Arizona Rental Housing Journal May 2015

Rental Housing Journal Arizona

May 2015 - Vol. 7 Issue 5

2. Training the Next Generation of Real Estate Investors 3. Vacation Home Sales Soar to Record High in 2014, Investment Purchases Fall 4. Issuing a Second Noncompliance Notice

6. Tongue Tied in Texas – Behind The Leasing Desk 7. Desert Sees New Growth as Apartment Operations Thrive 8. Low Housing Supply Squeezes Affordability

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4 Reasons Your Business Should Be On Social Media Networking Online Is Crucial, But It Needs To Be Done Right, CEO says

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hen they need to make personal connections with the rest of humanity, more and more Americans are doing so via the Internet.

A 2014 study by the Pew Research Center showed that 74 percent of adults who go online use a social networking site, whether it’s Facebook, Twitter, Instagram or something else.

“It’s clear that nearly everyone makes an effort to connect some way through social media,” says Doug Vermeeren, CEO of Business Networker (www.businessnetworker.com), an online site that helps small and independent business owners make professional connections.

“A lot of that time is spent sharing vacation photos, debating politics or chatting about everyday events in their lives.

“But businesses are missing out if they don’t understand how powerful online networking is, and how it can help them connect with potential customers and other businesses they could form partnerships with.”

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...continued on page 5

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Apartment Market Update, Metro Phoenix – Q1 2015

he Kasten Long Commercial Group has specialized in apartment brokerage in metro Phoenix since 1998. Our agents have brokered more than 1,000 communities with gross sales in excess of 1 billion dollars.

Sales Slightly Less But Still Strong: In the first quarter of 2015, there were a total of 54 individual multifamily transactions with 10 units or more. This is about 15% to 20% fewer sales than previous quarters.

Of these sales, only 18 had more than 100 units, two were bank-owned, two were reported as being 1031 exchanges, one was a broken condo and most were purchased with new loans. Three of the sales were double escrows.

Vacancy Rates Continue to Drop: Vacancy rates for the 1st quarter continued on page 7

How to Profit in Real Estate Without Flipping, Renting or Beating Bubbles Investment Banker Advocates for Lost Art of The ‘Second Oldest Profession In The World’

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ost people believe that making a profit in real estate means buying and selling at the right time, or renting their property and profiting over the long term, says investment banker Salvatore M. Buscemi.

Being handy with property renovations and having a great relationship with a bank can also prove essential. But what if you’re better suited for a straightforward approach to short-term, high-interest financing

for higher-than-normal returns – independent of the established banking norms? What if you want to build better relationships for safer investments?

That answer may be found in hard money lending, the “second oldest profession in the world, right after that other one,” says Buscemi, managing director of Dandrew Partners LLC in New York City and author of “Making the Yield: Real Estate Hard Money Lending

Uncovered” (www.MakingTheYield. com).

Hard money lending is a type of community lending and here’s how it works, Buscemi says. Investors act like a bank and make short-term loans to small businesses that buy and repair distressed properties, refinance them with conventional bank loans and repay the short-term loans at higher interest rates, generating more profitable returns for the origicontinued on page 11

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Training the Next Generation of Real Estate Investors

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By Clifford A. Hockley, President Bluestone & Hockley Real Estate Services

ou don’t feel any older...but who is that person in the mirror?

After fifty years of investing you have grown a portfolio that nets over $25,000 a month and you feel good about what you have accomplished. You ‘retired’ years ago when you hired a real estate property management company to handle the day to day upkeep of your investments and prior to that you made sure to build up significant reserve accounts for each of your properties, planning ahead for taxes, major capital expenses, vacancies that might require significant remodeling, and (in the case of commercial buildings) large leasing commissions.

This allowed you the time to check off items on your bucket list while maintaining the income to finance each adventure. Whether you’re in a Paris hotel room or on a lounge chair at a beach resort, you still carefully review each monthly property report to keep apprised of your investments. Life is pretty good,

but you know it can’t go on forever.

You are aging; you may have small memory lapses now and then or a lack of stamina to keep up with rapid change. You know that you need to get young blood involved in your investments. You don’t need to hire another service provider. You need to recruit another you. Everyone you talk to offers the same advice, “Do you have kids?” they ask, “Are they interested in taking over?” You know you should have asked yourself this question earlier but somehow the opportunity escaped you.

Even the closest families sometimes shy away from sharing financial details with each other. Maybe your kids were free spirits in their younger years and you questioned their judgment, maybe they never seemed interested in real estate, or maybe they were focused on their own career path and you didn’t want to complicate their lives. Maybe you don’t have children but some capable nephews and nieces you never approached. In any case, you have no idea if these potential successors are interested in real estate or investing for that matter.

You also need to understand that just because these people are related doesn’t mean your successor(s) have real estate in their DNA or the ability to collaborate well with each other.

You need to identify people who are passionate about real estate investing, like you are. They will need the ability to work cooperatively in a way that will last into the future.

How do you gauge interest, compatibility and aptitude for a job they will assume after you are gone?

Introducing the next generation to real estate At this point, the best approach is a fairly direct one. Invite your potential successor(s) to visit you for a planning session on the future of your real estate investments. Give them some idea of the nature of your real estate holdings, your intentions of passing it on to the next generation, and explain why their involvement now will help make the transition a successful one. Let them know to expect something more like a workshop and less like a family reunion and discourage them from bringing their spouses or children.

