be aligned behind a single purpose. Manage your process and make decisions about how to improve your systems on a regular basis. Pick up on what’s out there, then come back and put it into your system. That will get you to a new point. Implementation is critical.
These are 10 major property management mistakes that you want to avoid making. If you enjoyed this topic, make sure to subscribe and leave a review for The Property Management Show on iTunes. If you have any questions about growing your property management business, feel free to contact us at Fourandhalf.
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Whether you count yourself as a luddite or a techie, you’ve probably heard the phrase “internet of things” bandied about. Futurists like Ray Kurzweil, Google’s technological soothsayer, are predicting an eventual future of connected devices, predictive responses, digital machine-to-machine communications, and networks of integrated sensors that track environmental and behavioral changes—in essence, a revolutionary shift in home life.
And that future is already well underway. Despite some initial growing pains, business consulting firms like Bain & Company predict that IoT revenues could reach up to $470 billion by 2020, with other forecasts showing a total of 75.4 billion installed devices by 2025, almost five times the amount there were in 2015. And this shift in the technology sector doesn’t just apply to single-family homes. The implications for the rental market are huge. Specifically, a list of smart devices could foreseeably find an integral place in apartments as well.
Large appliances are one of the best places to integrate smart tech
An apartment’s HVAC systems, refrigerators, washers, dryers and dishwashers are one of the first places renters look to assess a unit in their initial walk-through. It’s also one area in the consumer market that’s seen enormous movement toward integrating smart technology. This year’s Consumer Electronic Show, for instance, a premier showcase of retail tech, was once again heavy on the idea of the “connected kitchen,” with many well-known brands featuring smart refrigerators and ovens.
The oven technology is of particular interest—it’s no secret that an abandoned stove tops a landlord’s list of anxieties. Most of these newer products either communicate with Wi-Fi-enabled smoke detectors or have the ability to send alerts directly to your phone detailing oven use. For landlords who may have recently upgraded appliances, a remotely controlled outlet offers a way to retrofit ovens with this ability, although you’ll need to rely on tenants to check alerts in this case, since only they will know when they’re in or out of the unit. However, considering that cooking equipment—particularly unattended cooking equipment—is one of the biggest causes of household fires, this technology represents a hugely powerful development.
Smart locks increase convenience, but may cause complications in the renting process
Perhaps one of the most exciting smart tech developments, though—at least for property managers—lies in the potential of Wi-Fi-connected locks and security devices. Smart locks with digital interface can be accessed using a unique code distributed through email or text. Because the administrator can set an expiration date on these codes, they’re useful not only for occupied units, but also for when you’re showing an apartment as well. If a realtor or property manager isn’t available when a potential renter wants to see the unit, you can distribute a code to allow them to access the property by themselves.
However, that may mean adapting leases to suit the technology as well. For instance, coded access must be restricted to the renter. Those concerned about renters handing out codes can install locks that recognize thumbprints, or through the renter’s smartphone, but these kinds of features may add administrative burden to the leasing process.
Device compatibility is one of the largest obstacles to adopting rental smart tech
One of the reasons homeowners have been slow to convert to smart tech is due to complications in the setup process. In the past and to an extent even now, devices rely on a number of different communication channels—Wi-Fi, Zwave, Bluetooth—all controlled with a proprietary app on phone. Thankfully, that’s beginning to change, and we’re starting to see more devices that can truly communicate with one another, or at least with a digital “hub” that can act as a traffic cop.
The challenge for landlords in smart rentals will be deciding to what extent they allow residents to personalize their smart settings. For instance, Amazon and Google’s systems both work off a user’s existing account, pulling in their preferences to access past purchases like videos, music, and more. Will tenants be expected to provide their own Echo, for instance, and if so, how can those systems be integrated with the locks, appliances, and security devices already in play throughout the apartment? If not, will landlords allow them to connect to their existing accounts—and in that case, how can complexes guarantee tenant privacy once they leave?
These kind of logistical and security concerns are certainly not new to the tech industry—the press has been raising flags over IoT safety for years now. Before property owners do any kind of heavy investing in smart technology, it would be wise to investigate potential security flaws and perhaps even engage the assistance of an IT consulting group to ensure that tenant data isn’t breached. For today’s property managers, the world of the future may loom large with possibilities, but a step-by-step transition to smarter tech is the only way forward.
