Arizona Rental Housing Journal - August 2014 by Professional Publishing, Inc

Rental Housing Journal Arizona

August 2014 - Vol. 6 Issue 8

2. Owning & Operating Rental Property

7. Dear Maintenance Men: 9. The Post-Dated Notice to Vacate

3. 3 Tips for Low, Middle & High Net Worth Peer-to-Peer Investors

9. Crime Free Multi-Housing Class in Tucson

5. Do You Have Insurance on Your Retirement Plan?

10. Straw, Sticks, or Bricks…What is Your House Made Of?

6. C23 Property Management Tips for Mastering E-mail©

WWW.RENTALHOUSINGJOURNAL.COM • PROFESSIONAL PUBLISHING, INC

A Monthly Circulation To More Than 10,000 Apartment Owners, Property Managers, On-Site & Maintenance Personnel

Metro Phoenix Apartment Market Q2 2014

A By Kasten Long Commercial Group

acancy Rates Up – 1st Time Since Q4 2010 Vacancy rates for the 2nd quarter for stabilized 50+ multifamily properties increased from 6.5% to 6.8%. This is the first increase in 13 quarters. Vacancy rates for the 50-99 communities decreased 0.02% - but the 100+ increased by 0.36%. Of the 32 metro Phoenix sub-districts surveyed, 20 reported increased vacancy rates. Not included in the overall vacancy rate are 16 recently completed projects (5,725u) in lease-up. Vacancy rates for each sub-district are posted on their web site www.KLCommercialGroup.com. New Construction Remains Very Strong In Q2, there were 12 new apartment projects started (3,389u), mostly in Phoenix and Tempe. There are a total of 28 now under construction representing 7,496 units. Three projects were completed in Q2 totaling 777 units, two in Chandler and one in Tempe. There are also 67 projects in various stages from initial rezoning to final permitting - representing 15,950 units. Details of each project and a map showing the location of the current construction activity is posted on their web site under “Apartments’ – “Market Data”. continued on page 8

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Campus-Style WiFi Systems: The Amenity for Today

partment residents have long held in high regard such amenities as a fitness center, a patio, a washer/dryer and a pool, but now of equal importance as those features is having high-speed community-wide Internet service. Having high-speed communitywide Internet service is now among the most desired amenities according to a 2013 survey by the National Multi Housing Council. More than 70 percent of respondents said that it was important or very important. Easy enough, right? Practically every restaurant and coffee shop you visit has wireless Internet service. Most libraries have it. Many college campuses do too. If the corner Starbucks (and mid-block Starbucks and other corner Starbucks) can pull this off, surely you can too. Is it as simple as expanding the WiFi you already have running in your business center or around the pool area? It’s not. As many an apartment manager has discovered, there are a plethora

of significant hurdles to setting up a WiFi system that provides consistent, fast and full coverage across a number of buildings and in open spaces. It would be hard to design something that would be tougher to bring WiFi to than an apartment community. Concrete. Stucco and wire framing. Metal duct work. Hot-water heaters and washers and driers. Fire-

places. And any number of devices in each unit trying to connect to the Internet. In fact, everything apartment communities have in quantity interfere with the microwave level frequencies that WiFi uses. The vastness of the area to provide coverage is yet another challenge. Most WiFi access points (AP) have an indoor broadcast range of becontinued on page 4

RHJ Asks… Kevin Holliday Rental Housing Journal recently had a brief opportunity to get some great advice from Arizona rental housing expert, Attorney Kevin W. Holliday of Hull, Holliday, & Holliday, PLC. Q: As an Arizona landlord tenant attorney, if you were to give three pieces of advice to landlords and

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property managers, what would they be? A: 1. Everything should be in writing. Time after time we encounter a tenant who claims the landlord made verbal promises outside the lease agreement (e.g., I’ll replace the dishwasher after you move in”). Anything the parties agree to needs to be included in the lease, or as an

addendum to the lease. If the tenant is required to have the carpets professionally cleaned at the end of the lease, make that a written additional term of the lease at the beginning. The more precise the parties are in the written agreement, the better. No one can come back later and claim they never agreed to that term. continued on page 7

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Owning & Operating Rental Property

am fortunate, as the president of the American Rental Property Owners and Landlords Association – ARPOLA, to speak with members from all over the country. Usually a member will call or email with a specific inquiry or problem. We are pleased to be able to help. If we do our job right, we take the opportunity to discuss other aspects of owning and operating rental property. Virtually every time, we hit on an issue that needs attention by the owner or property manager. Just yesterday, a new member called and needed to get a tenant screening done right away. Naturally, we helped her by making sure she understood the differences in tenant screening products that are available in the market and directed her to the right place. During the discussion, I determined she owned eight rental properties all in her own name. A major risk, as there are several personal assets in addition to the rental properties that are all exposed to each other. We are helping her through this as well so that she will be informed and prepared to have a quality discussion with her asset protection provider. This type of phone call is repeated often at ARPOLA and it got me to thinking. If you own rental property, you would be better served