In preparation for the planning session, have your property manager prepare a briefing book for each property which includes the property histories, tenant information, condition of the property, latest capital improvements, individual balance sheets and income statements on a year over year basis, and then schedule him or her to take your group on a tour of your properties.

After your tour, break down the business details to your successor(s).

Explain the LLC structure of your investments, the trust structure of your estate, and what that would mean to them. Review the potential estate taxes that might arise as a result of your passing and how you propose they manage that burden.

If you have a number of successors, you will need to designate one to work with the property manager on day to day decisions. It is important, however, to train all successors so they can create a process of decision making. Major decisions over $10,000 and those involving strategy and refinancing, purchasing and sales of properties will involve all of ...continued on page 11

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Vacation Home Sales Soar to Record High in 2014, Investment Purchases Fall

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acation home sales boomed in 2014 to above their most recent peak level in 2006, while investment purchases fell for the fourth straight year, according to an annual survey of residential homebuyers released today by the National Association of Realtors®.

NAR's 2015 Investment and Vacation Home Buyers Survey,* covering existing- and new-home transactions in 2014, shows vacationhome sales catapulted to an estimated 1.13 million last year, the highest amount since NAR began the survey in 2003. Vacation sales were up 57.4 percent from 717,000 in 2013.

Vacation home sales are up 57.4% from last year, according to the National Association of Realtors 2015 Vacation and Investment Home Buyers survey.

Investment-home sales in 2014 decreased 7.4 percent to an estimated 1.02 million in 2014 from 1.10 million in 2013. Owner-occupied purchases fell 12.8 percent to 3.23 million last year from 3.70 million in 2013. The sales estimates are based on responses from nearly 2,000 U.S. adults who purchased a residential property in 2014, and exclude institutional investment activity.

Lawrence Yun, NAR chief economist, says vacation sales in 2014 showed astonishing growth, nearly doubling the combined total of the previous two years. "Affluent households have greatly benefited from strong growth in the stock market in recent years, and the steady rise in home prices has likely given them reassurance that real estate remains an attractive long-term investment," he said. "Furthermore, last year's impressive increase also reflects long-term growth in the numbers of baby boomers moving closer to retirement and buying second homes to convert into their primary home in a few years."

Vacation-home sales accounted for 21 percent of all transactions in 2014, their highest market share since

the survey was first conducted. The portion of investment sales fell to 19 percent (20 percent in 2013); owneroccupied purchases declined to 60 percent (67 percent in 2013).

"Despite strong rental demand in many markets, investment property sales have declined four consecutive years to their lowest share since 2010 as rising home prices and fewer distressed properties coming onto the market have further reduced the number of bargains available to turn into profitable rentals," says Yun. The median sales price of both vacation and investment homes declined in 2014. The median vacation home price was $150,000, down 11.1 percent from $168,700 in 2013.

The median investment-home sales price was $125,000, down 3.8 percent from $130,000 a year ago.

According to Yun, the decrease in vacation and investment sales prices is likely due to the increase in vacation and investment buyers purchasing condos and townhouses, which contributed to a decline in the median size of 200 square feet for both.

Additionally, the rise in vacation buyers purchasing distressed properties and buying in the South, where home prices are often lower, contributed to the overall decline in the sales price of vacation homes.

The share of vacation buyers who paid in cash fell to 30 percent from 38 percent in 2013. Investment buyers who paid in cash decreased to 41 percent from 46 percent a year ago.

Of buyers who financed their purchase with a mortgage, nearly half (48 percent) of vacation buyers and 41 percent of investment buyers financed less than 70 percent of the purchase price.

Forty-five percent of vacation homes and 44 percent of investment homes purchased in 2014 were distressed properties – either a home in foreclosure or a short sale. In 2013, 42 percent of vacation homes and 47 percent of investment home purchases were distressed.

Characteristics of VacationHome Purchases The typical vacation-home buyer in 2014 had a higher median household income ($94,380) than those in 2013 ($85,600) and purchased a property that was further away (median distance of 200 miles) than a year ago (180 miles). Buyers plan to own their property for a median of 6 years, unchanged from 2013.

Although a majority (54 percent) of vacation buyers bought a singlefamily home, the share of those buying a condo (27 percent) or a townhouse or row house (18 percent) increased from a year ago. Fortypercent of vacation buyers purchased in a beach area, 19 percent purchased in the country and 17 percent purchased a vacation home in the mountains.

One-third of vacation buyers plan to use their property for vacations or as a family retreat, 19 percent plan to convert their vacation home into their primary residence in the future, and 13 percent bought for potential price appreciation; the same share purchased because of low real estate prices and because the buyer found a good deal.

Forty-six percent of vacation homes purchased last year were in

the South (41 percent in 2013), 25 percent in the West (28 percent in 2013), 15 percent in the Northeast (18 percent in 2013) and 14 percent in the Midwest (unchanged from a year ago).

NAR released a study in late-2014 that identified the top housing markets likely to see a boost in home sales to leading-edge baby boomers1. The findings revealed that metro areas – including many in the South and Southwest – with a lower cost of living and sunnier weather are poised to see an increased number of baby boomers moving in and buying a home in coming years.

Characteristics of Investment-Home Purchases Investment-home buyers in 2014 had a median household income of $87,680 ($111,400 in 2013) and typically bought a detached single-family home (61 percent) that was a median distance of 24 miles from their primary residence (20 miles in 2013).