Large job hubs in the United States such as New York City, Dallas, and Atlanta, will enjoy an upsurge in housing demand fueled by Millennials – the largest generation in U.S. history. However, not all types of housing will prosper.
“The biggest, most obvious way Millennials are impacting the residential real estate market is based on the sheer size of the cohort – it will create massive demand,” said Vincent Lefler, from JLL’s Capital Markets team in Atlanta. According to the U.S. Census Bureau, the Millennial population – at 75.4 million — overtook the number of baby boomers in 2015, and will reach its peak at 81.1 million in 2036.
“This boom will fuel significant need for housing stock, especially in light of the meager deliveries of new single or multifamily housing during the Great Recession,” Lefler said. “This increased demand should create solid stable [rental] income to provide safe, predictable returns for investors.”
Numerous surveys have shown that Millennials are more likely to rent than buy, although they do aspire to own their own homes in the near future. Strapped with higher debt due to student loans and struggling with lower starting incomes as a result of the recession, Millennials tend to hold off on big commitments such as marriage and home ownership, resulting in higher demand for rental housing. This has the add-on benefit of facilitating job mobility and travel.
Among suburban innovation hubs, secondary cities such as Nashville, Austin, Denver and Raleigh will also attract a higher percentage of Millennials. “These cities provide a higher quality of life while being more affordable,” says Lefler.
Older properties that are in good locations provide another opportunity for investors who are seeking rental income. They are “prime investor targets for value-add upgrades to cater to increased Millennial demand,” he says.
No one-size-fits-all While studies show a rising demand for residential units, not all types of housing in these locations will do well. According to PWC’s Emerging Trends in Real Estate 2017 report, “analyses of Millennials’ preferences have identified density, diversity, walkability, and transit accessibility as factors in location choice for this 83 million–person demographic cohort.”
The traditional block apartments will not attract the new generation, Lefler stressed. While Millennials may initially have lower discretionary incomes, their parents saw a significant increase in wealth and quality of life during their prime earning years in the late-1990’s through mid-2000’s. As a result, Millennials have grown accustomed to private bedrooms and higher quality finishes than their parents, he explains.
The Millennials market segment favor apartments with high-end amenities and unique finishes. Even recent student housing developments recognized the Millennials’ need for better housing.
The University of Texas- Dallas campus, for example, has started construction of two additional apartment style complexes. The one-bedroom/two-bedroom apartments feature laundry rooms, outdoor recreation areas and open-multipurpose spaces.
Since Millennials are more social than previous generations, rental housing should address their need for social spaces. Lefler said those with meeting rooms, fitness centers and rooftop lounges would have an edge over those without. While the rental rates in these housing units will be higher, the amenities will prompt renters to stretch their budget.
As the most tech savvy and tech dependent generation, Millenials will gravitate to properties with ultra-high-speed, fiber optic networks and wide-area Wi-Fi.
Choosing between size and location
As apartments become more expensive to build due to rising construction costs, tenants have started making trade-offs between size and location. As a result, demand for studio units has been strong. According to a report by the Urban Land Institute, risk exists in shaping the built space in emerging Millennial magnet cities too closely to the young resident’s current needs. “Buildings filled with micro units and heavy on amenities are likely to hold less appeal to Millennials as they get into their child-rearing years,” it said. Some developers have started to build larger housing units, in which flexible space can be repurposed by Millennials with children.
Undoubtedly, this new generation of workers has different purchasing and lifestyle habits, which are challenging the old models of real estate. As the U.S. economy shows signs of strength, helping to fuel job growth, this booming Millennial population will increase housing demand and, in turn, investors should expect a more predictable return on investments in the U.S. residential market.
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Foreign investors have both the capital and the desire to continue buying U.S. real estate. The question is whether those forces will be strong enough to offset looming challenges ahead in the form of higher interest rates and a maturing real estate cycle, as well as a shifting geopolitical and regulatory environment.
After hitting a record high $98.9 billion in 2015, cross-border transaction volume dropped by one third last year, according to Real Capital Analytics (RCA), a New York City-based research firm. Yet that decline is more of a natural reset rather than a cause for alarm. “I do believe 2015 was an outlier year,” says Randy Giraldo, head of U.S. portfolio management for TH Real Estate, an operating division of TIAA Global Asset Management.
