Arizona Rental Housing Journal August 2015

Rental Housing Journal Arizona

Aug 2015 - Vol. 7 Issue 7

2. Children are Tenants Too!

5. Changes to the Treatment of Depreciation Effective with Your 2014 Tax Return

3. Tucson Apartment Complex Sales Update for the 1st Half of 2015

6. To Social Media Relevance

4. Why Work-Life Balance is the Wrong Idea

7. Dear Maintenance Men

WWW.RENTALHOUSINGJOURNAL.COM • PROFESSIONAL PUBLISHING, INC

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

2Q15 Market Update

Conserve Water & Save Money with New Multifamily Landscape Rebates in Tempe

M

T

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. Contact us for more insight into our dynamic market and where the opportunities are now?

Q2 Apartment Sales Strong: In the second quarter of 2015, there were a total of 78 individual multifamily transactions with 10 units or more.

This was a 44% jump in sales volume from the 1st quarter’s 54 sales. There were also two two-property portfolio sales, one totaling $80.5M and one totaling $1.91M. Of the individual sales, 25 had more than 100 units and 13 included at least one leg of a 1031 exchange. Most all of the larger sales utilized financing with the continued low mortgage interest rates.

Of the 78 total sales, 32 were “Flips” – properties resold within the past four years. Most of the “flips” were properties with less than 100 units.

anaging water use in a multifamily property comes with its share of challenges. Living in the desert where conservation is crucial, your water bottom line is just as important as your financial bottom line in the long run.

Anything from a few leaky faucets to a broken irrigation system can wreak havoc on water consumption and significantly increase a property’s water bill.

National Study Sheds Light on Changing Prospect Behaviors and Preferences

By Doug Miller

PRSRT STD US Postage PAID Sound Publishing Inc 98204

ing an existing landscape into a desert-friendly landscape, or xeriscape.

Often this means replacing grass with gravel and swapping high water use plants and trees for those that use less water and are better suited for desert dwelling. Tempe will reimburse multifamily properties $.25 per square foot of turf removed up to a maximum of $3,000 to convert to a xeriscape. continued on page 8

Today’s Online Renter

...continued on page 5

Professional Publishing, Inc., PO Box 6244 Beaverton, OR 97007

The City of Tempe is helping multifamily property managers mitigate these water risks by offering new landscape rebates to help reduce water consumption. The rebates focus on two areas – landscape conversion/retrofits and turf strip conversion.

Landscape conversion or retrofit rebate – up to $3,000 Turf replacement, or landscape conversion, is the process of convert-

W

e just conducted a 2015 revisit of our landmark 2011 “Today’s Online Renter” study. The study addressed questions about how today’s online prospects shop, what drives rental decisions, what impact reviews have, the importance of social media and more. Big picture, transparency and

the basics are more important than ever.

• Shopping, Rental Decisions, Brand, Trust • 60.1% of apartment shoppers used a smart phone or tablet in their search (26.3% in 2011) and 78.3% visited a property’s website before contacting the office. Therefore websites must utilize Responsive Website Designs (as of April 2015 Google boosts

rankings for sites with RWD) and HTML5 coding (how Apple products read websites and permits for ideal viewing on smartphones, tablets, laptops).

• The Top Five sources used changed since 2011 [chart], and review sites now a top source. Since 45.4% of shoppers now use review sites, it is critical to manage the resicontinued on page 10

Advertise in Rental Housing Journal Arizona Circulated to over 10,000 Apartment owners, On-site, and Maintenance personnel monthly.

Call 503-221-1260 for more info. www. re nt a lh o u s in gj o u r n a l.co m

RENTAL HOUSING JOURNAL ARIZONA

M

Children are Tenants Too!

ost of us are familiar with both the Fair Housing Act and its complementary state legislation as it relates to discriminating against tenants with children. The Arizona Appellate Courts have also expanded the definition of who is a tenant and with it the accompanying rights and responsibilities. This article will examine a few of those rights and responsibilities.

A.R.S. § 33-1310(15) of the Arizona Residential Landlord and Tenant Act defines a tenant as follows: “Tenant” means a person entitled under a rental agreement to occupy a dwelling unit to the exclusion of others.

The Arizona Court of Appeals has decided that a child is also a tenant and entitled to all the protections an adult tenant is entitled to under the law. In the case of Van Camp vs. ICG Management Company (1991) the Court of Appeals stated that the tier of fact (i.e., a judge or jury must decide if the landlord breached its duty of care to a child tenant that was injured when she fell from the third story window of her apartment.

The Court of Appeals quoted from prior case law and stated the duty of a landlord was to take those precautions for the safety of the tenant as would be taken by a reasonably

prudent man under similar circumstances. The Court would not distinguish between the duties owed by a landlord to an adult residing on the premises versus a child residing on the premises. The Court concluded that: A landlord owed the same duty to a child as they would to any other tenant, and the duty is to exercise such are as a reasonably prudent person would exercised toward a child tenant under similar circumstances.

In the Van Camp case, the landlord had the duty to exercise such care as a reasonably prudent person would when renting a third floor apartment equipped with a screen of the type that was on the apartment’s window, to a family with small children.

While the duty of the landlord to a child tenant is the same as the duty to an adult tenant, the conduct necessary to fulfill the landlord’s duty may vary.