Thirty-seven percent of investment buyers last year purchased a property in the South, 26 percent in the West, 20 percent in the Midwest and 17 percent in the Northeast. continued on page 10

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RENTAL HOUSING JOURNAL ARIZONA

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Issuing a Second Noncompliance Notice

ost landlords know there are a variety of written notices they may deliver to residents, depending on the situation. Some common ones include: the five-day nonpayment of rent notice; the five- and ten-day noncompliance notice; the immediate eviction notice; and the thirty (30) day non-renewal notice.

One notice that seems to create some confusion, however, is the second ten-day noncompliance notice to move.

The Arizona Residential Landlord and Tenant Act (ARLTA) states in part in A.R.S. § 33-1368(A): A. Except as provided in this chapter, if there is a material noncompliance by the tenant with the rental agreement, including material falsification of the information pro-

vided on the rental application, the landlord may deliver a written notice to the tenant specifying the acts and omissions constituting the breach and that the rental agreement will terminate upon a date not less than ten days after receipt of the notice if the breach is not remedied in ten days. For the purposes of this section, material falsification shall include the following untrue or misleading information about the: 1. Number of occupants in the dwelling unit, pets, income of prospective tenant, social security number and current employment listed on the application or lease agreement.

2. Tenant's criminal records, prior eviction record and current criminal activity. Material falsification of information in this paragraph is not

curable under this section.

If there is a noncompliance by the tenant with section 33-1341 materially affecting health and safety, the landlord may deliver a written notice to the tenant specifying the acts and omissions constituting the breach and that the rental agreement will terminate upon a date not less than five days after receipt of the notice if the breach is not remedied in five days. However, if the breach is remediable by repair or the payment of damages or otherwise, and the tenant adequately remedies the breach before the date specified in the notice, the rental agreement will not terminate. If there is an additional act of these types of noncompliance of the same or a similar nature during the term of the lease after the previous remedy of noncompliance, the landlord may institute a special detainer action pursuant to section 33-1377 ten days after delivery of a written notice advising the tenant that a second noncompliance of the same or a similar nature has occurred.

If management serves a renter a five- or ten-day noncompliance notice and the individual does not comply and correct the violation, it may file an eviction action as soon as the five- or ten-day period expires.

In other words, if the individual continues the violation after receiving notice, no other notice is necessary.

If, however, the resident corrects the violation and nothing occurs

during the five- or ten-day period, then the lease continues. Keep in mind you cannot accept rent during the cure period; the law considers this acceptance of partial payment that voids out the notice.

If the renter receives the notice and no problems occur during the cure period, but he or she later engages in the same or similar type of conduct, the landlord may serve the second noncompliance notice to move. The resident does not get an opportunity to cure the subsequent violation and must move by the end of the notice. If he or she fails to do so, management must then file its eviction in court.

The noncompliance notice must contain sufficient detail and information specifying the acts and omissions constituting the breach so that the renter knows what the violation is. If you take a renter to court on the second non-compliance-to-move notice, you must have witnesses to testify about the violations in both notices.

Whoever is personally familiar with the violation in either of the notices must be in court to prove the landlord’s case.

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RENTAL HOUSING JOURNAL ARIZONA

Social Media ...continued from front page

Vermeeren says there are several reasons business professionals are making a mistake when they fail to take advantage of online-networking opportunities.

• If you are not networking, you are not working. Networking itself is nothing new. Business people have always found ways to connect with potential customers and clients, whether by joining organizations, playing a round of golf or working the tables at a Chamber of Commerce breakfast, Vermeeren says. “These days, social media is replacing realworld relationships,” he says. “That can have the downside of removing the personal touch, but it doesn’t have to be that way. A good business-networking site can help you keep that personal touch in both your online and live networking.”

• The customer and you. No matter how good the idea behind your business is, all business transactions still require two essentials: you and a customer, Vermeeren says.

Networking in general helps you identify some of those customers, but online networking can do so even more quickly and efficiently, helping you cast a wider net than you could by dropping in on a local business-networking function.

• An extra problem solver. The better networked an individual is, the more solutions they have access to in order to solve challenges that affect their businesses, Vermeeren

says. It’s the old “two heads are better than one” concept extrapolated many times over. “Someone probably has already dealt with a problem similar to one you are facing now,” he says. “Being able to draw on their experience could save you a lot of time, trouble and money.”

• Social media is more than social.

In the past, much of the networking through social media was designed for connecting on an entertainment or personal level, Vermeeren says.

Some businesses have come to realize what a powerful tool social media can be for them, he says, but they had to try to adapt to sites that weren’t necessarily designed with their goals in mind. That’s why Vermeeren saw the need for a networking site that could serve as a resource to help businesses identify customers, strategic alliances and joint-venture partners.

It’s important to understand that not all sites are created equal or serve the same purposes, Vermeeren says.

Some are great for connecting socially. Others might be good for job recruiting. But businesses also need to be able to build professional relationships online, and have those relationships evolve and eventually turn into mutually beneficial transactions.

“Yes, online networking is important,” he says. “But you also don’t want to waste your time. You need to make sure your online-networking experience is allowing you to build strong relationships with other business owners to help make your business grow.”

Doug Vermeeren is an internationally renowned public speaker, author, movie producer and director. His life coaching strategies help those from all walks of life, with clients including business executives, celebrities, professional athletes and more. He has written three titles contributing to Guerilla Marketing, the best-selling business book series. His most recent venture is the launch of Business Networker (www.businessnetworker.com), a social networking site for small and independent business owners that helps people make professional connections and provides a simple solution for online retail.

