Is Your Property Competitive in the Market?

Written by Apartment Management Magazine on . Posted in Blog

hoa-imageRemember, an apartment building is a business. An individual rental unit is part of what contributes to the success of that business.

Making a unit rent ready may be the single most expensive expenditure an owner or manger does on a regular basis. Put too little money into the unit and the business may suffer due to being unable to compete in the market. Put too much money into the unit and the business may suffer because of a lack of cash flow or poor return on investment.

The trick is finding the happy medium of being competitive in the market while not over capitalizing in the process of making a unit rent ready. In other words, keep your eye on the bottom line. A rental units’ purpose is to generate income for the business. This does not mean you use only the cheapest materials or the lowest bidder. Know your market and be honest about the grade of building you have. Is the property an “A”, “B”, “C” or a “D” building?

The goal is not only to be competitive regardless of the property grade, but to beat the competition as well.

Use the best material appropriate for the grade of building. Strive to make a C-minus into a C-plus, a B-minus into a B-plus and so on. Use dependable, quality contractors and suppliers. A call back to repair sub-standard work typically costs twice as much as the cost of quality work done right the first time. Sub-standard work also leads to unhappy residents and vacancies, both of which will affect the bottom line negatively.

Good quality work standards coupled with quality materials appropriate for the property will lead to higher quality residents, improved income and a sustainable business model regardless of the grade of building you own or manage.

Choosing a quality contractor is like choosing a doctor. If you went to the doctor, you would ask his advice on how to treat whatever ails you and confer with him on the best approach to achieve improved health. You would be wise to learn from the doctor’s years of experience.

Choosing the right contractor is just as important to your financial health. A professional contractor will temper you if needed, make recommendations and not be afraid to tell you “there is a better way”. The best contractor is like an experienced partner with your best interests in mind.

In order to keep a project running smooth, on time and on budget; always keep the points below in mind.

1: Proper Planning

2: Clear Objective

3: Scheduling

4: Vendor Control

5: Communication

A break down in any of the above can result in lost time and money. Improper scheduling or control can cause delays or extra work that can affect the total cost.

 

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“We Don’t Have Any…But,” Keeping A Leasing Call Positive

Written by Apartment Management Magazine on . Posted in Blog

media_xll_1507812Many apartment communities have a limited variety of apartment styles.   If the occupancy wizard has smiled their way, they may have limited availability in various apartment styles.  Nonetheless almost every leasing call is offered the same initial inquiry:

“What type of apartment are you looking for?”

The door is opened, the prospect ventures into the unknown, only to have the door slammed in their face.

  • We don’t have any three bedroom apartments.
  • We don’t supply washing machines and dryers in our apartment homes.
  • We don’t have any one bedrooms available..
  • We don’t have any covered parking.

The list goes on, and the leasing call has become negative and defensive before a chance for a relationship has an opportunity to develop.

Beginning a call with a cheerful attractive description of the property, and the invitation to tour the property at the prospects earliest convenience would be a more appropriate opening to the call:

“I’m so glad you called for some information about our apartment community.  Let me get some information about you and the needs for your home, so I can assist you in making the important decision.”

From this point, the time frame for moving, number of occupants, pets, lease terms can all be discussed; with a closing that the property has a perfect home for them, and when can a tour be scheduled?

A property with limited availability in  one bedroom apartment floor plans has a strategic plan to overcome this.  Pricing, marketing the style as a one bedroom with study, emphasizing the potential value of the second bedroom for guests, work out equipment or a home office.  But if the leasing call is opened with a “We don’t have any of those, or we don’t have any of those available,” there’s no opportunity to show the prospect how the available apartment can meet their needs.

The initial few minutes of a leasing call sets the tone for the conversation.  The potential distraction of incoming calls, emails and text messages put even more emphasis on the quality of information shared when the prospect is offering the peak of their attention.  As observed in most casual conversations, the attention span once estimated to 20 minutes has dwindled to less than 5 minutes.  The opening of a leasing call will quickly determine the potential of the call growing to a visit.

Unlearning the response, “What size apartment are you looking for?” will be an uncomfortable process.   It creates a true focus on the leasing conversation.  Not unlike, learning to avoid the “How are you?” question, when time or interest is not going to support listening to the response.

Preparing for a leasing call, being mindful and focused on the conversation taking place can show the prospect the amount of interest and attention dedicated to them.  Important items that will weigh heavily when making the decision to visit a property.

  • Keep the leasing call positive!
  •  Avoid creating a “Our property doesn’t offer that, but…” introduction for the leasing call.
  •  Control the conversation.
  •  Sell the Apartment Features.

The potential for  converting the call to a sale is just a step away.


Lori_Hammond Lori Hammond | Company Website | LinkedIn Connect |

Lori has 30+ years’ experience in the Property Management Industry, working with both market rate and affordable housing.  Lori has been privileged to work with some tremendous industry leaders during employment tenures with Oxford Management, NHP Management, AIMCO, Alliance Residential, Boston Capital, The Sterling Group, P.K. Housing and currently Management Resources Development.

