Rental Housing Journal On-Site
March 2014 - Vol. 8 Issue 3
3. House Offers Qualified Hope to Wounded Veterans 5. Occupancy by Who's Standard 7. Dear Maintenance Men 8. How To Find Property Management Super Stars…In 30 Days! 9. Remedies After the Lease is Up 10. Tips for Rental Housing Owners & Landlady Katie – Tax Time Doesn’t Have to be Taxing 11. Exit Strategy 18. Bending the Cost Curve
19. “Chimney Fire” Prevention – What to learn before you burn 21. Nearly Half of Renters and Landlords Show Incomplete Understanding of Basic Rental Laws 22. The Dreaded Annual Reviews – How to Make Them Effective 23. Why You Shouldn’t Use Excel as Accounting Software 24. The Mortgage Market is About to Get Smaller 26. It’s Tough to Afford to Be a Renter These Day
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Experts on Buying & Selling
ental Housing Journal sat down independently with apartment brokerage experts, Joseph Chaplik, Linda Fritz- Salazar and Greg Frick. This is the advice each gave: RHJ: What advise do you give to an investment property owner when they are considering putting a property on the market? JC: If you are considering selling, I would recommend working with a broker and brokerage firm that has the following: They should have a specific and sole expertise in the apartment market and a good history of past transactions as well as current activity. Working with the right professional is the main difference with selling correctly or making huge errors. LFS: I stress street appeal and operational health of the investment. Simple cosmetic enhancements and bookkeeping housekeeping can have a significant impact on the final sales price. The property’s appearance is the first perception a Buyer will have. The owner that shows pride in his property is a step up from the others. From simple items, such as trimming bushes and trees, cleaning up around the dumpster and parking lot, or replacing unit numbers on front doors to touching up paint on trim, gutters doors, window sills fences and gates will all have a positive effect on the property’s appearance. The operational health of a property can be a best foot forward by having organized books and records. Make sure all leases are up-to-date and tenant files are organized and orderly. Keep a monthly “rent roll” Professional Publishing Inc. PO Box 6244 Beaverton, OR 97007
that will show all of the particulars for each unit, not just the day and the amount of rent paid. Things like move-in date; lease expiration date, refundable deposits and non-refundable deposit information all make the potential Buyer feel secure with the records. Maintain a monthly record of all income and expense items, in detail, and keep receipts. The more organized you are, the more impressed the Buyer will be. GF: Find a firm that knows how to listen. By listening to what your goals and objectives are, a good bro-
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ker can help put a plan together that will help achieve your goals. Be careful of those who might just tell you what you want to hear! The person you work with should listen to you, and be willing to tell you when, given all the circumstances involved, it’s not in your best interest to sell your property. Then, when you’re sure the time is right, choose a brokerage team with the experience, knowledge and skill to implement an effective plan of action. RHJ: What about buying? What words of wisdom do you have for
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prospective investor when they are considering buying a property. JC: If you are considering buying, I would recommend working with a broker and brokerage firm that has the following: They should be experts in the apartment market and have the knowledge and deep resources to assist with finding the right property for sale. There should be a lot of data given to you by your broker to help evaluate the right purchases and how it compares to the rest of the market. They should also know the future potential of propercontinued on page 5
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House Offers Qualified Hope to Wounded Veterans By Greg Lucas On January 13, 2014, the State House again took under consideration House Bill 1214. Briefly stated, HB 1214 exempts from property taxes veterans with one hundred percent service-connected disabilities and active duty members of the armed forces, National Guard, or Reserves who have incurred a catastrophic injury in the line of duty. The Bill has been around awhile. It was first introduced a year ago and sent to the Finance Committee, reintroduced in May of 2013, reintroduced in November of 2013, and reintroduced in January. This is a bill that deserves action. The Bill’s heart is in the right place, although the devil is in the details. Our veterans deserve every consideration we can give them. But ask any veteran, and you will learn that they are a proud bunch. They have a right to be. By putting on a uniform, and pledging to “…support and defend the Constitution of the United States against all enemies, foreign and domestic, …”, our service men
and women willingly put their lives in peril for our sake; for freedom, for our children, for those too cautious to take such risk. We owe them something; not as an entitlement, but as the repayment of a debt. There is a difference. Some debts are harder to repay than others. How do you meaningfully thank a warrior who died in battle? By taking the family camping on Memorial Day? How do you honor the woman whose leg was blown off while serving in Afghanistan? Our veterans carry the scars of battle in ways we can never fully understand. Yes, it was their duty. They know it. But it was also our duty. Protecting liberty is not the unique role of those in uniform. We all have that duty. Those in uniform volunteer to take our place, doing our duty for us. Therein lies a debt to repay – our debt. HB 1214 has its flaws. For example, it exempts property taxes for claimants over the age of sixty-one, who are retired from gainful employment by reason of disability who have a one-hundred percent serviceconnected disability rating; or active duty service members who suffered a
catastrophic loss within twenty-four months prior to the date of application for exemption. The rationale behind the restrictions appears to be the sort of legalism you might expect from one wanting to close loopholes. HB 1214 also imposes limitations on the benefit based on disposable income. If someone whose body is wrecked in combat somehow is able
to make good in civilian life, the benefit effectively goes away. In other words, if their lives are irretrievably altered by service-connected wounds, they must prove that they deserve what amounts to welfare based on their inability to pay property taxes. Again, the limitation is nonsense. It may make budgetary Continued on page 6
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Experts ...continued from front page ties and how to protect your investment and help grow it. LFS: Before giving advice to an investor, it is imperative that we find out what the investor wants and/ or what he/she needs. Wants are wishes and I, as much as most, understand unless you have a wish, you will never have a wish come true, realize needs are where we should start. Many investors come to our market and say they want an 8 or a 9 CAP, only to realize they need cash flow to cover the debt, if they need to borrow, and they need to put some money in their pocket after all expenses are paid. That’s not necessarily an 8 CAP purchase, initially. It doesn’t mean a 6.5 or 7 CAP property at time of purchase can’t get there. A second piece of advice or piece of the puzzle to match is to find out what the investor plans to do for management. Many owners prefer to self-manage, staying very “handson” and involved. Conversely, many have no interest in this facet of ownership and will gladly let someone else take care of the broken toilets and leaky faucets. Management plays a large part in the success and profitability of multi-family ownership. I do not want to overlook, perhaps, the most important piece of advice and that would be to find a
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broker who is experienced, not only in selling apartments; but ownership, management and the ongoing success of the investment. GF: In addition to the above, you need to have someone working for you with the expertise to analyze the properties in terms of valuation and operations. In any transaction, it’s “surprises” that come up that prevent a sale. You will be best served by working with an expert who can identify potential surprises and find solutions in advance. You’ll also want to work with someone who is not afraid to tell you whether what you’re hoping to find is in line or out of line with the market. Portland metro multifamily properties typically are not trading at cap rates above 7.5% and above. A buyer coming into this market sometimes needs to be educated on whether their expectations in terms of return and pricing are realistic. Look for a firm that doesn’t push you into a deal because it benefits them. Find someone who does what’s right for you. A client can get the most out of a broker/client relationship when they are acting in sync over the long term. Brokers are always on the front lines of what properties are coming to market. The more they know about you and your Continued on page 5
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Rental Housing Journal On-Site • March 2014
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Occupancy by Who's Standard Part I of II
By Jo Becker, Education/Outreach Specialist, Fair Housing Council Serving Oregon and SW Washington
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recently read an article on screening by a representative of a NW property management firm. In it was included the company’s screening requirements, as well as what was apparently their stock occupancy standard for all units: “Maximum occupancy of no more than two (2) persons per bedroom.” There is a growing body of case law across the country in which housing providers – both landlords and condo / homeowners’ associations – have lost cases in which they’ve had two-people-per-bedroom policies. At this point, we have not seen a housing provider loose a case with a two-plus-one policy1, so long as it takes into account other factors such as the overall size of the unit. The recommendation we’re seeing come out of these cases is that housing providers ought to thoughtfully consider a separate occupancy standard for each, individual floor plan, based on several factors. The Fair Housing Council has put out more than one article on occupancy standards and related fair housing implications (available at www. FHCO.org/occupancy.htm) but this is a topic that continues to come up in classroom sessions and Hotline questions. Having also just read a couple stunning reports detailing the legal and historical context for occupancy standards, I thought I’d dive back into the subject anew to reiterate fair housing cautions and share some very illuminating information. What follows is the first in a twopart series detailing research and commentary by two occupancy policy experts and fair housing advo-