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Tongue Tied in Texas Behind The Leasing Desk with Heather Blume

Dear Heather, I was recently fired from a job I worked at for 8 years. I won't go in to details, but the condensed version is that I did my job, and something went wrong, our owner got furious, and I guess I got sacrificed. I've never ever been fired from a job before, and I'm still just stunned. I feel totally worthless, and worst of all, I know that I did what anyone would have done in that situation.

Now I've been applying for new jobs, and if the companies do finally call me in

for an interview everything goes fine until they get to my employment history. I don't know what I'm supposed to say when they ask me about why I left my last job. Do I tell them I got fired, or that I left, and do I tell them the specifics of what happened if I do tell them that I got fired? How can I say the right hireable words?

-Tongue Tied in Texas Dear Tongue Tied, The phrase, "I feel your pain," is

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universally overused, but in this instance, I actually CAN feel your pain. Being fired is hard on anyone's self esteem, and it's hardest the first time it happens, especially if you thought that you were really good at your job. The good news is that it's DEFINITELY something you can bounce back from and find yourself in an even better place at the end of it all!

First, I want to address that feeling of being worthless that you've got. You're going to need to shake that before any employer is going to be able to get enough confidence to hire you again. As someone who once hired people frequently, I'll tell you that confidence balanced with communication and people skills is my magic mix for people I want on my staff, so you need to find some way to get to feeling better about yourself.

And if you're thinking that sounds easier than it actually is, you're right.

What you're essentially going through is a mourning period, just like if someone you loved suddenly left or died. Basic path of grief goes like this - Shock and Denial ->Pain and Guilt -> Anger and Bargaining ->Depression, Reflection and Loneliness -> Clarity ->

Reconstruction -> Acceptance and Hope. The problem with the path of grief is that you have to go all the way through it, and it's not always a short process. Personally, when I traveled this path, it took me almost 4 months to really get to a good place inside, despite the face I was showing to the world.

Next, as to how you answer that question... Well, there are a few schools of thought on this one. Some people say that honesty is always the best policy. This can be true, especially in an industry as tiny as ours is. Odds are, the hiring manager already knows the truth, so she or he is just wanting to see how you answer the question. I would avoid using the word "fired" when the question comes up. The best phrase I've ever heard was told to me by a good friend and mentor, Jesse Hartman, who suggested that I use the words, "We decided to part ways," or , "It was time to move on."

Remember, in an interview, they're judging you on your poise and professional communication skills, so focus on keeping things positive.

If the interviewer brings up the fact that you were terminated and asks you why, I suggest NEVER EVER airing your and your compa...continued on page 9

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4/20/15 3:33 PM RENTAL HOUSING JOURNAL ARIZONA • May 2015

RENTAL HOUSING JOURNAL ARIZONA

Desert Sees New Growth as Apartment Operations Thrive Phoenix Metro Area Apartment Research Report, First Q115

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hoenix area employers have been expanding headcounts since 2010, fostering growth in the number of metro households.

Fields of employment that have added payrolls include professions such as accountants, lawyers, nurses and educators. New employees are cashing paychecks to purchase household goods as they set up homes throughout the metro. As incomes rise, residents are once again considering purchasing a house, as indicated by the increase in sales of single-family residences last year. Some potential buyers are saving for downpay-

ments, while others opt to rent long term closer to employers, shopping and entertainment, supporting the drop in apartment vacancy last year.

While a number of apartment dwellers are seeking average market rents, others pay more on a monthly basis to reside in luxury units. Developers continue to respond to consumer demand for higher-end rentals, especially in Scottsdale, Tempe and Chandler in the East Valley. Though there has been a swell of new supply to market, demand has continued to push down the metro vacancy rate.

The average rent continued to rise in

the past year as operations tightened across the metro, including in highly desired locations with newer complexes where a large pool of highend renters are seeking residence.

The number of out-of-state investors choosing to evaluate assets in Phoenix is growing, including those considering new high-rent properties with stable yields and strong potential for value appreciation.

Individual investors are seeking Class B/C properties that offer an upside opportunity with operational improvements. Owners who have been on the fence for several years

are beginning to lean toward trading into 1031 exchanges while interest rates are still low and the bidding environment remains competitive for new listings. Simultaneously, many buyers, both institutions and individuals, are considering longterm holds as the market continues to show signs of strengthening in the current phase of the cycle. Cap rates range from 4.75 to 6.75 percent, depending on location, finishes and age of assets, serving a variety of investor needs.

technology, healthcare and financial services leading the way. When construction jobs return, we will have a much more diversified economy going forward. Maricopa County (metro Phoenix) is now the second fastest growing county in the US and a portion of these folks will live in apartments.

“B” and “C” Properties – the Place to Be: With the continued new apartment construction, class “A’ and similar product will soon come under rental rate and occupancy pressure.

But “B” and “C” class, with more affordable rents and no new construction, should continue to flourish. We’re just beginning to see the dynamics take shape. Rents in “B” and “C” properties are not just increasing – they’re jumping.

Properties that have been repositioned, the new “fix & flips”, are often seeing rents easily jump from $650 to more than $1,000 for standard two-bedroom apartments.

It’s Not Blind Optimism: Are there dark clouds that could derail the dynamics? Sure! We’re conscious of world problems, pressure on the US dollar, Arizona or the US government creating problems, a fragile US economy, the potential for

over-building, the fact that real estate is always cyclic, and not to forget interest rates soon to be increased.

Even with the “B” and “C” properties, if rents increase too much, the government may start adding more affordable housing projects and may impose LURA requirements on new loans.

