Rental Housing Journal - On-Site - February 2014

Rental Housing Journal On-Site

January 2014 - Vol. 8 Issue 1 10. Shoptalk - Focus on the Prospective Resident 14. WMFHA - Growing to Serve the Industry 18. D&Z - Moisture and that horrible word “MOLD” 19. Favorable Strategies for Real Estate Investors in 2014 20. Are You Leaving Money on the Table?

21. Housing Recovery Entering Middle Innings in 2014, as Local Market Performances are Expected to Vary Widely

3. Seattle Market Overview 6. Getting the Lead Out: Local Efforts to Reduce Child Lead Poisoning 7. Short Sales and Foreclosure Sales Accounted for 16% of all U.S. Residential Sales in 2013 8. Apartments.com National Survey Reveals 2014 Moving Trends: Would Miley Cyrus Be A Wrecking Ball To Moving Plans?

9. Building Boom in Puget Sound Met by Strong Apartment Demand as Payrolls Rapidly Escalate

23. RealPage® MPF Research Division Reports Tight Occupancy and Moderate Rent Growth in the U.S. Apartment Market at the End of 2013 24. Property Ownership and Property Management Outlook 2014

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Overall Vacancy for Pierce-Kitsap- Love this Thurston Market Dips Below 5% Job Seattle - Apartment Insights 4th quarter results show the overall vacancy rate dropping under 5% for the first time in over five years, according to Tom Cain of Apartment Insights. The data are from his Seattle firm’s statistics and trends on 50+ unit properties in Pierce, Kitsap and Thurston counties.

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VACANCY: 4.89%

The market vacancy for conventional, stabilized 50+ unit properties in all three counties is 4.89%, down from 5.10% last quarter. This is the first time the vacancy rate has been under 5% in over five years. It was 3Q 2008 just before the market was impacted by the financial crisis. The vacancy rate then was 4.31% The vacancy rate was 6.60% a year ago.

The rate for all properties including those in lease-up is 5.76%, virtually the same as last quarter.

It’s remarkable how stable these counties are right now, and how uncharacteristically similar in occupancy they are. There is just over a quarter of a percentage point between the low and high.

Pierce: 4.92%

This quarter’s rate is 4.92%, up a hair from 4.86% last quarter. This county has improved from the 6.65% vacancy rate a year ago.

The vacancy rates for the seven Pierce County submarkets are in a tight range. The low is 4.43% in Lakewood and the high is 5.24% in the Tacoma South submarket.

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Kitsap: 5.01%

The market in Kitsap County continues to improve. The vacancy rate is 5.01% down from 6.47% last quarter and 9.73% a half year ago.

For the second straight quarter Bremerton showed the greatest improvement. In the previous two quarters vacancies dropped from 14.11% to 8.31% to its current 4.98% rate.

The low is 4.08% in Port Orchard; the high is 5.77% in Silverdale.

Current Resident or

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Thurston: 4.71%

Thurston County’s vacancy rate fell to 4.71% from 4.97% last quarter and 6.21% a year ago. Tumwater’s 3.39% vacancy was the lowest rate of any submarket in the three-county area.

Rental Incentives Pierce: $11 per Month (1.26%) Kitsap: $14 per Month (1.56%) Thurston: $12 per Month (1.38%)

Continued on page 6

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’m going to bet that you probably haven’t heard many people say that they love being a landlord. If anything, you’ve heard the cons, hatred, and horrific stories of doing such. But, in a world where there is so much emphasis on negativity, I’d like to bring our attention for a second to some of the positives of the property management industry. So, whether you’ve chosen to be a landlord as a career, or have been lucky enough to have inherited the job of managing rentals, there are many benefits that go along with being in this business.

First, and probably most obvious, being a property manager creates wealth. There is no denying that owning and managing property over the long term is a great money earner. There will always be a demand for housing. However, the earning potential will fluctuate with the state of the economy and various conditions within th4 housing market. In good credit conditions, there will be a higher rate of owner occupation and increasing capital values. In more constrained times, there will be more renters with higher rents. Real estate investments are arguably the most stable and secure types of investments you can make. As property owners, you Continued on page 7

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Seattle Market Overview Multifamily Housing Update 3Q13

By Red Capital Group 3Q13 Payroll Trends and Forecast The Jet City economy activated the afterburners during 3Q13, creating new payroll jobs at a 43,800, 3.0% year-on-year rate, fastest in six years.

Hiring was significantly stronger in the construction, transportation and business, health care and leisure service sectors, which collectively grew at a 26,300-job, 3.9% pace, up from 2Q’s 15,900-2.4% rate. Seasonallyadjusted data were consistent, showing a 13,400-job surge during July, propelling 3Q job creation to a net of 15,300, third strongest quarter in the last fourteen years.

Preliminary 4Q13 data indicate that the job market cooled late in the year. Slower services growth and weaker conditions in aerospace manufacturing (-2,100/-2.3%) were largely responsible.

The RCR payroll model suggests that the fall slowdown is a temporary event. Strengthening U.S. economic conditions coupled with robust local housing and stock prices will return the Seattle employment market back above the 3% growth threshold by 2H14. The most probable outcome for 2014 is for a 16-year high 47,600-job net gain, followed by growth averaging 40,200 jobs per year from 2015 through 2018.

3Q13 Absorption and Occupancy Rate Trends Tenant demand slowed moderately during the third quarter but remained at a brisk clip. Renters absorbed a net of 1,141 units, according to Reis, down from 1,302 and 1,226 in the prior and year earlier

quarters, respectively. Moreover, supply ticked upward 211 units sequentially to 1,312, resulting in a -10 basis point occupancy rate retreat to 95.9%. Axiometrics surveys fixed occupancy at 95.4%, down -50 bps quarter-to-quarter.

Supply pressure exerted some downward force on Downtown occupancy. Reis report a -40 bps sequential submarket occupancy decline on delivery of 554 units.

Axiometrics paint a brighter picture, finding a 95.5% (-20 bps) same store occupancy rate among stabilized assets and a 96.5% rate for 2012/13 deliveries, up 850 bps on average new property absorption of 10 (6%) units per month.

RCR models expect occupancy to fall -30 bps in 4Q13 and another 10 bps in 2014 (Reis report preliminarily

that the metric fell -40 bps in 4Q to 95.4%). RCR expect occupancy to bottom in late 2014 and rebound to near 96% by 2H15/1H16.

3Q13 Effective Rent Trends Metro rents continued to increase at an extraordinary rate during the third quarter, rising $28 (2.6%) sequentially and $75 (7.1%) yearover-year (Reis); ranking 2nd and 1st, respectively, among the RED 46 by these measures. Axiometrics samestore analysis recorded comparable 2.0% and 6.9% gains. Data suggest that momentum was stronger in the class-A segment. Axiometrics same -store data reveal a 2.5% sequential advance in class-A assets compared to a 1.9% gain among class-B&C properties. Likewise, Reis report that class-A assets posted an

average 2.3% asking rent gain against 1.3% among the B&C strata.

Downtown/Q.A. assets performed admirably. Reis mean and Axiometrics same-store data show sequentially gains of 2.8% and 3.4%,

continued on page 4

Experts in recycling save big money for apartment managers “If you have ever lived in an apartment community you know the lack of recycling,” says Jim Hoover, owner of Waste Recovery Systems.

“I became very aware of this by my observations of the garbage containers I shared with other business owners back in the late 90’s.”

Hoover explains, “As I placed my garbage in the dumpster after separating my recyclable items, I was amazed at all the recyclables people were throwing away. An enormous amount of Jim Hoover cardboard, plastic, tin, electronics and glass filled dumpsters. This caused me to talk to the people with whom I shared the container. I simply pointed out to them that if we don’t put recycling in the garbage, we will have less garbage to be picked up…and the bill will go down which will save us money.”

“I had a friend living at an apartment who noticed the lack of cleanliness around the garbage area,” Hoover continues. “I asked him why the apartment staff wasn’t cleaning the area up. He said it always looked like that.” Hoover never forgot this scene, and he set out to correct it. That’s how Waste Recovery Systems began.

Reducing bills by reducing garbage Living in the Northwest which promotes the responsibility to recycle as much as possible caused Hoover to believe he could start a company that would save money by source-separating the recyclables from the garbage containers, especially at apartment complexes where it is needed the most. “If I can reduce the garbage bill at my previous business, why not offer this same kind of service to apartment communities?” Hoover thought.

“And that’s why this growing company currently manages the trash and recycling of over 220 apartment properties – which represents approximately 20,000 units – in 24 different cities around Oregon and Washington.”

What WRS does “When we think of trash and recycling.” Hoover explains. “We often think of individual homeowners and how they separate their refuse, but apartment communities suffer from a different set of circumstances.

While hundreds of people may share the same dumpsters, there’s no accountability for what goes in the dumpster. So on any given day you can find cardboard, cans, glass, batteries, paint, tires and computers, all thrown in the same dumpster.”

For this reason they need a service such as WRS. “WRS goes to apartment complexes six days a week and separates recyclables from garbage, on-site. In addition, we make it easy for tenants to recycle by maintaining convenient recycling centers.”

Hoover says it’s a win-win-win system.