“The characteristics of children are proper matters for consideration in determining what is ordinary care with respect to them and there may be a duty to take precautions with respect to those of tender years which would not be necessary in the care of adults. The duty is to exercise such care as a reasonably prudent person would exercise toward children under like circumstances.”

If we take the Court of Appeals’ decision full circle, then it would seem that tenant child is governed by the same responsibilities as an adult tenant. For instance, if a tenant child is making excessive noise and disturbing the peace and quiet of other tenants then the landlord should be able to deliver a 10 day Notice, under A.R.S. § 33-1368(A) to the tenant’s child, in addition to a 10 day Notice to the parents. If the tenant’s child commits an act that is material and irreparable such as injuring another tenant’s child then an immediate

eviction notice would be appropriate. The landlord should now be able to consider additional notice options other than just a non-compliance Notice to the parents to supervise the conduct of their children.

Andrew M. Hull Hull, Holliday & Holliday, PLC www.doctorevictor.com www.doctorevictor.com 602.230.0088

Arizona’s Leading Parking Enforcement & Towing Company • • • • • • •

Free curb painting* Free handicapped spot painting* $1000 per car Parking/Paving relocates* Licensed, bonded & insured Member of the AMA Compliance Depot approved 4 convenient storage facilities located throughout the Phoenix area

• Latest in damage free towing equipment • Free signs & property walk-through assessments • Discounted towing rates for Employees of Community & Property Management*

www.gotowppi.com

1-877-770-TOWS *Restrictions apply *Restrictions apply

2

8697

RENTAL HOUSING JOURNAL ARIZONA • Aug 2015

RENTAL HOUSING JOURNAL ARIZONA

Tucson Apartment Complex Sales Update for the 1st Half of 2015 price. Cash buyers demanded higher ON-SITE-NW SEATTLE

T

ucson multi-family property the average and median gross rent sales volume started out slow multiplier was 6.5. The average sale VALLEY, METRO, ARIZONA in the 1st quarter of 2015, then price per square foot was $55.91 and sales dollar volume more than tri- the median sale price per square foot pled, in the 2nd quarter. The largest was $47.58. The average sale price recorded sale was of 8 multi-family per unit was $37,494 and the median buildings from Tucson's Family sale price per unit was $29,604. The Housing Resources to MC Compa- highest price sale per unit, was 7 nies of Scottsdale for $66,700,000. units at 2140-50 E. Hawthorne in the Feb, Apr, Jun, Aug, Oct, Dec This bulk sale sold at a cap rate of Sam Hughes neighborhood, that sold 5.03% and a price per square foot of for $101,286 per unit or $167.69 per foot. $62.27.

Most properties sold with new Of the 34 highest price recorded sales, 12 of the Buyers were from Cal- ly financed loans. New loans were ifornia, 8 were from other states and funded by: Wells Fargo, Bank of the West, US Bank, Acre Capital LLC and 3 were from metro Phoenix.

The median capitalization rate, Berkadia. Down payments averaged for 1st half sales, was 7.96%. Both between 20% and 40% of the sale

capitalization rates. The properties APT. NEWS that sold for cash, on average, sold for capitalization rates between 8% and 10%. 7 property sales were reportedly bought as part of an IRC 1031 Exchange. 6 of the sold complexes, in the 1st half of 2015, had documented substantial deferred maintenance and/or a high vacancy factor.

A hot West Coast real estate market, with capitalization rates in the 2% to 4% range, are motivating out of state investors to buy in Tucson. Tucson has one of the lowest rental rates in the Western United States. Therefore, investors see strong rates of return, coupled with potential income

Salsbury Industries

growth, in the Tucson multi-family market. The combination is fueling stronger sales volume in multi-family properties.

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 tucsonrealestate@mindspring.com.

ON-SITE

VALLEY, METRO, ARIZONA APT. NEWS

Salsbury Industries

Jan, Mar, May, Jul, Sep, Nov,

1010 East 62nd Street, Los Angeles, CA 90001-1598 Phone: 1-800-624-5269 • Fax: 1-800-624-5299

September

p

Octoberp

The Industry Leader in Quality 1/8 Page 4 7/8” x 3 5/8” On-Site4

bw

Contact Us Today for a Free Catalog!

Order Factory Direct!

1010 East 62nd Street, Los Angeles, CA 90001-1598 Phone: 1-800-624-5269 • Fax: 1-800-624-5299

NAME

ADDRESS CITY

STATE

ZIP

OTHER 1/8 Page VENDOR *Print subscriptions $25/year $15 additional 7/8” x market 3 5/8”E-mail bwsubscriptions $15/year 4 each $8 each additional market

I am an: OWNER

INVESTOR

I would like: Editions: VISA

PRINT ARIZONA

PROPERTY MANAGER

On-Site3a E-MAIL COLORADO

PORTLAND OR

MASTER CARD

CARD NUMBER

EXP.

CVV

NAME ON CARD

BILLING ADDRESS Or mail a check to: Rental Housing Journal

PO Box 30327 Portland, OR 97294-3327

RENTAL HOUSING JOURNAL ARIZONA • Aug 2015

3

RENTAL HOUSING JOURNAL ARIZONA

Why Work-Life Balance is the Wrong Idea A Better ‘Balance’ Is Finding the Right Job for Your Purpose, Says Talent Expert

By Brian Mohr

T

he corporate world is susceptible to fads.

