Rental Housing Journal Arizona May 2016

Rental Housing Journal Arizona

May 2016 - Vol. 8 Issue 5

2. Crowdfunding and Peer2Peer Lending For Real Estate Investors – The Disruptors We Want!

4. 9 Out-of-the-Box Questions and 8. Nightly Rentals – The Hottest Practices Multifamily Investors Should Investment Right Now? Consider Using 9. Dear Maintenance Men – 5. Charm Residents with Outdoor Water Heaters Living Spaces 10. Ask the Secret Shopper –

3. “Same or Similar” Requires Repeat Breach Within Term of the Lease

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Preventive Renting A Checklist

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he following is not an all-inclusive checklist when renting your home or apartment, but is intended to provide some of the more important factors to consider. We all get or should get regular doctor examinations, financial planning for our future, etc. Just the same, there are certain things to consider when renting to a tenant.

First, would be the use of a rental application for the tenant to fill out. You certainly want to verify income and place of employment to determine the renter’s ability to pay the monthly rent.

You also should have information on bank accounts, pets, occupants, bankruptcy and prior rental history. This information is important in the event you determine later the resident/ tenant has provided false information. False information may be grounds to evict the tenant if the corrections aren’t made as required by the Arizona Residential Landlord and Tenant Act (ARLTA).

You would also want disclosure of any prior evictions, criminal records and current criminal activity. Failure to disclose this information is grounds to terminate the tenant’s right of possession to the rental property and evict the tenant if the tenant does not move after ten (10) days written notice. Use of a good tenant screening service should provide not only credit history but also

HUD Seeks to End Discrimination Against Tenants with Criminal Records

By Evan L. Loeffler

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he U.S. Department of Housing and Urban Development (HUD) published guidelines in April, 2016, for the proper consideration of applicants’ criminal records when considering them for housing.

HUD notes that because a disproportionate amount of people with criminal records are minorities, a blanket policy of refusing to rent to anyone with a criminal history may violate the Fair Housing Act. Much like the 1991 HUD memorandum regarding occupancy standards (the “Keating Memo”) this new document provides general guidance for how to consider whether a housing policy violates federal law. The memo is not law in itself, but it interprets how the law may apply to certain situations. As with any new guideline, the legal ramifications will develop on a case-by-case

basis as matters are heard in court and the guidance is considered.

According to the new guidelines, turning down tenants solely based on their criminal history may violate the Fair Housing Act. While the Act does not list people with criminal records as a protected class, HUD notes that mi-

U.S. Housing Market Shows Signs of Flattening, According to HomeUnion Meanwhile, investment home prices rose 8.5% in March

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norities have disproportionately high rate of arrests and convictions. For this reason, while in some cases a landlord may refuse to rent to a party with a criminal record, the policy should not be applied automatically without further consideration. continued on page 7

H

omeUnion, an online real estate investment management firm and data provider enabling value investing in residential

properties, has released March 2016 data on the flattening U.S. housing market. According to HomeUnion’s research, the median price for own-

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er-occupied homes declined 1.1% to $234,300. Meanwhile, the median price for non-owner-occupied homes, or investment homes, rose 8.5% to $192,600.

“We are seeing a degree of volatility in the traditional housing market, especially on a regional level,” says Steve Hovland, director of research for HomeUnion. “We expect price growth for owner-occupied homes to be tempered, even as we enter the typically frenzied spring home-buying season.

Housing affordability has pushed becontinued on page 6

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Rental Housing Journal Arizona

Crowdfunding and Peer2Peer Lending For Real Estate Investors The Disruptors we want!

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f real estate investors weren’t choosing crowdfunding and Peer2-Peer lending over the alternatives of Wall Street and Big Banks this article would end right here. But it doesn’t. Crowdfunding and Peer2Peer lending are the future of the independent real estate industry for one very simple reason that Wall Street and Big Banks cannot fathom. It’s what people want.

Here’s a quaint idea that I believed as a freshly minted college graduate, and that some companies like Google or Uber deliver on a massive scale. The customer is King. Another way of looking at it is if people are flocking to the competition, then that means they don’t like what you have to offer in comparison to your offering. Beyond obvious, yes?

This then begs the question, “What do people want”? When it comes to investing it’s been assumed for decades that people only want higher, safer returns and that’s it. For a while there, it was assumed to be irrelevant how these higher, safer returns are delivered, nor was anyone really asking “Is that really what we’re getting”? It’s when we begin

to question this system that the bankers and Wall Street scratch their heads and stare at us as if we’re crazy, laugh, and walk off; they cannot comprehend why we’d be saying something like that.

This was brought home to me in an experience I had taking the ridesharing company, Lyft. I wanted to test it to see what all the ruckus was about and when I did, it changed my life forever. I had never had been offered, nor taken anything more than, a ride home in

a taxi cab. I assume this was another taxi cab. It wasn’t. It was a ride home, at 1/3rd off in a clean, well-maintained minivan with a dental hygienist young mother of two named Denise. We chatted. I learned about her and this new way of earning extra money for raising her kids and taking care of the family a few hours at a time. In that one ride my satisfaction level with Yellow Cabs service dropped about 95% and I haven’t taken another cab ride since.

The thing is, it was more than a cab ride. It was not simply the one way delivery of a service to a customer. It was two-way. It was an interaction that made me feel like something more than “fare”. It was a ride home with another human being, who was willing to treat me as if I were a friend; we were both there to help one another, not just give to take. On top of that, the differences continued on page 11

In the April Edition of Rental Housing Journal...

Chris is Small Plex Broker at SMI Commercial Real Estate, LLC. Please contact Chris if you would be interested in receiving SMI’s free bi-annual newsletter which includes the most comprehensive rent and vacancy survey in the mid-valley, the SMI Apartment Update.