Total global capital flows into the U.S. surged in 2015 due to some very large transactions that took place. Taking 2015 out of the equation, the $65.5 billion in sales that did occur in 2016 was still a nice increase compared to the $41.7 billion and $43.1 billion that occurred in 2013 and 2014 respectively. Cross-border investment also accounted for a bigger percentage of the total volume in 2016 at 13.4 percent as compared to 11.5 percent and 10.0 percent in 2013 and 2014, according to RCA.
“I believe it’s a healthy moderation and a slight step down from what was an extraordinary year,” says Keith DeCoster, director of U.S. real estate analytics at Savills Studley. In 2015 there were more entity-level and massive portfolio transactions that boosted the overall dollar volume. “You could also say that 2015 was the year that the industrial sector became the darling of investors with an exceptional level of investment in the industrial sector,” he adds.
The bigger question is what lies ahead for 2017. “In terms of the money that people have raised for investment in North America for 2017 that is still at an all-time high,” says Revathi Greenwood, Americas head of investment research for real estate services firm CBRE. For example, North America-focused private equity funds closed in 2016 raised $53 billion. And currently there are 311 North America-focused funds in the market that are collectively targeting $104 billion in capital commitments, according to London-based research firm Preqin.
“We expect that the long-term trend for foreign investment into the United States is only going to increase,” says Spencer Levy, Americas head of research for CBRE. The U.S. has favorable economic growth, as well as greater liquidity and transparency related to other foreign markets. “I’m optimistic for stronger global capital flows this year,” he says. Yet one of the factors working against that in the near-term is a material increase in interest rates over the last few months that is putting pressure on cap rates and making the overall value of real estate less attractive than in some other countries, he adds.
It also remains to be seen whether tighter controls that the Chinese government has put in place will restrict capital from Chinese investors. “The other question from the U.S. side is how the new administration is going to review investments from overseas jurisdictions, including China,” says Greenwood.Chinese are dominant players
Despite tighter regulations by the Chinese government aimed at limiting capital investment outside their home country, Chinese firms have emerged as a dominant player in the U.S. market in recent years. In fact, Chinese investors were the most active foreign capital group last year. Chinese firms accounted for about 24 percent of the cross-border investment in 2016, followed by Canadian firms at 19 percent, according to CBRE. Notable deals included Anbang Insurance Group’s $6.5 billion acquisition of Strategic Hotels & Resorts.
However, the Chinese government is continuing to tighten restrictions on outflows of capital that could hamper new investment. Specifically, the added controls make it a more arduous and lengthier process to move money out of their home country. A number of large Chinese corporations already hold a significant amount of capital and assets outside of China, which enables them to effectively bypass some of the government restrictions.
There are different groups that track Chinese investment into the U.S., in real estate and other business ventures, and right now there is a strong queue of pending deals, notes Greenwood. There is an estimated $21 billion in deals that are awaiting regulatory approval or financing, and another $7 billion in capital expenditures related to announced projects. “Those are in the pipeline, but what actually happens in 2017 depends on the regulatory and political climate on both sides,” says Greenwood.Demand is still strong
Overall, foreign investors’ appetite to buy real estate in the U.S. remains solid. According to the annual survey by the Association of Foreign Investors in Real Estate (AFIRE) that was released in January, 95 percent of respondents said they plan to maintain or increase their investment in the U.S. in the coming year.
“From all of our different touch points across the globe we still see a very strong desire—and perhaps even an increased desire—to invest in the United States,” says Giraldo. TH Real Estate announced in January that it had entered into a new agreement with The Korean Teachers’ Credit Union to establish a new joint venture where both parties will contribute up to a combined $1 billion to invest in U.S. commercial real estate loans. The agreement expands upon an existing relationship, through which the two firms have invested over $950 million in U.S. commercial real estate debt since 2014.
Generally, foreign investors remain focused on gateway markets and core properties. The top five cities for foreign investors are New York, Los Angeles, Boston, Seattle and San Francisco. Noticeably absent is Washington, D.C., the first time the city did not make the list since the survey started in 1992, according to AFIRE.
In addition, more than half of survey respondents report plans to increase both value-added and opportunistic allocations in the coming year. Foreign investors are expanding their scope beyond gateway cities to include secondary markets such as Nashville, Ten.., Portland, Ore., Charlotte, N.C., San Antonio, Texas, Madison, Wis. and Pittsburgh, according to AFIRE. “There is increasing interest by foreign investors in some of those cities, but it would be misleading to draw conclusions about a structural allocation shift in that direction,” says Giraldo. Gateway cities are still capturing the majority of foreign dollars, he adds.
