Issue 5 • May/June 2012
Brought to you by
Apartment Outlook
2012 Where to Find Quality Multifamily Market Data The Future of Recycling Mandates The Impact of New Energy Codes on Construction Costs
ALSO IN THIS ISSUE: • How to Manage Apartment Ratings • Amenities That Add The Most Value • Alternative Energy Sources That Increase Savings for Property Owners • The Importance of Having an Exit Strategy • Requirements of Apartment Owners to Have Carbon Monoxide Detectors • Advertising on Mobile Sites • Effect of Foreclosures on Apartment Investments
Apartment Market Outlook For investors looking for the next profitable wave of potential business, the answer is likely to be found in the apartment market. You probably know right now that this is a buyer’s market, not just for residential properties, but for all properties in general. When the foreclosure storm came through initially, it stopped at every port, meaning commercial properties were not exempt. Analysts are predicting yet another wave of foreclosures to start up again within the next month or so. What does this mean for you as a real estate investor? It means you have another golden opportunity to cash in on current market trends.
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With all the options you have in front of you, it may be hard deciding which one to choose. However, if you are in tune with the emerging rental market, then you know that your best bet lies within the apartment market. Why is this, some ask? Let us discuss current trends to answer that question. The market is flooded with families and individuals who lost, or are about to lose, their homes. The residential rental market is ill-equipped to handle the influx of displaced families, and even if you were to invest in a few homes, you would only realize marginal profits at best. The apartment market offers you a viable way to capitalize on current mar-
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ket trends. Current acquisition costs are low and rental rates are steadily increasing, minimizing your investment risk. Priced competitively and designed with amenities that attract renters, you could potentially realize a steadily improving profit margin that flows with market demand over the next few years. All told, you can expect a highoccupancy rate while the market seeks to get back on track. In the meantime, you can revel in the good fortune that comes from a solid investment. p
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Where to Find Quality Multifamily Market Data When it comes to the purchase or sale of an apartment building, it is important to make use of current multifamily market data in order to have a realistic idea of the property’s true value. This can be done in a variety of ways. You can have your real estate sales person draw up a comparison (comp) sheet that shows you comparable properties that are currently listed, are pending to sell or have recently sold. The key to obtaining an accurate value is to look for properties that are similar to the one in question. The closer you are in terms of similarities between the subject property and the comparable, the more accurate of a value you can expect to gain from the information you find. Here is sample checklist to make sure you are using an accurate comparable:
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Do both buildings have similar square footage? 1. Are they within a 1 mile radius of each other? 2. Were they built around the same time? 3. Does the comparable have the same features as the subject? 4. Is the comparable an active or sold listing? 5. If sold, is it more than 90 days old? If you prefer to use an online source to look up multifamily market data, make sure you use a reputable company. Not every site offers accurate data, and that is especially true when it comes to the valuation of apartment buildings. If you are not sure where to go, try any one of these:
• http://www.padzing.com/default. aspx • http://www.freddiemac.com/multifamily/ • http://www.nahb.org/reference_list. aspx?sectionID=238 Remember, determining the true value of property is more than just a numerical figure. There are several other factors that you must consider, some you can see and calculate immediately and some you cannot, such as unexpected market trends or economic concerns. Before you commit, do your multifamily market data research! p
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How to Manage Apartment Ratings If you currently own or manage an apartment complex, then you know how challenging it is to attract and keep tenants in leases. Offering competitive rental rates and desirable amenities is only part of the equation; you also have to maintain tenant satisfaction, otherwise you can quickly end up with a low occupancy rate that eats away at your profit margin. Sometimes you do not know how your complex is fairing, until you receive an apartment rating that either calms your fears or sets you into panic mode. Unfortunately, apartment ratings are part and parcel of apartment ownership and management.