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We inadvertently ran an article entitled Are You Investing in Real Estate to Go Green or to Make Green? without the proper by-line. The article was written by Chris Salaz. We apologize for the error and any confusion it may have caused.

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Rental Housing Journal Arizona

“Same Or Similar” Requires Repeat Breach Within Term of the Lease Paul A. Henderson, Esq. | Law Offices of Scott M. Clark, P.C.

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or market-rate residential rental units, most events that lead to a notice of material breach of the lease agreement are curable: unpaid rent (and relevant late fees) may be delivered within the five-day window, unauthorized occupants or pets should be removed before the close of the ten-day timeframe, and trash left outside must be disposed (and not reoccur) by the end of the five-day period. After you issue notice of the breach, the resident must cure it within that period or face eviction. The remedying of the breach closes out the issue and reinstates the resident into your good graces (or at least being stricken from the “naughty list.”). Naturally, the (hopefully) rare immediate termination notice does not allow for a remedy short of surrendering possession of the residence, and the non-renewal notice is exactly what it states in its name - the end of the tenancy.

Aside from rent, reoccurrences of events that trigger breaches of the lease may be grounds for issuing notices that decree the end of the resident’s leasehold even though they might seem to be

curable events. These “repeat material breach” notices are permissible when the resident causes a violation of the same nature or substantially similar to the previous violation. Under a repeat material breach notice, the resident must depart the community within ten days of hand-delivery of the notice (or fifteen days of mailing, if sent via certified mail) - there is no “cure” option that would allow the resident to remain.

There are two important requirements for “same or similar” breaches. First, the event is a repeated breach only if it is actually “same” or “similar.” Conduct that constitutes disruptions to the peaceful enjoyment of the community by others can include parties, loud arguments or noise, and harassing behavior. However, harassing behavior and noise aren’t “similar” events unless the conduct is specifically targeted toward someone. In the same vein, unauthorized pets and unauthorized occupants might both be unauthorized and both involve additions to the number of bodies occupying the residence, but they aren’t the same type of violation. Likewise, failure to clean

up trash (which can be either healthand-safety Five Day Notice or a “normal” material breach Ten Day Notice) and noise (a material breach Ten Day Notice) are not same or similar, despite both being breaches of the lease.

Second, the events for which you wish to issue the non-curable “repeat breach” notice must have transpired within the same lease term.

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.

A.R.S. § 33-1368(A). The signing of a new lease agreement constitutes an event that forgives previous violations of the lease contract, even if the previous violation occurred upon the very last day of the term of the first lease and the new event occurs shortly thereafter.

Additionally, if you have an active and uncured notice of material breach,

we further recommend that you postpone the signing of a new lease until after the breach is cured. This is the same as refusing to accept rent during the pendency of such a notice - you don’t want to prejudice your rights.

Keeping in mind these two requirements of the material breach notice is important if you want to enforce your lease properly. If you have questions whether the events that you have witnessed (or which have been reported to you) qualify for issuing a “repeat material breach” notice, please do not hesitate to contact us and inquire. The Law Offices of Scott M. Clark, P.C. and its attorneys are always ready and willing to assist you to protect your clients’ assets and optimize your options when faced with problem scenarios.

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Rental Housing Journal Arizona

9 Out-of-the-Box Questions and Tactics Multifamily Investors Should Consider Using

By Richard Montgomery

I

nvesting in multifamily housing and apartments requires extra investigation, sometimes called due diligence by attorneys, for investors who want to be certain they do not make a mistake. This extra investigation and these questions are beyond what a real estate investor may do normally for a typical commercial real estate investment. As a real estate investor, once you go beyond multifamily rentals such as duplexes or fourplexes, you enter the commercial real estate area. Here are 9 out-of-the-box questions you should be asking, or at least consider asking, before you purchase that multifamily or apartment building.

Dear Monty: About six months ago, three longtime friends and I decided to make some real estate investments together. Our investment goals are similar; we are each high-income professionals, share similar risk tolerance and see real estate as a long-term investment opportunity. Now, we have identified a 60-unit apartment building we are interested in pursuing. We have the standard list of due diligence items, but wonder if there are some “out-ofthe-box” due diligence tactics to make certain we do not make a mistake as investors. Can you help?

Real estate apartment investing is a series of calculated risks for investors Answer: Buying, owning and selling investment real estate is always a series of calculated risks. “Make certain” are strong words. No matter your methods, you cannot know everything the seller knows. Over and above the standard due diligence list, buyers have ways to discover more about a property that either encourages or discourages them.

It is always difficult to understand the

motivation of the seller because many sellers do not share their core beliefs, or some may even mislead or miscommunicate their ideas to create an image of trust. As callous as this statement is, I believe it to be true in many cases. To balance that statement, self-interest is to be expected. Choose carefully which tactics to employ. Business ethics is a subject that is not black and white. It involves various shades of gray depending on the person with whom you are talking. Choose carefully which tactics to employ with which transaction.

Some sellers might not take kindly to a given tactic, while others may well have done something similar, or further out-of-the-box, themselves. I have never witnessed any one buyer applying all of these tactics on a single property. This is a career compilation of tactics I have seen.

No. 1 – The rent roll is not enough: Where do the tenants work? Determine where the tenants are employed.

This data will be on the rental application, but not on the rent roll. If 25 of the tenants are with the same company, and a move to Mexico is announced 30 days after the sale closes, your vacancy rate could skyrocket.

No. 2 – Visit with former tenants Visit with multiple tenants who have moved out of the apartments. You can determine this by comparing year-toyear rent rolls. Look for patterns in the reason they moved out. Getting closer to work is one thing. But moving away from drug dealers is a different story.

monthly. Look for patterns in vacancy swings. If you find one, learn what creates it every year. When you hear the answer, trust it – but verify.