cates. In this article, we’ll look at the work of Tim Iglesias of the University of San Francisco School of Law as he explores the legal implications and disparate impact of overly restrictive occupancy policies, including two people per bedroom. In the next article, the work of Ellen Pader, an anthropologist and Associate Director of the Housing Research Center at the University of Massachusetts Amherst provides revealing historical and cultural perspectives behind our country’s occupancy policies. THE PROBLEM Tim Iglesias states clearly that “overly restrictive private ROS [residential occupancy standards]… substantially reduce the housing choices... Demographic trends and the prolonged economic recovery which prompts more doubling-up promise this issue will only grow in importance.” What’s more, there are profound societal fair housing implications, regardless of individual intentions. Iglesias proffered some suggestions to the Dept. of Housing and Urban Development (HUD) in a document entitled Recommendations to HUD Regarding Application of the FHAA2 to Residential Occupancy Standards. In it he states that, “the two-person-per-bedroom standard discriminates against families. New empirical evidence demonstrates that this finding applies to substantial proportions of studios and onebedroom apartments...” He sites a study that “found that families with children run afoul of the standard more than ten times as often as other households. Ten percent of families with children live in one-bedroom units, and nearly three-quarters of those families exceed the two-per-
son-per-bedroom standard. In addition, regardless of the type of unit to which it is applied, the two-person-per-bedroom standard has a disparate impact across racial lines. National studies show that the proportion of African Americans excluded by this occupancy standard is statistically significantly higher than for whites; the proportion of Asians excluded is higher than the proportion of blacks; and the proportion of Hispanics excluded is the highest of all. Indeed, more than one-third of all Hispanic children living in one-, two-, or three-bedroom apartments in the United States in 2007-2009 would have been displaced by rigorous application of the two-personper-bedroom standard. Overall, the study found that when applied the two-person-per-bedroom standard substantially limits the housing choices of many thousands of families, especially Latinos, Asians and extended families.” Iglesias asserts in a 2011 Memo to Fair Housing Advocates that, “[t]his problem is particularly acute in nicer housing in neighborhoods with attractive amenities (e.g., good schools, access to shopping, jobs and medical care).” He also explains that two-person-
per-bedroom, “has a dubious origin: 1. There is no objective evidence that the two-people-per-bedroom standard was calibrated in any way to be a standard which presumptively avoided discrimination. 2. and, the two-people-per-bedroom standard predates the 1988 FHAA, which was intended to be remedial legislation to address previous discriminatory practices against families. 3. …research examining the historical origins of the two-person-per-bedroom standard has found that it was neither scientific nor otherwise objectively grounded, but merely the product of classist and ethnocentric paternalism. According to Iglesias, “there is no objective evidence that the two-people-per-bedroom standard is necessary – much less uniquely suited – to protect landlords’ reasonable interests. 1. Rather, [it] is merely the housContinued on page 6 ing industry’s traditional standard.
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Experts ...continued from page 4 investment goals, the more great opportunities will come knocking at your door. Joseph Chaplik is President of Joseph Bernard Investment Real Estate. Joseph Bernard Investment Real Estate is headquartered in Portland and has offices in Washington and Arizona. They consistently complete more apartment transactions annually than any other Oregon firm. www.josephbernard.net Linda Fritz- Salazar is Associate Broker at The Kasten Long Commercial Group. KLCG has specialized in apartment brokerage in metro Phoenix since 1998. Agents have brokerage more than 1,000 communities with gross sales in excess of 1 billion dollars. The company also provides weekly updates (by email) on apartment sales and publishes Rental Housing Journal On-Site • March 2014
the Metro Phoenix Apartment Owner’s Newsletter on a quarterly basis – past issues are available on the company’s web site (www.KLCommercialGroup.com). Greg Frick is a partner at HFO Investment Real Estate. Founded in 1999, this apartment-only brokerage firm has handled transactions on over 15,000 units valued at $1.84 billion throughout Oregon and Washington. Greg works with both private market and institutional clients and can be reached directly by phone at 971-717-6332 or email greg@hfore.com. For details about apartment listings and services visit www.hfore.com.
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Occupancy ...continued from page 5 2. It’s really a prophylactic policy that errs widely on the side of protecting landlords’ interests and is not designed to avoid discrimination. 3. Moreover, in jurisdictions where FHAPs [Fair Housing Assistance Programs] employ a “two-persons-per-bedroomplus-one” enforcement guideline, there is no objective evidence that landlords using this more generous standard have suffered any so-called “overcrowding effects.” “Arguments that the two-personper-bedroom standard has legal force are weak. Even if the Keating Memo3 has some legal force, it would be the whole memo, not the [two-person-per-bedroom] standard
standing alone.” The memorandum “provides that a two-person-perbedroom standard is “presumably reasonable” (ambiguous but apparently meaning presumptively compliant with FHAA), but that all private residential occupancy standards are subject to a multi-factor analysis to determine whether or it violates the FHAA.” THE HARM The problems with overly restrictive occupancy policies are numerous, leaving a multitude of households with few options. Many are harmed as they are forced to “reconfigure their household composition,” as Iglesias puts it, “[and] split up and deprive its members of their desired living situation. Splitting up the family can conflict with deeply held
cultural preferences / norms to live closely as a way of life and to keep together the intergenerational family, the extended family, or both.” If unwilling to “reconfigure its composition,” then the family must either: • secure more housing than desired which imposes additional costs, • accept inferior quality housing, such housing often poses health risks to residents or • accept an inferior location, “… typically in an area with worse schools, more crime, and decreased access to jobs, transportation, shopping, and other amenities. Cumulatively, movement to these inferior locations increases economic and racial segregation.” “Finally, the denial of housing choice by the application of a restrictive residential occupancy standard may also constitute illegal discrimination.” Iglesias goes on to site a multitude of cases that reference the discriminatory harms incurred by ROS3. THE JUSTIFICATION Why do landlords impose ROS? Iglesias asks then answers the question: 1. “They do this for a variety of reasons. Some are legitimate some of the time, but they are often overstated. And landlords have a hard time documenting a clear and direct linkage between a legitimate business reason and a particular ROS. 2. Landlords’ traditional arguments for imposing a ROS are summarized by the phrase “overcrowding” and include: a. preventing a variety of economic costs caused by socalled “overcrowding,” including concerns about future property value and profits, increases in “wear and tear” costs…, extra
expenses for utilities and garbage, increased (risk of) damage to the property, increased insurance costs, and increased management costs; b. preventing nuisance-type harms to other tenants and neighbors from “overcrowding,” including noise and increased demands for parking; c. to promote often paternalistic concerns about the habitability / quality of life of tenants, including the safety and appropriateness of facilities for children and purported psychological harm to tenants from living in “overcrowded” spaces, and d. to avoid overtaxing the carrying capacity of one or more systems of the housing unit (e.g., water or sewage).” THE PROBLEMS WITH THE KEATING MEMO Iglesias argues that HUD’s enforcement practices have enabled the two-person-per-bedroom standard to become de facto law, but that new empirical evidence demonstrates this standard is often discriminatory. Part of HUD’s implicit involvement includes what was issued as an internal document from a HUD staff, Mr. Keating, but which has come to be seen as an endorsement of two-people-per-bedroom policies. (You can view the Keating Memo and subsequent guidance from HUD at www. FHCO.org/occupancy.htm.) As Iglesias notes, “[s]ometimes defendants seek to use HUD’s Keating Memorandum as a “defense” of two-person-per-bedroom standards because the Keating Memo states that this standard is “presumptively reasonable.” While many courts have made reference to the Keating Memo and the two-person-per-bedroom standard, no court has ever properly analyzed whether it owes any deferContinued on page 13
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sense to a state bureaucrat. But it gives short shrift to the ones who put themselves in harm’s way for us. Perhaps our legislators should ask themselves this question: Did our soldiers pledge to support and defend only those of us who can demonstrate an inability, based on income, to defend ourselves? If not, why would we only offer to repay our debt to them, only if they really need it? The notion is absurd. Balance the budget, yes, but not on the backs of our veterans. This is not tough. Exempt all service men and women who suffered catastrophic losses in the line of duty
from paying property taxes – no exemptions, no restrictions, no delays, no excuses. They deserve it. Do it now. It’s the right thing to do. Mr. Lucas is a Bellevue attorney and a veteran who was proud to serve. He can be contacted at 425-454-3302. The views expressed are solely those of the author and not necessarily endorsed by Rental Housing Journal.