Work-life balance, a push to properly prioritize work in relation to lifestyle, features the kind of fad-ish thinking that can lead gifted people down the wrong path, says talent expert Brian Mohr.

“Think of those who love their job – for them, it’s not exactly ‘work’ as they exercise their capabilities fully toward a goal that they believe in,” says Mohr, co-founder and managing partner for Y Scouts (yscouts.com), a purpose-based leadership search firm.

“Finding the right fit – whether an organization is searching for leadership or an individual is seeking the right job – is more important than people realize.

The problem of work-life balance starts farther upstream.

When the appropriate person is aligned with the appropriate goal, balance is natural.”

A concept like work-life balance is a claim on how we should prioritize our lives, which, if believed, can be confusing. Mohr discusses how an organization’s employees, from bottom to top, can benefit from a more helpful perspective.

• Don’t buy into the notion of the “work you” as being separate from the “real you.”

We spend 8.8 hours of each day working, according to the United States Bureau of Labor Statistics – the largest amount of time spent in any single activity (sleeping is second at 7.6 hours).

Work-life balance enforces a strange notion that you are essentially different on the clock than off the clock, which hurts both employers and employees.

Who wants this divided personality? Why not be yourself while doing what’s important – providing for your well-being and that of your family?

“Costumes are for Halloween,” Mohr says. “In my line of work, I want to offer a leader

who is authentic and not some impostor version of who they really are.”

• Not everyone is working for the weekend. Rather than worklife balance, it’s more helpful to think of your role in a company or nonprofit as work-life symbiosis. Just do the math. Working nearly nine hours in a role that you do not like doesn’t stack up well with two days that quickly pass by – assuming you hate your job. How many years of your life do you want to waste not doing what would make you happier?

“Most importantly of all is aligning the right people with the right role,” Mohr says. “That means aligning the purpose and values of an organization to the purpose and values of the right people. Everyone owes it to themselves to find the right organization.”

• Take a cue from your technology. In today’s world, we simply cannot compartmentalize different areas of our lives like people used to. You can communicate with your spouse at any time and know people better through social media than through real-life interaction.

And, for work, most of us carry our work around in our smartphones. If not text messages,

then we get emails sent to our phones.

“Whether through our technology or the software running in our brains, we don’t simply turn off work when we leave the office,” he says. “We should drop the idea that ‘work’ and ‘life’ are somehow separate.

They’re not.”

Brian Mohr is co-founder and managing partner for Y Scouts (yscouts.com), a purpose-based leadership search firm that connects organizations with exceptional leaders. Y Scouts operates under the belief that people are the only real competitive advantage in business and the best employer/ employee connections start by connecting through a shared sense of purpose and values. Previously, Mohr worked as a talent strategist and in leadership management for major corporations, including P.F. Chang's China Bistro and Jobing.com. He is a graduate of the Advanced Executive Program at Northwestern University’s Kellogg School of Management.

Advertise in Rental Housing Journal Arizona Circulated to over 10,000 apartment owners, on-site, and maintenance personnel monthly.

Call 503-221-1260 for more info.

4

RENTAL HOUSING JOURNAL ARIZONA • Aug 2015

RENTAL HOUSING JOURNAL ARIZONA

Changes to the Treatment of Depreciation Effective with Your 2014 Tax Return

Ay Heather L. Jackson, CPA | Tax Manager | Kern & Thompson, LLC, Cliff Hockley, President & Heather Hill | Bluestone & Hockley Real Estate Services

W

arning: The following article attempts to clarify important changes to the tax code. While pertinent to property owners, no amount of artistry could make this material more exciting. We recommend that readers use patience to digest this complex topic.

The federal government recently made major changes to tax regulations with a specific focus on the capitalization of tangible assets. Not only do these changes impact all taxpayers that acquire, produce or improve tangible property, they

provides specific rules for buildings versus other tangible property and provide guidance on the application of Sections 162 (a) – deduction, versus 263 (a) – capitalization.

To start, the IRS clarified the definitions of different types or property that are important in the decision to write off or capitalize on expenditure. To understand the new regulations, we must first refine what determines a unit of property.

According to the IRS, a unit

of property is real or personal property consisting of all of the components of property that, functionally interdependent, comprise a single unit of property. For example, a truck is a unit of property because all the parts are interdependent; however, each building in an apartment complex with multiple buildings is a single unit of property.

ment of materials and supplies.

Materials and supplies are NOT: a unit of property, acquired as part of a single unit of property, or inventory.

Materials and supplies ARE: Consumed in the taxpayer’s operations • A component acquired to maintain, repair or improve a unit of tangible property Materials & Supplies owned, leased or serviced by the taxpayer The new tangible property regulations also define the treat- • Items that are reasonably ex-

Give your residents

the riGht connections.

Residents expect the latest entertainment and communications technology in their lives.

Let’s talk!

Call us at 623-328-3204.

When you partner with Cox, you provide your residents with the most advanced products and services available in your area, with local support whenever you need it. And since Cox owns and maintains one of the nation’s largest hybrid fiber-optic networks, you get the bandwidth

Rental Housing Journal Arizona

needed to support advanced connectivity demands. Become a Cox Signature Community, and make sure your residents get the services they

Circulated to over 20,000 Apartment owners, On-site, and maintenance personnel monthly.

want, today and in the future.