No. 4 - Visit the apartments in the morning- and in case you don’t see them also “good day, good evening and good night” The quote from the Truman show applies when you want to find out what is really going on with the apartment building. Visit the property unescorted on multiple occasions. Visit in early morning, mid-day, late afternoon and midnight. You will learn something about your potential tenants and how the building functions. • Do tenants congregate in appropriate places? • Are there vehicles with stale damage? • Is the parking lot well lit? • Do you feel safe? • It can be surprising what you learn going unannounced.

No. 5 – Talk with the local police about the apartments Check with the local police department. Tell them you are considering buying the building and ask if you could do anything to help them in the neighborhood. You will learn if the building has a reputation. The best thing that can happen on that visit is they will have trouble placing the property.

No. 6 – Research single-family homes near the apartments Locate the single-family homes clos-

est to the property and canvas them. Go to multiple homes, possibly a half–dozen. Some owners may be timid, while other will talk your ear off. The goal is to learn what the neighborhood thinks of the property and how the building operates.

No. 7 – What is the average occupancy per unit?

Determine the turnover rate by unit.

Is the average occupancy per unit six months or six years? If it is six months and the building operates on a sixmonth lease, why are they not renewing? Serial leasing is expensive.

No. 8 – Talk to whoever is actually doing the maintenance for the apartments Identify the handyman or maintenance person. Take note of the vendors who perform service for the building.

Interview some of these folks. Ask them if there are any situations in the building they would change. It could take a number of calls before you hit the jackpot.

No. 9 – Visit the neighborhood bar near the apartments and introduce yourself to the bartender That’s right. That is really what I said.

Find the closest neighborhood tavern or bar. Stop in for a drink and introduce yourself to the bartender. You want to continued on page 6

No. 3 – Investors should look for patterns in the vacancy swing Get the financials both annually and

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Rental Housing Journal Arizona · May 2016

Rental Housing Journal Arizona

Charm Residents with Outdoor Living Spaces

By Scott Matthews, Director, Strategic Accounts, The Home Depot

T

ransforming outdoor spaces into comfortable, functional extensions of interior living areas is in demand for multifamily communities. Residents are interested in spending more time outside, and creating an inviting outdoor space for your property will help attract prospective residents and retain current tenants, especially during the warm months and moving season.

Here are some ideas for outdoor upgrades that will give residents a place to engage with other tenants, family and friends and help you stand out against the competition.

Outdoor Kitchens Grills are often the gathering point for many multifamily outdoor areas, so make them as functional and inviting as possible. Explore different options like charcoal, gas and electric grills, or consider installing a combination to give residents a choice. Consider upgrading the grilling area by adding built-in counters to make prep, cooking and entertaining easier. Always ensure the grill is compliant with local regulations, especially regarding fuel type.

One of the newest trends for outdoor spaces is to move beyond simple grills and create full outdoor kitchens. If your

Com peti Pric tive ing

community enjoys mingling over meals outside, consider upgrading your area to a kitchen by adding counters, cabinets, sinks, faucets and maybe even alternative cooking methods like a pizza oven. One of the latest outdoor kitchen trends, pizza ovens are a great alternative to grilling and come in different options such as built-in or cart-mounted, as well as gas- or wood-burning.

Residents will be able to prepare, cook and keep their company entertained all in one place without the hassle of traveling back and forth to their apartments.

Patio Furniture One of the keys to comfort outside is to invest in durable, water-resistant patio furniture like couches, dining tables and chairs. Make your outdoor space full and functional by offering seating for both dining and relaxing. A dining set will allow for communal seating and a space for residents to eat after making their meal in the kitchen. Add in a conversation set with comfortable sofas, loveseats and lounge chairs, where entertaining can continue and tenants can relax and unwind all in one place.

When deciding on furniture, consider the construction of the furniture.

Wicker, plastic and aluminum are great, lightweight choices. Wood or wrought

iron furniture are heavier options, sturdy enough to handle strong winds.

Exterior Lighting Brighten up the outdoor space with high quality exterior lighting. LED lighting has made big advancements in recent years, giving you a lot of energy-efficient options. Safety is the most important consideration, and LED

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motion lights can cut down on utility costs while still protecting the space.

Installing solar-powered lighting like post caps and pathway lights will also reduce energy costs, add to the safety of the space and improve the evening ambiance. Finish the area with decorative accents like string lighting, LED lanterns and candles, making the space functional and inviting.

Don’t Neglect Maintenance It’s important not to forget the importance of regular maintenance on the outdoor space. Regular upkeep to the lawn and shrubbery is easy to overlook. Upgrade to a drip irrigation system, a water system that allows the right amount of water to plants and shrubbery without losing money in labor and overwatering.

For patios and decks, it’s important to maintain surfaces by regularly using sealants and resurfacing products to withstand foot traffic and weather. Inspect walkways and surrounding pavements for any cracked or uneven surfaces. Repair and seal with concrete sealant and paint for more aesthetical appeal and eliminate any potential risks.

When deciding where to begin, consider the most effective updates for the property. Whether it is starting the outdoor space by updating the furniture and lighting or upgrading to a full outdoor kitchen, these changes will make the space more inviting and communal for residents, while also setting your property aside from competitors.