if you separated in your mind the ownership aspects and the operating requirements, whether you use a property manager or not. Let’s look at each separately starting with ownership, as from my experience, it is an area of less focus. Ownership aspects apply to every owner, as property managers usually don’t provide services in this area. Ownership aspects are unique to you individually and include how to hold title, protecting the asset, incorporating asset protection into your estate plan, insurance and taxes. With the usual and absolute truthful disclaimer that you should always discuss your personal needs with a qualified provider like your attorney, accountant and insurance provider (and I am none of these), here is a brief look at each. How to hold title – Rarely should you hold title to your rental property in your own name although I am amazed at how often this is the case in my discussions with members. If held in your own name, you expose all of your personal assets to any claim from your rental property and vice versa. The right entity for you depends on your unique needs and could vary by state. Protecting the asset - You should strive to protect yourself from your rental property and your rental prop-

erty from you. You’ve worked hard for a long time to accumulate assets and wealth. You should not want to put what you have worked so long for at risk when significant protection is available. A good asset protection strategy will be specific to your current needs and evolve over time. A complete plan will include all your rental property and other personal assets. It could be as simple as a single entity with a thorough operating agreement or bylaws, or complex consisting of several entities and multiple levels of protection. Incorporating asset protection into your estate plan – This step isn’t for everyone, but if you have accumulated significant net worth, it is a consideration. When I have a conversation about this with a member it usually starts with a comment about already having a revocable living trust. A revocable living trust is primarily a way to avoid probate. Your needs may be that simple or much more complex when you consider all your assets, whether you own other business, your extended family, etc. Insurance – In my estimation, this is the most widely misunderstood aspect of being a rental property owner. In conversations with members, I get the feeling that they hold their insurance agent in the same regard as their surgeon. By that I mean, no

one has ever described their surgeon as the 29th best surgeon. Their surgeon is always the “best”! Of course they are. How could you ever go under the knife thinking your surgeon wasn’t the best? It seems most rental property owners “trust” their insurance agent to always do what is best for them. Well, there are reasons insurance companies have exclusions in their policies. They don’t want to cover certain things as the risk is too high. It is your responsibility to understand what isn’t covered. And decide if that is an acceptable risk for you. The areas I suggest you give attention are: is your property covered when vacant, what is covered when vacant, how long is coverage in effect when vacant, how is your deductible applied, is there co-insurance, what are the potential costs to you with co-insurance if a claim is filed, etc. Another area is pool coverage. I have found several instances where the pool is excluded and the owner never knew it. Tax strategy – Often overlooked, but very important is your tax strategy. This becomes more important as the number of properties increase. It gets more complicated as certain asset protection and estate planning techniques are implemented. You need to use a CPA or tax attorcontinued on page 5

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3 Tips for Low, Middle & High Net Worth Peer-to-Peer Investors ‘You Need to Learn Enough to be Dangerous,’ says P2P Pioneer

fter the economy crashed in December 2007, nascent online peer-to-peer lending platforms quickly grew. They’ve since evolved into an increasingly popular investment alternative to Wall Street and other traditional options. Peer-to-peer lending isn’t new and it’s no passing fad, says P2P pioneer Brendan Ross, president of Direct Lending Investments LLC, (www. dirlend.com), which runs a shortterm, high-yield small business loan fund. “It’s a rebirth of the simplest and oldest way of making money: one individual loaning money to another and getting paid back with interest,” Ross says. What makes this new incarnation different is accessibility. “Online lenders like IOU-Central and Prosper.com make it easy for prospective lenders to find and fund borrowers through a website,” Ross says. “These platforms have automated the underwriting process, including checking credit and looking at applicants’ bank accounts, so they

can vet borrowers based on reliable information.” Each online lending platform operates differently, but all vet applicants. The lender posts qualifying requests on its website, and private investors decide which to fund, either in their entirety or in part. At Lending Club, for instance, investors can choose to lend the entire amount requested by a borrower, or as little as $25 to multiple borrowers, which adds protection if one defaults. Investors can manually choose which loans to fund, or they can ask the platform to choose within certain parameters. Yields on a portfolio of loans can be 10 percent or more, Ross says. He offers these tips for investors in three tiered financial levels:

The reason for that is interest income is taxed at a higher rate than the capital gains from stocks. Deferring those taxes until you begin spending from the IRA will help keep a lid on your current tax bill. • Investing $25,000 to $100,000: At $25,000, you have enough money to start getting professional advice about which loans to choose and how much to invest in each. “I recommend going to www.lendacademy.com/invest because it’s run by Peter Renton, who’s very knowledgeable,” Ross says. “You choose between a conservative or balanced portfolio – I recommend balanced for higher yield -- and they’ll choose the loans for you and put them in your account.” The fee is just 0.95 percent.

• Investing $10,000 to $24,000: Visit the Lending Club and Prosper.com websites, and choose the one that most appeals to you, Ross says. “Open an account in a tax-deferred IRA and shift a portion of your investments out of stocks and into lending,” he says.