 

Understanding Your Purchase Appraisal

Written by Apartment Management Magazine on . Posted in Blog

iStock_000020216826XSmallOnce you have a property under contract and you’ve performed an inspection, it’s time for your loan officer to secure a purchase appraisal.

Be aware that an appraisal will almost always render a lower value than you determined in your comparative market analysis, for a number of reasons. Appraisals do not give an accurate market value – they simply give you a reflection of what you’re trying to accomplish with the bank. There are actually different types of appraisals, and each one serves a different purpose.

About 95 percent of purchase appraisals come in at the purchase price, regardless of the actual value of the property. With every financed investment purchase, there are three parties that are trying to reconcile: the investor, the appraiser, and the bank. Each party has a different agenda.

Since lenders provide the money, they have the greatest say in this process. Their purpose is to detect loan fraud. They want to see an appraisal close to the sale price because major discrepancies between those two figures are red flags. If an appraisal comes in too low, they won’t give you the loan. If it comes in too high, they worry about double contracts (double-closing), which are a common form of fraud. In fact, if your appraisal is more than 10 percent higher than the listing price, they will probably demand that you disclose this fact to the seller and have them write a letter to the bank explaining why they’re selling their home for far less than it appraises for. As you can imagine, this can jam up the process. Ultimately, the purchase appraisal confirms to the bank that the home is worth at least what you are paying for it, not what the home is actually worth.

Because of strict regulations, appraisers are actually required to throw out any comparables (“comps”) that show a 10 percent difference in price as compared to the home being purchased. Appraisers must meet rigorous requirements to become certified. Because the industry is so regulated, their agenda is to produce an appraisal that will satisfy banks. Your property could be the deal of the century, but this probably won’t be reflected in your appraisal. Don’t be discouraged if your appraisal comes in lower than you hoped for. Appraisals are only valid for three to six months anyway, and since I usually hold properties for years, I don’t derive a lot of value from appraisals.

Appraisal regulations can have a significant impact on fix-and-flip homes, but they are not a major factor in a long-term buy-and-hold strategy. Not only are appraisers unable to show values much higher than purchase prices, but they are also bound by time. It’s unlikely that they will give you an appraisal for $200,000, and then turn around and appraise the same home for $280,000 in two months, no matter how much work you’ve put into it. That would send a red flag to your lender. In fact, this is one of the major factors that makes flipping so risky – it’s predicated on you making a quick profit, and lending regulations make it extremely difficult for you to substantiate large increases in home values in the timeline you need.

Contrary to common belief, a comparative market analysis (CMA) provides a much more accurate market value than do purchase appraisals. If you’re a longer-term buy-and-hold investor, you don’t need to worry about your appraisal coming in lower than the market value determined by your comparative market analysis.

The main point here is this: Don’t be scared away from deals by lower appraisals. Remember that the purchase appraisal only confirms to the lender the value they want to see for specific purposes.

Know the market, perform accurate research, and trust your research and CMA.


OLYMPUS DIGITAL CAMERA Marco Santarelli | Company Website | LinkedIn Connect |

Marco Santarelli is an investor, author and founder of Norada Real Estate Investments — a provider of passive turnkey investment properties in growth markets around the United States. For investment opportunities please visit www.NoradaRealEstate.com

Bike Policy: Does Your Property Have One?

Written by Apartment Management Magazine on . Posted in Blog

family-bik-ride

It’s summer. Multifamily property managers are more likely to see kids outdoors – playing tag, enjoying the pool, and generally just hanging out after months of sitting behind a school desk. It’s time to get the bike out of winter storage and find out who has the coolest ride, who can pop the longest wheelie and who can make it up the hill without gasping for air.

While the kids enjoy “bike season”, there are some challenges for property managers. Some property managers complain about the rusting bike chained to the bike rack year after year. Sometimes, an abandoned bicycle poses safety hazards – such as when a youngster leaves his bike in the parking lot or in the middle of the breezeway overnight.

If you don’t have a bicycle tracking program for your property, make it a priority this year to create a policy – before summer break is in full swing. There are many ways to tackle the problem from a management stance; none of them will work for every property.

Here are just a few suggestions to get you started.

Tag and Track with Teamwork

Numbers vary, but some estimates reveal that as many as 2 million bicycles are stolen each year in the United States. Along with preventing theft, safety is a big concern for parents. Work with your local police department to host a bike safety rodeo. Plan fun games for the kids and parents. Maybe serve hot dogs and chips to encourage more families to turn out. While officers explain the rules of the road to the kids, find a way for parents to register the bicycles from their household. Here are three ways to gather information at the event:
•Provide someone to engrave the name and address on the frame.
•Walk parents through online registration at one of the national databases like The National Bike Registry or My Stolen Bike. Bicycle owners will need the serial number, description of the bike, name, and contact info to register.
•Issue special bike tags with your property logo and assign “parking spaces” in your bike corral, storage locker or bike rack.

Whichever method you choose, make sure you gather contact information, serial numbers and descriptions on every bike before owners leave. It might be a good idea to provide a ticket for free food after your residents fill out a registration form.