Never Forget “Location” If you are considering selling, this is a great market. If you are a buyer, look to pay a bit more than what past financials may warrant – we see a pretty bright future for at least the next few years. One thing is always important – buy the best location possible. Linda Fritz Salazar’s listed 92 units, Sora on Rose is a prime example of a repositioned property in an excellent central Phoenix location (see picture at beginning of this article).

...continued on page 8

Market Update...continued from front page for stabilized properties with 50 or more units decreased from 6.1% to 5.7% (see table). This is the lowest vacancy rate in 10 years. Note that absorption significantly outpaced the new construction. Vacancy rates for the 50-99 communities increased slightly from 5.5% to 5.6% while the 100+ properties decreased from 6.2% to 5.7%. Vacancy rates for each submarket are posted on our web site (www.KLCommercialGroup.com) under Apartments – Market Data.

Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 (1)

Multifamily Data Metro Phoenix Const. Absorp.

4,967 4,756 4,660 (4,653) 4,637 (5,846) 7,037 (4,466) 6,737 (5,319) 698 20,743 910 2,154 2,031 3,028 4,452 4,822 5,658 4,716 1,578 2,676

Vacancy 5.0% 5.3% 8.5% 10.8% 14.2% 10.3% 9.7% 8.3% 7.3% 6.1% 5.7%

New Construction Remains Very Strong: Six projects were completed in Q1 totaling 2,173 units. Three are located in Scottsdale and three in Tempe.

There were two new apartment projects started (312 u) in Q1, one in Tempe and one in Goodyear. There are 28 currently under construction representing 6,313 units. Many of these projects have commenced preleasing. There are also 61 additional projects in various stages from initial rezoning to final permitting - representing 14,599 units. The combined total of “under construction” and in the “pipeline” is 20,912 units. Details of each project are also posted on our web site.

Average Rental Rates Continue RENTAL HOUSING JOURNAL ARIZONA • May 2015

Increase: For apartment communities with 50-99 units, the average rental rate jumped 2% from the previous quarter. Realize that this is a very strong increase in just three months.

Annualized, this would represent more than an 8% increase per year while historical annual increases have been around 3%.

The average rental rate for the 100+ communities also jumped more than 2% over the past quarter, going from $819 to $837/per unit. These values reflect all size and age 100+ properties. As such, the actual values are not relative – but the overall trend is significant. In part, however, the increase may be from higher rents being obtained from the newly constructed projects that are now deemed to be stabilized and are now being included in the overall statistics.

The Greater Picture: We often work with apartment owners and buyers that live outside of Arizona – especially California.

What they tell us sometimes makes us see Arizona more clearly. For example, CAP rates in California are often only 1% to 2%. We are also not burdened by “rent controls” and have the ability to raise rents at the expiry of a tenant’s lease. Arizona is a fairly landlord friendly state – not so in many states. California was a driving force in our market between 2000 and 2008 – they are just starting to return.

Arizona and metro Phoenix – A Very Bright Future: If you know us, you know we are optimistic about Arizona, metro Phoenix and our apartment market.

From 1960 to 2007, Arizona was either 2nd or 3rd both in percent population and employment growth.

Between the overall US recession and SB 1070, Arizona was hit much harder than most states – as such, it’s taking a bit longer to recover. We lost more than 350,000 jobs in the recession, but we have gained back about 85% - with software / information

Jim Kasten, CCIM, Owner, Designated Broker Kasten Long Commercial Group 2821 E Camelback Road, Ste. 600 Phoenix, AZ 85016 602 677 0655 Jim@KLCommercialGroup.com www.KLCommercialGroup.com

myitzchaki@MSYLaw.com

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RENTAL HOUSING JOURNAL ARIZONA

Low Housing Supply Squeezes Affordability

R

ental affordability is as bad as it's ever been across the U.S., in part because there are not enough new, affordable units to meet demand - U.S. renters can expect to spend 30.1 percent of their income on rent, while homebuyers can expect to spend about 15.3 percent of their monthly income on a mortgage payment.

- Affordability is worst in fastgrowing cities that have fallen behind

in building homes to keep up with population growth.

- The U.S. Zillow Rent Index was up 3.4 percent year-over-year in February to $1,355. The Zillow Home Value Index rose 4.9 percent yearover-year to $178,700.

SEATTLE, March 27, 2015 / PRNewswire/ -- The least affordable housing markets are those where new housing permits have not kept up with population growth, according to a Zillow® analysis of U.S.

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rental and mortgage affordabilityi.

Affordability is best in places that either have slow population growth – such as Detroit – or have met new growth by building new housing units. Chicago, for example, permitted 906 new housing units in 2012 and 2013 for every 1,000 new residents between 2013 and 2014ii.

Chicago renters can expect to spend about 31% of their income on rent, while homebuyers there can expect to put 13.9% of their income toward

house payments.

It's easy to see how San Francisco has become one of the country's least affordable housing markets: Zillow's analysis showed that for every 1,000 new residents, there were just 193 new housing units permitted.

Residents of the San Francisco metro can expect to spend 44 percent of their income on rent, or 39.2 percent on a monthly mortgage payment.

The short supply is no secret to continued on page 10

Reserch Report ...continued from page 7 2015 Annual Apartment Forecast Employment: In 2015, Phoenix area employment will rise by 50,000 positions or 2.7 percent. All job sectors will improve this year. Last year, job advances reached 2.7 percent.