Rental Housing Journal On-Site • March 2014
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Dear Maintenance Men: By Jerry L'Ecuyer & Frank Alvarez
By Jerry L’Ecuyer & Frank Alvarez Dear Maintenance Men: When the bathroom faucet was new, turning off the hot or cold water knobs would cut the flow of water immediately. Two years later, upon turning them off, the faucet weeps a bit of water. Is this a sign the knob isn’t working? Can a clogged spout screen be fixed? With all these problems, do I need to buy an entire new fixture? Paul Dear Paul: Most types of faucets are repairable with standard tools and a rebuild kit. Note the brand and style of the faucet and find a corresponding repair kit at the local plumbing supply house or home improvement
center. Repair kits often come with the specialized tool you may need to repair the faucet. The faucet screen can be cleaned and is housed in a removable assemble at the end of the spout. These can be spun off and the screens cleaned and replaced. Keep in mind the cost of repairs may rival the cost of replacement. If the cost of repair is more than fifty percent of the cost of replacement, we recommend the faucet be replaced with new modern fixture. Dear Maintenance Men: We have a vacancy and are currently upgrading the units as they became vacant. We are looking for an inexpensive way to upgrade our rental units. In other words, spiffy them from the normal. Hans Dear Hans:
A great way to update older and modern units is to upgrade the cabinet knobs, interior door knobs and hinges. Typically apartment or builder grade knobs and hinges are rather utilitarian in nature. They get the job done and that is about it, nothing fancy. That missing certain “je ne sais quoi” in a remodeled unit can be found in the choice of knobs and hinges you install. A wise choice is a lever style knob. They come in many different finishes and colors and they not only look attractive and modern, they are user friendly for any disabled or older residents. The use of solid brass knobs adds a bit of weight to a door making it appear rich and sophisticated. Stainless steel knobs and pulls can make an older unit look more modern. Check at your local home improvement center for ideas along
with these brand names to look for: Westlock, Hamilton Sinkler, Schlage, Baldwin, Kwikset. Dear Maintenance Men: We have a one-handle adjustable faucet in our kitchen. It has been in use for about seven years. At this point, it seems to not turn off well after use. It’s loose. Sort of like a car’s stick shift that won’t engage. At this point, is it simply worn out and needs replacement? Just what is the typical life cycle of such a faucet given typical use in the kitchen? Bryan Dear Bryan: The typical life time of a good quality single handle faucet is between five and ten years. Because of the many different faucets on the market, it is difficult to give an exact Continued on page 10
www. Rent a l H o us i ng J our na l.co m 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.
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How To Find Property Management Super Stars…In 30 Days! by Ernest F. Oriente, The Coach {Article #215…since 1995}
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ould you like to learn the secrets for finding SuperStars to join your property management company…in 30 days? Are you tired of placing ads and wondering why it takes months to fill a vacant position? Have you looked at your budgets for this year and considered how a few key SuperStars could impact your compensation bonuses? Follow the three steps in this article and your dream of having a powerful property management team will be 30 days away! Recruiting internally: Begin your internal recruiting for SuperStars by paying a recruiting bonus to your current employees if they find a new candidate who becomes an employee of your property management company. A typical recruiting bonus of $250-$1000 could be earned for each new employee hired. 50 percent of this recruiting bonus could be paid to the referring employee on the day the new employee begins and the remaining 50 percent of the bonus could be paid after the new employee has worked six continuous months for your company.
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Next, include a classified ad in the E-newsletter that is sent to the residents of the properties you manage. If your residents really enjoy living at your wonderful apartment community, imagine the asset they will be on your property management team. Lastly, consider using the services of a temporary employment agency to fill short-term positions and vacation days, while using their service to find potential future employees. Tip From The Coach: Temporary employment services will want you to pay a recruiting fee if you want to convert one of their temps to full-time status with your property management company. Remember, their fees are negotiable, especially if you discuss your hiring plans with them in advance or show them the significant amount of money your company has paid them over the past years. Of course, the best SuperStar recruiting comes from making internal promotions, which raises team morale at the same time. Recruiting externally: Begin your external recruiting
search by looking at the people employed by competitive property management companies. Since these companies employ individuals in the multi-housing industry, this is a targeted place for recruiting SuperStars. Trade shows and apartment association meetings are also a great place to network and meet these potential candidates. Next, consider the vendors who serve the property management company, as these vendors spend the majority of their day working with companies just like yours, and their expertise and industry knowledge can be a great asset when it comes to looking for help with your recruiting efforts. Lastly, try using employment placement agencies that specialize in the property management industry or place your employment advertisement in the magazine or E-newsletter published by your local apartment association. Tip From The Coach: Have you considered doing a hiring seminar to recruit new employees for your property management company? If you can imagine the normal hiring process, which typically takes
two to four weeks, and would like to see this process condensed into two hours, send an E-mail to ernest@ powerhour.com asking for details. Recruiting using current technology: If your property management company has a website, add “job opportunities” to your main web page. To see some examples of this idea, go to www.aimco.com or www.riverstoneres.com or www.pinnacleams.com. Next, try placing your hiring ads at websites specializing in employment opportunities like Monster or Career Builder or LinkedIn, just to name a few. Lastly, on your company E-mail system, add job opportunity information so it appears in the “signature” file at the bottom of every E-mail that is sent. Tip From The Coach: Recruiting using today’s technology is fun and fast. More importantly, have you seen the demographics of the type of people who are online? Still wondering how to find property Continued on page 9
Rental Housing Journal On-Site • March 2014
RENTAL HOUSING JOURNAL ON-SITE
Remedies After the Lease is Up
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hen a tenant moves out and fulfills the full term of his or her lease, he or she is not normally obligated to pay any additional rent to the landlord. However, an Arizona Appellate Court ruled that in some instances a landlord may be able to charge extra rent. This article will examine that case. The Arizona Landlord and Tenant Act, under Section 33-1373, does allow a landlord to charge rent until the lease expires or the apartment is re-rented when the tenant breaches his or her lease. Additionally, if a tenant who is on a month-to-month agreement does not give a 30-day notice under Section 33-1375, 30 days from the next rental period, the tenant can be charged up to an extra month’s rent. What happens when a tenant pays all the rent due under the lease and moves, but leaves the apartment damaged or so dirty it cannot be rerented until cleaned? The Arizona Court of Appeals decided in SDR Associates v. ARG Enterprises, Inc. that a tenant would be responsible for lost-rental income. Specifically, the court said a tenant’s failure to return the property to its original condition, as required by the lease, entitled the landlord to
recover rent lost during the time necessary to restore the premises. In the SDR Associates case, it took the landlord two months to make repairs. During that period the owner was unable to lease the apartment unit. Keep in mind the law requires a tenant to return the premises in the same condition it was at the time of occupancy, normal wear and tear accepted. There is, however, no exact formula used by the courts to determine what is “normal wear-andtear.” Some factors are the condition at move-in and the length of time in the unit. Obviously, someone who lived in an apartment for four years would have more wear-and-tear than a person with a six-month occupancy in a new apartment. A landlord must provide a tenant with a move-in inspection form so they can establish the condition at move-in. As an example, consider the following: George Cantcook rents an apartment from the manager of Hungry Arms Villa for six months. The unit is brand new with no damages listed on the move-in statement. Since George really can’t cook, he orders out for each meal. Not only can’t George cook, he can’t take the
Super Stars ...continued from page 8 management SuperStars? Try more online recruiting and watch to see the world-class candidates who begin to apply for positions with your company. In addition, use behavior and values assessments to numerically evaluate and benchmark key success factors such as intensity of ambition, people skills, economic drive and sales skills. Want to hear more about this important topic or ask some additional questions? Send an E-mail to ernest@powerhour.com and The Coach will E-mail back to you a free invitation to be a participant on a TeleForum conference call. For those who join this TeleForum, a bonus of 17 recruiting tips and 37 employment recruiting websites will be shared! Ernest F. Oriente, a business coach/ trainer since 1995 [31,500 hours], serving property management industry professional since 1988--the author of SmartMatch Alliances™, the founder of PowerHour® [ www.powerhour.com ], the founder of PowerHour SEO [ www.powerhourseo.com ], the live weekly PowerHour Leadership Academy [ www.powerhourleadershipacademy.com/pm ] and Power Insurance & Risk Management Group [ www.pirmg. com ], has a passion for coaching his clients on executive leadership, hiring and motivating property management SuperStars, traditional and Internet SEO/SEM marketing, competitive sales strategies, and high leverage alliances for property management Rental Housing Journal On-Site • March 2014
teams and their leaders. He provides private and group coaching for property management companies around North America, executive recruiting, investment banking, national utility bill auditing, national real estate and apartment building insurance, SEO/SEM web strategies, national WiFi solutions [ www.powerhour.com/ propertymanagement/nationalwifi.html ], powerful tools for hiring property management SuperStars and building dynamic teams, employee policy manuals [ www. powerhour.com/propertymanagement/ employeepolicymanuals.html ] and social media strategic solutions [ http://www. powerhour.com/propertymanagement/ socialmedialeadership.html ]. Ernest worked for Motorola, Primedia and is certified in the Xerox sales methodologies. Recent interviews and articles have appeared more than 8000+ times in business and trade publications and in a wide variety of leading magazines and newspapers, including Smart Money, Inc., Business 2.0, The New York Times, Fast Company, The LA Times, Fortune, Business Week, Self Employed America and The Financial Times. Since 1995, Ernest has written 225+ articles for the property management industry and created 400+ property management forms, business and marketing checklists, sales letters and presentation tools. To subscribe to his free property management newsletter go to: www.powerhour.com. PowerHour® is based in Olympic-town…Park City, Utah, at 435-615-8486, by E-mail ernest@ powerhour.com or visit their website: www. powerhour.com. For leading trends about property management, surf www.powerhour.com
time to clean-up after each meal. At the end of six months, George Cantcook gives proper notice and
moves. However, Hungry Arms Villa has to replace the food-stained carpet, repair the walls and fumigate the unit. Hungry Arms hires Peachy Keehns Cleaning Service, which takes one month to restore the unit to rent-ready condition.