Advertise/contribute and article, call 503-221-1260 for more info.

GigablastSM | Contour® TV | Cox HomelifeSM | Digital Telephone

CCI140272_MDU_Print_Ad_7.5x10 1

3/17/15 10:14 AM

RENTAL HOUSING JOURNAL ARIZONA • Aug 2015 JOB NO. CCI140272

AZ PRINT AD

JOB NAME 2015 MDU Collateral

INITIALS

DATE 3.17.15 CD

Michelle R.

DATE

5

RENTAL HOUSING JOURNAL ARIZONA

To Social Media Relevance

Those Seemingly Inconsequential Hashtags are Crucial to Gaining More Exposure for Your Brand

By Jay York

N

ot so many years ago, many people probably paid little attention to that pound sign on the computer keyboard. You know, the one that looks like this: #. Then along came Twitter and what we have come to call the “hashtag,” and social media marketing was changed forever. Yet not everyone takes advantage of hashtags the way they should, and that’s unfortunate because if you are not using hashtags you are missing out on exposure for you and your brand.

When you are on social media sites such as Twitter or Instagram, your goal should be to become part of the conversation. The hashtag allows more people to find your contributions to that conversation. Without them, you miss out on lots of eyes that could be viewing your content. For example, let’s say 1,000 people follow you on Twitter. Not counting re-tweets, only

1,000 people will see your posts if you don’t use a hashtag. Add the hashtag, though, and you start picking up momentum because the post has the potential of being seen by, and re-tweeted by, any number of people.

A common hashtag, such as #love, can position your post to be seen by potentially millions of people. But be warned.

While there are great benefits to hashtags, there also are pitfalls. Hashtags don’t come with exclusivity. Anyone can use them, so a hashtag can become a weapon that works both for you and against you. Critics of your brand, or just the usual assortment of Internet trolls, may attempt to hijack your hashtag, putting you or your business in a bad light.

A prime example of a hijacked hashtag happened a few years ago when McDonald’s, apparently hoping for a flattering conversation about the restaurant chain, introduced #McDStories on Twitter. #McDStories went

viral, but not in a good way as the Twitter world had a field day tweeting unflattering tales of their alleged bad experiences with the restaurant. Don’t let such cautionary tales deter you, though. March boldly into hashtagging, but as you do keep in mind these suggestions for getting the most out of your efforts.

• Use proprietary hashtags.

One of the advantages to a proprietary hashtag, such as “Orange is the New Black’s” hashtag #OITNB, is that it is linked directly to your brand.

These hashtags typically are not used as widely as a more generic hashtag, but the goal is to brand yourself through the hashtag with the hope it could go viral.

• Don’t overdo it. A post littered with too many hashtags can be difficult to read, so your message might become obscured as your followers see what appears to be gibberish.

Perhaps you saw the skit Justin Timberlake and Jimmy Fallon

once performed in which they spoofed the device’s overuse by lacing their spoken conversation with seemingly endless hashtags. It was hilarious and annoying all at the same time.

Twitter itself suggests using no more than two hashtags per Tweet. Certainly, three should be the very maximum on Twitter. A different etiquette exists on Instagram, though, and most Instagram followers will tolerate excess hashtags. Meanwhile, although hashtags can be used on Facebook, there’s little reason to include even one. That’s not the way people use that social media site.

• Think geographically. If you are a local company that depends mainly on local clientele, a hashtag that links to your location works well. Hashtags such as #Bizbee or #Bangor drop you into numerous conversations about your hometown.

Since social media has become such a vital element of any comprehensive marketing strategy, continued on page 8

Free Estimates

unt Painting, inc. o m a Par

9 6 5 3 717 2 0 6 Great Prices Interior Repaint Specialists Drywall & Texture Repairs 15+ years of Service Valleywide Roc#148170 1833 E. Baseline Rd., #262 Gilbert, AZ 85233

myitzchaki@MSYLaw.com

6

RENTAL HOUSING JOURNAL ARIZONA • Aug 2015

RENTAL HOUSING JOURNAL ARIZONA

Dear Maintenance Men:

By Jerry L'Ecuyer & Frank Alvarez

Dear Maintenance Men: I have a bathroom sink that is slow draining. I have already snaked the drain and found no stoppage. When I remove the pop-up assembly and have an open drain, water whooshes down with no problem. However, with the pop-up in place, water backs up into the sink and drains very slowly.

Paul Dear Paul: Most bathroom sinks have an overflow hole near the top edge of the sink. This hole serves two purposes; 1: Acts as a safety drain to keep the sink from overflowing should the water rise above a certain level in the sink. 2: The overflow hole also serves as an air vent for the sink when the water levels are above the pop-up plug. The overflow hole allows air to escape through the drain and the water to evacuate more efficiently.

What has happened is hair, toothpaste, grime etc. have built-up and sealed off the overflow drain where it exits just below the pop-up assembly plug. Most snakes are too big to go through the overflow drain.

Alternatively, a speedometer cable will work great or even a long zip tie will work. Push the cable or zip tie down through the overflow hole at the top of the sink and push any gunk out into the drain. Use water to help push the debris out the overflow drain, a funnel works great to direct a good flow of water. If you cannot access the overflow to drain, you will need to disassemble the main drain assembly to gain access to the overflow drain exit. Once the overflow drain has good airflow, the sink should drain a bit faster. If this does not solve the problem completely, look at restricting the water flow coming out of the faucet. Use a restrictive aerator to cut down on the GPM of the faucet.