“We help the environment by increasing recycling. We beautify the dumpster area through daily visits, and we save apartment owners money by decreasing garbage. This also helps state- mandated goals to increase recycling. WRS does not remove garbage or recycling from the apartment site, instead, it reorganizes the bins for their appropriate use which uses the space most efficiently.”

What’s the cost?

When Hoover tells apartment managers that his company does this service for no additional cost – “Property managers and owners: often tell me that sounds too good to be true.” Hoover continues. “With the income generated by the reduction of garbage service, I am able to pass along additional savings to my customers. We not only save them money on their garbage bills but we also save their maintenance staff time. There isn’t any risk to the apartment complex . There’s no reason not to try us. Why wouldn’t they want to save money, time and help the environment?” Hoover emphasizes.

Surprising events “Our crews come upon a few surprises as they go about their daily work.” Hoover says. “One of our supervisors went to a trash bin not long ago and found a guy inside eating a hamburger. ‘Sir,’ he said, ‘sitting in this bin could be dangerous. You should probably get out of there.’ ‘OK,’ said the diner, ‘but can I bring my burger with me?’ Then, at another location, we got a huge scare. Two men were sorting through the bin, and came upon what – at first glance – looked like a dead body! Just before they called the police they moved in for a closer look. They discovered a resuscitation doll, the kind hospitals use. How and why it got there, we’ll never know.”

‘Our customers know the value of our service’ “People commonly mix garbage and recyclables, this is why we have a daily service to help prevent this from happening. This is the key component in our business. Because we service on a daily basis, we are handling only yesterday’s garbage. WRS employees do the job that I would have to hire a part-time maintenance person to perform.” Said Lynn Gaffney of Summer Creek Apartment Homes.

“This allows me to stay within my budget, have a clean community for my residents, and protect our environment.”

Back in 1925, Norman P. Rockwell famously said: “One man’s trash is another man’s treasure.”

Jim Hoover proves – every month – that reducing trash can add to everyone’s treasure.

www.wasterecoverysystems.net wrs@wasterecoverysystems.net

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Seattle Market ...continued from page 3 respectively.

RCR models forecast 7.3% average annual personal income gains through 2018, which should fuel further U.S.-leading rent growth. We expect 5- year compound annual rent growth of 5.1%, fastest among the RED 46 by 20 bps over New York.

3Q13 Property Markets and Total Returns Property trade regained momentum in the second half 2013 as 30 $5 million+ trades were closed for total proceeds of approximately $1.33 billion. The average price of the 6,379 units sold was $209,233. These data compare to 21 transactions valued at an aggregate of $652mm ($147,836/ unit) during the year’s first half.

Investors largely were made up of major national institutions, invest-

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PINPOINTING SAVINGS IS RE-ENERGIZING

ment companies and funds. A global, NYSE-listed investment fund led investors in 4Q13, acquiring Bellevue and Seattle properties valued at an aggregate of $349mm ($614,500/ unit). Cap rates were mostly in the high-4% to mid- 5% range, although trophies priced to the low-4s.

RCR remain of the mind that institutional quality assets trade at approximately 4.6%. Using this assumption, model-derived 5.2% exit cap rate and our most probable rent and occupancy outcomes, we derive an expected five-year annual rate of return of 8.8%. This result ranks 4th among the R46. A Monte Carlo risk simulation finds that riskadjusted returns rank 16th among the 46 markets. Seattle, Washington.

The information contained in this report was prepared for general information purposes only and is not intended as legal, tax, accounting or financial advice, or recommendations to buy or sell currencies or securities or to engage in any specific transactions. Information has been gathered from third party sources and has not been independently verified or accepted by RED CAPITAL GROUP. RED makes no representations or warranties as to the accuracy or completeness of the information, assumptions, analyses continued on page 5

Now is the time to map out your retrofit plans for the New Year and start saving time, energy and money!

Check out Puget Sound Energy’s Direct Install Program that takes the worry out of managing the cost and installation – it’s FREE! For qualified customers, the program can retrofit your building’s units with energy and water saving showerheads, water heater pipe wrap, energy efficient lighting and other energy upgrades.

To learn how you can get started:

continued on page 4

1. Call a Program Representative at 1-866-997-9767 or e-mail at MultifamilyRetrofit@pse.com to schedule an appointment.

2. A free energy audit will be scheduled to qualify and establish pre-existing conditions. PSE will make recommendations on energy efficiency upgrades and see if your building qualifies for the Direct Install program.

3. The audit will also identify other ‘no cost’ and ‘low cost’ retrofit incentives your properties may qualify to receive through PSE’s Multifamily Retrofit Program.

Schedule your appointment now to receive a PSE Direct Install Sample Kit

PSE is offering Direct Install Sample Kits that include ENERGY STAR® qualified CFL and LED light bulbs, a WaterSense® showerhead, and a section of pipewrap that will aid in your review process.

Incentives apply to existing multifamily properties with five or more attached units located in PSE service area and dependent on installed equipment efficiency and energy type. PSE’s programs are tariffed services, and are subject to change or termination without prior notice. Always refer to our website for the latest offerings.

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Seattle Market ...continued from page 4

or conclusions presented in the report.

RED cannot be held responsible for any errors or misrepresentations contained in the report or in the information gathered from third party sources.

Under no circumstances should any information contained herein be used or considered as an offer or a solicitation of an offer to participate in any particular transaction or strategy. Any reliance upon this information is solely and exclusively at your own risk. Please consult your own counsel, accountant or other advisor regarding your specific situation.

Any views expressed herein are subject to change without notice due to market conditions and other factors.

RED CAPITAL GROUP For more information about RED’s research capabilities contact: Daniel J. Hogan, Director of Research djhogan@redcapitalgroup.com 614.857.1416 James P. Hensley, Senior Managing Director Head of Mortgage Origination jphensley@redcapitalgroup.com 770.753.6472

www.rental h ou si n gj o u r n a l .co m

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Getting the Lead Out: Local Efforts to Reduce Child Lead Poisoning

By Jo Becker, Education/Outreach Specialist, Fair Housing Council Serving Oregon and SW Washington

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2013 study trumpets the efforts by over a dozen local municipalities across the country that have enacted local lead laws.

While other lead hazards exist (occupational, recreational, etc.), most often lead poisoning is a result of ingesting lead tainted dust, paint, or soil in or around homes built before 1978.

According to the National Center for Healthy Housing’s website: Since lead hazards are more prevalent in older and substandard housing, lead poisoning is a concrete expression of the affordable housing crisis; it is more common among

poor children, children of color, and those living in older housing.

Responsible property management, enforceable housing quality standards that are both practical and cost-effective, and increased resources are needed to protect high-risk communities and preserve the nation’s affordable housing stock.

According to said Katrina Korfmacher, Ph.D, co-author of the study, the extent of the medical and behavior damage caused by lead poisoning coupled with “…the realization that the economic cost of lead poisoning in the form of medical care, special education, and criminal justice are frequently borne by local communities and taxpayers – [has] given rise to several communitybased efforts to make homes lead safe.”

Continued on page 9

Below 5%.continued from front page The overall rate for rental incentives for the three-county area is 1.37%, down from 1.50% in the previous quarter. Thurston was the only county that didn’t show improvement.

Nearly 23% of the properties in the three-county area are offering incentives, bettering the 26% last quarter.

Rents: $876 Per Unit Rents in the three-county area increased $7 to $876 per unit.

Pierce: $873 per Month

$1.02 per Square Foot Kitsap: $900 per Month

$1.07 per Square Foot Thurston: $869 per Month

$1.02 per Square Foot

Rents bumped up $12 in Pierce, fell $11 in Kitsap, and remain unchanged in Thurston.

New Construction

There are 976 units under construction in the three-county area, most of which are in Thurston. There are 754 units that have completed the design review process, and another 2,247 units that are in the earlier stages of the construction pipeline.

The 160-unit Creekside Village which is featured in the photo opened recently. It is located in Dupont and is managed by Greystar.

Observations

This is the fourth straight quarter when both rents and the vacancy

rate have improved in the threecounty market. This quarter marks the first time the vacancy rate has been under 5% in over five years.

Rents have increased 3.2% in the past year.

This three-county market area is performing exceptionally well, especially when compared to the previous two year period. In the two years ending in the fourth quarter 2012, rents increased a total of 1%. The average vacancy rate for this period was 6.5%.

The relatively few new units entering the market do not pose a threat to its overall health.

The owners and managers have waited quite a while to benefit from a sound market. We hope it continues for them.

Tom Cain of Apartment Insights Washington is a member of the nonprofit Central Puget Sound Real Estate Research Committee in charge of providing apartment rent and vacancy data. Tom has been a member of the Committee for over 25 years, and has been researching apartment market trends in the Seattle area since 1978.

His company surveys the five counties in Central and South Puget Sound.

This article highlights survey results that subscribers can access from an online database of all 50u+ properties.