• Investing more than $100,000: Accredited investors have privileged access – they can shop around for private fund pools, Ross says. “As P2P matures, borrower categories that have always had the highest yields, such as small businesses, become available as private fund

pools that are managed to deliver the highest yields,” he says. These pools form mutually beneficial relationships with the P2P lending platforms, allowing the platforms to serve a larger volume of borrowers. The private funds get well-vetted borrowers from the platforms and manage the funds to the maximum benefit of all their investors. “Everybody wins,” Ross says, “including the borrowers, who get fast loans at reasonable rates.” About Brendan Ross Money manager Brendan Ross is a peer-to-peer lending first adopter who has become an expert in this non-traditional transaction. The president of Direct Lending Investments LLC, (www. dirlend.com), which runs a short-term, high-yield small business loan fund, he previously ran a number of other companies, including ReserveAmerica, the world’s largest outdoor recreation reservation company.

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WiFi ...continued from front page tween 25 to 100 feet, so dozens if not hundreds of AP units are required to create complete coverage. These AP units need to be installed with great care and must operate in coordination so that all areas get coverage but that each signal doesn’t interfere with the other. In most urban areas, all the other devices operating on the license-free radio frequency cause interference with WiFi systems, which weakens the signal and can cause interruptions. These devices include mobile phones, baby monitors, radios, twoway radios and other WiFi systems. Couple that with the small antenna most consumer devices have and you have connectivity issue. Security is increasingly one of the biggest issues in setting up a WiFi system. Hackers target public WiFi systems that are weakly defended or are poorly designed, snooping about for sensitive information to exploit. With the high-profile security breaches in the past few years, users are more conscience than ever of the need for top-quality security. Perhaps the greatest hurdle in installing community-wide WiFi in apartment communities has been the cost. The electronic hardware and cost of installing the equipment can easily top $100,000 (not to mention on-going maintenance), too great a price tag for most apartment community owners to justify installing, leaving residents to each get their own Internet service. But a few wireless internet service companies have developed new equipment, software and delivery methods that solve the issues that have long prevented apartment com-

munities from installing campus-like WiFi. A growing number of apartment communities are installing the service and marketing the much-desired amenity. Residents of the Emparrado Apartments, a 154-unit community in Mesa, have been receiving highspeed Internet service since the spring. In addition to faster speeds, resident are most excited about being able to unbundled service from cable providers, saving money, and in the flexibility of service, said Debbie Achs, property manager. “I live here and I am dumping the Internet portion of my cable service,” she says. Most residents don’t want a land line phone, and a good portion want to drop cable TV service, given the increasing cost. Having campus-style WiFi has made the property more attractive to potential residents, Achs said. “It's been the one amenity that every single potential resident has asked about,” she said. “It's been a huge influence. It just opens the door to new and better things.” How have wireless Internet service companies overcome the difficulties in having campus-style WiFi in apartment communities? First, they’ve taken advantage of the high-speed and high-capacity data packages available directly from data center operators. By eliminating the cable or satellite dish companies from the equation, end users get Internet service at a fraction of the prior cost and the apartment community owners can establish a new profit source. Installation costs are typically borne by the Internet service companies, who earn a return from the

monthly charge to end-users. “The technical solutions were difficult; we tried many designs that just didn’t perform,” said Rory Conaway, a well-known radio frequency engineer and owner of Phoenix-based Triad Wireless, which designed and installed the campus-style Wi-Fi system that was installed at the Emparrado Apartments. “But we knew the market demand for campus-style WiFi was strong and worth the engineering and technical effort.” At the behest of Red Hot-Spot Company, a start-up Internet service provider, Triad Wireless spent more than a year in R&D creating a proprietary Wi-Fi design for apartments. Access points are where end users connect to the Internet. Triad’s design uses access points that are a third the size of the smallest access point previously on the market. The small size and increase in power made it possible to design and build a campus-style WiFi system that overcomes stucco, steel, firewalls and a geographically spread community, Conaway said. Concurrently, Red Hot-Spot developed a proprietary software system that manages each account separately, blocks external sharing, allows each household to have multiple devices connected at any one time, manages gamers, and manages the revenue and service components. “It seems like a simple task – having multiple users and multiple devices trying to connect from one apartment unit – but it was quite a challenge to develop the software to allow that to happen without connection and security issues,” said

Red Hot-Spot President Zach Spain. Security for end users was also addressed in designing the campus-style WiFi system, Spain said. Rather than users having to rely on the security filter on their home computer and devices, which are often outdated or over-matched, users of campus-style WiFi are protected by a commercial security system that filters out threats and dangers before they ever get reach users' computers. “This is a level of security typically found at Fortune 500 companies,” Spain said. “We knew we had to offer that kind of peace of mind on a WiFi system, given that it’s viewed as a shared system and because of the increasing level of threats on the Internet.” The Phoenix-based company, which is just two years old, has installed campus-style WiFi in a number of communities in Phoenix and Tucson, and expects to start construction on dozens of communities throughout the Southwest by fall. D.J. Burrough is a Scottsdale-based freelance writer. His work has appeared in Urban Land Institute Magazine, The New York Times, The Dallas Morning News, The Christian Science Monitor and The Arizona Republic. Red Hot-Spot is a Phoenix-based wireless Internet service company that creates campus-style WiFi in commercial and multifamily housing settings. For more information contact Red Hot-Spot at www.redhotspot.net or call 1-800-4686851.