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Receiving a bad rating is not the end of the world, but it definitely means something is amiss and needs your immediate attention. It is entirely possible that the complaint has been blown out of proportion, but that is inconsequential. What really matters is how you respond. Regardless of the forum on which the apartment rating appeared, by following these simple steps, you can effectively diffuse the situation. Apologize. Even if you are right and the tenant is wrong, just apologize. It will usually catch the tenant off-guard, especially if they are expecting a war of words with “he said, she said.�
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Ask for suggestions on how that tenant would remedy the situation. Is their response something you might be able to compromise on? If not, is there a way to meet them halfway? Once you come to a resolution, make it a public resolution so others can see that you care enough to respond and make appropriate changes. Even if you get a good rating, make sure to respond by thanking the individual for sharing the information. Others can, and will, read those comments, and though it seems unlikely, it is actually those apartment ratings that attract potential tenants. p
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Amenities That Add The Most Value So, you want to attract more potential renters to your apartment complex, but are not sure of how to get them to commit once they arrive for a viewing? Well, offering a reasonable rental rate will definitely get their attention, but unless you can figure out a way to sell them on your complex, the meeting might not end with a signed lease and a deposit check exchanging hands. What is the key to getting them to lease your unit if the complex down the street is offering the same rental rate? Simple. It’s all about the apartment amenities. If you want to close the deal, you have to set your apartments apart from the competition. How? You must under-
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stand the market you are catering to if you wish to appeal to them. The current rental pool is full of displaced families, with kids, who lost their homes to foreclosure or were forced to do a short sale. They are struggling to re-establish some semblance of home and are likely to be missing some of those amenities that made their home, well, home. Here is where you fill in the gap for them. Apartment Amenities Worth Consideration • Child’s Play Area- the streets are dangerous and parents want to know their children are safe. • Spacious Closets- every woman loves
a big closet and as the saying goes, ‘happy wife, happy life.’ • Open Kitchen- no one likes a cramped kitchen, an open design gives the air of more space. • Laundry Rooms- having to leave the building is a hassle. Want to pull out all the stops? Place one on every floor. • Install Windows- Sun streaming through windows adds depth and makes a unit look bigger. Add these apartment amenities and you may soon find yourself with a waiting list of potential tenants. p
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The Impact of New Energy Codes on Construction Costs As an investor, you might be wondering if it is more cost effective to buy an already-existing apartment structure or if it would make more sense to build a new structure from the ground up. In order to best ascertain which approach is best, it is first necessary to understand some of the recent changes that have taken place within the field of construction. New energy codes have been passed in recent years that have made the construction costs associated with apart-
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ment development prohibitive. The minimum standards set by the energy codes are expensive to meet, and in some cases the cost for the required upgrades would take an insurmountable amount of time to re-coop from a business standpoint. Another key point is that there is no standard that everyone must adhere to, but instead, new building requirements would depend on the location of the project and its corresponding climate. Warmer climates might get a small break expense-
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wise, but those in more volatile climates would have to meet more rigid standards. From an investor’s viewpoint, it is too risky and too expensive to build an apartment building from the ground up and meet the new energy codes requirements. It just makes poor business sense. Given the means to invest, those funds are best appropriated into an existing structure that is not held to the new energy code standard. p
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Alternative Energy Sources That Increase Savings for Property Owners Maintaining a steady profit margin depends on your ability to utilize the latest technological advancements to further your cause. One of the most talked about right now surrounds the issue of alternative energy sources. This topic has the means by which you can increase your profits by lowering your overall expenses, all the while helping out the environment. Truth be told, incorporating certain forms of alternative energy sources into your apartment structure can seem costly at first glance. However, after careful consideration, you will find that the initial cost will be quickly defected by the immediate savings you realize
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on your energy bills. There are several levels of options from which you can choose, though some might not make sense for you under any circumstances. If you can find a way to incorporate just one of these into the current architectural design of your apartment building, you are already moving in the right direction. Examples of Alternative Energy Sources 1. Solar energy panels- these utilize heat energy from the sun 2. Hydroelectric power- made with the use of water power
3. Wind power turbine- a method of harnessing the wind to generate energy. New advancements are being made every day, giving you additional resources that you can harness to meet your energy conservation efforts. It is up to you to take advantage of this technology to see better returns on your investment and minimize your consumption of nonrenewable forms of energy. p
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The Future of Recycling Mandates There is increasing awareness about methods in which one can effectively minimize the carbon footprint society in general is leaving upon the Earth. To that end, there has been a concentrated effort to introduce recycling as a viable method for reaching that goal. Some individuals have taken the recycling and conservation programs to heart, but for others, it may have to come down to the passing of recycling mandates to bring about the change that is needed. What are Recycling Mandates? In case you are not familiar with recycling mandates, here is a quick run-down
for future reference. It is an ordinance that is passed by a state assembly that would require all cities and counties to make changes that would lower waste reduction by a set percentage, and in a set amount of time. Should this type of mandate be passed where your apartments reside, you are expected to do your part to encourage your tenants to increase recycling efforts and minimize waste output. This is not always an easy task when you are dealing with multiple units and so many tenants. Getting a Head Start on the Inevitable It is only a matter of time before this
mandate rolls into your town. You can get ahead of the curve by starting your own grass-roots recycling efforts now. Engage your tenants and encourage recycling in your buildings. Check with the city to see if you can have recycling containers taken to your complex; some cities do provide these for free. If not, weigh out the expense of acquiring recycling containers against the potential profit from taking the recyclables in yourself. It might constitute more work now, but the benefits are good for you, for your tenants and for the environment. p
is Brought to you by
888-441-7355 Publisher Darrel Dickson
Graphic Designer Andrea Coulter The statements and representations made in the news articles contained in this publication are those of the authors and as such do not necessarily reflect the views or opinions of PPI Creative.
The Apartment Market - Digital is produced monthly and is published by PPI Creative An Oregon Corporation. PO Box 30327 Portland, OR 97294-3327. (503) 221-1260 • (800) 398-6751 Copyright 2012. All rights reserved.