Apartment Insights also provides customized rent reports and market reports. www.apartmentinsightswa.com 206-632-2220

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7801 Lake City Way NE Rental Housing Journal On-Site • February 2014

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Short Sales and Foreclosure Sales Accounted for 16% of all U.S. Residential Sales in 2013 Up From 14.5 Percent of All Sales in 2012 Despite Declining Short Sales Late in Year; Share of Sales to Third-Party Buyers at Foreclosure Auction Doubles in 2013; Cash Sales and Institutional Investor Purchases Also Up Substantially for Year IRVINE, CA -- (Marketwired) -01/23/14 -- RealtyTrac® (www.realtytrac.com), the nation’s leading source for comprehensive housing data, today released its December and Year-End 2013 U.S. Residential & Foreclosure Sales Report, which shows that U.S. residential properties, including single family homes, condominiums and townhomes, sold at an estimated annual pace of 5,167,255 in December, a less than 1 percent increase from the previous month and a 10 percent increase from December 2012.

Counter to the national trend, annualized sales volume declined from a year ago in 18 of the nation’s 50 largest metropolitan statistical areas and was down in five states: California, Arizona, Nevada, Rhode Island and Oregon.

The national median sales price of U.S. residential properties -- including both distressed and non-distressed sales -- was $168,391 in December, virtually unchanged from November and up 2 percent from December 2012.

The median price of a distressed residential property -- in foreclosure or bank-owned -- was $108,494 in December, 38 percent below the median price of $174,401 for a nondistressed residential property.

The report also shows that short sales and foreclosure-related sales -including both sales to third party buyers at the public foreclosure auction and sales of bank-owned properties -- accounted for a combined 16.2 percent of all U.S. residential sales in 2013, up from 14.5 percent of all sales in 2012 and up from 15.2

Love ...continued fromfront page are able to use tenants’ money to pay your mortgage and build your equity, so that you can increase the cash flow to buy greater properties and/ or create a stream of retirement income. As a property manager, you can increase rents regularly to match current market rent rates, and your management fee based on gross rents will increase simultaneously with your client’s income. It really can be a win-win situation.

Secondly, real estate is real.

Managing rentals forces you to become more knowledgeable about property upkeep and home repairs.

No matter how involved you may be in caring for the actual residence, you will have to understand something about repairs and maintenance, even if you hire out the work to be done by others. So, whether you’re lining up the contractors, or putting in your own elbow grease, you’ll notice that you are more diligent about ensuring quality work.

Fixing up an older property, or turning over a rental that had been trashed or damaged by past tenants, can instill a true sense of accomplishment.

The third reason why I love what I do is the people. I like my tenants.

I would be lying if I said that I’ve liked every resident I’ve ever rented to, but if you can hit it off initially, working with them during their tenancy can be quite a pleasure. Some of my tenants have even become friends as well as business acquaintances. Providing nice, well-kept homes at affordable rates is powerRental Housing Journal On-Site • February 2014

ful. I’ve had the pleasure of supplying homes to some who otherwise wouldn’t be able to rent anywhere else based on their circumstances.

Experiencing their joy of having a place to call home fueled my passion and purpose of being a landlord. I have been able to enjoy watching many families grow together through marriage, children and other life accomplishments. And let’s not forget the hundreds of encounters with some very interesting people who have either inquired about a property, or the many contractors that I employed to perform maintenance duties -- many of whom I would have never met if I were not a property manager.

These are only a few reasons why I love being a landlord. I encourage you all to take the time to step back from the weight of the job, and ask yourself, “Why am I in rental housing?” We all know that being a landlord is complex, but I believe that if you’re able to outline the positives of the industry for yourself, then when the unavoidable negatives arise you will be able to make decisions based on love and not hate.

percent of all sales in 2011.

“It may surprise some to see distressed sales rising in 2013 given that foreclosure starts dropped to a seven-year low for the year,” said Daren Blomquist, vice president at RealtyTrac. “And while short sales did trend lower in the second half of the year, there are still more than 1.2 million properties in the foreclosure process or bank-owned, providing a sizable pool of inventory that the housing market is in the process of absorbing. Meanwhile, non-distressed sellers have not listed their homes for sale in droves, helping to keep the distressed share of sales at a stubbornly high level.”

Other high-level findings from the report:

• States with the highest percent-

• Sales of bank-owned properties

• States with the highest percent-

(REO) accounted for 9.3 percent of all U.S. residential sales in December, up from 8.7 percent in the previous month and 9.2 percent in December 2012.

age of REO sales in December were Nevada (18.9 percent), Michigan (18.4 percent), Ohio (17.8 percent), Arizona (15.7 percent), and Illinois (14.7 percent).

• More than 436,000 REO proper-

ties sold in 2013, accounting for 9.3 percent of all U.S. residential sales, up from 9.1 percent in 2012 and up from 8.7 percent in 2011.

• Short sales (where the sale price is below the total amount of outstanding loans secured by the property) accounted for 5.7 percent of all U.S. residential sales in December, up from 5.1 percent in November but down from 6.7 percent in December 2012.

age of short sales in December were Nevada (15.3 percent), Florida (14.4 percent), Illinois (9.0 percent), Maryland (8.2 percent), New Jersey (7.9 percent), Continued on page 16

BECOME GREEN BROKER CERTIFIED As a broker or property manager, obtaining the Green Broker certification will help you to identify and discuss essential issues related to green features of real estate you manage, provide advice and counsel on the benefits of building and managing Green. The program offers 30 hours of continuing education credit for real estate licensees, and all graduates have the right to display the certification on their business cards and marketing materials.

Already LEED Certified? The U.S. Green Building Council (USGBC) has approved the technical and instructional quality of this course for 30 GBCI CE Hours towards the LEED Credential Maintenance Program.

Interested in more information?

Visit www.greenbrokereducaton.com.

Questions?

Contact Tricia at the Commercial Brokers Association.

425 820 3348

Katie Poole – Hussa is a Licensed Property Manager, Continuing Education Provider and Principal at Smart Property Management in Portland, OR. She can be reached with questions or comments at Katie@ SmartPM.co

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Apartments.com National Survey Reveals 2014 Moving Trends: Would Miley Cyrus Be A Wrecking Ball To Moving Plans?

Cost and Neighborhood Top List of Why Renters Are and Aren’t Moving, Dakota Fanning is Most Popular Choice for Celebrity Neighbor, and Miley Cyrus Wouldn’t Cause Most Renters to Move CHICAGO, Jan. 27, 2014 / PRNewswire/ -- The average monthly rental cost in the U.S. was $1,083 in Q4 2013, up 3.2 percent for all of 2013, according to Reis Inc. At the same time, demand for apartments remained strong as the nation’s apartment vacancy rate declined to 4.1 percent in the fourth quarter. In response to this news, Apartments. com conducted its annual survey of more than 1,500 renters to gain insights into their moving plans for 2014. The survey reveals both shifting trends in renter behavior, and a more lighthearted look at celebrity neighbor preferences.

Affordability, neighborhood and apartment size topped the list of reasons people said they are moving;

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close to half (46 percent) of former homeowners said they prefer renting; and internet listing services and word of mouth were named as the top two resources for renters during their apartment search.

“This year, both economic and lifestyle factors seem to be on the minds of most renters planning to move,” said Dick Burke, president of Apartments.com. “Many helpful online tools, like Apartments.com, are available to help renters make informed and responsible decisions with highly personalized searches, online video walkthroughs, the ability to post and read reviews and apps for iPhone and Android.”

Through the 2014 Moving Trends Survey, Apartments.com also learned:

• Renters who aren’t planning to

move in 2014 would change their minds if they:

• Win the lottery: 51.5% • Get a job promotion (or lose their

celebrity renter neighbor over Nick Jonas (8.2 percent).

job): 45.6%

• Move in with their significant other (or get married, or get divorced): 20.7%

• Experience noisy or annoying neighbors: 19.5%

• Could find affordable options: 13%

• Only 12 percent of renters plan-

ning to stay put in 2014 would change their minds (and move out) if Miley Cyrus moved in as their neighbor. “Apparently, most renters wouldn’t mind if guests at Miley’s parties have their hands in the air like they don’t care!” said Tammy Kotula, public relations and promotions manager, Apartments.com.

• More renters would prefer Dakota Fanning (23.4 percent) as their celebrity renter neighbor than Ashley Greene (12.9 percent). Also, Chris Noth (15.1 percent) would be preferred as a

•

Why are people moving in 2014? And, why aren’t they?

This year, moving decisions were heavily steered by economic factors.

Shopping for a less expensive apartment topped the list of reasons renters are planning to move, while affordability topped the list for why renters are staying put. Other popular responses rounding out the top five reasons for whether or not to move included renter preferences, personal tastes, job security and family issues.

Apartments.com details the top five reasons survey respondents said they are moving in 2014: 1. Shopping for a less expensive apartment: 24.6% 2. Wanting to live in a different neighborhood: 13.6% 3. Looking for a bigger apartment: 12% 4. Change in marital status: 11.6%

Rental Housing Journal On-Site • February 2014

RENTAL HOUSING JOURNAL ON-SITE

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Building Boom in Puget Sound Met by Strong Apartment Demand as Payrolls Rapidly Escalate

fter a robust round of completions in 2013, the development boom will continue this year, though strong apartment demand will help the Puget Sound region remain a top-performing market. Building is concentrated in the Seattle urban core, as downtown and adjacent areas north of downtown account for nearly 60 percent of all deliveries this year. Although this part of the metro is vulnerable to oversupply, broad-based job growth will support demand for area rentals as the total metro jobs will rise nearly 4 percent above the pre-recession high by year end. Though in its early stages, the influx of supply will also be met by developers targeting units for condominium conversions amid low for-sale inventory and pent up demand. Local banks are beginning to finance condo projects once again, and the first large downtown project in six years, comprising more than 700 units, will deliver in 2015. Stable employment growth will generate rental demand, while a

potential resumption of condo conversions this year and heading into 2015 will pressure the vacancy rate back down.