Dear Maintenance Men: I run into a vendor communications problem every now and then. It is very frustrating and at times costly to my pocket book or the vendors’ depending on whose error it is. It can be as simple as the wrong shade of paint, to as serious as work completed in the wrong unit. I try to keep my directions as simple and direct as possible, but mistakes still happen. What do you recommend?

Steve Dear Steve: Sometimes familiarity and the as-

sumption the other party can read our mind gets in the way of proper communication skills. We have found that even with vendors we have used for a long time and who should know better, fall victim to mind reading errors. We no longer rely on verbal confirmation when finalizing a job. Everything is in writing no matter how small. Now, errors can still happen, but it is much easier to find who is at fault. To minimize errors further, be sure to write in a concise direct manner in simple sentences. Do not use compound sentences or complicated, jargon filled sentences. Write for the lowest common denominator. Often the work order will go from the contractor directly to his techs without any further explanations. The techs need to understand clearly what work is expected and authorized. If you have more than one task being performed in an apartment unit, itemize and specify by room what the work is. If you are painting, specify the color, flat or semi-gloss and what rooms are to be painted. If you have rooms or objects that are not to be painted, use a separate sentence so the difference can be clearly noted. This works with faucets, window coverings, flooring etc. Have the other party initial not only the original work order, but also any changes that take place before work proceeds. With the work order initialed, miscommunication is less likely. Don’t forget to add special notes and details when needed, include a phone number for any question.

and determine the temperature. If it is working properly, the lines should be warm or cool to the touch, not hot. If the pipes are hot or very hot to the touch, the pump is not working properly. If the pump does not spin when plugged in, it may need to be replaced. If the pump motor is working, the pump may be clogged with debris. Remove the pump and clear out the lines. Pay special attention to the line between the pump and the water heater. The pump tends to impact this section of the water line due to calcium buildups in the water heater tank.

While you have things apart, this is a good time to clean out the tank deposits, which may be contributing to the slow hot water issue. Water heater clean outs should be done at least once a year. If you live in a hard water area, adding a water softener to the incoming cold water line will greatly improve calcium and hard water buildups in the water tank.

So there was a neurosurgeon who called a plumber for a house visit. The plumber arrived and after spending an hour bestowed the neurosurgeon a bill of $500. The surgeon was stunned; he said, “Even I don’t charge this much after a surgery.”

The plumber stood up, gave him a sly look and said, “Well, that is why I am a plumber now; I used to be a neurosurgeon.”

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 714 778-0480 CA contractor lic: #797645, EPA Real Estate lic. #: 01460075 Certified Renovation Company Websites: www.BuffaloMaintenance.com www.ContactJLE.com www.Facebook.com/BuffaloMaintenance

Plumbing Joke:

Dear Maintenance Men: I am getting complaints for my residents that they are not getting hot water or that they need to run the water a long time before getting hot water. I checked the water heater and it is operating properly. What do you think the problem is?

David Dear David: The first thing we would check is the circulation pump for proper operation. Calcium or hard water deposits in the water heater and lines may also aggravate this problem. The circulation pump’s job is to bring hot water to all the units at the same time. When the pump is not working or is clogged; the hot water will take much longer to get to the units furthest away from the heater.

The first step is to determine if the pump is working. The pump is normally found next to the water-heater.

Check that the motor is plugged into an electrical outlet. Next, touch the water lines on either side of the pump

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

Arizona

•

Oregon

•

Washington

Joseph Chaplik

President / Designated Broker

480.305.5600 | www.josephbernard.net Advertise in Rental Housing Journal Arizona Circulated to over 10,000 apartment owners, on-site, and maintenance personnel monthly.

Call 503-221-1260 for more info.

RENTAL HOUSING JOURNAL ARIZONA • Aug 2015

7

RENTAL HOUSING JOURNAL ARIZONA

Social Media ...continued from page 6

Conserve Water ...continued from page 1

understanding all of the nuances is critical. A hashtag may not look like much, but it’s really a powerful tool that is a doubleedged sword. If used correctly it can greatly bolster your marketing reach. Used incorrectly, it can have adverse effects or unintended consequences.

With social media, your hashtag is your brand, so use it wisely.

Several multifamily residential properties and homeowners associations in Tempe have already converted high water use areas to desert landscaping. Some of these properties have seen their overall landscape water use drop by more than five million gallons per year, resulting in significant savings for their checkbooks and for the Valley’s water supply.

A complete landscape conversion isn’t always necessary to qualify for the new rebate. Irrigation system retrofits are another great way to reduce water usage and get reimbursed for the expenses. Switching to more efficient irrigation heads and adding new, smarter flow controllers can reduce watering by up to 25 percent in your turf areas.

Another reason to make the switch – many multifamily property managers also find that desert landscapes are easier to maintain and to clean. This can further reduce costs since not as much labor is needed to keep your property beautiful.