Hungry Arms sues and receives an additional month’s rent from the Judge Mary Gold Flower.
By Andrew M. Hull Hull, Holliday & Holliday www.doctorevictor.com
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T
Tax Time Doesn’t Have to be Taxing
ax time is here again and you should be aware that rental income isn’t the only way to make money when you rent a property. There are many incentives and tax advantages given to rental owners that entitle you to larger profits. Some of these money saving advantages are available monthly, and some of which are available annually when filing your taxes. Were you aware that often the entire amount of your property loan payment is tax deductible? This means that both the principle and interest payments made towards your property loan may possibly be deducted from your rental income. In addition, the interest that you pay on credit card purchases for your rental property is also tax deductible. As a real estate investor, you want the
rental income to match as closely as possible to the property expenses to minimize tax liability. Some of the other common property expenses that are tax deductible include repair and maintenance costs, home office expenses, casualty or theft loss, all related travel to the property to make repairs or do regular inspections, professional fees such as an attorney or accountant, hazard insurance premiums, property depreciation beginning from year two of the rented property, and even a portion of your landlord association membership dues. The government provides us these tax exemptions to encourage greater real estate investing. Real estate investing plays a strong role in the economy, from the laborers who repair and build houses, to the mortgage broker who
secures the property loan. Your investment dollars help to strengthen the housing sector in many ways and these tax deductions is our government’s way of saying “thanks”. The major key to taking advantage of the available write-offs is good record keeping. A complete year-todate file of your properties income and expenses will help ensure accuracy and assist your tax preparer in capturing the largest possible tax deductions for your business. So start by organizing your credit card statements, mortgage and insurance statements, and receipts. In addition, always check with a tax adviser or the IRS about other returns, deductions, or advantages that may be available for your situation specifically. The tax laws change often, so consulting with a professional who is familiar with
real estate investments will keep you up to date with what’s available to you as an investor. And don’t forget that their fee is a write-off! Also, talk to each other. Real estate investors can help one another by just sharing their own experiences. The tax rules for landlords are pretty favorable. Let us learn from our peers, and the professionals, how to only pay our fair share of taxes. 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.com
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transition from literally having everything hand written, to the invention of the telephone and now to the endless possibilities of internet communication and email. Everyone communicates on the phone and in a lot of ways it is the most direct and efficient way of getting the job done. However, how many times have things slipped through the cracks or been mis-communicated because the original message is lost in translation and memory? I can’t hear our property managers reiterate enough to their resident managers the need to follow up on phone calls with an email summary. It saves so many steps and provides a great back up when controversy arises. Along with always having doc-
umented evidence, the old business tactic of under-promising and over-delivering will never cease to be relevant. There always comes a time when business operators have wishful thinking and want to deliver sugar-coated hopes and dreams to their clients. But this is where dreams and reality need to have a fine, realistic line carved right down the middle. As the intelligent American author Ernest Hemingway once said (more profoundly): “the most essential gift for a good writer is a builtin, shockproof, crap detector.” This applies to a businessman as well. In order for your property to function, you have to be straightforward with everyone involved in the functioning of the property. That way when Continued on page 19
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Exit Strategy
How Do You Know When It Is Time for You to Sell or Trade Up? By Clifford A. Hockley, President Bluestone and Hockley Real Estate Services Investment goals, do you have them? Crazy as it may sound, most investors drive blind. They don’t have investment goals, they don’t have a monthly or annual review of their investments, and they don’t have an investment strategy. When you are looking to get off your investment plan you’ll need an exit strategy. Unless you can predict the future you’ll need to know where you’re going to get off on the right exit. How do life’s obstacles change our investment strategies? Many of us invest in real estate, because our friends or family invested or we read a book making it sound simple. Often we think of it as a way to diversify our investment portfolios, hoping that if stocks go down real estate will go up. In any case we are looking for a profitable way to invest, but don’t have solid goals and a long-term plan. If we are fortunate we make money on our first deal and we are off to the races, but more often than not investment success comes after years of smart decisions and maneuvering around life’s obstacles. Typically when we start contemplating investing in real estate, we think of paying for college for the kids or retirement (which is so far off). Maybe we have a chance to read Richard Kiyosake’s book “Rich Dad Poor Dad” and want to retire on the income generated by our real estate investments. We are thinking of “get-
EXIT ting into the game”, not about a path to success or an exit strategy The strength of real estate investing revolves around knowing where you are going, and that can easily change throughout out life. When you are in our twenties you typically don’t have as much money to invest. Maybe you are getting married and focused on buying a home and having kids. The last thing on your mind is putting money aside to purchase a real estate investment. Suddenly you are turning thirty five. Your kids are in elementary school and you realize you need to save for college for your kids; can you do that and save for retirement as well? A real estate investment might do the trick for you and, as luck would have it, your grandparents pass away and left you their home. Instead of moving in you renovate the house and make it into a rental.