Strong rent growth and a booming local economy is driving investment activity in Seattle. With firstyear yields beginning in the low-4 percent range for top-quality assets in the core, investors will look to alternative areas for opportunities in 2014. Older B/C assets that allow for rent bumps will be targeted as renovation prospects around downtown locations. Secondary submarkets located north and south of the city’s core, where yields start 200 basis points higher, will also attract risktolerant buyers seeking upside. The low cost of capital and investors’ desire for properties outside the urban core will support transaction volume in the first part of 2014, though rising interest rates could restrain deal flow in the second half.

In an informal study of our own, FHCO found that 37% of landlords still don’t know it has been illegal under the federal Fair Housing Act to deny housing to an applicant simply because there are children in the household since 1988, even in pre-1978 properties. You can also find additional Rental Housing Journal On-Site • February 2014

Market Forecast: Employment: 2.6% p Construction: 100p Vacancy: 30 bps p Effective Rents: 4.1% p

Continued on page 13

Lead ...continued from page 6 The study, published in the Journal of Health Politics, Policy, and Law, found that local laws can be highly effective tools to address lead hazards. By way of example, the City of Rochester saw a 68% decline in the number of children with elevated blood lead levels since the city’s law went into effect in 2006.

“Lead safety is largely a function of maintenance – intact leaded paint is typically not hazardous unless it is disturbed and released into the environment;” according to Korfmacher. “…lead hazards are related to how owners maintain houses that contain lead paint… The Rochester model accepts as its premise the critical need to gain entry to the highest risk housing. This was the rationale for targeting rental housing over owner occupied and for establishing a higher standard for inspection within geographically designated high risk areas.”

Visit www.urmc.rochester.edu/ news/story/index.cfm?id=3823 to read the University of Rochester Medical Center article on the study.

Seattle down 2 places: 2014 rank: 7 2013 rank: 5

information on fair housing law and familial status protection at www.

FHCO.org and www.FHCO.org/families.htm, respectively. We also offer lead-related information, including required pamphlets and disclosure forms as well as additional lead articles at www.FHCO.org/lead.htm.

This article brought to you by the Fair Housing Council; a nonprofit serving the state of Oregon and SW Washington. All rights reserved © 2014. Write jbecker@FHCO.org to reprint articles or inquire about ongoing content for your own publication.

New Year - New Budgets Call Now For Spring & Summer Scheduling!!

To learn more…

Learn more about fair housing and / or sign up for our free, periodic newsletter at www.FHCO.org.

Qs about this article? ‘Interested in articles for your company or trade association?

Contact Jo Becker at jbecker@FHCO. org or 800/424-3247 Ext. 150 Want to schedule an in-office fair housing training program or speaker for corporate or association functions?

Visit www.FHCO.org/pdfs/classlist.pdf

9

RENTAL HOUSING JOURNAL ON-SITE

L

Focus on the Prospective Resident

ife is full of interruptions. Yet we must find a way to strike a balance so that all the URGENT things coming at us do not pull us away from the most important tasks at hand. In the property management industry, there are urgent owner requests, resident complaints, maintenance emergencies and employee disputes; just to name a few. While all of these issues must be handled in a prompt, professional manner, the business of renting apartments must still remain a priority of the leasing office. Since interruptions are so common in this industry, I am often asked for advice on how to handle these situations. I would like to respond by sharing the story of two entirely different shopping experiences:

When I placed my first call, I was just getting ready to hang up when the phone was answered on the seventh ring. The consultant spoke so quickly, that I could only make out the name of the community before she said, “Please hold.” When she came back on the line she said, “Sorry about that. I’m working alone and the phone is ringing off the hook!”

She asked how she could help me, and I inquired about apartment availability. She said there were a couple of 2 bedrooms open, and then said, “Hang on and I’ll grab my book.” She set the phone down, without putting me on hold, and I overheard how she raised her voice to someone in the background. When she came back on the line she apologized for the delay, and immediately

began to quote pricing. She asked if I feel like I was her most important would like to come by, and I agreed business for the day! She took the to meet with her in an hour. The con- time to inquire about my needs and sultant offered directions and then then described an apartment that asked for my name and telephone would best meet my specific requirenumber; “in case something comes ments. The consultant invited me to come by to see the apartment, and let up.”

At the second place I called, the me pick a time that was most convephone was picked up on the second nient for me.

I arrived on time, within an hour, ring. The consultant clearly identiMETRO,that ARIZONA at the first community I called. fied the community by name, and VALLEY, introduced herself. She asked for my There was a sign on the door stating name early in the conversation and that someone would be back in used it to establish a rapport with approximately 10 minutes. I tried the me. I could hear a telephone ringing door and it was unlocked, so I went in the background and said, “I don’t inside and began to tour the cabana mind holding if you need to get while I was waiting. The leasing conFeb, Apr, Jun, Oct, Dec sultant returned shortly and seemed that.” She replied, “Thanks, butAug, that’s what I have voice mail for.” I surprised to see someone waiting. felt like I was the reason she got out She did not remember our appoint...continued on page 19 of bed that morning, as she made me

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RENTAL HOUSING JOURNAL ON-SITE

Wrecking Ball ...continued from page 8 5. Looking for a smaller apartment, or to live alone: 10%

• When asked to check all that • 3. Lost home due to foreclosure responsive website and iPhone and apply, the majority of survey respondents see the following as benefits of renting vs. owning:

When asked to check all that apply, the top five reasons that renters said they aren’t moving in 2014:

• No unexpected repairs (leaky

1. Can’t afford to move elsewhere: 47.3%

• No or low maintenance (don’t

2. Like the neighborhood they live in: 40.8%

toilet, clogged sink, etc.): 59.9%

need to shovel a driveway, cut grass, etc.): 51.4%

3. Like the apartment building they live in: 40.8%

• Flexibility to move: 51.3%

4. Have job security: 22.5%

There was a sizeable increase this year in previous homeowners who indicated that they are choosing to rent mainly because they cannot afford homeownership anymore, while the flexibility renting offers in choosing where to live remained as the number two reason for the third year in a row. Apartments.com provides the top five reasons former homeowners are choosing to rent in 2014, and compares these results to its 2013 survey. The statistics indicate the economy continues to be a driving factor for this group of renters:

5. Like their neighbors: 12.4% Why are previous homeowners choosing to rent in 2014? Supporting a rapidly growing trend, close to half of all renters (44.1 percent) previously owned a home, up from 35.1 percent in 2013 and 33.6 percent in 2012. Interestingly, homeownership preferences are split right down the middle in 2014:

• 54 percent of former homeowners wish they still owned a home

• 46 percent of former homeowners prefer renting

• 51.2 percent of renters (who have • 1. Can’t afford homeownership never owned a home) prefer renting

anymore: 21.5% (up from 14.2% in 2013)

• 48.8 percent of renters (who have • 2. Flexibility renting offers in never owned a home) would like to own a home right now

Rental Housing Journal On-Site • February 2014

choosing where to live: 15% (down slightly from 15.7% in 2013)

or divorce: 13% (up from 11.2% in 2013)

• 4. To relocate for employment:

12.4% (down from 13.3% in 2013)

• 5. Because renting is more

affordable: 10.4% (down significantly from 22.2% in 2013)

Who will renters share their apartments with in 2014? One area that seems to be a constant is renter living arrangements, which have remained nearly identical for the past three years:

• 1. Husband/wife/significant other and/or kids: 47.6%

• 2. Living alone: 42.6% • 3. Roommate(s): 9.8% About Apartments.com Apartments. com (http://www.apartments.com) is a leading national apartment Internet listing subscription service with more than 50,000 unique addresses representing millions of rental units from managed properties, newspaper classifieds and for-rent-by-owner properties.

By incorporating the most relevant products to reach renters including personalized searches and highly visual ads featuring live chat, real-time rent, online video walk-through demonstrations, professional photography, a

Android apps, Apartments.com creates easy access to its listings. Providing unmatched exposure to its advertisers through an intuitive name, strategic search engine placements and featured partnerships and more than 120 newspaper websites and innovative emerging media, Apartments.com reaches millions of renters nationwide, driving both qualified traffic and highlyengaged renters to leasing offices nationwide. Apartments.com is a division of Chicago-based Classified Ventures, LLC. The Apartments.com network of apartment rental websites includes Apartment Home Living (http://www.apartmenthomeliving. com), a leading social media apartment website distinguished by a “live for fun” community experience, proprietary lifestyle matching and local living guides to help renters find their perfect place to live and Rental Homes Plus (http://www.rentalhomesplus.com), an online destination where house hunters who prefer to rent can choose from a robust inventory of houses, condos, town houses, duplexes and apartments from around the country.