Owning & Operating ...continued from page 2

METRO PHOENIX APARTMENT BROKERAGE EXPERTS

ney that fully understands rental property. Your tax advisor needs to be fully engaged in the discussions regarding asset protection and how it affects your taxes and cost of tax preparation. Another consideration is should you use cost segregation. In my opinion, owning rental property is the best wealth strategy. You need to pay attention to ownership issues if you are going to realize your highest return and best protection. Smarter investing, Alan Langston Executive Director

Arizona Real Estate Investors Association – AZREIA American Rental Property Owners & Landlords Association - ARPOLA 480-990-7092 www.AZREIA.org AZREIA serves its 1700+ members through chapters in Phoenix, Tucson and Prescott providing extensive market information, education, networking events and support. ARPOLA serves members in all 50 states providing assistance with ownership and operational aspects of rental property.

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RENTAL HOUSING JOURNAL ARIZONA

Do You Have Insurance on Your Retirement Plan? Financial Planner Shares Tips for Protecting Your Savings

ou have insurance on your home, your car, your health. How about your retirement

plan? “People have homeowners insurance to protect against fires and floods,” notes independent financial planner Stephen Ng, founder and president of Stephen Ng Financial Group, (www.stephenngfg.com). “They buy insurance to replace their car if it gets wrecked and they buy health insurance to protect themselves from medical costs. “But for many people, their biggest material asset is their retirement portfolio. When I look at a new client’s portfolio and ask, ‘Where’s your insurance?’ They look at me like I’m crazy!” Insure your retirement fund by taking steps to safeguard at least a portion of it, Ng says. As you get closer to retiring, the amount you safeguard will be what you need to rely on for your retirement income. “Your retirement income should be derived from guaranteed sources, such as Social Security benefits and your pension plan,” says Ng, a licensed 3(21) fiduciary advisor, certified to advise companies about their

401(k) and other retirement plans. “It’s the amount you need to pay the bills and do the other things you hope to do in retirement, so your retirement income needs to be a guaranteed source of income. “Then you look for your ‘play checks.’ That’s the money you don’t absolutely have to have, so you can still try to grow it, and take risks with it, in the market.” Ng offers these tips for insuring your retirement plan: • Invest a portion of your portfolio in annuities. Annuities are long-term investment options through insurance companies that guarantee you payments over a certain rate of time, which could be the rest of your life or the life of your spouse or other survivor. Note: The guarantee is subject to the financial strength and claimspaying ability of the issuing insurance company. • If you leave your job, quickly roll your employer-sponsored 401(k) into an IRA. While 401(k)s are a great tool for saving, particularly if your employer

is providing matching funds, if you were to die, the taxes your survivors would pay on your 401(k) would be much higher than on an IRA. That’s because they would have to inherit the money in a lump sum – that could easily take 35 percent right off the top. The lump-sum rule does not apply to IRAs. While your spouse would have the option to inherit your 401(k) as an IRA, your children would not. So, take advantage of your employer-sponsored 401(k), but if you leave the company, convert to an IRA or ROTH IRA. You can also begin transferring your 401(k) funds to an IRA at age 59½. • Consider converting your IRA to a ROTH IRA. For protection from future income tax rate increases, you should consider slowly converting your tax-deferred IRA funds into a ROTH IRA. Yes, you’ll have to pay the taxes now on the money you transfer, but that will guarantee that withdrawals in your retirement are not taxed – even as the money grows. If you plan to leave at least part of your IRA to your children, they’ll benefit from a fund that continues to grow tax-free.

About Stephen Ng Stephen Ng is the founder and president of Stephen Ng Financial Group™ (www.stephenngfg.com). Since 1992, he has helped pre-retirees and retirees preserve and increase their wealth by, in part, helping them avoid common mistakes. He regularly holds financial management, retirement investing and insurance planning seminars at businesses, churches and non-profit organizations. Ng is a Chartered Life Underwriter, Chartered Financial Consultant and a Certified Estate Planner. He is also an Investment Advisor Representative with SagePoint Financial, Inc., member FINRA/SIPC. He brings a national and international perspective to his financial advice, with professional and educational roots in Australia and Asia, and certifications in 19 states.

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RENTAL HOUSING JOURNAL ARIZONA

C23 Property Management Tips for Mastering E-mail ©

by Ernest F. Oriente, The Coach {Article #220…since 1995}

ccording to a recent survey by Matrix Information, three billion people around the globe have access to Internet-based services and E-mail. In addition, this report expects electronic commerce to grow from $3.2 trillion in 2013 to $6.2 trillion by the year 2015. Is your property management company ready for these exploding communication and marketing trends? Is your leasing team ready to handle the Email just sent by 15 new prospects relocating from Paris or Moscow? Read the tips in this article and learn how easy it is to master E-mail and profit from it…it’s just a few keystrokes away!