After the Party

Publish your bike policy and follow the rules consistently. You’re free to set your own property policy. It is important to set time limits for how long you will hold an abandoned bike before selling it, turning it over to the police, or simply taking it to the recycling center.

A progressive three-strikes-and-you’re-out penalty policy works for some property managers. First time the bike is left unattended there is a warning. Second time there is a minimal fine. Third time there is a significant fine or loss of bike parking privileges in the community rack or storage area.

Before you initiate a policy that charges hefty fines or limits bike privileges on your property, consult with your attorney to find out what you can and cannot do legally in your state.

What do you think? Are you ready to create a property-wide bike policy? Summer ought to be a fun time for kids of all ages. Make sure you have a great summer, too.


appfolio Appfolio | Company Website | LinkedIn Connect |

AppFolio, Inc. develops Property Management Software that helps businesses improve their workflow so they save time and make more money.  Appfolio submits articles & blogs including topics of Resident Retention, Improved Owner Communication, Time Management, and more.

Is Your Property Going Green or Green-ish?

Written by Apartment Management Magazine on . Posted in Blog

ekoResearch shows that some tenants are willing to pay more for apartment homes managed by property teams with a focus on environmental responsibility.  There are other benefits to targeting the “green crowd” with advertising efforts.

Lauren Gilder (National Apartment Association) says green initiatives – such as installing metered utility equipment that allows property managers to track usage and implement higher efficiency standards – attracts a proactive market with similar standards and benchmarks for protecting the environment.1  It wouldn’t be unrealistic to assume that tenants specifically searching for properties with a strong personal environmental protection policy would be more likely than other tenants to manage energy consumption in their homes and in common areas – potentially saving apartment home complexes money on shared utility costs.

Property managers should approach marketing their rental property as an environmental advocate cautiously if the only visible investments pointing toward sustainable practices are a few solar landscaping lights and the new hybrid car wrapped with the property logo.

While installing metered utilities is a fantastic step in the right direction – here are a few more tips for moving from a greenish property toward a greener lifestyle.

Keep Your Light Shining. 

The reason the government is phasing out incandescent bulbs is obvious when you consider that an incandescent lamp only uses about 5% of the energy consumed as a visible light source. Although LED and CFL lamps are the most energy-efficient bulbs on the market today, some properties continue to buy incandescents from overstocked supply companies because they are less expensive.

If you’re still using old-style bulbs, don’t be surprised when prospective tenants broach the topic on property tours.

Recycle Everything for High Marks.

If your property already has an office recycling program that includes recycling ink cartridges and paper, excellent! You can take it a step further by encouraging residents to recycle plastic, aluminum, paper and cardboard with strategically bins conveniently placed around the property. Announce the recycling program with a prominently displayed sign in the office.

If you designate an employee to take the recyclables to a center that reimburses for items brought in, you can apply that money toward upgrading to more eco-friendly light bulbs or switching to less toxic cleaners. This approach is definitely a triple play – residents, property owners and the environment benefit.

Make Your Conversations Green Through and Through

Communication is a given for any property. Makes yours stand out with the crowd by using a text or messaging service to deliver your monthly newsletters, important bulletins and rental statements.

Along with simple changes in the way you do business like the ones mentioned above, there are some subtle habits that might discourage prospects from seeing your property through an eco-friendly lens.

  • Check your customer refreshment table. You might have a delectable layout with mouth-watering croissants and aromatic coffee blends, but serving those treats on Styrofoam plates and cups is a real no-no.
  • An inviting pool is always a plus, but a strong, chlorine smell indicates you might be using too much of a good things, or worse yet, relying on toxic chemicals to keep the pool clean.
  • A perfectly manicured lawn creates a first impression that is hard to beat. Today’s environmentally conscious tenants look beyond the local management team to external relationships. Be certain your landscaping vendor practices solid, sustainable practices, too. That means incorporating xeriscaping (using plants that require less water) in arid climates, choosing appropriate fertilizers, and well-maintained, energy-efficient vehicles that reduce the carbon footprint.

appfolio Appfolio | Company Website | LinkedIn Connect |

AppFolio, Inc. develops Property Management Software that helps businesses improve their workflow so they save time and make more money.  Appfolio submits articles & blogs including topics of Resident Retention, Improved Owner Communication, Time Management, and more.

International Buyers Investing in Profitable U.S. Market

Written by Apartment Management Magazine on . Posted in Blog

5Favorable exchange rates, affordable home prices and rising affluence abroad continue to drive international buyers to the U.S. to purchase properties and make real estate investments.

According to the National Association of Realtors®2014 Profile of International Home Buying Activity , for the period April 2013 through March 2014, total international sales have been estimated at $92.2 billion, an increase from the previous period’s level of $68.2 billion.

“We live in an international marketplace; so while all real estate is local, that does not mean that all property buyers are,” said NAR President Steve Brown, co-owner of Irongate, Inc. Realtors® in Dayton, Ohio. “Foreign buyers are being enticed to U.S. real estate because of what they recognize as attractive prices, economic stability, and an incredible opportunity for investment in their future.”