You are one of the fortunate ones, because you are starting out with zero debt. . The house is in good condition and you have long term tenants and not too many worries. You start figuring and you find out that college for each one of your two kids will be forty thousand dollars a year, for a total of about three hundred and twenty thousand dollars. The house is only worth $120,000 today, and if you are lucky will be worth $240,000 in
ten years. It’s a limited amount and you aren’t sure if you want to sell the house to pay for the kids college education. Don’t forget that once you sell all the money you had planned on helping you through retirement is now for your kids’ future education. You are doing ok and banking about $800 a month or $9600 a year so that could help with tuition. But should you use that money to buy another investment? You are forty five. The kids are now about to graduate high school and your wife is going back to work to help out with the bills. At the same time your parents are getting older and need more help, so they decide to move in. In order to do that you might have to sell the house because your home is not handicapped accessible. You turn fifty five, the parents are in assisted living and the kids are done with school. You managed to keep the rental and buy one more house, but you never really planned for your retirement. You’re not as energetic as you once were. You are making good money but barely keeping up with the new car payments and the wedding your daughContinued on page 23
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Occupancy ...continued from page 6 ence to the Keating Memo. Even if the Keating Memo is due some deference, such deference would be to the whole memo including its factors analysis…” The Keating Memo is problematic for many reasons, including its use of the two-person-per-bedroom standard as “presumptively reasonable” and its lack of clarity in how to apply the factors it advices housing providers to consider, such as the size of bedrooms and the unit, the configuration of unit, other physical limitations of the housing, state or local law, and other relevant factors. Iglesias notes that, “any private residential occupancy standard – including two-persons-per-bedroom – is subject to review using the factors stated in the [Keating] memo… [T] he misunderstanding among many that the Keating Memorandum provides a “safe harbor” for landlords who impose a two-person-per-bedroom standard” has caught a growing number of housing providers by surprise. Among other things, Iglesias urges HUD to “adopt a regulation to define the appropriate liability standard and defenses and to establish a true safe harbor for landlords. The Keating Memorandum provides a useful form for this standard, but specifics need to be worked out.” He goes on to theorize that “[i]f studies were conducted, they are likely to
Rental Housing Journal On-Site • March 2014
show that 2.5 people per bedroom or 3 people per bedroom is a more appropriate safe harbor, at least for studio and one-bedroom units. The Keating factors must be further specified, e.g. setting the square footage of a regular-size bedroom and defining when additional habitable space requires allowing additional occupants.” Check back here for the next in this two-part series. Don’t forget to go back and take a look at FHCO’s earlier articles on occupancy policies posted at www.FHCO.org/occupancy.htm for additional information in the meantime. Of course, you can find information about familial status and race, color, and national origin and other protected classes at the Council’s site as well. 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. 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. Continued on page 20
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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 • Immediate Past President – Jay Olson
I
Advocate, Educate, Celebrate
n order to continue our strong commitment to the multifamily industry and represent our members through legislative advocacy, promoting career development and supporting the work of our entire community, the Washington MultiFamily Housing Association continues to work hard for you. The Government Affairs team at WMFHA has been tracking legislative issues in Olympia the past two months. Through the efforts of our lobbyists and volunteer members, we have testified at several public hearings, either for or against proposed legislation, to ensure our members’ needs and the industry’s interests are considered by lawmakers. Here is a summary of legislative issues effective March 2, 2014: Bills that are dead this session ESHB 2368 – Recording Surcharge This bill replaces the temporary $10 and $30 surcharges for recording most real estate documents with a permanent $40 surcharge. Most of the funds are dedicated to providing assistance for the homeless and some of the money does find its way to private landlords in the form of rental
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payments. Components of this bill might still appear in budget discussions at the state level. SHB 2537 – Tenant Screening The bill was amended in the House to address some of the concerns that had been raised by landlord advocates. The amended version had a hearing in the Senate on February 27. At this hearing is became clear that there is only one screening product currently available in Washington that could meet the requirements of the legislation. Even the company that produces this product testified in opposition to the substitute bill. The bill was not given a vote in the Senate committee. SB 6143 – Warranty of Habitability This bill was the landlords’ effort to reverse the potentially damaging effects of the Landis decision by the Court of Appeals. The bill passed the Senate and had a hearing in a House committee on February 25. The bill was not given a vote in the House committee and the issue will be a work in progress by landlord advocates after the session ends. SHB 2481 – Food and Yard Waste This bill would have required the
State Building Code Council to adopt regulations in the 2016 code cycle that would mandate new multifamily construction to include space for the collection of food and yard waste. HB 2401 – Smoke Alarms This legislation would have required the installation of a new type of smoke alarm in residential properties beginning July 1, 2016. The alarm must have a 10-year, non-removable battery and what is described as a “hush feature” that allows the device to be temporarily desensitized to reduce nuisance alarm activations. We urged the bill be defeated. SB 6292 – 90 Day Notice of Rent Increase - Relocation Assistance This bill would have done 3 things that are major concerns for landlords. First, it required a landlord to give at least 90 days notice of a rent increase. Second, it required a landlord to give at least 90 days notice of any rule change. Third, it increased the number of tenants that are entitled to relocation assistance from those that are at or below fifty percent of median income to those that are at eighty percent of median income. We opposed the bill and it was not voted out of committee.
18300 Cascade Ave. S., Suite 130 Tukwila, WA 98188 (425) 656-9077 (425) 656 9087 (fax) admin@wmfha.org
To review any of these bills visit www.leg.wa.gov, select “Bill Search” tab and enter the bill number. WMFHA offers apartment industry personnel and industry supplier representatives invaluable educational opportunities in the form of courses, seminars, certifications and designations created to increase their professional development, industry knowledge and job performance. Our career development programs scheduled for the next few months include the prestigious Certified Apartment Manager (CAM) courses, the Certified Apartment Portfolio Supervisor (CAPS) designation, and classes qualifying for Certified Pool Operator (CPO). Feel free to review our website at www.wmfha.org to become acquainted with the education programs offered at WMFHA. WMFHA conducts many different business relationship-building events to bring our membership together for the purpose of networking, socialization, sharing ideas, providing important information about our industry - and having fun! Our Emerald Awards celebration held in February was attended by 900 property management and industry partner members and special guests continued on page 16
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Advocate, Educate, Celebrate ...continued from page 14 to celebrate the accomplishments of those employees and communities recognized by nomination from their peers. This was a very special, heartwarming and inspiring event. Celebrating our on-site service teams, Maintenance Summit will be held April 30th and is formatted as an all day hands-on training educational conference and trade show exhibition for maintenance supervisors and technicians. This is a rare opportunity for us to provide value to our industry through specialized and much needed training in the maintenance sector of our members’ businesses. For property management career employees, EdCon, our industry education conference and exposition, is a can’t miss opportunity to learn industry best practices and key skills that can be immediately implemented on site. Come listen to National keynote speakers present leadership and marketing trends and learn solutions to day to day issues surrounding our industry from your peers during our Think Tank brainstorming session. Go to our website now to ensure your employees do not miss out on either of these two valuable conferences. For non-members considering joining WMFHA, take advantage of our current New Member Recruit-
ment Campaign, with discounts on membership dues, education opportunities and event attendance. Call us today at 425-656-9077 to learn more about how to get involved and take advantage of the value of membership in our association. Thank you to all who make our association strong, vibrant and caring. Jim Wiard – Executive Director
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Bending the Cost Curve
A New Report from the Urban Land Institute and Enterprise, Explores Solutions to Expand the Supply of Affordable Rental Housing WASHINGTON – Solutions to increase the supply of affordable rental housing are explored in a new report from the Urban Land Institute’s (ULI) Terwilliger Center for Housing and Enterprise Community Partners, Inc (Enterprise). Bending the Cost Curve: Solutions to Expand the Supply of Affordable Rentals outlines factors that impede the development of affordable rental housing – causing the supply in
many markets to fall far short of the demand – and offers specific, actionable solutions to overcome the barriers. Nationally, there were only 6.9 million rentals affordable to 11.8 million extremely low-income renters in 2011, a supply gap that grew by three million renters between 2001 and 2011—and continues to grow. “In an era of growing demand and declining government financial support
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for affordable rental housing, it is more important than ever to deliver affordable housing as effectively as possible,” the report says. “Bending the cost curve will enable developers to deliver additional affordable rental homes and help jurisdictions provide more housing choices, meet the growing need for affordable rentals, and ensure that individuals and families across a range of incomes have a place to call home within the community.” The report, released in Washington, D.C. at the ULI/Carolyn and Preston Butcher Forum on Multifamily Housing, is based on a series of interviews and roundtable discussions co-hosted by the Terwilliger Center and Enterprise over the past 16 months with nearly 200 developers, financiers, and policy makers in ten markets – Chicago, Denver, Los Angeles, New York City, San Francisco, Boston, Houston, Minneapolis, Pittsburgh, and Seattle. Conclusions drawn from the discussions formed the basis for the research, which is intended to help fill the void of material examining how to overcome regulatory barriers to affordable rental development, such as land use, zoning and building code restrictions, processing delays, and financing obstacles. While economic conditions and demographics vary widely among different markets and play a significant role in local affordable housing development, the report identifies several overarching cost drivers, including: • Project scale – Fixed costs such as land, legal expenses, and funding application fees, are not correlated to the number of units and often make smaller projects less economical on a per unit basis. • Project design and construction – Community concerns, site selection, the price of construction labor, and state and local regula-
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tions affect the ability to produce high quality units at an affordable cost. Financing and underwriting – Because affordable rentals produce a lower level of profit, developers face several financing obstacles, such as difficulty attracting investors who are strictly yield driven; complicated deals requiring multiple layers of funding; and limited or no availability of financing for smaller projects and for mixed income projects. Complex deal structures – Project fees, timing of tax credit use, higher risk, greater due diligence, longer timelines, and the need to set aside capital reserves all drive up costs.