Construction: More than 9,000 apartments will come online in 2015, as developers ramp up construction to meet mounting demand from new households in the metro. Last year, 4,300 units were delivered throughout the Phoenix market.

Vacancy: This year, vacancy will compress

100 basis points to 5 percent, after plummeting 120 basis points to 6 percent in 2014.

Rents: Phoenix metro rent will increase 5.5 percent to $868 per month in 2015 as a large portion of luxury units come online and demand is sustained by residents seeking a livework-play environment in welllocated apartments. This comes after a 5.6 percent advance in monthly rents previously.

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The Professional Approach to Apartment Inves ng Apartment Brokers • Pre-Sale Analysis • Asset Management 1031 Exchanges • Property Clinic

Arizona

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Washington

Joseph Chaplik

President / Designated Broker

480.305.5600 | www.josephbernard.net

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RENTAL HOUSING JOURNAL ARIZONA • May 2015

RENTAL HOUSING JOURNAL ARIZONA

Tounge Tied ...continued from page 6 ny's dirty laundry. Don't go into specifics, don't tell the whole story and don't cry. One of the best responses in this case is to say, "It wasn't a good fit for me, but that's one of the reasons I like what I've seen about your corporate culture..." and then go in to examples as to why you would fit in well with their company and what you can bring to the table.

Don't let fear hold you back. The job market does have jobs for people who are willing to put forth the effort to get them! Hang in there and focus your efforts on healing over the scars from your dismissal, learning what you can from the incident, and finding a company that can be a great long term home for you moving forward.

Good Luck!

Heather Dear Heather, I just got written up for violating fair housing. It's completely not fair, since I wasn't being discriminatory at all! We have an indoor pool at my community and in the early afternoon there are a lot of senior citizen swimmers in there. Last weekend, one of them was very annoyed because there were a lot of little kids in the pool who were splashing around and cannon balling into the water, right by them. She complained, so I told the kids that they had to stay at the end of the pool that the older people weren't swimming in. I thought it was a good compromise, but then one of the kid's parents (who NEVER controls their child to begin with!) came in and complained to the manager about my compromise.

I got written up. It was complete crap.

I don't want you to think that I think fair housing laws are stupid, but my manager makes such a huge deal out of them! I know they are super crucial to the industry, blah, blah, blah, but I don't understand why me doing something that's just good customer service is a violation of them. Can you tell me how to fight this write up? It's not fair, and it's not right.

-Irritated in Illinois Dear Irritated in Illinois, Oh, you're really not going like my answer. You manager was right.

What you did was a violation of the

RENTAL HOUSING JOURNAL ARIZONA • May 2015

Federal Fair Housing laws. Unless you happen to work at a 55 and older senior community, you can't discriminate on any of the federal classes, and familial status is one of them.

We can't make different rules for children, just because they're uncontrolled or because we want to. Believe me, I understand your desire to make the best compromise possible with your residents, and I do give you credit for not banning the kids from the pool all together, which is a mistake I've seen MANY young leasing agents make. But the truth of the matter is that we as property management employees cannot make any rules, policies or overt actions that are discriminatory against a protected class.

To phrase it another way... you just sent those kids to the, "Back of the Bus." I'm betting that when your parent complained, it was more about the fact that you were parenting her children than the way you handled the situation. Working with children on site can either be an awesome experience in your day or the worst half hour of your day, depending on the kids and the parents. Let me give you 2 good guidelines on when you can step in:

a 10-Day with amazing speed in this circumstance.

And that's really about it.

Anything past that, you need to talk to your manager, because anytime we deal with kids we run the risk of violating fair housing unless we are VERY careful.

About your write up, talk to your manager and see if he or she would consider putting it in the "off the record" file, meaning it doesn't go directly against you, but if it happens again, then you're going to get slammed with both of them. And to make sure it doesn't happen again, ask for a little more training on the subject. If your company uses an online LMS system like the Training Factor, Grace Hill or Leasehawk, you can retake those classes at any time, so it might be a good time to brush up on your knowledge. And if your local apartment association is run-

ning a CAM class, ask them how much it would be for you to sit through just that one class. The information is FANTASTIC! Please let me know if you need further resources.

Good Luck!

-Heather Heather is the Imagination In Charge of Behind the Leasing Desk Training & Consulting Services out of Seattle, WA. An accomplished national speaker, trainer, consultant, career coach, and author of both books as well as countless industry related articles, Heather holds her CAS designation, is NAA Advanced Instructor trained, and has been a member of the NAA Faculty since 2009, serving as a WMFHA, CAM, and NALP instructor since 2009. You can check out more of her musings, podcasts, and class offerings at www.behindtheleasingdesk.com

• The kids are causing a danger to themselves or to other residents - Absolutely step in here. Step one, call their parents. If you can't reach mom and dad then use good judgment. I suggest talking to your manager and seeing what his or her preferred methods of resolution in this situation are.

They've been through it before and can give you a better roadmap on how to get out of the mess. That's what they're there for.

• The kids are causing damage to the property - Don't let that one stand either. That property is your company's asset and in your lease it should say that the lease holders are responsible for the conduct and damages of their guests or occupants. Some places will let this slide more than others, but I've seen places that will crank out

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RENTAL HOUSING JOURNAL ARIZONA

Vacation Home Sales Soar...continued from page 3

Investors were most likely (32 percent) to buy in a suburban area, followed by an urban or central city (26 percent), rural area (21 percent) and small town (16 percent). Five percent of investment buyers bought in a resort area.