International buyers and recent immigrants purchased homes throughout the country, but four states accounted for 55 percent of the total reported purchases – Florida, California, Arizona, and Texas. Florida remains the destination of choice, claiming a 23 percent share of all foreign purchases. California comes in second with 14 percent, Texas with 12 percent and Arizona with 6 percent. According to realtor.com®, the top five cities searched online by international buyers in 2014 were Los Angeles, Miami, Las Vegas, Orlando and New York City.

International buyers are more likely to make all-cash purchases when compared to domestic buyers. In 2014, nearly 60 percent of reported international transactions were all cash, compared to only one-third of domestic purchases. Mortgage financing tends to be a major problem for international clients due to
a lack of a U.S. based credit history, lack of a Social Security number, difficulties in documenting mortgage requirements and financial profiles that differ from those normally received by financial institutions from domestic residents.

Most homes purchased by foreign buyers, about 42 percent, are used as a primary residence. Non-resident foreigners are limited to 6-month stays in the U.S., so these buyers largely use the property for vacation or rental purposes or as an investment. Approximately 65 percent of purchases involved a single-family home. Nearly half of international clients preferred properties in a suburban area, about a quarter preferred a central city or urban area, and about 13 percent choose to purchase in a resort area.

International buyers come from all over the world, but Canada, China (The People’s Republic of China, Hong Kong and Taiwan), Mexico, India and the U.K. accounted for approximately 54 percent of all reported international transactions. Canada maintained the largest share of purchases, dropping from 23 percent in 2013 to 19 percent in 2014; however, China held the lead in dollar volume, purchasing an estimated $22 billion with an average sale cost of $590,826. China was also the fastest growing source of transactions, now accounting for 16 percent of all purchases, up 4 percent from last year. Mexico ranked third with 9 percent of sales and India and the U.K. both accounted for 5 percent.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1 million members involved in all aspects of the residential and commercial real estate industries.

Tenant Conversations: How to Deliver Bad News Without Ruining the Day

Written by Apartment Management Magazine on . Posted in Blog

Teenage Girl Visits Doctor's Office Suffering With Depression

Supply and demand economics dictate price points for residential rental properties – the lower the availability numbers, the higher the base rent. Economics 101 – right? But, supply and demand also pose a few negative challenges for property owners and managers.

To understand how too many apartment seekers and low inventory is problematic for some property managers, consider the challenges apartment complex owners in Houston, Texas face.  Increased drilling activity has thousands of new residents pouring into the region seeking high-paying jobs – and a place to live when they aren’t punching the proverbial time clock.

A recent KHOU.com news article reveals that apartment owners should brace themselves for a 22% increase in property valuations for 2014 – based on market availability and the tidal wave of new residents flooding the area. With such a drastic increase, Houston property owners must evaluate what portion of that increase to pass along to current and prospective tenants.

Adjusting rental rates drastically could alienate loyal tenants. There’s a good article here about raising rates in general, but there are myriad potentially upsetting circumstances that pop up every day that some would label as “bad news”.  Broken water mains, parking lot resurfacing that translates into limited parking for several days, extended pool closures and more serious situations like asbestos and mold remediation that temporarily displace residents are just a few examples.

So how do you deliver bad news without damaging relationships?

Don’t procrastinate.  Notify all stakeholders – residents, employees, vendors and owners – as quickly as you become aware of a problem.

Claim ownership. Although many loudly proclaim “don’t shoot the messenger”, this is no time to skirt responsibility. The most effective way to address potential conflict is to claim ownership outright. The messenger may not have created the problem, but a quick resolution requires whomever delivers the message to accept responsibility.

Managers can support their staff by giving them complete details about the situation so they can respond to resident questions. Even something as benign as a temporary water outage can provoke rumors about property management companies failing to pay utility bills.

Be concise. Whether you have an issue with a single resident or want to broadcast a property-wide message, deliver your bulletin with confidence and clarity. Focus your message on solutions and benefits, but don’t avoid negative elements.

How you handle negative circumstances influences perceptions.

The most effective way to deliver bad news without compromising relationships is to prepare before a situation arrives. At your next staff meeting, open the floor to your employees to discuss what worked and what didn’t work in the past when you faced challenging predicaments.

Design templates that allow you to get messages to residents quickly. Whether you use email and text alerts, an automated telephone system or post messages to social media, a template saves time and allows employees to focus on solutions, not problems.

  • Start with an introduction that includes both a benefit and a potential objection. (Your tenant may want the water back on immediately; however allowing repair contractors to get the job done correctly means there won’t be new problems in the future)
  • Follow the introduction with a concise explanation of what caused the problem.
  • Provide solutions and work in progress updates.
  • Express concern for inconvenience.
  • Encourage feedback.

By being proactive and having the right communication tools in place, property managers can lessen the impact of potentially troubling news, which will help to maintain satisfied residents.


appfolio Appfolio | Company Website | LinkedIn Connect |

AppFolio, Inc. develops Property Management Software that helps businesses improve their workflow so they save time and make more money.  Appfolio submits articles & blogs including topics of Resident Retention, Improved Owner Communication, Time Management, and more.