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Rental Housing Journal Arizona

US Housing Market Shows Signs

9 Out-of-the-Box-Questions

...continued from page 1

yond incomes in many areas of the country, limiting demand at today’s prices despite low interest rates. “March home price figures highlight the attractiveness of single-family rental (SFR) investment homes in an uncertain environment,� Hovland notes. “Since last August when volatility set into the global stock markets, investors have been repositioning their portfolios to hedge against uncertainty and find stable yields. We’re seeing that demand translate into higher investment home prices. “At this stage in the cycle, purchasing a fully managed investment home or portfolio of homes remotely could prove to be a better long-term investment than purchasing a home to occupy, depending on where that investment home is located,� he adds.

Here are more details on how investment home prices compare to traditional home prices: Median Sales for Price for all housing Owner-Occupied Sales Price Investment Median Sales Price Investment Home Cap Rate Investment Home Cash Price Home Cash Cap Rate Investment Home Leveraged Price Leveraged Home Cap Rate

Data $223,400 $234,300 $192,600 5.8% $156,500 6.4% $224,900 4.8%

Year-Over-Year 4.3% -1.1% 8.5% -80 basis points 5.5% -120 basis points 0.2% -50 basis points

Disclaimer: Median sales price is based on transactions of single-family homes available through FHA financing (up to four units). Transactions above $30,000 were considered in the analysis.

About HomeUnion HomeUnion is an online real estate investment management firm, bringing value investing to the individual investor in residential properties. Based in Irvine, Calif., it provides all the services needed for individuals to invest remotely in SFR properties. The company uses a combination of data-driven proprietary analytics to incorporate over 120M homes and 200,000 neighborhoods into their database, and then delivers its solutions to an on-the-ground infrastructure that currently serves 21 locations. HomeUnion’s role spans the lifecycle of the investment transaction: from identifying sound investments; handling all aspects of acquisition; maximizing income; protecting asset value; and selling it when the time comes.

talk with a bartender who has been there for years and knows the neighborhood. He or she may have something to say that is beneficial to you.

Investors remember these due diligence tips • Make these visits or calls yourself. • Split them up between the four investors or partners. • If you do not have the time or inclination, hire someone who understands the apartment business. • These tips will undoubtedly add value to your ability to make a good decision. • Monty’s special tip for investors Ask the landlord owner why he is selling? Any response should tell you tons.

Conclusion Remember these are the special outof-the-box investigation or due diligence questions you want to ask. There are many other standard ones recommended that you should also consider, but these are my special ones from my years and experience in the business.

So remember: • Where do the tenants work? • Talk to former tenants • Review the vacancy swings • Visit morning, evening and night • Talk to the police • Check single-family homes nearby • Study the turnover rate • Talk to the maintenance folks • Visit the local bartender

mA–Ü /¨¨{Å /¨¨{ AžA‚mÅ SOURCE HomeUnion

Related Links – http://www.homeunion.com

...continued from page 4

Resources Buying an apartment complex is easier than you think (http://www.fool. com/investing/general/2014/08/17/ buying-an-apartment-complex-is-easier-than-you-thi.aspx) Keys to getting started in multi-family apartment investing (www.biggerpockets.com/renewsblog/2012/01/12/ keys-to-getting-started-in-multifamily-apartment-investing/) Investing returns on apartments (nmhc.org/Content.aspx?id=4707) Dear Monty: No-nonsense real estate advice (dearmonty.com/) Forget buying a single-family home purchase an apartment complex (finance.yahoo.com/news/forget-buying-single-family-home-162100725. html) Are buyers paying too much for apartments? (www.forbes.com) How to buy an apartment building (www.wikihow.com/Buy-an-Apartment-Building) National Apartment Association (www.naahq.org/about) About The Author Richard Montgomery gives no-nonsense real estate advice to readers’ most pressing questions.

He is a real estate industry veteran who has championed industry reform for over a quarter century. You can ask him questions at www.DearMonty.com.

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Rental Housing Journal Arizona ¡ May 2016

Rental Housing Journal Arizona

HUD Seeks to End Discrimination ...continued from page 1

Preventative Renting ...continued from page 1

The guidelines note that there is a difference between an arrest and a conviction. An arrest may occur if a police officer forms the belief that someone needs to be detained for their own safety, for the safety of others, or for the investigation of a crime. A conviction may occur only after a party has been formally charged with a crime and had an opportunity to defend himself or herself in a court of law. A judge or a jury must determine that it is beyond a reasonable doubt that the individual committed the crime. Both arrests and convictions may appear on a criminal history.

HUD takes the position that a policy of excluding individuals because of a prior arrest without a conviction is discriminatory. Quoting the U.S. Supreme Court, HUD states, “[t]he mere fact that a man has been arrested has very little, if any, probative value in showing that he has engaged in any misconduct.” In other words, an arrest is not, by itself, proof of a crime. A housing provider who categorically denies housing to a person because of an arrest on their record violates the Fair Housing Act. Convictions, on the other hand, are different. HUD states in the memo, “In most instances, a record of conviction (as opposed to an arrest) will serve as sufficient evidence to prove that an individual engaged in criminal conduct.”

Even so, a blanket policy of excluding all people with a criminal conviction probably violates the Fair Housing Act. The landlord with a policy of excluding applicants with a criminal history must be able to point to a “substantial, legitimate, nondiscriminatory interest” served by the policy. The landlord must also be able to prove that the policy achieves those goals. A housing policy must take into consideration the nature and severity of the crime, and the amount of time that has passed since the criminal conduct occurred Whether the discrimination is accidental or intentional, during screening or just at the inquiry stage, the landlord or property manager is still at risk of a discrimination lawsuit. The best practices are:

any public records. Finally, you may wish to have a pest company pre-certify there is no evidence of bed bugs in the premises.

Once your tenant is approved, you would want to use a move-in/ move-out inspection form so that the condition of the rental can be noted. It is recommended you inspect the rental premises with the tenant and fill out the form together rather than give the form to the tenant to be returned later. Also, photographs or a video tape of the premises should be done.