So far, foreign investors appear to be taking the new Trump administration in stride. “Part of what is fueling optimism in the U.S. equity markets since Donald Trump was elected is a belief in potentially greater inflation and economic growth that could trickle into real estate demand,” says Giraldo.
However, if the U.S. were to introduce substantive policy change and adopt an isolationist stance, that could potentially prompt foreign investors to hit the pause button or take a more wait-and-see approach as it relates to new U.S. real estate investment, adds DeCoster.
As often happens during an economic cycle, the dynamics of the real estate market have changed once again. Investors looking to buy at the bottom of the market in order to generate the highest returns on their investments when they sell the property have already missed the boat due to increased competition.
So finding the best markets to invest in given current market trends is more of a challenge, and in many cases favors investors with a “buy and hold” rather than “buy and sell” business model.
Real estate investors whose strategy is to buy and hold rental properties are facing higher initial purchase prices, a much tighter inventory of properties to choose from and a resurgence of interest from large institutional investors.
Considering those impediments, buy-and-hold investors seeking a well-balanced investment strategy must be realistic about the returns they expect to achieve in the present market. Although returns are not as good as they were in past years, investors can still find decent returns on their single-family rental properties.
It all depends on the particular market they choose to work in, and on which market trends they choose to factor in when determining the best approach to that specific market.
Selecting a market. Late last year, Attom Data Solutions based in Irvine, California, released its findings after analyzing 473 counties with populations of 100,000 or more for the first seven months of 2016 to determine which markets had the highest potential return on investment for buy-and-hold investors. Those findings showed that it is imperative for investors to select carefully when choosing a particular market in which to invest.
Rental returns on properties purchased between January and July 2016 were at a nine-year low, Attom reports. Still, there are plenty of markets for investors to choose from when searching for rental properties with decent yields. It all depends on which market factors the investor determines to be most important when analyzing that market’s potential.
Attom reported five factors – in addition to potential returns on investment – which can be influential to an investor’s analysis before deciding to enter a market: vacancy rates, homeownership rates, wage growth, a high population of millennials and the level of competition from institutional investors.
“After a drop-off in single-family purchases by both individual and institutional investors over the past two years, we’re starting to see investor acquisition activity pick up again,” says Daren Blomquist, senior vice president of Attom Data Solutions.
“Given shifting attitudes toward homeownership that are showing up in stubbornly low homeownership rates and our data showing more than 18 million non-owner occupied single family homes – one in every four single-family homes – these single family rental investors will be an important and likely growing force in the real estate market for years to come.”
Higher yields and stable tenancy are a plus for investors. For some investors, annual cash-on-cash returns are their primary concern when focusing on where to purchase future investment properties. But when it comes to a buy-and-hold investment strategy, investors are wise to think of themselves not just as investors, but also as landlords (whether or not they have a property management company running their properties for them).
While many market factors – from millennials offering a future tenant pool to potential wage growth – may influence their thinking when breaking down market statistics, at the end of the day all landlords want to have their properties located in markets where they can generate a respectable profit and have a stable tenant base to keep their properties occupied.
Given that focus, Attom’s analysis offers a breakdown of the best markets that offer investors both a realistic annual yield from their investment properties combined with low vacancy rates.
Here’s the top 10 counties for best annual gross rental yield and lowest investment property vacancy rate during the first seven months of 2016 as reported by Attom Data Solutions:
- Monroe County, Pennsylvania: 16 percent rental yield, 0.4 percent vacancy rate
- Hernando County, Florida: 14.3 percent rental yield, 2.1 percent vacancy rate
- Lackawanna County, Pennsylvania: 12.1 percent rental yield, 2.1 percent vacancy rate
- Westmoreland County, Pennsylvania: 11.8 percent rental yield, 2.8 percent vacancy rate
- Davidson County, North Carolina: 11.8 percent rental yield, 2.6 percent vacancy rate
- Marion County, Florida: 11.7 percent rental yield, 1.9 percent vacancy rate
- Wicomico County, Maryland: 11.7 rental yield, 2.1 percent vacancy rate
- Randolph County, North Carolina: 11.1 percent rental yield, 2.7 percent vacancy rate
- Ulster County, New York: 11 percent rental yield, 2.1 percent vacancy rate
- El Paso County, Texas: 11 percent rental yield, 1.9 percent vacancy rate.