New Tenant Wants Out of Lease: Should Landlord Hold, or Fold?

Written by Apartment Management Magazine on . Posted in Blog

happy-buyer-with-agentWe are all susceptible to buyer’s remorse, but when tenants get cold feet right after they sign the lease, landlords have a dilemma. Do you let the remorseful tenant off the hook, or should you hold tough to your lease negotiation?

The right answer may depend on the situation. There are some good reasons for letting a tenant leave:

They are coming clean and admitting they can’t really afford the rent;
There’s been a change of plans, like a job loss, and the tenant anticipates problems down the road;
If they stay, it is likely the tenant will be complaining constantly, and that could disrupt other tenants — and your cash flow;
The tenant is in the military or a military family; or
There is a local law that allows the tenant to rescind within a certain time period.

If you find yourself confronted with a tenant who wants to move on, the best thing to do is talk it over.
Find out why they are doubting their decision.

Your instincts may tell you to defend your position. After all, you do have a signed lease. But before you get too tough with the tenant, be aware that they may call your bluff: most local rental statutes require the landlord to mitigate damages by finding a new tenant as soon as possible, regardless what the lease says. You can’t kick back and let the term of the lease run and then collect rent from the tenant.

In some case, cooperation and negotiation are better tools for avoiding financial losses and keeping the property running profitably. For example:

If the tenant seems indecisive, try reminding them of the reasons they choose the unit in the first place. Give them a night to “sleep on it” and talk again the next day.

Offer to allow the tenant to pay an early termination fee. That cost may quell their fears. Your lease probably needs to address early termination for this to work, so speak with your attorney first if there is any question.

Tell the tenant to stay and pay rent while you look for another tenant. This assures their cooperation when it comes to showing the property.

If they are leaving at a slow time, allow them go month-to-month with 30-days notice — it may relieve commitment anxiety and buy you some time.

Whatever you decide, make sure you get it in writing so you don’t make promises to a new tenant only to have the current one suddenly decide they want to stay.

Let tenants know you appreciate their candor. Negotiating an earlier termination is far less painful then discovering the unit has been abandoned, left to strangers, or damaged — and your spooked tenant is no where to be found.

American Apartment Owners Association offers discounts on products and services for all your property management needs. Find out more at www.joinaaoa.org.


logo_aaoa American Apartment Owners Association | Company Website |At the American Apartment Owners Association (AAOA), our mission is to serve the interests of landlords, real estate brokers, property managers, real estate owners and apartment building owners nationally.  Visit www.AAOA.com for more information about membership details!

Buy, Fix & Stay: How to Create Long-Term Wealth as a Landlord (Part 1)

Written by Apartment Management Magazine on . Posted in Blog

social-investmentToday I want to give some focused attention to all my buy-and-hold, landlord investor friends out there. I know that I tend to share and post a lot about wholesaling and rehabbing around here, but as much as I enjoy these types of investing, the real long-term wealth is created by holding properties. And by the way, that’s what a true real-estate investor is. You knew that, right? ;- )

So this one goes out to all you Landlords to help you sharpen your skills. I’d like to give you a little peek inside my own mindset as I approach my investment strategies of buy, fix, and stay. My goal is to show you how to create long-term wealth as a landlord so you can start living life to the fullest.

So let’s go!

How to Build True Wealth

If you were to ask me what investment strategy is best for building true wealth I would quickly say, “Holding rentals, of course.” But I’d then quickly expand that by saying, “Holding rentals that have good debt structure, that have solid tenants who don’t bother me to fix their broken toilets.” (Isn’t that the nightmare we always hear about when it comes to rentals?)

If structured the right way, owning rentals can be a fun and profitable business venture. There’s no better time than right now to build up your rental portfolio, since real estate prices are at an all-time low.

Plus there are many potential tenants out there who used to be home owners but fell victim to the housing collapse. These tenants are searching for quality rentals in good areas. Market rents are high enough that, for the first time in years, investors are getting positive cash flow while their tenants are helping to pay down the mortgage.

Savvy investors realize that the key to being a successful landlord is buying solid properties, in good areas, with good debt financing, and creating a workable system to either, manage their own rentals, or else outsource the management to a quality property manager.

With that being said, in this first training segment, I’m going to cover:

How to choose the best property for a buy, fix, stay strategy
The exact locations where you should–and should not–buy
How to manage your properties effortlessly (and never unclog a sink or toilet!)
Instantly tell whether a property is better to wholesale or keep as a rental.

Property Types
(1) Single-Family Houses

Property type will ultimately determine the risk factor of profit potential of the properties that you buy and hold. Eighty per cent of the properties purchased for investment or retail purposes are single-family houses. Investors and home owners alike will buy single family houses because it’s easy to wrap your brain around.

They are the easiest to rent
There’s plenty of inventory
Historically, they appreciate the greatest
However, one of the problems with single-family house rentals is if the tenant stops paying then there’s no income coming in.