SOURCE Apartments.com

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Building Boom ...continued from page 9 2014 Market Outlook •

•

•

•

up 30 basis points to 4.7 percent.

Last year, vacancy ticked up 20 basis points.

2014 NAI Rank: 7, Down 2 Places. A second consecutive year of elevated completions pulled Seattle down two positions in the NAI.

•

Employment Forecast: Employment growth will be broad-based as 45,800 positions are added, a 2.6 percent rise. Last year, 45,000 jobs were gained.

Rent Forecast: Effective rents will rise 4.1 percent to $1,250 per month in 2014, placing rents 22 percent above the pre-recession level.

•

Investment Forecast: Secondary markets such as Everett and Tacoma, where cap rates can average in the low-7 percent range, will be targeted by buyers with higher risk appetites.

Construction Forecast: Developers will maintain heightened construction this year and deliver 8,100 units, expanding stock 2.5 percent. This follows the addition of 8,000 units in 2013.

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RENTAL HOUSING JOURNAL ON-SITE • Executive Director – Jim Wiard • President – Gail Duke – Vice President – Kris Buker • Secretary – Becky Sanders • Treasurer – Brett Stevens • Vice President of Suppliers Council – Barry Savage

Growing to Serve the Industry

By Jim Wiard, Executive Director

T

his is an exciting time in the history of the Washington Multi-Family Housing Association. After celebrating our 10th year anniversary and the most successful year in our history in 2013, we look forward to new heights in 2014. As we embark on our second decade serving the rental housing industry in the state of Washington, we are excited about our opportunity to position WMFHA as the “must join” association in our industry and the go-to resource for multifamily professionals on issues and trends impacting the industry.

WMFHA has unveiled a new look and energy with our recent brand refresh, updating our logo and enhancing our services to the multifamily industry. A new updated website will roll out soon. Focusing on legislative advocacy, educational programs and exciting networking events, we continue to look for ways to lead the multifamily industry forward.

We are active developing educational programs for apartment man-

agers (CAM - Certified Apartment Manager) and regional managers (CAPS - Certified Apartment Property Supervisor) which will begin this spring. We also have several exciting events lined up for the next few months.

In February, we held our Emerald Awards celebration. This industry awards event was attended by 900 property management and industry partner members and special guests to celebrate the accomplishments of those employees and communities recognized by nomination from their peers. Emceed by Brad Goode from KOMO 4 News, this heartwarming event honored attendees with awards earned after a rigorous judging process.

The industry Lifetime Achievement Award was bestowed upon Clyde Holland from Holland Partner Group. The black tie event was an overwhelming success.

Join us in March for our quarterly Membership Luncheon, featuring Mike Scott from Dupre+Scott. Mike will be giving a market update and statistics on new development activity in the Puget Sound region. Mike’s information is always invaluable and entertaining. Sign up at www.

wmfha.org.

This spring, we are excited for the two trade show and education conferences WMFHA organizes.

Maintenance Summit is an all day hands-on training conference for maintenance supervisors and technicians scheduled for April 30th.

Attendees will have opportunities to join in skill building seminars on electrical repair, appliance repair and moisture detection as well as maintenance management skill courses like financial forecasting, capital planning and time management. Industry suppliers display their products and services so attendees can keep up on the latest trends in maintenance repair. The day ends with the National Apartment Association’s Maintenance Mania competition, pitting service technicians against each other in timed skill events, capped off with a race car competition.

Not to neglect our management employees, in May, we will present EdCon, our industry education conference and exposition. National keynote speakers present leadership and marketing best practices to attendees including regional managers, community managers, market-

18300 Cascade Ave. S., Suite 130 Tukwila, WA 98188 (425) 656-9077 (425) 656 9087 (fax) admin@wmfha.org

ing managers and leasing agents.

Supplier members treat attendees to an informative trade show exhibition, and the day is highlighted by our Think Tank brainstorming session, where day to day issues facing our industry are evaluated in peer roundtable discussions.

Membership in WMFHA is open to multifamily property management companies, apartment communities, owners and product & service providers. Industry stakeholders join because it is essential to their business. Your membership brings tremendous value by providing you an edge to compete in this industry.

We plan and coordinate meetings, functions and events to help connect people to foster business relationships, many exclusive to our members.

The Washington Multi-Family Housing Association is a strong, growing member-driven organization that seeks to expand its membership through a concerted member recruitment campaign. Therefore, starting March 1, a formal membership drive will commence, reaching out to non-members to learn more continued on page 19

A Moment To Shine At The Fourth Annual Emerald Awards Please join us in acknowledging the accomplishments of the 2014 Emerald Award recipients.

14

Rental Housing Journal On-Site • February 2014

RENTAL HOUSING JOURNAL ON-SITE

Rental Housing Journal On-Site • February 2014

15

RENTAL HOUSING JOURNAL ON-SITE

Short Sales ...continued from page 7 and Michigan (7.2 percent).

• More than 256,000 short sales

occurred in 2013, accounting for 5.8 percent of all U.S. residential sales, up from 4.9 percent of all sales in 2012 but down from 6.0 percent of all sales in 2011.

• Sales to third-party investors at

the foreclosure auction accounted for 1.2 percent of all U.S. residential sales in December, up from 1.1 percent in November and up from 0.8 percent in December 2012.

• Major metros where third party

foreclosure auction sales accounted for at least 2.5 percent of all residential sales included Atlanta (4.7 percent), Orlando (3.9 percent), Miami (3.9 percent), Tampa (3.4 percent), Columbia, S.C. (2.8 percent), Las Vegas (2.8 percent), and Charleston, S.C. (2.8 percent).

• More than 48,000 U.S. properties

sold to third parties at foreclosure auction in 2013, accounting for 1.0 percent of all U.S. residential sales, up from 0.5 percent of sales in 2012 and 0.5 percent of

sales in 2011.

• All-cash purchases accounted for

42.1 percent of all U.S. residential sales in December, up from a revised 38.1 percent in November, and up from 18.0 percent in December 2012.

• States where all-cash sales

accounted for more than 50 percent of all residential sales in December included Florida (62.5 percent), Wisconsin (59.8 percent), Alabama (55.7 percent), South Carolina (51.3 percent), and Georgia (51.3 percent).

• For all of 2013, 29.1 percent of

U.S. residential sales were allcash purchases, but the percentage trended substantially higher in the second half of the year.

The 29.1 percent in 2013 was up from 19.4 percent in 2012 and 20.6 percent in 2011.

• Institutional investor purchases (comprised of entities that purchased at least 10 properties in a year) accounted for 7.9 percent of all U.S. residential sales in December, up from 7.2 percent the previous month and up from 7.8 percent in December 2012.

• Metro areas with the highest per-

centages of institutional investor purchases in December included Jacksonville, Fla., (38.7 percent),

16

Knoxville, Tenn., (31.9 percent), Atlanta (25.2 percent), Cape Coral-Fort Myers, Fla. (24.9 percent), Cincinnati (19.3 percent), and Las Vegas (18.2 percent).

• For all of 2013, institutional

investor purchases accounted for 7.3 percent of all U.S. residential property purchases, up from 5.8 percent in 2012 and 5.1 percent in 2011.

RealtyTrac Inc. (www.realtytrac. com) is the leading supplier of U.S. real estate data, with more than 1.5 million active default, foreclosure auction and bank-owned properties, and more than 1 million active for-sale listings on its website, which also provides essential housing information for more than 100 million homes nationwide. This information includes property characteristics, tax assessor records, bankruptcy status and sales history, along with 20 categories of key housing-related facts provided by RealtyTrac’s wholly-owned subsidiary, Homefacts®. RealtyTrac’s foreclosure reports and other housing data are relied on by the Federal Reserve, U.S. Treasury Department, HUD, 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.

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RENTAL HOUSING JOURNAL ON-SITE

What Were You Thinking Moments

By Dana Brown & Zach Howell

Moisture and that horrible word “MOLD” Don’t start the New Year with a “What Were You Thinking Moment”

I

t’s a new year, budgets are done, plans are made for our properties and we are excited to get going.

It would be great to arrive at work every day and assume that all is perfect on your property; after all, you haven’t heard any complaints. So, why would I go looking for problems? A word of advice that can help you minimize unexpected expenses, resident heartache and court.

Suzy Manager - Dana, I was talking to a peer at another property and she said her maintenance team was being proactive with historical problems that occur at our property each year. I asked her for a specific example. She replied that this time of year the cold weather creates moisture which can cause mold issues. I thought, why would potentially create more problems and draw attention to residents?

Dana – Suzy, the natural reaction to being proactive is to fear finding bad problems? This is a normal reaction, however, a regular preventative maintenance plan can prevent issues from becoming bigger much costly issues.

Moisture, and the potential of

mold, is a reality in the Pacific NW. By being proactive and checking the areas of your property that are outof-sight-out-of-mind, you can correct the problem. Check your attics, garages, and any other dark cool spaces to see if you have proper ventilation in place and working correctly.

Zach, I know that you have been training maintenance teams for years on this, what are your suggestion and places to inspect?

Dana, when it comes to mold we have to remember that it doesn’t matter which type of mold spores we have. We must realize that one type or another is present at all times just seeking a nice place to land, live, eat, and multiply. These areas are typically damp dark areas with little or no circulation.