Grass turf strip conversion rebate – up to $500 Turf strips are those strips of grassy areas that are often found between the sidewalk and the street or other narrow corridors. Watering these narrow strips is difficult, even with the most efficient sprinkler systems. Sprinkler overspray wastes water and can cause damage to sidewalks and streets, and can even

Jay York, senior digital marketing strategist for EMSI Public Relations (www.emsincorporated.

com), is an internet marketing expert with extensive experience in social media marketing dating back to the early days of MySpace and LiveJournal. Since graduating from the University of South Florida Business School, Jay has worked as marketing coordinator for an international IT training company; business development and branding manager for a startup restaurant management group; and CEO of his own social media management firm.

Interested in Buying or Selling Multi-Family Properties in Metro Tucson?

FREE market analysis & automatic email alerts of newly listed properties.

Contact: Jade Bossert, Associate Broker successfully selling investment properties in Arizona since 1979.

Tierra Antigua Realty (520)797-6900

8

tucsonrealestate@mindspring.com

cause safety concerns. Tempe will reimburse multifamily properties $1.00 per linear foot of turf strip removed, up to a maximum of $500, for replacing these grassy areas with desert terrain.

Low flow toilet rebates still available The City of Tempe continues to offer rebates for replacing older toilets with ultra low-flow toilets. The standard for new toilets for multifamily properties is 1.28 gallons per flush.

Currently, multifamily properties will receive a 50 percent reimbursement of the purchase price up to $75 per toilet. The program caps at $5,000 per multifamily property. Two Tempe apartment complexes that utilized this program reported a 30 percent reduction in overall water use.

To learn more about these rebates, or to ask additional questions about how the program works, visit www.tempe. gov/conservation or call 480-350-2668.

Once the changes have been made to your property, simply fill out the online rebate form and mail it to the address provided. Soon after, you will be well on your way to saving money while also playing a role in conserving water, the Valley’s most precious natural resource. www.tempe.gov/conservation 480-350-2668

RENTAL HOUSING JOURNAL ARIZONA • Aug 2015

RENTAL HOUSING JOURNAL ARIZONA

Market Update ...continued from page 1 Multifamily Data - Greater Phoenix Area

Multifamily Data - Greater Phoenix Area

Year

Const

Absorp

Vacancy

Year

Const.

Absorp.

Vacancy

2006

4,660

(4,653)

5.3%

2006

4,660

(4,653)

5.3%

2007

4,637

(5,846)

8.5%

2007

4,637

(5,846)

8.5%

2008

7,037

(4,466)

10.8%

2008

7,037

(4,466)

10.8%

2009

6,737

(5,319)

14.2%

2009

6,737

(5,319)

14.2%

2010

698

20,743

10.3%

2010

698

20,743

10.3%

2011

910

2,154

9.7%

2011

910

2,154

9.7%

2012

2,031

3,028

8.3%

2012

2,031

3,028

8.3%

2013

4,452

4,822

7.3%

2013

4,452

4,822

7.3%

2014

5,658

4,716

6.1%

2014

5,658

4,716

6.1%

2015 (1)

1,578

2,676

5.7%

2015 (1)

1,578

2,676

5.7%

2015 (2)

513

(883)

6.1%

2015 (2)

513

(883)

6.1%

New Slowdown in New Construction: Two projects were completed totaling 505 units, one in Scottsdale and one in Tempe. There were five new apartment projects started totaling 876 units, one each in Mesa, Tempe and Scottsdale and two in Phoenix. There are 33 projects currently under construction representing 7,227 units. There are also 60 additional projects in various stages from initial rezoning to final permitting totaling 14,221 units. The combined total of “under construction” and in the “pipeline” is 21,448 units. In Q1, the total was 20,912 units.

Average Rental Rates Continue Increase: For apartment communities with 50-99 units, the average rental rate increased 0.7%, going from $723 to $728 per unit. Annualized, this would represent about the historical average of 3% increase per year. The 50-99 size range typically represents the older, “B” and “C” properties.

The average rental rate for the 100+ communities increased by 1.6%, going from $837to $850 per unit. Annualized, this would reflect about a 6% increase. Since the values reported represent all age communities with 100+ units and include “A”, “B” and “C” class properties - the actual values are not relative – but the overall trend is significant. In part, however, the increased rental rate may be from higher rents being obtained from the newly constructed “A” class projects that are now deemed to be stabilized and are now being included in the overall statistics.

Where’s the Opportunity Now? From the increased sales activity and the number of “Flips”, especially in the smaller apartments, it’s pretty obvious that investors are harvesting significant profits. With the low interest rates, it’s certainly a good time to sell as buyers can obtain great financing. This may change if we have a strong bump in interest rates. The question might be asked – where’s the opportunity now? The answer – as always, is related to jobs, population and rent growth. Even though Arizona and the entire US have not rebounded from the economic downturn, metro Phoenix still had a 1.7% increase in population last year. As a result of the lack of apartments to absorb the population, significant rent growth has already occurred – with RENTAL HOUSING JOURNAL ARIZONA • Aug 2015

no immediate end to the increasing rents in sight. Recall that prior to the downturn in the economy, Arizona was the fastest growing State in the US for population – and may be the best reason to invest in Arizona than any other State.

IF we’re doing well now, just imagine how much better we will be once the overall US economy strengthens and the cold-weather residents can finally sell their homes and move to the Sunbelt. With the increasing population, the demand for homes and apartments will increase, creating more jobs – and thus more population and thus more demand for housing. The new apartments are picking up some of the new population demand – and in fact, may be responsible for the slight up-tick in overall vacancy rates. Going forward, we expect increasing vacancy rates on the new and existing “B+” to class “A” apartments.