(2) Duplexes

Duplexes are a great investment if bought in the right areas. Home owners and investors like to buy duplexes. Home owners will buy a duplex and rent out the other side, or an investor will buy a duplex because it appreciates like a single-family home, but if one side is empty and the other side is still occupied, the property still produces some income.

(3) Fourplexes

In today’s market, fourplexes are a great investment because of increased cash flow opportunity and affordability. They have just enough doors to bring in a good cash flow income without becoming a management nightmare.

(4) Apartment Buildings

When we start talking about larger units, like apartment buildings, or commercial buildings, I know that beginning and inexperienced investors dream of owning apartment buildings. But it’s important to understand that the more units you add, the greater the potential for management issues. Once you get above forty units, you will need to consider on-site property management.

Which Market Segment?
(1) Working Class Neighborhood

What market segment should you focus on to get the best rentals? That depends on your current capital and your long-range goals. In working class neighborhoods, where I spend about 60% of my time and effort, you’ll find hard-working people – many of them tradesmen who are raising their families.

In some cases, you’ll find multi-generations of family members living in a single house all chipping in toward the rent. Also in working class neighborhoods, you’ll find many government-assisted Section-8 tenants. Placing your rental into the Section-8 rental pool is always a good idea.

At this point I think it’s important to clarify what I mean by a working class neighborhood. I am not talking about war zones. If you are scared to be in the neighborhood at night, I would not suggest that you own a rental in that area.

I’m talking about older homes in the $30k to $70k price range. I like to own rentals – or rent-to-own – in working class neighborhoods because of affordability, the ability to get good monthly cash flow, and the hope of future appreciation.

With proper screening, tenants in lower-income neighborhoods typically stay put in the rentals for a long time. I have a lot of great tenants in working-class neighborhoods.

(2) Middle-Income Neighborhoods

Middle-income neighborhoods are more stable with 50% to 75% of the residents actually owning their own homes. I spend about 30% of my time buying income-producing properties in these neighborhoods. Obviously, they have a higher acquisition cost. Here you will typically find two-income families simply trying to raise their families in a stable and safe environment. They offer nicer houses that attract both home owners and renters. The vacancy rates are lower because of the desirability of the neighborhood. Overall, expect lower monthly cash flow as compared to working class neighborhoods, but they offer greater future appreciation.

(3) Upper Income Neighborhoods

Upper income neighborhoods have much nicer homes. However, if you’re looking to buy a large portfolio of buy-and-stay investment properties, these neighborhoods should not be your main focus. I have owned rentals in upper-income areas, but I normally do rent-to-own in this market segment. I don’t suggest you begin here if you’re new to the business.

Acquisition Sources

So where do you find these treasures which will help you build true wealth? Here are six main acquisition sources that I use to find rental properties.

(1) Active Listings

You can use the MLS, but you’ll need a real estate agent to help. Or you can get your real estate license and then you can research and make offers on short sales, bank-owned houses, and traditional houses on your own.

I typically offer forty to sixty cents on the dollar depending on the home and location. I always offer less than I know they are willing to pay, and then I negotiate my way into the deal that I really want.

(2) Motivated Homeowners

These are homeowners who find me from my online or off line marketing. The goal is to be able to identify the seller who is so distressed the he must sell right now. Or they own a home that’s distressed and it’s way too much work for them to handle.

In this area, the better you become at building marketing systems and funnels, the more profitable you’ll be as an investor. Generate a ton of leads and then be able to quickly identify homeowners who absolutely have to sell.

(3) Foreclosure Auctions

Over the last few years, I have become an expert at buying foreclosures at the auctions. I’ve purchased well over 100 deeply discounted houses this way.

Create a system that allows you to do your research, then go out and bid on multiple properties every single day. These auctions are fast-paced, cash-only business. The risks are high. You need to know what you’re doing.

Visit your local auction and watch and learn. See who the players are. Interact with those you meet. Learn how the process works in your state. Perhaps you can partner with someone who is already bidding on and buying houses. This is a good way to become comfortable bidding then go do it on your own.

(4) HUDhomestore.com

This is a website where investors can bid on government-owned houses. You’ll need a real estate agent who has a registered NAID number in order to bid. But once you jump that hurdle, making offers is as easy as pushing a few keys on your computer.

Each day I make an offer on every HUD home in my state for around 60% to 70% of the list price. Every once in a while, one of my offers is accepted. From there I decide if I want to keep it as a rental, or wholesale it to another investor for a quick buck.

(5) Hard Money Lenders

Local hard money lenders will often have repossessed homes from non-performing loans that they placed. These lenders are in the business of making loans and earning from the interest on those loans. Generally, they don’t want to own real estate.

It’s a good idea to build relationships with several of these lenders in your area so they call you first when they get into a situation and have to take back a property and get their capital back.

(6) Real Estate Bird Dogs

A bird dog is a person who will go out and uncover good deals, but doesn’t have the resources to acquire properties. I spend the time to develop my bird dogs within my own network, and teach them exactly what I’m looking for. Then I send them out to bring the deals to me on a silver platter.

Together these six acquisitions should be more than enough if you focus on quick ways to acquire deals.