A good preventative maintenance plan should include walking units annually and looking for possible mold potential conditions such as furniture against walls, closets packed tight with items and doors shut, bathrooms with no functioning exhaust fans, single pane aluminum

windows, dryer exhaust vents not working properly, and upper crawl spaces with improper ventilation.

These conditions are the number one source of the re-occurring growth problems caused by residents and poor building construction practices.

If you find growth in other locations it may be due to a physical water leak either from the exterior (gutter or downspout) issues, or broken or leaking pipes within the plumbing system.

A good rule of thumb when trying to disseminate between surface growth and growth from a physical water source is to observe the color of the spores. Black, dark green, fuzzy white, or chalky white are

typically surface growth and can be cleaned and sealed. When you start to see the broader spectrum of colors such as pink, yellow, blue, red, and orange there’s a good chance the source is a water leak within the wall either coming from a leaking pipe or from an exterior source.

Getting back to the preventative maintenance objectives, be sure to address all these potential conditions upon your annual inspection and within your Turnover checklist in order to be sure you are inspecting all mechanical and passive venting systems in the unit and around the property to ensure that air flow is Continued on page 20

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RENTAL HOUSING JOURNAL ON-SITE

Focus ...continued from page 10 ment, until after I reminded her of our recent phone contact. She apologized and offered me a seat, stating that there had been several maintenance emergencies earlier that day.

In fact, she was waiting for a water heater to be delivered at any moment.

The consultant did not obtain any further information from me, but recalled we had discussed a 2 bedroom. She pulled out a couple of floor plans to go over with me, but during this process the phone kept ringing, and she repeatedly answered it. She did not excuse herself when picking up the phone, and each time, I was left sitting there to wait until she finished each call. Just as we were heading out to view the apartment, the contractor with the water heater showed up. For a moment, the consultant seemed unsure as to what she should do.

She asked the contractor to “wait a second,” and then turned to me and explained that she was going to have to let this man into an apartment to replace a leaky water heater. She said, “It’ll only take a minute.” She offered me a seat in the cabana while I waited and told me there were soft drinks in the refrigerator. She said I should “help myself.” I waited for over 10 minutes, and then figured that I had come at a bad time. I decided to leave, and showed myself out.

At my next stop, the consultant greeted me warmly and invited me to have a seat at her desk. She pulled out a guest card she had started and handed me a packet of literature.

This packet included everything from floor plans to area information.

She said she had also enclosed the address and phone number of the elementary school since I had mentioned my son was in kindergarten.

As she began to ask more specific questions about my needs, the telephone rang several times. The consultant let voice mail pick up the calls, but then she finally reached over and turned the ringer off. She said, “I don’t know about you, but that’s really distracting for me.”

After we completed the guest card, she asked if I would like to see the clubhouse area before we headed out to take a look at the model. As we stood, a mail carrier came in with several packages and stated that they were missing apartment numbers. The leasing consultant was very kind as she explained that she was just going out to show an apart-

Growing to Serve ...continued from page 14 ment. She invited him to come back in about 20 minutes or said he was welcome to leave the parcels and she would look up the apartment numbers when we were done.

As we were walking the grounds on the way to the model apartment, the consultant was approached by two maintenance workers who had questions about a problem. She was very professional as she graciously asked them to wait, and prevented them from discussing the problem in front of me. Once we reached the model apartment, the consultant gave a flawless presentation of its many unique features and advantages. She was able to relate specific features as personal benefits because she had stayed focused during the qualifying portion of our visit. She remembered AND noted things that were most important to me. The consultant was able to make strong, confident closing attempts, since she had sought to satisfy my needs by giving me her undivided attention.

How do you make a prospective resident feel important, when you have a multitude of urgent interruptions crying out for your attention?

Are you able to focus on the prospective resident and make their needs a priority? If not, you have probably lost the sale. It would be better to phone your appointments prior to their arrival and reschedule, rather than have them come out when you know you can’t give them your undivided attention. Of course this will probably cause some “inconvenience.” However, in the long run, they will appreciate your consideration and long remember your thoughtfulness. If you were looking for a new home, how would you want to be treated?

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Are You Leaving Money on the Table?

By Cliff Hockley CCIM President, Bluestone & Hockley Real Estate Services

M

ost real estate investors tend to operate their properties with a simple rule in mind: If money appears in their checking account by the end of the month, their property is healthy. As long as they see the same amount every month they’re happy.

However this rule inevitably leaves money on the table.

Sophisticated investors know that they need to plan for their properties to be successfully operated. They need to buy the right property and operate it with a vision in mind. That vision should include an annual focus on rent increases and tenant relations.

Rent Increases Residential: Multifamily or single family investors have the opportunity to increase rental income at least once a year through the annual budgeting process. This process starts with an annual inspection, followed by a local area renewal rate review (rental comparison survey). Keeping your property well maintained is the key to managing long term rental increases. Tenants will not be as hesitant to pay more if you treat them

with respect and keep the property looking well maintained. A clean property with great looking landscaping, a current paint job without any mold or a refinished roof will net you more rent. Yes it will cost more to maintain, but in my opinion the payback will be in the form of higher rent, longer tenancies and lower turnover costs. Don’t forget, tenants want to be appreciated just like you do. If you have a property manager you work with, have them help you draft an annual budget and forecast the annual increases. Think into the future; plan your rent increases and capital expenses two to three years ahead so you can better control you long term destiny.

Commercial: Owners of office, retail or industrial buildings need to think through the same process.

They need to develop a plan that lasts through the initial lease term and includes details regarding the tenant’s options to renew, (since commercial tenants tends to stay for 3-10 years, even more planning is involved in controlling the costs and the rental increases). Annually, property owners need to review the comparative position of their property.

They need to be realistic regarding the value of their real estate. Just as with residential investments, they must consider the condition and

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location of their investment.

Commercial landlords need to have a long term plan in place that keeps rent increasing on an annual basis If you make a concession regarding a starting rent to get a tenant in, plan to step it up to market value within three years. Aim for a minimum of 21/2 % to 3% in annual increases based off the pre-negotiated step increase or percentages that increase on the basis of a business’ success (typically used by retail businesses). I am not a huge fan of CPI (consumer price index) increases because the government has too much control of those numbers.

Don’t permit expense caps unless you can stay ahead of the expenses, regardless of the caps.

Landlords and their property managers should not automatically cave into very low or zero rent increases at lease renewal time, even if the tenant threatens to move out.

Run realistic scenarios regarding the cost of re-tenanting. Include vacancy rates, leasing commissions and tenants improvements in these calculated scenarios. Consider also, the moving costs an existing tenant will face.

Understand their business and business goals, their staffing and their success at your location.

Most importantly while they are renting from you. Fix repairs that are required by your lease, and fix them quickly. Show your tenants you appreciate them by treating them how you would want to be treated, otherwise they will blame you and possibly hold back rental payments, do the repairs themselves or, worse yet, move out.

Last year there was a client who

took two months to repair the air conditioning units on a newly leased space. It was wintertime and it was raining; the tenant was livid and hired an attorney to preserve their rights under their lease. The landlord wanted absolutely the lowest price for the repairs and getting the lowest price took over 30 days of negotiating with vendors. The tenant almost moved out because it took so long, and alternative cooling systems needed to be provided. The experience drove them to become a hostile tenant and we aren’t sure if they’ll renew their lease when the time comes. These bad feelings could have been prevented and we could have agreed on rent increase and lease renewals with this tenant if the landlord would have allowed the property manager to be more proactive. Note: Typically property managers have vendors they work with that are reasonably priced who respond quickly; but they may not be the absolute lowest period.

Conclusion Inevitably, attention to detail, future planning, a current understanding of the marketplace and a fair and realistic approach to taking care of the properties will yield higher returns for real estate investors. A key component to profitability is a focus on current and future rental incomes. Sticking to the basics with an annual planning process and taking care of your tenants will increase your annual yield and keep reliable tenants in your properties.

"M OLD"...continued from page 18 functioning properly. This constant air flow is what inhibits mold growth by carrying mold spores out of the unit and buildings, and never giving it a chance to land and colonize.

Be diligent in constantly educating residents regarding the things they can do to help combat mold growth. Here is a short list: Open windows, use mechanical fans for a minimum of 25 minutes after showering or cooking, keep closet doors open, pull furniture away from wall at least 6-12”, wipe down any condensation on windows and flat surfaces, and report any growth early in case there is a leaking pipe or other physical water

PROPERTY NAME

intrusion issue.

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A simple list of reported mold issues, date they were reported, what you did, and who did it can really save you down the road if things do turn ugly between you and the resident and legal questions arise as to how the issue was handled.

In the end don’t be afraid of mold, be proactive, have a clear and systematic plan of action, work your plan consistently every time, and document, document, document.

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Rental Housing Journal On-Site • February 2014

RENTAL HOUSING JOURNAL ON-SITE

Housing Recovery Entering Middle Innings in 2014, as Local Market Performances are Expected to Vary Widely In Q4 2013, Appreciation Slowed from Summer Peaks; Formerly Boiling Markets like Bay Area Reduced to a Simmer, According to Zillow Fourth Quarter Real Estate Market Reports - U.S. home values ended 2013 up 6.4 percent year-over-year, to a Zillow Home Value Index of $169,100. - National annual appreciation rate expected to slow to 4.8 percent by end of 2014. - Home values in Denver and Pittsburgh metros ended 2013 above their pre-recession peaks.