When using a written lease, the tenant must be given a signed copy within a reasonable time after the agreement is executed. Also, all blanks must be filled in and the lease should comply with Arizona law. Finally, any special agreements or provisions should be clearly drafted and made part of the lease and signed by both landlord and tenant.

During the term of the lease, the landlord should periodically inspect the rental premises. The tenant must be given at least two days written notice of when the inspection will take place and must be done during reasonable hours. The only exception to the two day written notice would be if it is impractical to give the notice (i.e. tenant is on vacation and would not receive it anyway) or there is an emergency (i.e. fire, plumbing leak, etc.). The main reason to periodically inspect is to make sure the rental premises are being maintained, there is not tenant damage or there are no unauthorized pets or occupants residing in the rental property.

• Ensure everyone who interacts with applicants is trained well on current Fair Housing policies.

• Keep screening policies pertaining to arrest records and criminal history specifically related to safety of persons and property. The policy must distinguish between criminal conduct that indicates a demonstrable risk to resident safety and property and criminal conduct that does not.

• Obtain and use a standard screening policy in compliance with Fair Housing and HUD regulations, and apply it equally to anyone who applies. You may want to consult an attorney or housing specialist to develop a rental criteria relating to criminal conduct.

Keep in mind that HUD has not stated that criminals are a protected class.

HUD recognizes that housing providers have an interest in providing safe housing to all their tenants. These new guidelines do not require landlords to rent to convicted felons, but do require landlords to examine the criminal history (if any) of its applicants with more care than before. Naturally, there will be applicants who refuse to provide details about their criminal history or provide inaccurate information revealed by a screening company. An incomplete or inaccurate application may be denied.

Following best practices will save you thousands of dollars in litigation and court costs, so it is well worth the effort. If in doubt about a policy, contact your legal resource for help dealing with tricky questions related to this new HUD guidance and the Fair Housing Act. Evan L. Loeffler is the principal attorney at the Loeffler Law Group PLLC in Seattle, Washington. His firm’s practice emphasizes landlord-tenant relations. www.loefflerlawgroup.com

However, the inspections cannot be done in such a manner as to be unreasonable (i.e. 11:00 P.M.) or that are done repeatedly that they have the effect of harassing the tenant.

Also, during the lease term the landlord should send proper written notices if there are violations. Additionally, any charges the landlord is assessing against the tenant or the tenant’s security or other deposits should be in writing and timely sent each month. For instance, if the tenant consistently pays their rent late and the landlord accepts it without requiring late charges, NSF fee charges, etc, but is assessing those charges then the tenant needs written notification that they will be held responsible.

At the end of the lease, the landlord should set up a time with the tenant to have all keys returned, obtain a forwarding address and phone number and walk the property to determine if there are any damages beyond normal wear and tear. A landlord may also wish to let their tenant know their deposit and/or an itemization of charges due/ deductions taken will be sent to them within fourteen (14) business days.

Again, while the above may not be complete, it is some basic considerations for any rental relationship.

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

Text 51WAYS to 44222 to receive the FREE e-book

51 Ways to Increase Your Rental Property Cash Flow (And 10 Ways To Ruin It)

• Do not impose blanket bans on renting to those with criminal history or arrest records.

“51 Ways to Increase Your Rental Property Cash Flow is full of great advice on how to get the most out of your rental properties.”

• If there is evidence of a conviction, consider the nature and severity of the crime and how long ago the criminal conduct took place.

–Sam J, Smart Property Management

myitzchaki@MSYLaw.com 㻯㼍㼏㼠㼡㼟㻌㼔㼍㼟㻌㼐㼑㼢㼑㼘㼛㼜㼑㼐㻌㼛㼡㼞㻌㼠㼑㼍㼙㻌 㼍㼚㼐㻌㼜㼞㼍㼏㼠㼕㼏㼑㼟㻌㼠㼛㻌㼜㼞㼛㼢㼕㼐㼑㻌㼠㼔㼑㻌㼎㼑㼟㼠㻌 㼟㼛㼘㼡㼠㼕㼛㼚㼟㻌㼍㼚㼐㻌㼘㼍㼠㼑㼟㼠㻌㼠㼑㼏㼔㼚㼛㼘㼛㼓㼕㼑㼟㻌㻌 㼕㼚㻌㼜㼍㼢㼑㼙㼑㼚㼠㻌㼜㼞㼑㼟㼑㼞㼢㼍㼠㼕㼛㼚㻚㻌㻮㼑㼏㼍㼡㼟㼑㻌 㼛㼒㻌㼛㼡㼞㻌㼏㼛㼙㼙㼕㼠㼙㼑㼚㼠㻌㼠㼛㻌㼝㼡㼍㼘㼕㼠㼥㻌㼍㼚㼐㻌 㼟㼑㼞㼢㼕㼏㼑㻌㻯㼍㼏㼠㼡㼟㻌㼔㼍㼟㻌㼓㼞㼛㼣㼚㻌㼠㼛㻌㼎㼑㻌 㼛㼚㼑㻌㼛㼒㻌㼠㼔㼑㻌㼙㼛㼟㼠㻌㼞㼑㼟㼜㼑㼏㼠㼑㼐㻌㻌 㼜㼍㼢㼑㼙㼑㼚㼠㻌㼏㼛㼚㼠㼞㼍㼏㼠㼛㼞㼟㻌㼕㼚㻌㼠㼔㼑㻌 㻿㼛㼡㼠㼔㼣㼑㼟㼠㻚㻌㻌 㻌 Invite us to bid and we’ll show you 㼑㼤㼍㼏㼠㼘㼥㻌㼣㼔㼍㼠㻌㼣㼑㻌㼙㼑㼍㼚㻚㻌㻌

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Rental Housing Journal Arizona · May 2016

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Rental Housing Journal Arizona

Nightly Rentals

The Hottest Investment Right Now? How to earn 2-5 times the gross profit of traditional rental properties

I

am sure by now you have heard of the many nightly rental websites that allow property owners to advertise their homes, apartments, and even extra rooms for rent on a nightly basis. There have of course been some controversies over this new industry as it takes revenue away from the hotel industry and thus decreases the amount of taxes that local cities receive from the transient tax. One way or another, you have likely heard of this industry by now. Have you taken the time to analyze this as a viable investment opportunity, though? When you start running the numbers and seeing what others are doing, then it starts looking very attractive.