Now you have a few basic guidelines in how to choose a good rental property, and where to find them. In Part II of Buy, Fix & Stay, we’ll take a look at how to analyze and then fund your investment property.

About Cody Sperber
As a veteran of the armed forces (NAVY), Cody learned that ethics, honor, and commitment can tell a lot about a person. After being released with an honorary discharge, he attended ASU, receiving a degree in Finance (Magna Cum Laude). Cody then received his real estate license 3 years after he first began investing in real estate because he was tired of working with horrible Realtors that were just trying to make a quick commission.

Cody began focusing on different strategies to help clients Avoid Foreclosure. Cody worked with underwater owners arranging short sales. This led to the development of his Reverse Short Sale Secret. Cody continues to buy and sell millions of dollars worth of real estate every year. In addition he has created a series of free real estate investor training tools for new investors.

Cody trains and mentors a handful of dedicated investors. When it comes to succeeding in real estate investing, Cody grows daily and helps others to do the same. Cody breaks the silence on methodologies that have launched successful real estate investing careers. He explains the top four ways to amass real wealth using real estate whether you are a new or a seasoned investor. His approach is sound and his presentation is clear and concise.

Cody Sperber is recognized as one of the young guns of real estate investing. He thrives on encouraging and educating fellow investors. Cody Sperber’s philosophy is to give you all you need to be successful before he ever requires anything on your part more than the commitment to learn.

Best Markets for Buying Rentals

Written by Apartment Management Magazine on . Posted in Blog

real-estate-marketRealtyTrac, the nation’s leading source for comprehensive housing data, just released its Q2 2014 Residential Property Rental Report, which ranks the best markets for buying residential rental properties along with the best markets for renting to baby boomers and the best markets for renting to millennials.

For the report, RealtyTrac analyzed median sales prices for residential property and average fair market rents for three bedroom properties in 370 U.S. counties with a combined population of 186 million people — 60 percent of the total U.S. population.

Rental returns were calculated using annual gross rental yields: the average fair market rent of three-bedroom homes in the county, annualized, and divided by the median sales price of residential properties in the county.

The 370-county analysis found that investors buying U.S. residential rental property in the second quarter of 2014 are getting an average annual return of 9.97 percent, down from an average annual return of 10.60 percent a year ago.

Median home prices in the 370 counties analyzed in the report increased more than 7 percent on average in the second quarter of 2014 compared to a year ago, while average fair market rents for three-bedroom homes increased an average of less than 1 percent.

“Home prices have increased at a faster pace than fair market rents in most counties over the past year, eroding the average returns available to investors buying rental properties,” said Daren Blomquist, vice president at RealtyTrac. “Even so, an average annual return of nearly 10 percent across all the counties we analyzed nationwide is still solid, and investors holding on to rental property for the long term will also typically benefit from home price appreciation on top of the annual returns from rental income.

“Investors leveraging demographic trends will often be able to amplify rental returns and home price appreciation, particularly when it comes to trends in the baby boomer and millennial generations, which combined account for approximately 147 million people — more than 60 percent of the U.S. adult population,” Blomquist continued. “Many individuals in both of those demographic groups are in the midst of major life changes that will often involve changes in housing, something that smart real estate investors should take into consideration when deciding when and where to buy or sell.”

Top 25 overall markets for buying rental properties

RealtyTrac factored in unemployment rates along with annual gross rental yields to select the 25 best markets for buying residential property rentals. Counties in the top 25 all had unemployment rates of 4.5 percent or lower in April 2014 — well below the national average of 6.3 percent — and had an annual gross rental yield of 9 percent or higher.

The three best markets for buying residential property rentals were Anderson County, S.C. in the Anderson metro area (15.33 percent annual gross rental yield); Woodbury County, Ia., in the Sioux City metro area (13.02 percent); and Pickens County, S.C., in the Greenville-Maudline-Easley metro area (13.00 percent).

Other metro areas with counties in the top 25 best markets for buying residential property rentals were Gainesville, Fla., Washington D.C., Columbia, S.C., Pittsburgh, Pa., Columbus, Ohio, Charleston, S.C. and Omaha, Neb.

“We have not had the apartment building development that we really need leading to a decreased supply in available rentals, which is causing rental rates to increase,” said Sheldon Detrick, CEO of Prudential Detrick/Alliance Realty, covering the Oklahoma City and Tulsa, Okla. markets, both of which had counties in the top 25 best markets for buying residential property rentals. “We are also noticing that the new qualified mortgage rules are restricting many first time home buyers from being able to qualify, which is adding to the demand for rental properties.”

Top 25 markets for renting to baby boomers

RealtyTrac combined demographic data from the U.S. Census Bureau with the annual gross rental yield data to identify the 25 best markets for renting to the baby boomer population — those born between 1945 and 1964. All 25 counties on the list saw an increase of at least 10 percent in the baby boomer demographic between 2007 (looking at the population aged 43 to 62 at that time) and 2013 (looking at the population aged between 49 and 68 at that time) and had a baby boomer population that represented at least 24 percent of the total population in 2013.