“Real estate investment strategies have shifted pretty dramatically over the past few years. Home prices have appreciated much more rapidly than many investors expected them to, so the focus is now on profitable cash flow from monthly rent, rather than banking on price appreciation,” says Rick Sharga, executive vice president at online real estate marketplace Ten-X. “We’re seeing a lot of investors look for affordable single-family homes in secondary and tertiary markets – mostly in the Midwest and Southeast – where they can charge reasonable rent prices, but still generate net returns in the mid-to-high single digits.”
Investors helping investors. Identifying potential markets to invest in based on potential financial returns is only half the battle. There also has to be an inventory of available homes for purchase in those markets, otherwise the investor might as well move on to other counties.
That is where investors can help each other out and both stand to profit in the end.
Considering current market trends nationwide, buy-and-hold investors should not be limiting themselves when it comes to searching out properties. There are a number of potential resources in the marketplace. Building good working relationships with local Realtors is key, but so is establishing other sources of referrals such as investment clubs to meet and be in good standing with other investors, including flippers.
“A lot of companies and individuals that want to buy rental properties don’t want to buy properties in bad condition,” Blomquist says. “They want to buy properties that are ready to rent out today. The flippers can come in and rehab and then sell to a single-family rental investor. There’s enough margin in those deals for both types of investors to make money.”
The biggest concern for small individual investors is increased competition – both from other individual investors and increasingly from the large institutional investors who seem to have reignited their interest in rental properties.
Nationwide, Attom reports that 2.7 percent of all single-family homes purchased during the first seven months of 2016 were by institutional investors – defined as entities that purchased at least 10 properties in a calendar year. That translates to a 29 percent increase from the same period in 2015, following two consecutive yearly declines in institutional investor activity.
Since the election, “uncertainty” has been a buzzword among economists. The direction of U.S. policy is not clear on major issues ranging from immigration to tax reform. But the fundamentals of the apartment sector are relatively strong despite it all.
“I hear people talk about ‘uncertainty,’ but when I boil it down to how it will affect the multifamily market, I don’t see any huge change,” says John Sebree, director in the national multi housing group of brokerage firm Marcus & Millichap.
Rents will continue to grow faster than inflation and the average percentage of occupied apartments will continue to be relatively healthy in 2017. Developers will open more apartments than they did last year, but not enough to push the supple demand balance to the breaking point. And the new class-A construction is still concentrated in “core” downtown markets, leaving suburban markets and class-B apartment buildings relatively free from competition.High occupancy rates continue
The percentage of apartment units with signed leases shrank a little in 2016, and will shrink a little more in 2017, but not by much.
“We’re anticipating that the occupancy rate backs off by 60 basis points in 2017, but that shift still leaves the rate very healthy at 95.5 percent,” says Greg Willett, chief economist with RealPage Inc., and head of MPF Research. Marcus & Millichap anticipates a slightly stronger, but similar national occupancy rate of 96.0 percent by the end of 2017.
At the same time, developers will complete 363,000 units in 2017, up from 289,000 in 2016. The number of new apartments under construction has increased in almost all metro areas, according to MPF. Marcus & Millichap anticipates a similar 371,000 units of new construction.Demand not as strong in 2017
Potential changes in federal policy—from a promised federal infrastructure program to higher interest rates—could have a big effect on the U.S. economy. But the apartment business is relatively protected.
The demand for apartments will drop to 252,000 units in 2017, down from 289,000 units in 2016. “Nothing in this outlook is especially different from the expectations we had earlier,” says Willett. “For a while now we’ve been saying that occupancy in 2017 would ease somewhere between 40 and 80 basis points and that rent growth would cool to somewhere in the range of 3.0 percent to 3.5 percent.”
“I am not anticipating any giant surprise for 2017,” says Sebree.
Job growth has slowed over the past year and continues to do so. The market overall is expected to add only up to 2.3 million jobs in 2017, a little less than last year. “The general trend of slowing job growth is affecting rent growth,” according to data firm Axiometrics.
But the U.S. economy still continues to produce new jobs. “Even if job growth slows, it is still growing,” says Sebree.
The apartment sector also continues to benefit from the lack of competition from single-family homes for sale. “At this point in the last real estate cycle, renters were going out and buying single-family homes,” says Sebree.Core markets face the toughest competition
The strain on apartment properties is still concentrated in the urban markets where most new construction has taken place. “We’re anticipating a competitive leasing environment for top-tier, urban core product,” says Willett.