SEATTLE, Jan. 23, 2014 / PRNewswire/ -- National home values completed 2013 on a high note, ending the fourth quarter up 6.4 percent year-over-year, a robust bounce off the bottom that is beginning to tail off in most areas and could cause problems in a handful, according to the fourth quarter Zillow® Real Estate Market Reportsi. The U.S. Zillow Home Value Indexii stood at $169,100 as of the end of the fourth quarter, up 1.4 percent from the end of the third quarter, and 0.6 percent from November. After peaking at 7.1 percent in August, the pace of annual home value appreciation fell below 7 percent throughout the fourth quarter.

Metro markets that were earliest to begin their recoveries and that had been showing the most robust home value appreciation throughout much of the year, including Southern California and the Bay Area, largely cooled off in the fourth quarter.

Annual appreciation rates in Los Angeles, San Diego, San Francisco and San Jose slowed or were flat in each month of the fourth quarter compared to the month prior, a welcome sign in markets that risk crossing over into bubble territory as rising mortgage interest rates create affordability issues for homebuyers.

up a bit of a mixed bag for 2014,” said Zillow Chief Economist Dr. Stan Humphries. “Affordability issues will help put the brakes on many markets that saw huge appreciation rates, like California and the Southwest, creating volatility that could potentially cause whiplash for homebuyers and sellers. At the same time, we expect more homes to be available this year as more sellers enter the market and more homes get built, and a decline in investor competition should make for a more hospitable market for many buyers.

While a truly ‘normal’ market remains a ways off, we expect to take more steps in that direction as appreciation moderates, negative equity recedes, federal stimulus is withdrawn and foreclosures wane.”

Among the largest 35 metro mar-

Looking ahead: As the market enters 2014, national appreciation rates are expected to slow considerably. Nationwide, home values are expected to rise another 4.8 percent through December 2014, according to the Zillow Home Value Forecastiii. But local market conditions will not necessarily follow national conditions, a trend that may cause confusion and uncertainty among homebuyers and sellers. Zillow expects all but one of the nation’s 35 largest metro areas (St. Louis, -3.1 percent) to show appreciation this year, but the expected annual appreciation rates vary from 16.1 percent in Riverside, Calif., to just 0.4 percent in Kansas City.

None will approach the often breakneck pace set in 2013.

“The housing recovery is entering the middle innings after an incredible run in 2013. Below the surface of last year’s market, a number of unsettling trends started to emerge as a result of rapid and ultimately unsustainable appreciation, setting

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Rental Housing Journal On-Site • February 2014

kets covered by Zillow, all but three (St. Louis, -3.8 percent; Indianapolis, -2.1 percent; and San Antonio, -0.8 percent) showed annual appreciation in 2013. Home values in two of the top 35 metros, Denver and Pittsburgh, ended 2013 above their pre-recession peaks.

National rents rose by 0.7 percent in the fourth quarter compared with the third quarter, to a Zillow Rent Indexiv of $1,302. Year-over-year, rents nationwide rose 2.4 percent. A total of 4.84 out of every 10,000 homes nationwide were foreclosed upon as of the end of the fourth quarter, down 0.4 homes per 10,000 from the third quarter and down 1.2 homes per 10,000 year-over-year.

Metropolitan Areas Zillow Home Value Index Zillow Home Value Forecast Q4 2014 Month-Over-Month Change Year-Over-Year Change Bottom in Home Values Change in ZHVI, Q4-2013-Q4 2014 See Chart on page 22 About Zillow: Zillow, Inc. (NASDAQ: Z) operates the largest

home-related marketplaces on mobile and the Web, with a complementary portfolio of brands and products that help people find vital information about homes, and connect with the best local professionals. In addition, Zillow operates an industry-leading economics and analytics bureau led by Zillow’s Chief Economist Dr. Stan Humphries. Dr. Humphries and his team of economists and data analysts produce extensive housing data and research covering more than 450 markets at Zillow Real Estate Research. Zillow also sponsors the quarterly Zillow Home Price Expectations Survey, which asks more than 100 leading economists, real estate experts and investment and market strategists to predict the path of the Zillow Home Value Index over the next five years. The Zillow, Inc. portfolio includes Zillow.com®, Zillow Mobile, Zillow Mortgage Marketplace, Zillow Rentals, Zillow Digs™, Postlets®, Diverse Solutions®, Agentfolio®, Mortech®, HotPads™ and StreetEasy®. The company is headquartered in Seattle.

Zillow.com, Zillow, Postlets, Mortech, Diverse Solutions, StreetEasy Continued on page 22

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RENTAL HOUSING JOURNAL ON-SITE

Middle Innings...continued from page 21 Zillow Home Value Index

Zillow Home Value Forecast

Q4 2014

MonthOver-Month Change

Year-OverYear Change

Bottom in Home Values

Change in ZHVI, Q4-2013-Q4 2014

United States

$169,100

0.6%

6.4%

2012-01

4.8%

New York, NY

$367,500

0.4%

6.1%

2012-06

3.0%

Los Angeles, CA

$500,400

1.0%

18.9%

2012-02

8.7%

Chicago, IL

$178,000

1.1%

9.5%

2012-05

3.6%

Dallas-Fort Worth, TX

$143,600

-0.2%

4.4%

2011-11

2.6%

Philadelphia, PA

$193,200

0.1%

2.9%

2012-08

1.5%

Houston, TX

$142,500

-0.7%

3.2%

2013-12

1.3%

Washington, DC

$344,900

0.7%

9.5%

2011-10

3.7%

Miami-Fort Lauderdale, FL

$183,400

0.9%

17.5%

2011-09

6.3%

Atlanta, GA

$136,300

1.5%

15.6%

2012-07

7.7%

Boston, MA

$350,800

0.6%

8.4%

2011-12

2.8%

San Francisco, CA

$642,900

0.8%

20.4%

2012-02

7.5%

Detroit, MI

$105,300

1.5%

21.0%

2011-10

6.2%

Riverside, CA

$256,400

1.1%

27.9%

2012-02

16.1%

Phoenix, AZ

$188,200

0.3%

11.8%

2011-01

3.6%

Seattle, WA

$309,100

0.3%

10.3%

2012-01

5.9%

Minneapolis-St Paul, MN

$199,000

0.6%

10.0%

2012-01

2.9%

San Diego, CA

$439,800

0.6%

17.4%

2012-01

6.8%

St. Louis, MO

$130,300

-1.4%

-3.8%

2012-04

-3.1%

Tampa, FL

$134,400

1.1%

16.3%

2011-12

7.4%

Baltimore, MD

$237,000

0.5%

5.9%

2012-04

3.3%

Denver, CO

$244,200

0.5%

9.0%

2011-10

2.8%

Pittsburgh, PA

$119,300

0.1%

6.0%

2008-03

2.3%

Portland, OR

$259,800

0.5%

11.5%

2012-01

4.8%

Sacramento, CA

$305,500

0.9%

23.7%

2012-02

11.6%

San Antonio, TX

$143,000

-1.6%

-0.8%

2011-03

1.2%

Orlando, FL

$153,000

1.4%

19.3%

2012-02

10.1%

Cincinnati, OH

$131,300

0.2%

4.3%

2012-11

1.0%

Cleveland, OH

$116,300

0.0%

2.2%

2012-03

0.8%

Kansas City, MO

$137,700

-0.8%

1.5%

2011-10

0.4%

Las Vegas, NV

$167,400

0.7%

28.1%

2012-02

7.9%

San Jose, CA

$741,500

0.2%

15.6%

2011-08

5.3%

Columbus, OH

$137,500

1.3%

8.2%

2012-02

4.0%

Charlotte, NC

$147,200

0.5%

6.0%

2012-03

2.4%

Indianapolis, IN

$117,600

-2.2%

-2.1%

2011-10

1.2%

Austin, TX

$197,600

-0.5%

4.7%

2013-12

1.1%

Metropolitan Areas

Continued on page 27

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Rental Housing Journal On-Site • February 2014

RENTAL HOUSING JOURNAL ON-SITE

RealPage® MPF Research Division Reports Tight Occupancy and Moderate Rent Growth in the U.S. Apartment Market at the End of 2013 Occupancy is at 95 percent, with rent growth registering at an annual pace of 2.8 percent.

CARROLLTON, Texas – The U.S. apartment sector’s performance remained healthy at the end of 2013, though the late-in-the-year seasonal slowdown that is routine for the market did occur once again. Yearend occupancy came in at 95 percent, off slightly from 95.4 percent as of third quarter. Late 2013’s annual rent growth pace of 2.8 percent was down mildly from the 3.2 percent figure posted a quarter earlier. Those findings reflect the performances seen across more than 7 million apartment units tracked by MPF Research, an industry-leading market intelligence division of RealPage, Inc. (NASDAQ: RP). MPF Research analysts highlight the nation’s latest apartment occupancy and rent growth statistics as well as other key performance indicators for rental housing in a discussion found at www.realpage.com/MPFQ4-2013Report.