Annual gross rental yields for the top 25 baby boomer rental markets ranged from 5.50 percent in Placer County, Calif., in the Sacramento metro area up to 20.93 percent in Pasco County, Fla., in the Tampa Bay-St. Petersburg metro area. Pasco County was joined by 15 other Florida counties in 12 other Florida metro areas in the top 25.

Other metro areas with counties in the top 25 for renting to baby boomers were Lake Havasu City-Kingman, Ariz., Wilmington, N.C., Daphne-Fairhope-Foley, Ala., Prescott, Ariz., Asheville, N.C., Seaford, Del., Bend, Ore., and Hilton Head, S.C.

Markets in the top 25 for renting to baby boomers with the biggest increase in baby boomer population between 2007 and 2013 were Brunswick County, N.C., in the Wilmington metro area (49.7 percent increase), Charlotte County, Fla., in the Punta Gorda metro area (34.3 percent increase), Beaufort County, S.C., in the Hilton Head Island-Beaufort metro area (33.9 percent increase), Sussex County, Del., in the Seaford metro area (31.0 percent increase), and Citrus County, Fla., in the Homosassa Springs metro area (28 percent increase).

Top 50 markets for renting to millennials

RealtyTrac also identified the 50 best markets for renting residential property to the millennial population — those born between 1977 and 1992. All 50 counties on the list saw an increase of at least 10 percent in the millennial demographic between 2007 (looking at the population aged 15 to 30 at that time) and 2013 (looking at the population between 21 and 36 at that time) and had a millennial population that represented at least 24 percent of the total population in 2013.Annual gross rental yields for the top 50 millennial rental markets ranged from 5.53 percent in Charleston County, S.C., up to 21.32 percent in Baltimore City, Md.

Along with Baltimore, the top five markets for renting to millennials were Philadelphia County, Pa. (20.78 percent annual gross rental yield), Duval County, Fla., in the Jacksonville metro area (14.95 percent), Cumberland County, N.C., in the Fayetteville metro area (13.43 percent), and Newport News City, Va., in the Virginia Beach-Norfolk-Newport News metro area (13.20 percent).

Markets in the top 50 for renting to millennials with the biggest percentage change in the millennial population from 2007 to 2013 were Orleans Parish, La., in the New Orleans metro area (71.2 percent increase), Denver County, Colo., (57.5 percent increase), Montgomery County, Tenn., in the Clarksville metro area (46.3 percent increase), Hudson County, N.J. in the New York metro area (44.3 percent increase), and Multnomah County, Ore., in the Portland metro area (41 percent increase). All five of these markets had annual gross rental yields of 6 percent or higher.

Best markets for rental returns with no unemployment filter

Based solely on the annual gross rental yield, counties with the best returns on rentals were Wayne County, Mich., in the Detroit metro area (28.39 percent annual gross rental yield); Clayton County, Ga., in the Atlanta metro area (27.39 percent); and Saginaw County, Mich., in the Saginaw metro area (26.28 percent).

Other counties with gross rental yields among the top 10 highest were Genesee County, Mich. (21.39 percent), Baltimore City, Md. (21.32 percent), Pasco County, Fla. (20.93 percent), Sumter County, S.C. (20.84 percent), Philadelphia County, Pa., (20.78 percent), Bibb County, Ga. (20.52 percent), and Winnebago County, Ill. (19.26 percent).

Report methodology:
The RealtyTrac Residential Property Rental Report provides annual gross rental yields for 370 counties nationwide with a population of at least 100,000 and where there were at least 40 residential property sales in April 2014. The gross rental yields are calculated using median sales prices of residential property from RealtyTrac sales deed data along with fair market rents for three-bedroom properties from the U.S. Department of Housing and Urban Development (HUD). In states where the full price is not required to be recorded on the sales deed (non-disclosure states of Alaska, Idaho, Indiana, Kansas, Louisiana, Maine, Mississippi, Missouri, New Mexico, North Dakota, Texas, Utah, and Wyoming), RealtyTrac uses median list prices from properties listed on the local Multiple Listing Service (MLS). Demographic data used in the report is from the U.S. Census bureau, and unemployment data used in the report is from the Bureau of Labor Statistics.
RealtyTrac is a leading supplier of U.S. real estate data, with nationwide parcel-level records for more than 125 million U.S. parcels that include property characteristics, tax assessor data, sales and mortgage deed records, Automated Valuation Models (AVMs) and 20 million active and historical default, foreclosure auction and bank-owned properties. RealtyTrac’s housing data and foreclosure reports are relied on by many federal government agencies, numerous state housing and banking departments, investment funds as well as millions of real estate professionals and consumers, to help evaluate housing trends and make informed decisions about real estate.

For more information, visit RealtyTrac.com

Report License
The RealtyTrac U.S. Residential & Foreclosure Sales report is the result of a proprietary evaluation of information compiled by RealtyTrac; the report and any of the information in whole or in part can only be quoted, copied, published, re-published, distributed and/or re-distributed or used in any manner if the user specifically references RealtyTrac as the source for said report and/or any of the information set forth within the report.