Tips for using E-mail with prospective new residents: Ask your leasing teams to always use spell check before sending an Email to a future resident • Have your teams read each E-mail twice before they send it, just to make certain it conveys exactly what they are trying to communicate and it portrays the professional image important to your property management company • When sending an E-mail, the sub-

ject line must clearly summarize what the body of the E-mail says • If your leasing teams are using the E-mail “reply” feature to respond to a future resident, make certain they reply by including the information the prospect sent in their original E-mail note. In addition, ask your leasing teams to include the name of the future resident throughout their E-mail reply. Tips for using E-mail within your property management company: When your leasing teams are using E-mail to communicate internally, make certain they understand when to respond by E-mail and when to call the person who sent the original E-mail, depending on the tone or content of the E-mail • Explain to your leasing teams how and when to use carbon copy {cc} and blind carbon copy {bcc} with E-mail • Have a written company policy regarding the use of E-mail, clearly outlining the rules and expectations of your company. Have this document signed by each person who will be accessing your E-mail

software • Explain to your leasing teams that deleting an E-mail does not remove it from their computer system nor from the system of the person the E-mail was sent to. During several recent lawsuits, damaging E-mails that had been deleted were used in the courtroom to the surprise of the individuals and their property management companies • Instruct your leasing teams about the extra care required if they receive an E-mail that has an attached document, as this is where most computer viruses are hidden. Many property management companies do not let their leasing teams send or open attached files • E-mail files can easily be opened and read so confidential information like salaries, financial reports, social security numbers or credit card numbers should not be sent by E-mail. Tips for using E-mail as a marketing tool: E-mail can also be used as a powerful marketing tool to attract new residents or to better service your existing residents. Here are some tips: Aside from a small $15-$20 service charge per month, sending or receiving E-mail is free. When compared to other forms of marketing…having your leasing teams send E-mails to new or existing residents is their least expensive form of marketing • Imagine the marketing success your leasing teams will have if they had the E-mail address on the guest card of every future resident who visited their apartment community over the past 12 months… and your leasing teams can stay in touch with these potential new residents for free!

or maintenance requests, a timely response is expected and required • Create two separate E-mail lists… one for future residents and one for current residents so you can send appropriate marketing information to each group • Create an E-newsletter which can be easily sent out on a weekly or monthly basis. Remember, since sending E-mail is free, your leasing teams will have lots more flexibility. In addition, E-newsletters portray a professional image about your property management company and are quick to be passedalong to others, thus expanding the reach and exposure for your marketing • When sending E-mail, have your leasing teams develop a five to seven line signature which is automatically placed at the bottom of every E-mail they send out. This signature line will further promote their apartment community, your corporate website and can be changed on a daily basis, if necessary • Use E-mail to stay in touch with the media in your area, especially if your apartment communities have any exciting events or community projects to announce • The E-mail address at each of your properties should be included on every business card, every brochure, on any sales information and with all print advertising. Want to hear more about this important topic or ask some additional questions about how to use E-mail as a powerful marketing tool? Send an E-mail to ernest@powerhour.com and The Coach will E-mail you a free PowerHour invitation.

• When your properties are using Email to handle resident questions

Continued on page 11

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Dear Maintenance Men: By Jerry L'Ecuyer & Frank Alvarez

Dear Maintenance Men: By Jerry L'Ecuyer & Frank Alvarez Dear Maintenance Men: I am a firm believer in doing interior and exterior inspections at my properties. However, as I’m getting older, I find I am spending less time at the buildings, so I need to use my time constructively. What should I include in an inspection report to help me decide what work to do now or later? Fred Dear Fred: You are thinking ahead and that is a good thing! Just because you visit the property less, does not mean the building requires less maintenance and as you know, routine maintenance issues evolve into costly repairs that could have been avoided. Here are some of the things we pay special attention to: 1: First and foremost, we look for potential hazards. Broken sidewalks, poorly lit stairs, missing handrails; anything that can potentially cause an injury for a resident or a guest. And, of course,

we make sure those fire extinguishers are functional and fire escape areas are clear of clutter. 2: It is important to check building exteriors for cracks in the foundation, open crawl spaces and any places in brick work or stucco where water might get into the walls during heavy rain. This includes making sure that caulking around vents and piping is sufficient. We do a similar inspection of the roof, looking for spots were leaks might occur. 3: Make sure that all of the property's windows close smoothly and securely and identify any broken panes. Windows that leak or collect condensation on the sills can create major problems down the road. 3: Fire Hazards such as dryer vents should be inspected to make sure they are clear of lint and debris. Chimneys are inspected for cracks and proper ventilation. Both gas and electric water heaters pose fire and water hazards. Electrical connections are checked as are gas lines along with water pipe connections and venting.