If you take your typical rental that rents for $1200-1500 per month and convert it to a nightly rental, you should see about double the gross income. You will have some additional costs of course, and if you have the right property in the right location that can easily increase to 4x the long term rental income. This all sounds nice, but of course you are naturally wondering about the additional costs associated with nightly rentals and the added time it takes to manage these properties.

The largest cost is the initial design and furnishing of the unit. You will need to fully furnish these units to make sure they are attractive. Furnishing doesn’t end with just the beds and living room furniture. You should ultimately have a fully stocked home, so a complete set of dishes, tableware, pots, pans, etc. will be needed. You will also want to pay close attention to the details - keep in mind that you are competing with hotels that have onsite staff.

So, go the extra mile and provide some travel toothpaste, toothbrushes, Q-tips, shampoo, and ultimately anything else that someone could forget to pack. You also want to make sure that all of the walls are decorated. Obviously this starts with a good paint scheme, but extends to the artwork on the walls and knickknacks on the shelves.

Many of the successful nightly rental homes incorporate some sort of theme in their design. It can be a design that highlights the local area and attractions or something much more unique.

When picking out furniture it is good to remember that you want your guests to feel very comfortable and at home.

So you shouldn’t go with furniture that feels “cheap”; with that said you also don’t have to get expensive name brand furniture either. For many nightly rental investors, the step of picking out furniture or keeping an eye out for unique furniture items that they can incorporate is the most exciting part of the process.

The other cost is that you will have to have the unit cleaned and turned over after every visitor. If you go with a management company like IRC Real Estate, 8

then you can typically take advantage of the volume discount they get from their vendors. This expense should be in the $50-$150 range depending on size and what turn over services you require. With the dramatic increase in income you are still much more profitable compared to a long term rental.

When it comes to maximizing your profits though, nothing matters more than location, location, location. With nightly rentals this isn’t just a business cliché, it truly matters. When choosing a property to use as a nightly rental you should always start by searching within close proximity to areas that travelers might go. The obvious locations are attractions like ski resorts, downtown Portland, near airports or children’s hospitals, wine country, coastal towns, and city downtowns like Bend & Salem for events and legislative sessions, to name a few. If you have a property in a good location with a good interior design, you can end up with a fully booked home almost year round. Depending on the location, design quality, vacancies, and size you can expect $100-$1000+ per night in revenue.

Keep in mind that this type of investment property is truly a full time job.

For a popular property you will have a check in, check out, and turn over to coordinate nearly every week. In addition to this most of these sites are heavily reliant on reviews by your guests and your rating on things like response time to inquiries. So you have to always have your smart phone on you 7 days a week to make sure that you are able to respond within hours.

As you can tell this kind of investment isn’t for everybody given the work it requires. This is why the investors that truly view being an investor as their profession hire property management firms like IRC Real Estate. This allows you to focus on finding and buying the properties in the right locations and possibly handling the remodel and interior design, but then turn it over to the management company. Some companies like IRC Real Estate even offer in house interior design services that take care of that work for you.

If you are seriously considering getting into the nightly rental industry I am happy to answer any questions you may have and offer some free advice. With my involvement at the board level with organizations like the Portland Area Rental Owners Association, NW Real Estate Investors Association, and the Salem Rental Housing Association I am happy to help educate or guide property investors when they run into problems or are simply new to the industry.

Christian Bryant President of IRC Enterprise / Real Estate Christian@IRCEnterprises.com www.IRCEnterprises.com View all credentials at LinkedIn

Rental Housing Journal Arizona · May 2016

Rental Housing Journal Arizona

DEAR MAINTENANCE MEN: Water Heaters

By Jerry L’Ecuyer & Frank Alvarez

Dear Maintenance Men: I have a hundred gallon water-heater serving seven units. The residents are complaining about a lack of hot water and sand coming out of the faucets and shower heads. The heater seems to be working normally. What would cause sand to come out of the lines?

Johan Dear Johan: Your water-heater probably needs the calcium build-up removed from inside the tank. If your 100-gallon water heater is a commercial unit, you should find a clean out port at the bottom of the tank. Determine the tank manufacturer and purchase a new gasket for this port. Most plumbing supply outlets will have these in stock.

• Turn off the gas supply.

• Turn off the water supply to the tank.

• Drain the water heater completely.

• Remove the clean out port. Some have a series of bolts, others have only one big nut to remove.

Once you gain entry into the interior of the tank, you may see white or yellow sediment on the bottom of the tank. If the tank has not been cleaned out regularly, the build-up may be significant.

A hammer and chisel may be necessary to remove the more stubborn areas.

This is also a good time to check the anode rod and dip tube (note: if your dip tube is damaged it can prevent the cold incoming water from reaching the bottom of the tank and being heated.)

If either is damaged or eroded, check with your plumbing supply outlet for a replacement. The anode rod can be replaced by unscrewing it from the top of the tank. After completing the tank clean out, be sure to check all the faucet spout screens and shower heads to remove any acuminated debris. After all the work is completed, reinstall

Rental Housing Journal Arizona · May 2016

the port opening and always use a new rubber gasket. Your tank should work much more efficiently & cost less money to run while supplying more hot water. This clean out procedure should be done at least once a year.