Apartments further from downtown areas face less competition. “There still should be considerable momentum in performances for suburban class-A projects, as well as for class-B communities in all locations,” says Willett.
The post Apartment Market Looks Strong Despite Policy Uncertainty appeared first on AAOA.
While this has traditionally been a niche alternative that few investors considered, many are now eyeing this asset class with new interest, and for good reason.
Niche investing in student housing may now be going mainstream. While student housing has traditionally been a niche alternative that few investors considered, many investors have been increasingly eyeing this asset class with new interest, and for good reason.
According to a report by Axiometrics, the student housing sector continues to demonstrate strong fundamentals, maintaining a national occupancy rate of above 95 percent and average annual rent growth of 2.3 percent. Pre-leasing activity is accelerating, indicating strong demand for student housing, especially for communities located within walking distance from a campus.
So what factors are driving the growth that we are currently seeing in the student housing market, and what do investors need to know about investing in this product type?
Here are three reasons why student housing is a sector to watch this year.
Today, more students than ever are pursuing higher education, and investors are taking note.
The National Center for Education Statistics reports that enrollment in post secondary institutions increased 20 percent from 2003 to 2013, and it is projected in increase an average of 1.4 percent every year through 2023. While this increase is due in part to population growth, a cultural shift is underway that is also contributing to rising rates of college enrollment.
Today’s Millennials are placing increasing importance on higher education, and represent one of the most highly educated demographic groups in the United States. A Pew Research Center study found that 34 percent of millennials have earned at least a Bachelor’s degree, compared to 24 percent of Baby Boomers.
The consensus among Millennials is that there is long-term value in obtaining a college education. Statistically speaking, those with college degrees earn more than those without.
These enrollment figures bode well for multifamily investors. The increase in student enrollment in college universities across the nation means that simply put, more students will need off-campus housing. Student housing typically offers a more value-oriented alternative to traditional multifamily housing, as these properties are often furnished and located in close proximity to college campuses.
By paying close attention to these demographic shifts, investors can capitalize on the growing demand for high-quality student housing, resulting in long-term value in this type of niche investment.
While new deliveries of luxury Class A multifamily product are raising concerns that the multifamily market is reaching its peak, student housing, on the other hand, is projected to grow over the next several years.
One trend that we are currently seeing is increasing foreign interest in student housing. Institutional investors, especially foreign buyers, are expanding outside the scope of their usual investments and looking beyond core assets in search of higher yields. Due to the rising competition in core markets for properties such as Class A trophy office towers, many of these investors are shifting their focus to niche sectors such as student housing.
One reason for this shift is the opportunity for substantial returns. While conventional multifamily housing is subject to fluctuations in the market, student housing consistently boasts strong fundamentals and commands higher overall occupancies. This higher occupancy rate translates to strong, steady cash flow and attractive returns for investors.
Higher cap rates, coupled with strong enrollment figures across the board, are driving investor demand for well-located student housing assets with upside potential.
At Olive Hill Group, for example, we are actively targeting student housing campuses that present an opportunity to add value through capital improvements. As university campuses continue to grow, especially in West Coast markets such as California and Nevada, we see an enormous opportunity to invest in student housing communities and generate yield by enhancing the infrastructure and amenities of these assets.
Resilient to Economic Pressures
Student housing benefits from many of the same fundamentals as conventional multifamily product, but with the added benefit of being resilient to economic pressures. For that reason, it is generally considered a recession-proof product, making it a strong, stable asset class for investments.
For example, the same benchmarks used for evaluating multifamily investments generally apply to student housing. Typically, student housing communities in major urban metros near transit options and retail amenities are poised to perform well over time. These highly dense areas with quality demographics, high population growth, and strong employment drivers are more resilient to withstand shifts in economic pressures, providing more stability to investors.
That said, while student housing performs well regardless of the economic climate, it is generally considered countercyclical. More people return to school during economic downturns, and we saw this firsthand with the 2007-08 Great Recession a decade ago. Looking ahead, investors recognize the value in investing in a niche sector that will not only survive but also thrive in adverse or volatile economic conditions.
Based on resident demand for student housing, opportunity to generate higher yields, and long-term stability, student housing investments remain poised for considerable growth this year. By looking beyond core assets and targeting niche sectors such as student housing, owners and investors stand to benefit from the long-term value of this asset class in the year ahead.
The post Why Student Housing Investments are Poised for Growth in 2017 appeared first on AAOA.