4: Biannual furnace filter inspections at the end of fall and spring will keep your HVAC systems operating at peak performance, while ensuring dangerous conditions are not present. 5: The most costly and damaging of all deferred maintenance is water related. Plumbing throughout the building must be inspected to make sure that seals are secure, faucets are not leaking and pipes are in good condition. Residents should be encouraged to report leaks and drips. A small leak under a cabinet can create serious damage if left unchecked. 6: Inspect breaker boxes and all electrical equipment: 7: Include washing machines, garage door openers and other mechanical devices such as garbage disposal units and re-circulation pumps etc. in your inspections. Check for loose wires, water leaks and unsafe conditions. This is only a partial list and individual buildings may differ in their needs.

Dear Maintenance Men: It is currently summer time and that is when we get the most vacancies. How do I keep my residents from moving? Denise Dear Denise: According to the 2011 national resident study, "Getting Inside the Head of the Online Renter," the number one factor in a resident's decision to renew a lease is "Quality of Maintenance Services." Additionally, the current SatisFacts Insite® Index for Work Orders indicates that 18% of all service requests are not completed right the first time. And of those, only onethird of residents received notification that there would be a delay in completing the request. What the above means is poor maintenance service can lead to higher vacancies. It does not matter if you have 10 units or 100 units; maintenance is a critical tool in the physical well-being of your property and the happiness of your residents. Think of it this way. A service call and parts may cost $250 to service Continued on page 11

RHJ Asks ...continued from front page 2 Rental property is a business. Whether you are a property manager with a large portfolio, or a landlord with a single rental, it is a business and should be treated as such. Once emotions become involved, the landlord/tenant relationship can quickly deteriorate. As the Good Book says, “Be slow to speak and slow to anger”. Listen to your tenant’s concerns and respond in a professional, businesslike manner. Arguments and accusations do nothing to solve an issue. 3. Keep accurate, consistent records. Each property and each tenant

should have a file containing every contact, addendum, notice, ledger transaction, and tenant interaction. Document everything. If you have a telephone conversation, or an inperson meeting, document the time, date and the substance of the interaction in the file. Keep copies of all e-mail correspondence. The more accurate and consistent your records are the less complicated things will be should problems arise during the tenancy.

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www.OccupancySolutions.com Rental Housing Journal Arizona • August 2014

RENTAL HOUSING JOURNAL ARIZONA

Apt. Market ...continued from front page – and we expect this to happen again.

Average Rental Rates For 50 - 99 unit size apartment’s, rental rates climbed 2.9% since Q2 2014 while the 100+ unit’s increased 2.6% over the same period. The smaller size communities still outpaced the larger projects. The increased construction will put pressure on existing properties, but going forward, the new communities will skew the average rates with their increased rents.

What’s Driving our Market? There is still significant money looking for a home and multifamily investments appear safe plus offer attractive cash on cash returns – especially with the low interest rates and projected upside in value. Many of the larger properties are being driven in this regard, especially REITs. A number of sales were made with the intent to reposition the asSize Studio One Bedroom Two Bedroom set – either from 50 - 99 $508 (1.18/sf) $602 (0.97/sf) $632 (0.77/sf) cash flow or in 100+ $568 (1.24/sf) $702 (1.03/sf) $721 (0.88/sf) some cases, with a major cash inApartment Sales Volume Up – Es- fusion. In some cases, properties are being “repurposed” – especially for pecially for 100+ Unit Communities In the 2nd quarter of 2014, there assisted or long-term care facilities. were a total of 66 apartment sales Grand Canyon University, as part of with 10 units or more, including 3 their major campus expansion, purREO sales. Fourteen of the 66 sales chased two properties in the 30th Av (21%) were “flips” – properties pur- and Camelback area of central Phoechased within the past few years and nix (Colter Meadows and Camelback resold for a profit. The number of Vista). projects sold with 100 or more units jumped from 10 in Q1 to 31, almost Mortgage Interest Rates Everyone anticipates an increase half the total sales. There were also two large broken condo sales (James- in loan rates, but the fact that they town and Allison Scottsdale Condos) have not come off the bottom yet and one Trustee Sale. Seven transac- implies a very fragile economy. The tions included a 1031 exchange. In question is however, not “IF” – but the mid-2000’s, most every transac- “WHEN”. The Federal Funds Rate tion included an up leg or a down leg is at a quarter point which is where of a 1031 exchange. This was a pow- it has been since December 2008. We erful force in our apartment market may get through 2014 without much

if any increase, but 2015 will likely be a different story. Apartment lenders are hedging their bets by offering excellent starter rates, but then bumping the rates after a few years – and then going to a variable rate. Whether you’re buying or refinancing – these are great times. If you’re selling, realize that a buyer can pay more for your property with the low rates. New Apartment Construction Continues. As of Q2 2014, there were 95 projects either under construction or in the permitting pipeline representing 23,446 possible units. The dominant locations for the new apartment projects are in Tempe, in and around downtown Scottsdale, along the Metro Light Rail, along the southern Loop 202, along the northern Loop 101 and a few in-fill Phoenix sites. Another trend for new construction is along the metro Light Rail – especially as it links the education hubs of downtown Phoenix, the ASU campus in Tempe and east to the four new universities in downtown Mesa. With the slight up-tick in vacancy rates, it may be that the recently completed projects are starting to put pressure on the overall market.