As we have noted many times, no one is building the “B” and “C” rent range apartments and that might be the “place to be”. Note that the 50-99 size range apartments (typically “B” and “C” class) reported a decrease in vacancy. KLCG has focused on the “B” and “C” properties since 1998.

We have never seen rent growth in this segment as we have experienced over the past year. As a consequence, many owners are simply not keeping up with the market rents. Often, owners have been happy to be able to renew a lease and have a $25 increase in rent. However, the market in their area over the past year may have increased $75/mo. Looking for an opportunity? – look for properties where rents are well below the market. This is often the case with the smaller apartments where relationships have been nurtured between owner/managers and their tenants.

In the shadow of all the new class “A” apartment construction, many investors are buying the older, but well-located “C” buildings with good bones. Of course the easy play here is to "reposition" the asset, or to upgrade the curb appeal, ambiance, and amenities in such a way as to 'upgrade' the tenancy- and thus the revenues. Unit remodels, courtyard makeovers, providing wi-fi and other contemporary amenities are all com-

ponents of repositioning. There is an abundance of tenants able to pay a little more for this type product, and higher rents equals increased value.

Many of the “Flips” for the Q2 sales underwent a reposition – with significant profit.

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

9

RENTAL HOUSING JOURNAL ARIZONA

Todays Online Renter ...continued from page 1 Apartment shopping sources ILS Apartment community or management company website Driving in desired neighborhoods Search engine Rating / review website Referrals Printed apartment guide Apartment community or management company social media Newspaper advertising

2015 Total 68.8% 66.5% 59.2% 50.5% 45.4% 42.4% 21.1% 11.6% 6.1%

lease; this has implications on the market ready process and raises questions about how much to invest in models (ranked #12). Consistent with importance of transparency and the resident experience, per• The top rated factor impacting ceived quality customer service and rental decisions was viewing an ac- unfiltered reviews were rated sectual apartment home available to ond and fifth, respectively.

• Prospects focus on basics: photos, floor plans, rents, specials, availability, and features / amenities. Reviews are also very important (4.18 on a five point importance scale) because they offer the transparency today’s consumer demands.

What impacts rental decisions – Top Five [Five point impact scale]

2015 Total

Perception of quality customer service

4.24

Viewing the actual apartment I can lease

4.58

Ability to pay rent online if no convenience fee

4.18

Security, access control features Ratings/reviews of community

• 24.4% report rental decisions are impacted by the management company brand name; this means 75.6% of decisions are not impacted by brand name. Therefore communities must focus on service delivery and the resident experience as drive their online reputation.

• 74.4% trust friends and family.

4.16

Online ratings / reviews / comments

67.7%

Ads

Social media • 49.7% do not trust websites where most or all reviews are positive. Because negative reviews are as important as positive ones, resist the temptation to cherry pick reviews to post on those sites that permit this.

10

Doug Miller is founder and president of SatisFacts Research. Prior to creating his own businesses in 1996, starting in the late 1980's Miller was Director of Marketing for several national and regional property management firms.

Miller received his B.S.B.A from Washington University (St. Louis) and his M.B.A. from The American University.

Doug can be contacted at DMiller@ SatisFacts.com.

At 67.7%, reviews had the second highest “trust” score; sites offering reviews rank high in Google searches so properties must focus on delivering a quality resident experience and leveraging this feedback online. Residents do not trust ads (second to last, 11.8%) or a property’s social media efforts (ranked last, 7.1%).

2015 Total

Company website

Key Takeaway #1 - Transparency • Prospects feel empowered and want transparency so they can make informed decisions. They want to know what it’s really like to live at a community via unfiltered reviews, to tour actual vacant apartments they can lease, and they don’t trust marketing, ads or social media.

Key Takeaway #2 - The Basics • Success continues to have its foundation in the basics. And the basics are more critical than ever due to their impact on satisfaction with the resident experience and a property’s online reputation.

3.99

What sources do you trust?

Friends, family members or co-workers

post comments or reviews online.

This reveals an opportunity, however remember that offering incentives to post reviews violate Federal Trade Commission guidelines.

• Residents have strong feelings about properties responding to reviews. 51.7% felt that the staff responding communicates they provide great customer service, and 48.9% felt this shows the staff cares about residents. Only 11.1% said they did not care if the staff responded.

Lastly, a majority reported that the staff not responding created a negative impression of the community.

Responding presents another marketing opportunity.

• Social Media • Only 11% reported using social media a “source” when shopping, and social media earned a low 2.27 score on its impact on rental decisions (five point importance scale).

Additionally, as noted earlier, residents do not trust social media as a shopping source.

• Renters do not follow communities or management companies on most social media. While 20% reported following a community on Facebook, less than 3% reported following on Twitter, Instagram or Pinterest.

74.4% 32.6% 11.8% 7.1%

• Ratings and Reviews • 61% were willing to post positive reviews about their community, however only 16% have ever been asked by the property; and a majority reported being “very likely” to

RENTAL HOUSING JOURNAL ARIZONA • Aug 2015

RENTAL HOUSING JOURNAL ARIZONA

2014 Tax Return ...continued from page 5 pected to be consumed in 12 months or less • Items with an economic useful life of 12 months or less • Items with an acquisition cost or production cost of $200 or less • Identified in the Federal Register or in the IRB as materials and supplies

penalty if form 3115 was not filed.