Dear Maintenance Men: During the recent rains, my building started leaking. I was surprised, as the roof is less than a year old. The odd thing about the leak is that it is only affecting the downstairs units. What is going on and how do I solve this?

Michael

Dear Michael: Water is a funny thing and tracking down leaks sometimes takes a bit of detective work. The first thing we would check is the roof. As you stated, the roof is new, but sometimes the odd flashing does not get caulked and the water finds its way down the side of a pipe, valley or junction area. Have your roofer, double check all the flashings. Another issue to look at, is water pooling around the foundation. If you have cracks in the foundation, water will find its way in.

Be sure to clear any debris, dirt and leaves from around your building or anything that will cause a water dam effect. Overgrown or old landscaping can contribute to leaks by trapping water or redirecting water to the building instead of away from it. Inspect the building’s stucco for cracks. We have seen small cracks in the stucco suck in large amounts of water. Pay close attention to the stucco between floors or on the edge of balconies. Balconies shed a lot of water which may cascade over the edge and flow back into the stucco where a hidden crack will allow the water to enter.

If you have aluminum windows, check the weep holes that allow water to drain out of the window tracks.

Continued on page 11

9

Rental Housing Journal Arizona

SK THE SECRET SHOPPER Alive After Five

E

very day at five o’clock, people pour out of the work place, get into their cars and head for home. However, often times they have to run errands or make other stops after they have already put in a full day. Some people even have to schedule appointments to look at apartments when they get off work because their week-ends are packed and they can’t take a long lunch break. Most leasing consultants have put in a full day by five o’clock too, but many rental offices are open until 6:00 or later. Do the prospective renters who come through your door after 5:00 get the same level of enthusiasm and quality of service as those who visit your community before noon? See what happens when the Secret Shopper “drops in” to look for a new home at the end of the day.

The bright flags and attractive landscaping caught my eye so I stopped in.

It was about 5:40 when I entered the leasing. I noticed the office hours sign stating, “Open until 6:00.” The leasing consultant was alone and I could see she was straightening up and had turned off the lights in the connecting clubhouse. I said I had just gotten off work, and wanted to take a look at an apartment. The employee’s smile faded,

Publisher Will Johnson – will@propubinc.com Designer/Editor Kristin Flores – kristin@propubinc.com

as she sighed and practically groaned, “I just locked up the model and show apartment . . .” I apologized for stopping by so late, but explained I was on my way home from work and there really wasn’t any other time I could look for an apartment because of my schedule.

She replied, “That’s okay. It’s not a problem,” but her body language communicated something entirely different. She asked the size apartment I needed and for when, but did not inquire about my needs or ask for my name. We walked directly to the model, with little conversation. My efforts at “small talk” were met mostly with silence. The consultant entered the apartment first and turned

Advertising Sales Will Johnson – will@propubinc.com Terry Hokenson – terry@propubinc.com Larry Surratt – larry@propubinc.com

Rental Housing Journal Arizona is a monthly publication published by Professional Publishing Inc., publishers of Real Estate Opportunities in Investing & Real Estate Investor Quarterly

www.rentalhousingjournal.com The statements and representations made in advertising and news articles contained in this publication are those of the advertiser and authors and as such do not necessarily reflect the views or opinions of Professional Publishing, Inc. The inclusion of advertising in this publications does not, in any way, comport an endorsement of or support for the products or services offered. To request a reprint or reprint rights contact Professional Publishing Inc. PO Box 6244 Beaverton, OR 97007. (503) 221-1260 - (800) 398-6751 © 2015 All rights reserved.

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on the lights. She said, “Go ahead and look around,” and then stood to one side. I walked from room to room, but did not open anything as I felt rushed. I thanked her for showing me the apartment and she replied, “No problem.”

When we reached the office building, she did not invite me back inside. Instead, she gave me a business card and an application, and dismissed me with, “Let me know what you decide.”

The next evening I visited another community. As I pulled into the parking space for future residents, I observed the leasing consultant locking up. When I got out of my car and approached the office, she tried to avoid making eye contact. It was 5:30 and the closing time was posted as 6:00 p.m. I asked if she works there, and if the office was still open, even though I could see everything was dark. The consultant unlocked the door and invited me inside. She apologized for closing early and said it had been slow so she decided to lock up a little bit early and go home.

The consultant tried to stifle a yawn and said, “Slow days make me sleepy.”

She asked what I needed, and then said she could show me a model. However, I felt like I would be “putting her out” and offered to come back the next day.

She smiled and looked relieved. The consultant handed me a brochure and a business card and said, “Give me a call in the morning. I’ll be here at nine with bells on.” (I wondered what time she took her “bells” off!)

On my third evening out, I stopped by another community that caught my eye. It was just past 5:30 when I entered the rental office. The leasing consultant greeted me with so much enthusiasm, I was caught off guard. She apologized and said, “I’m sorry. Did I startle you?”

She extended her hand and introduced herself and asked for my name. She offered me a seat and asked how she could help me. I asked if she has that much energy at the end of every day.

She replied, “Not always, but I work at it.” She explained how the leasing consultants stagger their start times so the person who opens early, leaves earlier, and the person who comes on shift later locks up.

The consultant said, “On the days I work alone, I take a couple laps around the property around 4:30 for a ‘pick

me up’ and that seems to give me the extra energy I need to finish my day.”

She was animated and enthusiastic as she spoke and seemed eager to serve.

The consultant filled out a guest card for me, determined my needs and then gave me a thorough tour of the community amenities and a vacant apartment.