ment opportunities in metro Phoenix. We strongly believe that our population increase will ramp-up, rental rates and thus values will continue to climb, and all the new construction will mainly affect the larger class “A” properties. Having said that, we are not oblivious to the pending increase in mortgage rates, the lack of high-paying wages, the shortage of a skilled work force and the overall fragile US economy. The Kasten Long Commercial Group specializes in apartment brokerage in metro Phoenix and has provided detailed updates to apartment owners on the market since 1998. Their agents have brokered more than 1,000 communities with gross sales in excess of 1 billion dollars. Jim Kasten, CCIM Kasten Long Commercial Group 2821 E Camelback Road, Ste. 600 Phoenix, AZ 85016 602 677 0655 Jim@KLCommercialGroup.com

Investment Opportunities We remain very optimistic about multifamily offering solid invest-

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Rental Housing Journal Arizona • August 2014

RENTAL HOUSING JOURNAL ARIZONA

The Post-Dated Notice to Vacate

ccording to urban legend, there are teachers who will address their students on the first day by stating “As of today, you all have F’s. It is your job to work your way out of the cellar to the grade you truly deserve.” Urban legend or not, I had such a teacher – AP English…senior year of high school. For fear of a 25-year grade reversal, I won’t mention said teacher’s name. Let’s just call him/her, The Professor. The Professor was a piece of work; hard, brash, and unyielding in every sense of the word. The Professor treated everyone as if we were already in college. Students with excuses were often ridiculed and those who outright lied were made to exit the class altogether. The Professor had extremely high standards and very little patience. Everyone dreaded their daily encounter with The

Professor and thought of graduation more like prison release day. So, imagine the collective groaning when The Professor was tapped to represent the faculty and give a speech during the graduation ceremony. The Professor, really? In the past, the faculty representative was always the “popular” teacher, the one who got the most screams and cheers from the graduating class. The year before, when my sister graduated, the faculty speaker quoted Run DMC. That’s what we wanted – not some long, drawn out soliloquy by The Professor. The Professor began with, “I want to open by stating three important facts. Yes, I was tough. Yes, I demanded a full effort from each and every one of you. And yes, you have become better human beings for it.” The Professor went on to explain the

“work your way out of the cellar” philosophy tested a student’s motivation, tenacity and confidence. For a student’s grade go from an F to a B over the course of the year, purely based on effort, was more of a motivation than to tread water or to just get by with the minimum required to pass the course. Years later, I still remember his closing, “Whether you’re swimming or treading water, your arms and legs are moving. The big difference is swimming gets you to the shore. Treading water gets you exhaustion.” So how exactly does The Professor relate to our industry? Well, imagine a new resident arriving for move-in, happily looking forward to becoming a part of your community. Upon signing the final page of the lease, they turn in a post-dated notice to vacate. What they’re saying is, “I

have every intention of leaving after one year unless you can convince me otherwise.” If you knew a resident was on their way out at day one, would you throw in the towel or prove them wrong? It’s the same as the out of the cellar philosophy. Motivation, tenacity and confidence mean everything to resident retention. Make the most of every resident interaction, have ready answers (not excuses) and demonstrate there is no better community for your resident through unparalleled service. BY Lia Nichole Smith | VP – Education and Consulting | SatisFacts Research and ApartmentRatings.com

Crime Free Multi-HousingClass in Tucson

he Tucson Police Department offers a free of charge crime prevention program for multifamily property managers and owners. Benefits of the program have included reduced exposure to civil liability, lower tenant turnover, low-

er maintenance and repair costs, and improved personal safety for tenants, landlords and managers. Tucson Police Department's daylong eight hour course includes crime prevention theory, resident screening, lease agreements, evictions, and

effective response to criminal activity. Speakers include officers in the gang and drug units and attorneys. Class participation is encouraged and actual case histories are discussed. The program is designed to be solution orientated. Landlords can pay a high price for criminal activity. Property damage arising from abuse, retaliation, neglect or police raids can cost thousands. Fire resulting from drug manufacturing or growing operations can cause a property to be inhabitable. Good tenants, intimidated by dangerous or criminal activity, will relocate to other properties and/or areas. Loss of rental income, higher expenses and declining property values are the direct result of drug and criminal activity. The last Crime Free Multi-Housing class in 2014 will be offered from 8:00 AM to 5:00 at the Patrick J. Hardesty Multi-Service Center 1100 S. Alvernon in Tucson on OCTOBER 9th, 2014. To register for the class, or for non-emergency assistance by a Crime Free Multi-Housing Coordinator, contact the operations division for the area, where the property is located: • Operations Division South, (520) 791-4959 Ext. 114, Officer Terry