For Example: Jake inherited a residential rental in June of 2013. When preparing his tax return in 2013 he didn’t report the step-up as his basis in the rental house. In 2014, Jake realized this mistake and wanted to reclaim the additional depreciation that was Safe Harbor Rules missed on the 2013 tax return.

The new 2014 tax changes Jake can now file IRS Form 3115, provide an election to treat cer- changing the accounting methtain materials and supplies un- od. This will give him the audit der the de minims safe harbor protection for 2013 and correct rule. The de minims safe harbor for the missed depreciation in rule allows taxpayers to deduct 2014. items up to $500 or those with a useful life of less than 12 months.

Capitalizing Improvements The limit can be increased to The requirement to capitalize $5,000 with an applicable finan- amounts paid for improvements cial statement. (Examples of ap- to a unit of property depend plicable financial statements are: on the purpose of the improveFinancial statements required to ment. Betterments ameliorate be filed with the Securities and an existing material condition Exchange Commission (SEC), or defect and can include expanindependent certified public ac- sions. Restorations assume that countant (VPA) audited finan- the property being restored has cial statement (not a compilation fallen into disrepair and is no or review prepared by a CPA), longer functional or has caused and financial statements (other a major component to cease than a tax return) required to be functioning.

Improvements provided to a state government adapting the property to a new or any federal or state agency or different use can also be capi(other than the SEC or the IRS)). talized.

Safe Harbor can be applied on a For Example: per-item, per-invoice basis but If the landlord of a manufacthe taxpayer must have an ac- turing space decided to convert counting policy and it must be it to apartments, the cost to reapplied to all eligible materials grade the land would need to be and supplies. capitalized but the amount paid For Example: Josh owns an to clean up the site (which does apartment complex with a rent- not adapt the land) does not al office onsite. The rental office need to be capitalized. Likewise, purchased a new printer for $199 if a tenant leased adjoining spacand desk for $499 in 2014. Josh es in a commercial office buildmakes the de minims safe har- ing, the cost to combine the two bor election on his 2014 tax re- spaces would be deductible beturn. Because of the election he cause it does not adapt the use can deduct the full $698, instead of the space. of capitalizing and depreciating Deductible repairs and mainover the life of the property. This tenance are activities not reis an annual election. quired to be capitalized as tax improvements. However, you Form 3115 – Annual Account- can elect to capitalize for tax ing Policy Election purposes if capitalizing for book.

Routine maintenance Josh must elect an accounting and small taxpayers enjoy safe policy to do this correctly. As of harbor protection. An activity is 2014, all taxpayers that acquire, routine maintenance under the produce or improve tangible safe harbor rules if the activity property will now be required is performed more than once to file form 3115 declaring the during the class life of the (noncurrent accounting method for building) property. In the case depreciation. The IRS did grant of buildings, the activity is pera reprieve to “small” businesses formed more than once during a (which are defined as 10 million 10 year period. If unsure whethin assets and 10 million in rev- er something can be claimed as enue) from filing form 3115 for routine maintenance, consider the 2014 tax year. Initially there the recurring nature of the acwas also a $3,500 per property tivity, if it is industry practice,

RENTAL HOUSING JOURNAL ARIZONA • Aug 2015

whether it coincides with the manufacturer’s recommendations and whether you have had experience with it at a similar or identical property.

Tax payers may elect not to apply the capitalization requirements to an eligible building property if the total amount paid during the taxable year for repairs, maintenance, improvements and similar activities performed on the building property does not exceed the lesser of 2% of the unadjusted basis of the eligible property or $10,000.

For Example: John and Jane own a residential rental which originally cost $305,000. During 2014, they had a plumber fix a leaking pipe for $250, they replaced the home’s water heater for $1,900, and repaired the siding from a wind storm for $1,400. John and Jane filed the small taxpayer safe harbor election with their 2014 return and then deducted the entire $3,550 since it’s less than 2% of the unadjusted basis (cost) of the home. This is an annual election.

What’s ahead for 2015?

On December 16, 2014, the tax extenders were passed bringing back the higher Section 179 limits and bonus depreciation at 50% effective January 1, 2014 to December 31, 2014. So as of right now, we are at the reduced Section 179 amount ($25,000) and lower limits ($200,000) and no bonus deprecation for 2015.

This makes some taxpayers susceptible to the Alternative Minimum Tax which was permanently fixed a few years ago.

With bonus depreciation gone, the tax and AMT depreciation are no longer the same. This may cause someone to fall into AMT where in the past, bonus depreciation prevented this.

This article attempts to summarize recent tax changes using examples for clarification purposes only. Every investor has a different tax situation; please consult your tax advisor for your specific situation.

Want to build your business?

Start by building your education.

An online CE platform with easy and convenient options that fit your schedule. Enroll in your real estate continuing education courses today and save 20% with promo code RHJ20.

rhj.theceshop.com | 888.827.0777

11

RENTAL HOUSING JOURNAL ARIZONA

12

RENTAL HOUSING JOURNAL ARIZONA • Aug 2015