At the end of the tour, we returned to the leasing office where she made several attempts to close the sale. She presented me with a brochure, community newsletter and an application. She then asked if she could follow up in a couple of days to see if I had reached a decision.

When I left, it was 6:15 p.m.

Are you still “alive after five,” with enthusiasm to burn? If not, what can you do about it? Can you adjust your lunch hour or your work schedule so you have more energy at the end of the day? What about your attitude? Can you adjust that? If your office is open for business after five, shouldn’t YOU be open for business too? If you cut corners after five and don’t give EVERY prospective renter a “full meal deal,” they are going to go away “hungry” and end up renting somewhere else!

If you are interested in leasing training or have a question or concern you would like to see addressed, please reach out to me via e-mail. Otherwise, please contact Jancyn for your employee evaluation needs: www.jancyn.com ASK THE SECRET SHOPPER Provided by: Joyce (Kirby) Bica Former owner of Shoptalk Service Evaluations Consultant to Jancyn Evaluation Shops E-mail: shptalk2@gmail.com Copyright © Joyce (Kirby) Bica

Rental Housing Journal Arizona · May 2016

Rental Housing Journal Arizona

Crowdfunding and Peer2Peer ...continued from page 2

Dear Maintenance Men ...continued from page 9

like speed of delivery and the personal knowledge I gained from her profile provided me with a connection that was unprecedented in the “cab ride” scenario. I knew more about her as a person than I will ever know about any of the previous cab drivers I never knew nor will remember.

When people became aware of Uber they compared that to Yellow Cab. Yellow Cab declared bankruptcy in San Francisco two months ago. Why? Not because they are bad at what they do. They went bankrupt because the new way of getting rides made the old way totally unacceptable, unpleasant and costly. I believe this is what we are experiencing in the real estate investing and funding industry.

Crowdfunding and Peer-2-Peer lending give people more of what they want. They want to be treated with respect. They want to be connected. They want the freedom to choose. They want to be knowledgeable. Intelligent. In charge. For this reason, people are rejecting being treated as if: all they care about is money, that they are helpless creatures, that they are devoid of the capacity to learn and that they lack sound judgment. That’s what the current model is telling us.

Technology has opened up avenues of connection and options of communicating never before dreamed of. It is massively disruptive to established, commonly accepted beliefs, systems and structures that never contemplated the possibility of the level and depth of

Dear Maintenance Men: Should I check smoke alarm batteries in my units or is that the residents job?

Also, how often should I clean out my water heaters, not to mention A/C filters and so on?

Linda

interaction and communication available to each and every one of us at almost zero cost!

The technology revolution has already dictated that to stay competitive we must change. We must deliver more of what people want. Much like Lyft has done with the rideshare industry, real estate borrowers and lenders are turning to Crowdfunding and Peer-2-Peer lending to deliver more of what people want. Does the current establishment understand and welcome it with open arms? Of course not. Wildly disruptive? Yes. A threat? Yes... to the old existing order and an exciting alternative for the end users. We, who can stand a little of the uncertainty that comes with the end of one age and the beginning of another are looking at an amazing opportunity.

By Scott Whaley, President REIFA Discover all of the new technologies, strategies and ways of investing and getting funding with this new business model that has been sweeping through all industries. Now, it’s our turn. Check out REIFA and #REIFACON at www.reifacon.com or www.reifa.org.

Dear Linda: 1. Most rental agreements have a check box that says the resident is responsible for the operation of the smoke alarm. The newest rental agreements now have a check box for Carbon Monoxide alarms. We lay awake at night thinking about that little check box. In order to sleep, we check the residents smoke and CO alarms every time we do maintenance on the unit. We keep a log of each time we check and what action was taken. The smoke and Carbon Monoxide alarms should be “Officially” checked and logged, at least once a year. Typically, January is a good month for the annual check.

2. A typical 100-gallon water heater depending on the BTU rating will costs anywhere from $1,800 to over $3000.00 installed. That cost alone should be incentive to clean out your heater regularly.

Normally, the clean out should be done at least once a year. If the water at your building has a high mineral content, then it should be cleaned out every nine months. Again keep a log of each clean out; it will help in remembering when to do the next cleaning.

3. If your building has forced air & heating, the filter should be checked, cleaned or replaced each October or November and each May or June. This will help keep your systems working properly and reduce strain on the components. It will also ensure proper filtration before the winter and summer workloads.

4. Cleaning out the exhaust vent tubes of the laundry room dryer. Everyone knows about cleaning out the dryer lint basket and throwing it on the laundry room floor. We’re talking about cleaning out the lines leading out the back of the dryer. Keeping the exhaust vent tubes clean will help cut down on gas and electric usage, longer machine life and shorter drying time and lint in these tubes have been known to be a fire hazard. It should be done at least once a year and again, keep a log of each cleaning for reference.

Bio: Please call: Buffalo Maintenance, Inc for maintenance work or consultation.

JLE Property Management, Inc for management service or consultation Frankie Alvarez at 714 956-8371 Jerry L’Ecuyer at 714 778-0480 CA contractor lic: #797645, EPA Real Estate lic. #: 01460075 Certified Renovation Company www.BuffaloMaintenance.com www.ContactJLE.com www.Facebook.com/BuffaloMaintenance

3217 E. Shea Blvd, #229 Phoenix, Arizona 85028

We combine exemplary service with passion and innovation resulting in uncompromising standards of customer service.

New Construction Remodels Resurfacing Decking New Concrete Major Plumbing Renovations Electrical Repairs and Renovations

ROC KA5-294215 • Licensed, Bonded, Insured Rental Housing Journal Arizona · May 2016

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Rental Housing Journal Arizona 路 May 2016