Rental Housing Journal Arizona • August 2014

Parker • Operations Division Downtown, (520) 837-7528 • Community Service Officer Monica VanNorman • Operations Division West, (520) 837-7241, Community Service Officer Kara Curtis • Operations Division Midtown, (520) 837-7428, Community Service Officer Becky Noel • Operations Division East, Officer Sandra Perez, (520) 791-5735 Ext. 209 The Tucson Police Department has a highly trained team of Crime Free Multi-Housing Coordinators, familiar with issues, in their division of town. They are available to all landlords and property managers to eliminate criminal activity. Jade Bossert is a licensed real estate broker, with Tierra Antigua Realty, in Tucson. She specializes in the sale of apartment complexes and can be contacted at 520-797-6900 or tucsonrealestate@mindspring.com

RENTAL HOUSING JOURNAL ARIZONA

Straw, Sticks, or Bricks… What is Your House Made Of?

hen the big bad wolf, better known as online reviews, comes knocking at your door, how solid is your community’s reputation? Think back to the children’s bedtime story, The Three Little Pigs. Each pig decided to leave home and seek their fortunes. Before leaving, their mother told them, “Whatever you do, do it the best that you can because that is the way to

get along in the world.” The first pig decided to build its house of straw, because it was the easiest, leaving him more time to play. Is your community built of straw? Are you doing just enough to get by? Residents living at a straw community may feel as though all they are to you is an apartment number and a monthly check. Walking into your office, they may be second

in priority to prospects, a ringing telephone, or even a conversation among co-workers. Straw communities are defenseless to the big bad wolf because cutting corners and indifferent service are surefire triggers for negative reviews. The second pig built its house of sticks. While stronger than the straw, this material had its own shortcomings. The second pig chose sticks because he could fashion a sturdy structure quickly and still have the rest of the day to play. Stick communities have great intentions when it comes to their residents however, consistency and longevity are often a challenges. By not providing a stellar level of service day in and day out, the big bad wolf has no problem lurking outside your door, waiting for an opportunity to pounce. This brings me to the third little pig. While its brothers teased him because of the playtime he was missing, this pig never wavered in his quest to build a solid structure. The third pig had a “one and done” mentality. Building his house correctly the first time and preparing for the unforeseen proved to be beneficial for this little pig. The wolf tries to blow the house down and when that doesn’t work, the wolf decides to climb to the roof and enter the house through the chimney. Oh but the third little pig, always prepared for

the unforeseen, had a huge kettle of boiling water to meet the wolf as he came down the chimney, putting an end to the big bad wolf. Brick communities, although resilient, are not immune to the big bad wolf. The wolf knows the community is strong and well-built, but can’t resist trying to take a shot at its reputation. Knowing that a strong online reputation begins with a first-rate onsite experience, brick communities put forth the effort to make the most of every resident interaction. They sacrifice the easy to make residents top priority on a daily basis. And when the wolf does try to get it, they are prepared with a ready response. Protecting your community’s online reputation starts with having the right attitude (work hard, build it right, prepare for anything) along with facing the negative head on with a counter attack. As the mother of the three little pigs said in the beginning of the story, “Whatever you do, do it the best that you can because that is the way to get along in the world.” Straw, sticks or bricks… who’s afraid of the big bad wolf? BY Lia Nichole Smith | VP – Education and Consulting | SatisFacts Research and ApartmentRatings.com

Rental Housing Journal Arizona • August 2014

RENTAL HOUSING JOURNAL ARIZONA

Dear Maintenance Men: a broken washing machine or water heater, resulting in a satisfied resident. However, a resident having to live with a broken washing machine or intermittent hot water may elect to move rather than dealing with the hassle of calling in repeated service requests. That resident vacating will now cost the owner thousands of dollars in loss rent and rehab work to bring the unit back to rent ready condition. Good maintenance is a year round tool to keeping your investment healthy and your residents paying the rent month after month. Dear Maintenance Men: I have been hearing the term “Aging in Place” more and more lately. What does it mean and how does it affect my apartment building? Harold Dear Harold: Aging in place is defined as living in the community with a level of independence for as long as possible without the need of in home care. The biggest barrier to aging in place is our homes. Most homes and rental communities are ill equipped for long term aging in place residents. As an eye opening statistic, the Baby Boomer generation is 25 percent of

The Coach:

...continued from front page 7

the population and the first of the Boomers turned 65 in 2011 and the last will turn 65 in 2029. As apartment owners and managers, we need to pay attention to this aging trend and not be caught off guard. Aging in place means bigger showers with wider doors, taller toilets, grab bars and bath sinks that will accommodate wheelchairs etc. As your units come up for rehab over time, think about these improvements; they might just be money in the bank for the long run. Bio: Please call: Buffalo Maintenance, Inc for maintenance work or consultation. JLE Property Management, Inc for management service or consultation Frankie Alvarez at 714 956-8371 Jerry L’Ecuyer at 714 7780480 CA contractor lic: #797645, EPA Real Estate lic. #: 01460075 Certified Renovation Company Websites: www.BuffaloMaintenance.com & www.ContactJLE.com www.Facebook.com/BuffaloMaintenance

...continued from front page 6

Author’s note: Ernest F. Oriente, a business coach/trainer since 1995 [32,320 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 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/employeepolicymanu-

als.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

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Rental Housing Journal Arizona • August 2014

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Rental Housing Journal Arizona • August 2014