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Apartment Market Digital • Spring/Summer 2012
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Requirements of Apartment Owners to Have Carbon Monoxide Detectors Many people have died and even larger numbers have been treated as a result of carbon monoxide poisoning. Since it is colorless and undetectable by smell, it is advisable that you have your apartments fitted with carbon monoxide detectors. Over 35 states have made it mandatory to fit apartments with these detectors especially if they will be rented out. As an apartment owner, it is your responsibility to comply with these state-specific regulations. Carbon monoxide can build up in enclosed spaces when certain appliances are used. Gas stoves, furnaces, lanterns, kerosene or gas heaters, chain saws and even weed trimmers emit this deadly gas which can build up if there is inadequate ventilation. Incidences of carbon monoxide poisoning are highest during power outages. Unable to use their normal appliances, most people turn to using generators, charcoal or burning wood. This can turn deadly if the area is not vented. Detectors must be placed near sleeping areas. The importance of fitting your apartments with these detectors cannot be overemphasized. If a lethal build up was ever to occur, your attention is called to it before any real damage is done. Secondly, you avoid any liability that comes about as a result of injuries that your tenants may suffer. Warn them about what the dangers are, and what to do if they detect carbon monoxide. Carbon monoxide if left to build up can cause many fatalities. Over 35 states have made it a requirement that residences have working detectors. Not only will it announce the presence of this lethal gas, it saves you the liability if ever any injuries arise because of it. p
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The Importance of Having an Exit Strategy So you just invested in an apartment complex, which you insist was a steal of a deal. You have all of your plans in place, including an apartment manager and support team hired to get the units leased out; you even have a landscaping guy on speed dial. If you think you have it all down to a science, and you do not have an exit strategy worked out, you might be setting yourself up for failure. Why Do You Need an Exit Strategy? Unless you hold the secrets to the future, you do not know what might happen in 5, 7 or 10 years; you probably do not know what could happen in
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the next six months. You might have a family emergency that takes you out of the area indefinitely, or you may experience serious health problems that make it impossible to continue your business dealings or maybe one of your other investments hits the skids financially. If a situation comes up that leaves you scrambling in a search for funds, having a well-planned exit strategy can keep your head above water.
management team, the transfer of ownership to an Employee Stock Ownership Plan (ESOP) or sale of the asset to a third party. Regardless of which avenue you ultimately choose, you cannot leave it up to chance to work it out at the last minute, a strategy must be ironed out for viability. If you took the time to make the investment, make sure you protect yourself and your assets with the same care and consideration. p
Types of Exit Strategies An exit strategy takes some planning; it cannot be done overnight. Exit strategies might include a sale to the current
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Advertising on Mobile Sites Keeping up with current technology is no easy feat, especially if you are busy trying to keep your business up and running. However, knowing all of the latest trends can actually help you get more done quicker. If you currently own an apartment complex, then you know that most of your time is spent dealing with tenant turnover; this includes finding efficient methods in which to communicate with prospective tenants. Aside from being time consuming, the end results do not always match your efforts. Reaching Out to Potential Customers In order to reach the highest number of renters, you need to reach them
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where they congregate. Where is that, you ask? On mobile sites, of course. Everyone nowadays has a mobile phone. More and more of the demographic are utilizing their mobile phones to access websites and view emails. You may think that your bases are covered if you already own a website that advertises your units, but unless your website is specifically mobile-friendly, you are falling short of your target audience. The same goes for emails that you send out to potential clients with attachments; if the attachment or pictures are too big to display, you risk losing out on a potential tenant.
Steps for Advertising on Mobile Sites 1. Take the time to make sure your site is mobile-friendly. 2. Make sure you send short, succinct emails use mobile-friendly graphics. 3. Build an opt-in text-messaging platform; currently, text messages have a greater chance of being read than emails. Capitalize on that trend right now. You can take your apartment advertising efforts to the next level with ease by following these simple steps.Since it should be part of an already-existing advertising platform, cost is minimal, and your returns should see a healthy boost. p
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Effect of Foreclosures on Apartment Investments In recent years, foreclosures have become a focal point in the real estate market. Analysts are predicting that yet another wave of foreclosures, bigger than any that have come before, is about to roll through the real estate market in the coming months. If you currently own rental property, then you understand that you are sitting on a veritable gold mine of opportunity; this especially holds true if you happen to own an apartment complex. Some may argue that it is a buyer’s market, and in a sense, that statement is correct. However, this is also an investor’s market, and apartment rentals are a hot commodity. Not every family
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has the wherewithal or means to find a home to rent, and given the situation, most displaced families are happy to move into an apartment without all the burden of owning a home and all the work that comes with the upkeep. If you are considering investing in an apartment complex, you have currently working in your financial favor. Vacancy rates are at a minimum, and rents are steadily rising to meet the growing demand of those in need. Interest rates have never been better, and banks are loosening up the lending guidelines, making it easier to qualify for and secure financing for this type of investment. Foreclosures are not only occur-
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ring in the single-family home arena, it is happening to all types of properties, apartments included. This means that you potentially have the chance to make an investment at rock bottom prices, with low financing, and reap the benefits of steady rent royalties while enjoying a higher profit margin. So, what are you waiting for? Opportunity is knocking and the more units in your investment, the more chances to open the door to a steady stream of profit. p
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