“Drivers of cost come at all points in the development process and are deeply intertwined, but the need for more affordable rentals compels us to take on the challenge of understanding the drivers and work to mitigate them,” said Lynn Ross, executive director of the Terwilliger Center. “Enterprise and ULI will use the joint research to spark federal, state and local conversations that lead to policy change and financial innovation, ultimately stretching limited resources for affordable housing,” said Ali Solis, senior vice president of public policy and external affairs at Enterprise. “At the same time, we must maintain high quality, green standards so that affordable homes can be sustainable for the long haul. That is our challenge as an industry.” To address the cost drivers, the report offers several recommendations: • Promote cost-effectiveness through consolidation, coordination, and simplification. This includes consolidating monitoring and due diligence activities;
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“Chimney Fire” Prevention; What to learn before you burn
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ny wood or oil burning heating system at your property emits smoke up the passage of the chimney, called a flue. This smoke, combined with the gases of the burning flames, leaves a residue on the passage walls called creosote. This is what is swept out when a Chimney Professional cleans the chimney. Creosote build-up comes in various forms depending on how long it is allowed to accumulate without cleaning. The first, a light, ash-type
build-up, and the second, a more sticky, tar-like deposit can generally be removed with a good brushing, as done by the Chimney Professional using their high quality chimney brush. If, however, the creosote is allowed to build up further, it can cause a hard and shiny substance, usually called "Third Degree Creosote", that sometimes requires advanced mechanical or chemical cleaning techniques, requiring considerably more time and money.
Tips ...continued from page 10 it comes time that you do have the flexibility for extra efforts, building perks, rental incentives, etc., they’re that much more appreciated. This isn’t encouraging putting out minimal effort for the greatest return, but altogether continuously exceeding customer expectations. One of the many ways to exceed customer expectations is by always being prepared. Obtaining building insurance and requiring renter’s insurance not only helps when disaster strikes but the reassurance of its benefit in situations of necessity facilitates the functioning of other day-to-day tasks at your property. Making insurance a high priority and establishing solidified restrictions and requirements upon movein will avoid any mishaps that may
come up in a time of chaos. Ultimately there are many tips that should be utilized in order to maintain a well-run building. The foundation of business practice objectives that owners should follow is made up of thorough documentation, providing exceptional customer service and ensuring that you are insured. These are some of the many steps owners can take to make the most of their investment.
The speed at which the build-up in the chimney goes through these various stages depends mainly on how much the heating system is used throughout the burning season for heat and the type of material (wood, etc) that is burned. The more it is used the faster the build up will occur. It is recommended that only good quality hard wood is burned and that trash is not burned in the fire place, as this will help prevent excessive build up. If allowed to go too long without
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Cost Curve ...continued from page 18
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coordinating competitive funding competitions; improving codes, zoning and regulation; and streamlining HUD financing. Remove barriers to reducing construction costs and delays. This includes implementing smart parking requirements; reviewing unit size and amenity requirements; reforming codes and other rules that make rehabilitation difficult; finding ways to better coordinate development teams; and supporting innovative building techniques like micro-units and prefabricated housing. Facilitate a more efficient deal assembly and development timeline. This includes eliminating zoning barriers to by-right housing development; creating clarity and structure in the public engagement process; adopting state and local policies to streamline local development; promoting consistency in state Qualified Allocation Plans (QAPs); and adopting efficient deadlines for deal assembly and project development. Improve and align incentives. This includes evaluating lifecycle cost considerations in the underwriting process; creating incentives for green building
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and energy-efficient design; incorporating cost considerations in the QAP process; assessing the time frame in which costs are evaluated for the purpose of underwriting; providing local incentives for affordable housing development (such as land acquisition subsidies, property tax abatements, fee waivers and expedited permitting); and removing perverse incentives that can increase costs (potentially by adopting alternate compensation models or flexible tax credit allocations). Improve the flexibility of existing sources of financing and create new financial products to better meet needs. This includes exploring entity-level financial products; facilitating the acquisition of existing multifamily properties through direct subsidies, public-private partnerships or regulatory flexibility; facilitating more efficient use of project reserves; and providing greater flexibility in 4-percent Low-Income Housing Tax Credit allocations (such as alternate sources of debt financing, private placement of bonds or direct bond purchases). Support the development and dissemination of information and best practices. This includes
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creating a cost competition to support innovative practice; determining appropriate units of measurement and comparison to guide decision making (such as costs-per-unit or costs-per-person); building a community of practice; and creating a forum for sharing data and best practices. In addition to the recommendations, the report identifies three lessons drawn from the research – 1) Cost drivers come at all points in the development process and are deeply intertwined; 2) Mitigating the cost drivers requires collaboration efforts involving multiple stakeholders from the private and public sector; and 3) Leadership is essential to implement the recommendations. About the Urban Land Institute The Urban Land Institute www. uli.org is a nonprofit education and research institute supported by its members. Its mission is to provide leadership in the responsible use of land and in creating and sustaining thriving communities worldwide. Established in 1936, the institute has more than 30,000 members worldwide representing all aspects of land use and development disciplines.
The ULI Terwilliger Center for Housing engages in a multifaceted program of work that furthers the development of mixed-income, mixed-use communities with a full spectrum of housing affordability. The center was established in 2007 by J. Ronald Terwilliger, former ULI chairman and chairman emeritus of Trammell Crow Residential. About Enterprise Community Partners Enterprise Community Partners works with partners nationwide to build opportunity. Enterprise creates and advocates for affordable homes in thriving communities linked to jobs, good schools, health care services, and transportation. Enterprise lends funds, finance development, and manage and build affordable housing while shaping new strategies, solutions, and policy. Over more than 30 years, Enterprise has created 300,000 homes, invested nearly $14 billion, and touched millions of lives. Join us at www.EnterpriseCommunity.com www.EnterpriseCommunity.org.