HousingSearchNW.org is a free service that provides fast access to up-to-date housing information in communities across Washington. Providers of rental housing can use the free service to showcase properties in great detail. Listings can include pictures and information about rent and eligibility criteria, amenities, and special unit features like pet policy, accessible living options and more. Property managers can log in online to manage their listings 24/7, or choose to work with a customer service representative to add or update properties by phone.
HousingSearchNW.org averages over 11,000 housing searches a week! Tenants can use free search tools on HousingSearchNW.org to locate listings of housing that meets their needs. The housing search tools can be accessed online or via toll-free phone or fax. The site is currently being marketed across the state to people searching for rental housing.
The toll-free call center offer assistance to property providers and those seeking rental housing. Assistance is available in both English and Spanish, Monday – Friday, 6:00 am – 5:00 pm PST.
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Go to HousingSearchNW.org or call 1.877.428.8844 toll free and get started listing today!
According to Green Street Advisors’ Commercial Property Price Index, the US property market’s asset values are currently 27% above their last peak. Apartment values have slowed over the past several years, and have only risen 1% in the same span of time. This has already contributed to flattened cap rates. Managing director Dave Bragg predicts that transaction activity may slow further over the next twelve months.
Putting things in context, Bragg said real estate looks fairly priced relative to investment-grade bonds and slightly cheap with regard to high-yield bonds. The public REIT market has historically been a good predictor of the direction of private-market asset values. While the REIT market isn’t always correct, its signal is most powerful at its extremes, and today at the sector level, we see great divergence in discounts to asset value.
Analyst Conor Wagner notes that apartment-focused REITs could see an increase in their cost-of-capital advantage if Fannie Mae and Freddie Mac pull away from multifamily lending or exit entirely. This, in turn, might lead REITs into greater participation in their given markets.
The post A Look at Apartment Market Activity in the Year Ahead appeared first on AAOA.
It’s well-known that real estate investment is one of the best and most proven ways to build wealth through both cash flow and equity. Becoming successful in real estate, however, takes time, patience, dedication and the right plan. Here are a few of the top tips for the beginning investor who wants to build his or her real estate empire.
Balance Flipping and Rental Properties
In real estate investment, there are two basic ways to make money. The first is to realize a large sum by buying a property, improving it in some way and then reselling it for a higher price. The second method is to create a flow of passive income by acquiring and then renting out properties. Though both of these are great ways to make money in real estate, truly successful investors typically include both in their businesses. By flipping and renting at the same time, you will be able to create a more stable financial situation for yourself and your business.
Create a Strong Real Estate Team
Though it is possible to have some success in real estate as a one-person business, you’ll eventually need to build a team around yourself in order to scale up. Your team of people can include direct employees to find and negotiate property sales for you, as well as well-liked contractors to handle repairs on the properties you acquire. Over time, your goal should be to take yourself out of the day-to-day tasks of your business as much as possible. By surrounding yourself with talented and driven people, you will be able to focus in on only the most important aspects of your real estate investment business.
Like any other business, networking is key to success in real estate investment. If you want to find listings of other investors, venture capitalists and hard money lenders, use CrunchBase. CrunchBase acts as a full-service database of these professionals and their investment histories. Although CrunchBase is not specifically intended to connect professionals, many investors listed on the database choose to display their websites or contact information, creating potential networking opportunities for you as an investor.
Branch Out Geographically
When you first start investing in real estate, it’s a good idea to stick to your local area because you are familiar with it and will be able to more easily manage properties that are close to you. As your business develops, however, you may find yourself needing to expand into other nearby towns and cities. Breaking into new markets can offer you new property opportunities to support your growing real estate empire.
Consider Apartment Buildings
Once your real estate business has reached a certain level of success, it may be practical for you to think about owning an apartment building or complex. Though the initial costs are quite high, buying an apartment building can pay off by supplying a large and steady stream of monthly income. If you want to go this route, make sure you have a staff in place that can take over management of the apartment complex you purchase. Even if it is your largest single investment, you don’t want your apartment building taking you away from other aspects of your business.
Finding success in real estate will be a long process, but with the right plan and the right growth mentality, you will be able to replicate the successes of others who have built wealth in real estate. Remember to structure your business so that it can scale smoothly and easily, as you will want to realize continuously larger profits.
The post Building an Empire: How to Become a Success in Real Estate appeared first on AAOA.
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