Investment buyers purchased property for a variety of reasons, including for rental income (37 percent), because of low prices and the buyer found a good deal (17 percent)

and for potential price appreciation (15 percent). Overall, investment buyers plan to hold onto the property for a median of five years (unchanged from a year ago), and a majority (68 percent) are very or somewhat likely to buy another investment property in the next two years.

The bulk of investment buyers (86 percent) and vacation buyers (85 percent) reported that now is a good time to purchase real estate.

NAR's 2015 Investment and Vacation Home Buyers Survey, conducted in March 2015, surveyed a sample of adults that had purchased any type of residential real estate during 2014. The survey sample was drawn from a representative panel of U.S. adults monitored and maintained by an established survey research firm. A total of 1,971 qualified adults responded to the survey.

Low Housing Supply Squeezes ...continued from page 8

Consumers were sampled to meet age and income quotas representative of all home buyers drawn from NAR's 2014 Profile of Home Buyers and Sellers.

The 2015 Investment and Vacation Home Buyers Survey can be ordered by calling 800-874-6500, or online at w w w. re a l t o r. o rg / p ro d s e r. n s f / Research. The report is free to NAR members and accredited media and costs $149.95 for non-members.

The National Association of Realtors®, "The Voice for Real Estate," is America's largest trade association, representing 1 million members involved in all aspects of the residential and commercial real estate industries. *Vacation homes are recreational property purchased primarily for the buyer's (or their family's) personal use, while investment homes are residential property purchased pri-

Metro area

policy-makers. The mayor of San rental inventory shortages. But these Francisco has pledged to add 30,000 fixes won't happen overnight."

Since 2000, rents have grown at housing units by 2020iii, and a Boston city report made a similar roughly twice the pace of incomes. recommendation to meet demand Partially as a result, the percentage with 53,000 new housing units by of Americans citing "cheaper housing" as a reason they moved to a dif2030iv.

"As the economy continues to ferent home has almost doubled improve, more Americans are slowly since then, from 5.6 percent to 9.6 moving off of their buddies' couches percent currently, according to the and out of their parents' basements U.S. Census Bureauv.

Over the past several years, rentinto homes of their own, first likely as renters and then eventually as ing – historically a budget-minded homebuyers," said Zillow Chief choice – has become increasingly less Economist Dr. Stan Humphries. affordable. Meanwhile, recovering "Unfortunately, the supply of afford- home prices, along with historically able homes, especially affordable low mortgage rates, have made buyrentals, is insufficient in many areas ing more affordable than it was histo meet this growing demand. As a torically, on a monthly basisvi.

VALLEY, METRO, ARIZONA result, the competition for those Zillow's February Real Estate Market homes that are available can often be Reports showed home values up 4.9 fierce, driving up prices and contrib- percent year-over-year to a Zillow uting to worsening affordability. Home Value Index of $178,700. U.S. More construction will help ease the rents rose 3.4 percent to a Zillow crunch, and getting a mortgage is Rent Index of $1,355. also getting easier, which will helpAug, Oct, Dec Feb, Apr, Jun, more current renters transition to homeownership and further ease

United States NY- Northern NJ Los Angeles, CA Chicago, IL Dallas-Fort Worth, TX Philadelphia, PA Houston, TX Washington, DC Miami-Fort Lauderdale, FL Atlanta, GA Boston, MA San Francisco, CA APT. Detroit,NEWS MI Riverside, CA Phoenix, AZ Seattle, WA Minneapolis-St Paul, MN San Diego, CA St. Louis, MO Tampa, FL Baltimore, MD Denver, CO Pittsburgh, PA Portland, OR Sacramento, CA San Antonio, TX Orlando, FL Cincinnati, OH Cleveland, OH Kansas City, MO VALLEY, METRO, ARIZONA APT. NEWS Las Vegas, NV San Jose, CA Columbus, OH Charlotte, NC Indianapolis, IN Austin, TX Virginia Beach, VA Jan, Mar, May, Jul, Sep, Nov, 1010 East 62nd Street, Los Angeles, CA 90001-1598 Souce Zillow

ON-SITE-NW SEATTLE Salsbury Industries

ON-SITE

Salsbury Industries

February ZHVI

marily to rent to others, or to hold for other financial or investment purposes.

Home sales were calculated based on a proportion of buyers who bought each respective home type— vacation, investment, and primary residence. The number of purchases for each housing type were calculated using the total number of existing home sales and new homes in 2014.

To calculate the difference in the number of purchases in 2013 to 2014, the percent change of each housing type purchased was calculated.

1Baby boomers are generally categorized as those born in the U.S. between 1946 and 1964. NAR's research analyzed leading-edge baby boomers (ages 60-69).

National Association of Realtors

Monthly Income Spent on Rent (2014 Q4)

Permits per 1000 new residents

$178,700 $383,300 $533,700 $187,100 $155,700 $202,800 N/A $362,800 $212,500

Monthly Income Spent on Mortgage Payment 15.3% 26.2% 40.1% 13.9% 11.6% 15.2% 11.9% 17.9% 20.2%

30.1% 41.6% 48.2% 31.1% 28.5% 30.0% 30.3% 27.0% 44.2%

384 383 187 906 312 671 376 332 223

$154,900 $369,100 $715,800 $114,400 $285,200 $203,400 $343,900 $211,400 $474,100 $132,500 $148,600 $244,100 $289,200 $125,300 $281,400 $335,700 N/A $170,100 $138,000 $119,700 N/A $187,600 $852,800 $146,300 $158,900 $129,100 N/A $211,300