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Occupancy ...continued from page 13 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 At the Fair Housing Council (FHCO), we have long recommended a policy of two individuals per bedroom plus one more individual for the unit. For example, a housing provider might limit a two bedroom-home to five individuals. This "two plus one" formula can help insulate the housing provider from fair housing violations based on occupancy in most situations. That being said, additional factors should always be considered in developing individual policies. 2 The federal Fair Housing Act (FHA) of 1968 coupled with the Fair Housing Amendments Act (FHAA) of 1988 protected the following classes in a housing: race, color, national origin, religion, sex, familial status (children), and disability. Oregon law also protects marital status, source of income, sexual orientation, and domes-
PROPERTY NAME
tic violence survivors. Washington law covers martial status, sexual orientation, and domestic violence survivors, and honorably discharged veterans / military status. Additional protected classes have been added in particular geographic areas; visit FHCO.org/mission.htm and read the section entitled “View Local Protected Classes” for more information. 3 U.S. v. Lepore, 816 F.Supp. 1011, 1013-1014 (D.C. Pa 1991)(reciting facts of effects of threatened eviction); U.S. v. Hover, 1995 WL 55379, 2-3 (N.D. Cal. 1995)(resiting facts of denial); Sams v. HUD, 76 F.3d 375 (Table)(1996); HUD v. Patricia Trucksess, FHEO Nos. 03-10-0065-8, 0310-0068-8, 5-6 (alleging injuries from the discrimination, including loss of connections to siblings living in same/ nearby apartment house)
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Rental Housing Journal On-Site • March 2014
RENTAL HOUSING JOURNAL ON-SITE
Nearly Half of Renters and Landlords Show Incomplete Understanding of Basic Rental Laws Confusion is high around laws regarding security deposits, early lease termination, according to a Zillow Rentals survey
SEATTLE, WA -- Even as demand for rental housing remains very strong, there is a great deal of confusion over existing rental laws among many landlords, and among tenants themselves, according to a Zillow Rentals survey1. On average, renters and landlords answered about half of survey questions incorrectly (47 percent incorrect for renters / 50 percent for landlords) when asked about their respective rights and responsibilities. • 82% of renters / 76% of landlords lack understanding of laws on security deposits, credit and background checks. • 77% of renters / 69% of landlords lack understanding of privacy and access rights. • 62% of renters / 50% of landlords lack understanding of laws on early lease termination. The survey included those who rent the home they live in ("renters") and those who own the home they
live in and own one or more additional homes, which they rent to a tenant ("landlords"). Renters and landlords alike demonstrated the least amount of knowledge around credit and background checks, security deposits, early lease termination, and privacy and access rights. Both renters and landlords showed the most knowledge around discriminatory advertising for rentals, responsibility for repairs and maintenance, and requirements around terminating month-to-month agreements. "It's concerning that so many renters and landlords are signing a legal contract without fully understanding their basic rights. In doing so, landlords and renters could be setting themselves up for future disputes and legal costs," said Carey Armstrong, Zillow® director of rentals. "While rental laws vary by state and local jurisdiction, there are some important rules that affect just about everybody. Every landlord and rent-
er should take time to research and understand their rights." Survey Findings* Lack of Understanding on Security Deposit Laws: MISCONCEPTION: 82 percent of renters and three-quarters (76 percent) of landlords said they believe the landlord has 60 days after a lease ends to refund a security deposit (or provide an itemized deduction statement and refund the balance). TRUTH: In most states security deposits must be returned between 14 and 30 days. Lack of Understanding on Early Lease Termination: MISCONCEPTION: Nearly twothirds of renters (62 percent) and half of landlords (50 percent) said the landlord has the right to terminate a lease in order to rent the home to his or her family member. TRUTH: Landlords may not evict a tenant during the term of the lease simply because they would prefer to rent the unit to a friend or family
member, or even to someone willing to pay higher rent. Lack of Understanding on Credit and Background Checks: MISCONCEPTION: More than three quarters (76 percent) of landlords and 82 percent of renters said a landlord has the right to reject any rental application on the basis of a prior conviction for illegal drug use. TRUTH: While landlords do have the right to reject applications for criminal convictions of many kinds, they may not reject an applicant on the basis of a conviction for drug use. They can, however, reject a person who has been convicted of manufacturing or selling drugs, or who currently uses illegal drugs.
SOURCE Zillow, Inc.
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RENTAL HOUSING JOURNAL ON-SITE
The Dreaded Annual Reviews – How to Make Them Effective If you are like most people review time comes around quickly and there is never enough time to appropriately prepare or to effectively complete them. Reviews are time consuming and often put off. How many of you have personally experienced the brush off review? It ends up as a quick phone call from your supervisor telling you “You are doing a great job and your increase will be effective on your next check, keep up the good work”. While we all can appreciate an annual increase this type of review accomplishes nothing and can often make employees feel undervalued. During the Olympics we are reminded of how goal setting and specific feedback can result in extraordinary achievement. The objective of an annual performance review is to highlight accomplishments, examine goals that were set the prior year along with progress in meeting those goals, talk about areas that could improve and set goals for the year ahead. The goal is to create reviews that motivate your em-
ployees, recognize top performers and document areas to improve.
Tips for effective reviews:
• Focus on results – based evaluations, which have tangible and measurable criteria. • Be specific in your feedback – give concrete examples that correlate to the goals • Take adequate time to prepare the review document. • Avoid bias – someone may have a different approach or personality but still produces results • Back it up – track performance throughout the year and review regularly • Discuss career ambitions – know where they want to be in two years • Be truthful about performance – there is nothing worse than a glowing review and then the next month the person is terminated for poor performance • Provide ideas on ways to improve performance; ie; shadow a mentor, read a specific book, take a related class, get a certification or volunteer
• Be aware of the recency effect – remember to evaluate the full year and not just what has occurred in the last 30 days • Recognize those carrying a larger load • Ask for feedback – how do they think things are going? What are they doing that is highly effective? • Concentrate with strong performers on what they have done well • With poor performers this is an opportunity to demand improvement – if you don’t address poor performance you are not doing them any favors. They won’t be considered for promotions or pay increases. • Link performance to pay • Have your employees complete a self – review prior to meeting with them • Set realistic and achievable goals Review more often, not just once a year – people want feedback. Have employees write down their goals and refer back to them monthly as a reminder of what they need to focus on. Complete quarterly reviews to check in on
their progress. Tips for the Employee: • Come to your review prepared – understand this is not easy for the reviewer. If the reviewer has done their job they will provide constructive criticism and you should be prepared to receive it • Have a list of things you want to talk about • Prepare to answer questions with confidence • Find out about the process ahead of time so you understand the format • Track your work progress, keep a list of accomplishments and monitor what didn’t work • Assess yourself – self evaluations are important (salary.com’s self – assessment tool) • Write your own goals • Reflect on work attitude • Discuss your biggest challenges over the past year • Ask your supervisor to include important achievements if missed in the review • Remember to demonstrate value Continued on page 24
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Rental Housing Journal On-Site • March 2014
RENTAL HOUSING JOURNAL ON-SITE
Why You Shouldn’t Use Excel as Accounting Software by Mary Girsch-Bock in Business
F
irst, let me confess that I love Excel. Having used Excel for years, I’m fully aware of its strengths, and will continue to use it to create spreadsheets, graphs, and tables. But for some unknown reason, there is a small group of property managers that continue to extol the benefits of using Excel as their primary accounting software. I have to admit that this has me stumped. The accounting software of today in no way resembles the awkward software of yesterday. Today, most software products are designed with the end-user in mind, and include easy system navigation, intuitive data entry screens, and system tutorials to make it easy to learn your way around the system. If you’re using Excel to run your property management business, you may want to consider the following: Excel’s Primary Functionality is NOT Accounting – Excel’s primary function is creating spreadsheets, not processing transactions, or producing financial statements. Yes, it can be used for those things, but
typically with accounting software; not in place of it. As a result, users will spend an inordinate number of hours entering Excel data manually, because it does not have the capability to share data. So anytime your tenant pays rent, you’ll be posting that payment in your checkbook, your accounts receivable journal, and your tenant record. With regular accounting software, you post it once. Propensity for Errors Increases –
The lack of a central database and no double entry accounting system in Excel also means a lot more repetitive data entry. And each time you have to re-enter the same data, the likelihood of making an error increases dramatically. Also consider that without the safeguard of a double entry accounting system, it’s very easy to end up with out of balance accounts. Lack of a Reliable Audit Trail – Ac-
counting software has become valuable to business owners because of the ability to ensure that data is accurate and secure. Excel offers no such protection; meaning that formulas can be changed, entries accidentally (or purposely) deleted, and transactions erased, all without leaving a trace of the original entry behind. Ease of Use – or Lack Thereof – While it’s fairly simple to create spreadsheets in Excel, making it a functioning accounting program requires another level of skill that most Excel users will never attain. Creating an invoice, printing a statement, or processing a financial statement in Excel can take up valuable time, while accounting software allows you to create those items in minutes. While Excel will continue to provide a valuable benefit to property managers, it can provide many more benefits and less headaches by using it for what it was designed to be.
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Exit Strategy ...continued from page 11 ter wants to have. (She wants you to spend $40,000. She is the apple of your eye.) As sixty five beckons, you are tired of those tenants and the constant property repairs. Although the properties have been a good source of income they take time and the bills are increasing. You sell both your rental houses and buy a single tenant NNN investment property. A regular check is what you want. No hassles please. You must plan to build your real estate empire As you plan to build your empire you need to decide how much risk and leverage you are comfortable with. If you leverage your investments at 25% or 30% down you have more risk than if you put 50% down. I have found that younger investors are more willing to use leverage. As investors grow older, have more assets and have survived the economic down turns and high vacancy issues, they tend to move closer to a 50% leverage position. In any case the options are clear: • Set a goal of real estate and equity you want to reach • Set a goal of income you want to have and plan to reach it. You can: • Sell and trade up using a 1031 exchange • Refinance and buy more real estate • Get other cash to buy more real Rental Housing Journal On-Site • March 2014
estate • Invest with others (family , friends, professionals.) Summary There is no “one size fits all” exit plan. You need to customize your plan to your life; your income and you need your spouse or significant other on board. Life will try to derail your investment strategies. Do your best to plan around this while keeping your goal directly in front of you? You need to be organized and understand all of the costs of the real estate decisions you make. I would recommend preparing a net sheet – what is it really costing you when you sell one property and buy another? Understanding your monthly reports and your annual income and expenses is critical to planning a successful exit strategy. Accounting is important- the back of a napkin does not cut it. Review your thoughts with your advisors on an annual basis (Real estate agent, Property Manager, CPA, significant other). Flexibility and nimbleness are keys to successful investing. You need to be willing to change direction while keeping your goal in mind if things are not going according to plan. If you don’t have a plan don’t feel bad, you can always make a plan today. If you want advice or want to create an exit strategy I am happy to help.