“Late 2013 performance results were encouraging, viewed in light of the fact that completions ramped up during the time period that there’s a seasonal lull in demand,” said MPF Research vice president Greg Willett.

“This definitely was a point of vulnerability for the apartment sector because of the timing of new supply reaching the finish line, and we got past this period without significant damage.”

The number of units in properties that were finished during the final three months of the year jumped to 53,327 across the nation’s largest 100 metros, up from quarterly completions that had averaged roughly 36,000 units during the initial three quarters of the year. Calendar 2013 new supply totaled 163,155 units.

While apartment demand fell short of deliveries specifically during the fourth quarter, calendar year absorption of 155,491 units proved about in line with the total additions.

“With an increase in the number of units moving through initial leaseup, overall product availability has grown of late,” according to Willett.

“However, new supply hasn’t resulted in net move-outs at existing properties, where the occupied unit count actually is up a little on an annual basis.”

The impact of new supply coming on stream is more apparent in rent growth statistics than in occupancy rates, MPF Research analysis shows.

Annual rent growth in the newer, top tier of existing product cooled to 1.8 percent at the end of 2013, compared to increases of 3.1 percent in 1990sRental Housing Journal On-Site • February 2014

era projects and 3.8 percent in the stock built in the 1980s and 1970s.

“Middle-market properties are in the sweet spot for overall performance right now,” according to Willett. “Only a handful of units are available in that product niche across most metros, and the residents living in that stock generally can’t afford to buy housing or to rent the high-end new apartment supply that’s being delivered.”

Among large individual metros, Denver-Boulder and San Jose tied for the #1 position on the list of the country’s annual rent growth leaders during 2013. Pricing for new leases grew 7 percent in both locales.

Pricing increases were nearly as big in Oakland and Portland, both posting 6.6 percent jumps, and San Francisco, where rents rose 6 percent.

Additional large markets on the annual rent growth leader board were Seattle-Tacoma (5.5 percent), Miami (5.2 percent), West Palm Beach (4.9 percent), Austin (4.8 percent), and Houston (4.4 percent).

Metros that just missed the cut-off point for the best-performers list included Atlanta, Fort Worth, Nashville, Orange County, and San Diego.

With the run-up in apartment construction starts seen in late 2012 and early 2013, scheduled deliveries in the nation’s 100 biggest metros climb to 234,700 units in 2014. Demand is anticipated to rise too, thanks to an improving outlook for the economy generally, and for job production specifically. But apartment absorption probably won’t quite keep pace with product additions in 2014, according to MPF Research analysts, who think occupancy will cool mildly to 94.6 percent by the end of the year. The firm forecasts rent growth of 2.6 percent over the coming year, with middle-market product continuing to achieve price increases well above the upturns in the newer, luxury property segment.

While completions will accelerate in 2014, MPF Research anticipates that construction starts will move in the opposite direction. “We’re already seeing the number of units at the starting gate hit a plateau or actually decline in most markets,” Willett said. “It looks like the future new supply beginning construction in 2014 will dip at least 10 percent from 2013’s total, and the decline could be as much as 20 percent.”

Fewer completions in 2015 likely mean that 2014’s overall revenue

growth performance will mark the low point for the current cycle. “The big-picture story for the apartment

market is that we’re in a cycle where performances will remain solid for a long time, though they won’t be at Continued on page 25

Annual Rent Growth Leaders Calendar 2013 Rank Metro Annual Rent Growth 1 (Tie) Denver-Boulder 7.0% 1 (Tie) San Jose 7.0% 3 (Tie) Oakland 6.6% 3 (Tie) Portland 6.6% 5 San Francisco 6.0% 6 Seattle-Tacoma 5.5% 7 Miami 5.2% 8 West Palm Beach 4.9% 9 Austin 4.8% 10 Houston 4.4%

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RENTAL HOUSING JOURNAL ON-SITE

Property Ownership and Property Management Outlook 2014

By Marc Courtenay

Lan dlo rd– Ten ant Law

The year 2013 will go down in the record books as a good year for both owners and managers of residential income properties.

As I wrote recently in an article titled, It’s Tough to Afford to be a Renter These Days, “Housing affordability doesn’t look too promising as 2014 begins. If you listen to the National Association of Realtors the opportunity to be a homeowner hasn’t been this affordable in a long time.”

If you’re looking to sell a home, 2014 may be a good year though probably not as good as 2013. But if you’re looking to buy, 2014 will likely be a better year than 2013.

These are just some of the expectations that Jonathan Miller president and CEO of Miller Samuel, a real estate appraisal and consulting firm, shared with The Daily Ticker at Yahoo.com.

“Take home prices, which have been rising at a rate of 10%-12% — depending on which data you use, for example.” Miller says home prices will rise half as much in 2014 because more supply will come on to the market. “Inventory is now below

the usual six-month average, credit remains tight and unemployment and underemployment will remain high even if they’ve declined over the past year.

“How can we have price growth that we didn’t see in decades? It doesn’t make any sense,” Miller explains in the video above. About 40% of Americans have low or negative equity in their homes, says Miller. “They can’t trade up, make a lateral move [or} downsize, so they sit.”

And those who have the resources and good credit to buy will find that mortgage rates are higher. This is mostly due to the Fed’s recent decision to reduce its purchases of Treasuries and mortgage-backedsecurities (MBS). As I’ve stated many time before, qualifying for a new loan is and will continue be harder than in recent years.

“Under the Dodd-Frank financial reform law, lenders are required to meet new underwriting standards for “qualified mortgages” (QM) if they want greater protection from lawsuits. A QM loan must have a regular schedule for payment of principal and interest and fees paid by the borrower can’t exceed 3% of

the loan amount and monthly payments can’t exceed 43% of the borrower’s gross income” Miller explained.

The new rules “will continue to slow the momentum of improvement” in the housing market, says Miller. They will “bog things down for the first half of the year...an adjustment period [for rules] that is “probably a necessary evil.” The hope, of course, is that the new regulations will help protect the financial system from a crisis like the one in 2007-2008.

“These new rules will also impact Fannie Mae (FNMA) and Freddie Mac (FMCC) — the government sponsored enterprises that are still the backbone of the mortgage market. They buy about two-thirds of new mortgages and bundle them into mortgage-backed securities for sale in the secondary market. Fannie & Freddie will buy only mortgages that meet most of the QM criteria.

In addition, Fannie and Freddie are raising the fees they charge mort-

gage lenders in exchange for guaranteeing new loans. The increase will make Fannie & Freddie-backed loans more expensive, which will create more opportunities for private companies to compete in the same mortgage market, says Miller. That’s “taking our medicine,” says Miller. To read the rest of this insightful interview and watch the video click here.

So 2014 looks like a more challenging year for both property owners and managers, but don’t let that worry you. The flip side and the silver-lining is that owners who have invested in areas where vacancy rates are low will still find plenty of desperate renters wanting to become residents.

For property managers, whether your region has an abundance of potential renters or a deficit, if you’re a smart competitor with the latest and best technology, software and marketing strategies, you’ll outshine your competition.

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RENTAL HOUSING JOURNAL ON-SITE

Rent Growth...continued

from page 23

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Rental Housing Journal On-Site • February 2014

RENTAL HOUSING JOURNAL ON-SITE

Middle Innings...continued from page 22 and Agentfolio are registered trademarks of Zillow, Inc. HotPads and Digs are trademarks of Zillow, Inc. i The Zillow Real Estate Market Reports are a monthly overview of the national and local real estate markets.

The reports are compiled by Zillow Real Estate Research. For more information, visit www.zillow.com/ research/. The data in Zillow’s Real Estate Market Reports is aggregated from public sources by a number of data providers for 929 metropolitan and micropolitan areas dating back to 1996.

Mortgage and home loan data is typically recorded in each county and publicly available through a county recorder’s office. All current monthly data at the national, state, metro, city, ZIP code and neighborhood level can be accessed at www.zillow.com/local-info/ and www.zillow.com/research/data. ii The Zillow Home Value Index is the median estimated home value for a given geographic area on a given day and includes the value of all single-

family residences, condominiums and cooperatives, regardless of whether they sold within a given period. It is expressed in dollars, and seasonally adjusted. iii The Zillow Home Value Forecast uses data from past home value trends and current market conditions, including leading indicators like home sales, months of housing inventory supply and unemployment, to predict home values over the next 12 months for the nation and for more than 250 markets across the country. iv The Zillow Rent Index is the median Rent Zestimate (estimated monthly rental price) for a given geographic area on a given day, and includes the value of all single-family residences, condominiums, cooperatives and apartments in Zillow’s database, regardless of whether they are currently listed for rent. It is expressed in dollars, and is not seasonally adjusted.

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SOURCE Zillow, Inc.

Property Ownership Outlook 2014 ...continued

from page 24 tion versus competition, I’d recommend that property managers network with their peers to learn what’s working and how to cooperate your way to success. If you help your competition by referring business to them they’ll do the same for you.

Why? Sooner or later you’ll find a prospect who wants to rent in an area where you have nothing avail-

able.

When the opposite is true, you’ll find your property management competitor will refer prospect to you. Start 2014 with a winning, cooperative attitude and it could be one of your best years yet.

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