12.3% 22.4% 39.2% 10.0% 23.8% 17.4% 21.9% 14.2% 34.0% 10.8% 14.4% 15.9% 19.8% 10.8% 20.9% 26.0% 12.4% 16.3% 11.4% 10.9% 10.9% 16.1% 39.5% 11.6% 13.2% 10.8% 15.9% 15.1%

25.4% 33.8% 44.0% 24.6% 36.4% 28.0% 30.8% 25.9% 43.2% 24.4% 32.1% 29.2% 33.4% 25.2% 30.9% 33.2% 29.0% 32.7% 25.8% 27.4% 24.9% 27.1% 39.4% 26.2% 26.8% 26.3% 31.0% 26.7%

301 299 193 1,813 167 250 353 380 188 1,036 314 400 305 42,258 376 159 166 339 554 1,311 517 242 294 528 472 390 486 588

Phone: 1-800-624-5269 • Fax: 1-800-624-5299

Octoberp

September

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The Industry Leader in Quality

RENTAL HOUSING JOURNAL ARIZONA • May 2015

RENTAL HOUSING JOURNAL ARIZONA

How to Profit in Real Estate...continued from front page nal lenders.

“Cash flow is something everyone needs yet few people have – that’s been true since Bronze Age Sumerians were writing in cuneiform on clay tablets,” Buscemi says.

“But in the 18th century such community lending was vilified, leaving a massive gap that banks have absorbed.”

Also called bridge loans, hard money loans are a specialized type of real-estate backed loans and fall within the peer-to-peer lending category, he says. As a lender, if you have a “cash-strapped” client who has missed several payments, then you have their collateral to resell and claim back your money with interest, he says.

“It’s a safe, short-term investment with nice returns, but doing without the established criteria on loans established through banks poses certain risks,” says Buscemi, who offers some need-to-know tips for navigat-

ing hard lending.

• Avoid hazards with insurance.

When you know that the hazard insurance is in place – with adequate coverage – make sure that you are listed as the mortgagee. A little mortgagee clause that shows you are the mortgagee wit your name and address on the policy matters. This clause should also show that you are in first position to be paid, should the property be foreclosed on.

• Know the many different types of insurance. They include policies: hazard, vacant dwelling, flood insurance, builder’s risk and loss of rents coverage. A very large part of your job as a hard money lender is to minimize the risk in a high-risk field.

You are already doing all you can to reduce the risk of lending to a particular individual, which is great.

But now you need to acknowledge that there are external factors that can affect your investment.

• Build in prepayment penalties.

Lenders want to make money on loans, which is not possible if the loan is repaid in full almost immediately after one is provided. The penalty would only apply for the first few months of the loan; after that, the borrower will not incur a penalty if they want to settle the debt. You don’t want to distress borrowers, but you also want to protect lenders against losses from ultra-short-term loans.

• What you risk without agreedupon prepayment penalties. If you do not build in prepayment penalties as part of a promissory note or mortgage, you are potentially leaving money on the table. Without such penalties you are giving an opportunity for unscrupulous borrowers to come in and take advantage of your lending system. Don’t leave yourself vulnerable.

“Making the Yield: Real Estate Hard Money Lending Uncovered,” is managing director of Dandrew Partners LLC in New York City (www.dandrewmedia.com).The company specializes in placing capital from prominent institutional investors into middle-market distressed commercial real estate investments. He began his career at Goldman Sachs, where he worked four years as an investment banker. A frequent speaker on hard money lending, Mr. Buscemi also co-founded Dandrew Strategies LLC, a $30 million real estate solutions provider in the secondary mortgage market specializing in non-performing residential mortgage portfolios.

Salvatore M. Buscemi, author of

Training the Next Generation...continued from page 2 your successors as a group, so they must have a strategy to reach consensus. (You will also need to plan for what happens if one of your successors dies, or is incapacitated, or just wants out of the partnership. If you start planning early, you can gauge interest level and compatibility to prevent this last scenario.)

rates.

5. After all of this training, allow them to take a key role in decision making for your portfolio.

(Remember to modify the LLCs to take their involvement into consideration!)

All this may overwhelm your successor(s) at first, especially if they had no previous exposure to your investments. Allow them to air their concerns and coach them best you can. If you plan carefully you will have the added bonus of more quality time spent with your loved ones.

You will be able to connect with

them as adults, and enable them to prepare for their retirement as well as the future of other family members down the line. With the right planning and training, everyone wins.

Devise a training program Devise a training program to give your successor(s) the knowledge to make the best decisions possible and, in the case of multiple successors, to establish as a group who has the skills and interest to be the leader. Make sure this training program includes the following: 1. Pay for your successor(s) to take basic real estate courses, either online, or at a college/community college near them. They will need to pass with a B or better.

2. Put together an orientation so your successor(s) understands the current condition of the properties, how and why you bought them and put five-year plans in place for each property. In this way they will also be setting long term and short term goals for asset growth and repositioning of the portfolio.

3. Teach them real estate mathematics, how to underwrite real estate deals, how the financials work, what pro formas are and how to evaluate property financing so they can make informed purchase, sale and refinance decisions. Evaluate the purchase of potential properties together.

4. Review and role play how to make decisions regarding leasing commercial space and how to handle commercial leases, commercial brokers and their commissions and how to evaluate tenant improvement expenses and lease RENTAL HOUSING JOURNAL ARIZONA • May 2015

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RENTAL HOUSING JOURNAL ARIZONA • May 2015