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RENTAL HOUSING JOURNAL ON-SITE
The Mortgage Market is About to Get Smaller by Marc Courtenay in Business s 2014 begins a bureau created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, The Consumer Financial Protection Bureau (CFPB), will set new rules concerning mortgages. Lenders will be required to verify and inspect borrowers’ financial records. The rules discourage lenders from allowing borrowers to carry total debt payments totaling more than 43 percent of the person’s
A
annual income. That debt also includes existing debts like credit cards and student loans. Starting January 10th the CFPB will put into force a national standard for issuing mortgages that could help prevent the housing crash of 2008 and 2009. Earlier in 2013 CFPB director Richard Cordray called the new rules “the true essence of ‘responsible lending.” All kinds of consumer advocates and mortgage professionals are laud-
ing the new CFPB requirements. The new rules not only provide more responsibility for lenders, but it also protects them from lawsuits. “Lenders are going to be crossing their t’s and dotting their i’s like never before” said Bob Walters, the chief economist for Quicken Loans. On the downside, there will be a big number of people who should have been able to qualify for mortgages that won’t be able to and will be shut out of the home-buying mar-
ket. If you add to that the fact that mortgage rates have risen in the past 6 month and are predicted to gradually move up to the mid 5 percent range by the end of 2014, you can see that the mortgage market will be shrinking. Others have commented that there’s a good chance that limits on the size of some popular mortgages will be lowered during 2014. CFPB director Corday noted that in the Continued on page 25
Annual Reviews...continued from page 22
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– come in with numbers showing specifically how you have improved operations What would you do if you were caught by surprise by something in your review? This is not the time to be defensive. Your response could be, “We haven’t discussed this before and I want to better understand how I could improve in the future.” Know ahead of time how you might want to respond if you receive unfavorable feedback. The more you can be prepared for your review the more productive it will be.
If you are effectively managing your employees and communicating throughout the year about their performance, there should be few surprises during the review process. This is an opportunity to provide constructive feedback and set the goals for the year ahead. Effective reviews can reduce employee turnover and will help you to achieve better results.
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RENTAL HOUSING JOURNAL ON-SITE
2,000 Customers Can’t Be Wrong
Get Smaller ...continued from page 24 years leading up to the 2008 financial crisis, consumers could easily obtain mortgages that they could not afford to repay. In contrast, in subsequent years banks tightened lending so much that few could qualify for a home loan. The new rules seek out a middle ground by protecting consumers from bad loans while giving banks the legal assurances they need to increase lending, he said in a press conference at the start of 2013. The new rules will limit offers like teaser rates that adjust upwards and large “balloon payments” that must be made at the end of the loan period. They include several exceptions aimed at ensuring a smooth phasein and protecting access to credit for underserved groups. For example, the strict cap on how much debt consumers may take on will not apply immediately. Loans that meet separate federal standards also would be permitted for the first seven years. Balloon payments would be allowed for certain small lenders that operate in rural or underserved communities, because other loans may not be available in those areas. The bureau also proposed amendments that would exempt from the rules some loans made by community banks, credit unions and nonprofit lenders that work with low- and moderate-income consumers.
You can learn more about the details that the CFPB’s website which is a great source of information on new laws that govern the use of credit and consumer rights. Property managers, here’s an idea for you. Why not send a link to this article to your owner-clients and your prospective client list as a “heads-up” for the year ahead. As I often like to remind us, being a font of information and the latest insights can separate you from your peers, leading to more referrals and a bigger book of business. On second thought, if you send this article to your owner-clients and your prospective client list, maybe it would be more prudent to copy and paste sections and leave off the last 3 paragraphs.
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It’s Tough to Afford to Be a Renter These Days by Marc Courtenay in Real Estate
H
ousing affordability isn’t looking 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 review Figure 2 below you’ll get the impression that American housing is now extremely affordable and the typical household can easily make the monthly mortgage payment on a home. Thanks to historically low interest-rates, fixed rate mortgages have become more affordable for some American families and many analysts expect that this cheap credit will fuel another housing boom. Figure 2: US Housing Is Affordable Perhaps another home-buyingboom has begun, but from the index above it still looks like the price of housing is above the levels we saw between 2005 through 2008. Yes, there’s been a dip since 212, but anecdotally I’m not hearing of a big increase in existing housing sales since mortgage rates are climbing. In fact on Dec.19, 2013 Reuters reported that “U.S. home resales fell sharply in November to their lowest level in nearly a year, hurt by a rise in interest rates since the spring and
ongoing price increases that have shut some home buyers out of the market. The National Association of Realtors (NAR) said on Thursday [the 19th] that sales of previously owned homes dropped 4.3 percent last month, the third monthly fall in a row, to an annual rate of 4.90 million units.” That was the lowest annual rate since December 2012, and well below the median forecast in a Reuters poll of a 5.03 million unit pace. “It is a clear loss in momentum for home sales,” NAR economist Lawrence Yun told reporters. How About The Cost Of Being A Renter? As Mr. Doubtfire said to Mrs. Doubtfire in the movie by the same name, “Brace yourself Effie!” An online trade journal for folks in the mortgage industry, The National Mortgage Professional had a grim assessment titled, “American Renters Facing Tough Affordability Issues”. “Affordability problems for renters have skyrocketed over the past decade both in number and the share of renters facing them, according to a new report on rental housing from the Harvard Joint Center for Housing Studies.” “The inability of so many to find housing they can afford dramatically impacts the health and well-being of U.S. renters, as Continued on page 27
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RENTAL HOUSING JOURNAL ON-SITE
It's Tough...continued from page 26 lower-income households cut back on food, healthcare, and savings, just to keep up.” The Harvard report, “America’s Rental Housing: Evolving Markets and Needs,” found that half of U.S. renters pay more than 30 percent or more of their income on rent, up an enormous 12 percent from a decade earlier. A large amount of the increase was found among renters with severe financial burdens (e.g. paying more than half their income on rent). These levels were unimaginable just a decade ago, when the percentage of American renters paying half their income or higher on housing stood at 19 percent and was already an alarming concern. “Escalating rental affordability problems come at a time when the share of Americans that rent has increased from 31 percent in 2004 to 35 percent in 2012. In fact, the 2000s marked the strongest numerical growth in renter households in the last fifty years” the report continued. “As ownership rates fell, housing markets have adjusted dynamically to the increased demand for singlefamily rentals, with about three million existing homes switching from owner to rental occupancy from 2007-2011 alone.” That number has risen in the last two years, and most of those houses were rented at local fair-market
Rental Housing Journal On-Site • March 2014
rent levels. So Property Managers, are you keeping up with the rental affordability circumstances in your area? How fast are your vacancies being filled, and will vacancies start a trend in the other direction? Be prepared to speak with your owners (clients) and let them know what’s going on both regionally and nationally. If fewer Americans can afford the current cost of renting a house or an apartment, perhaps we will all experience the need for temporary rent reductions? Another possibility to consider; Are your owners and you willing to rent to multiple couples, and are you going to need to advertise your unfilled vacancies for singles to share to help the affordability challenge? Hopefully a rebound in employment and a robust gain in the economic circumstances of the average American will unfold in the year ahead. In case it doesn’t, prudent Property Managers need a back-up, contingency plan. What is yours, and are you communicating with your clients about it? If you don’t have one, create one. Then plan on scheduling individual meetings with owners or do a client-appreciation seminar to let them know your ideas.
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