Rental Housing Journal Colorado September 2016

Rental Housing Journal Colorado

September 2016 - Vol. 8 Issue 9

2. Budgets; Don't Just Update That Spreadsheet 3. Dear Maintenance Men - Do's, Dont's, Doors and Droughts

6. The Scoop On How Pet DNA Testing Fixes Your Apartment Poop Problem

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The Risks and Rewards Of Owning NNN Investments

By Cliff Hockley, President, Bluestone & Hockley Real Estate Services

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s real estate investors retire, many choose to reposition their assets out of management-intensive investments (such as apartments, office buildings, storage, and mobile home parks) and into lower maintenance single-tenant NNN investments.

As a result of the aging Baby Boomer Generation, there is a growing appetite for NNN investments, and many retail businesses are taking advantage of this demand to expand their national footprint. Businesses such as fast food restaurant franchises (Chick-Fil-A), mobile carrier storefronts (T Mobile), convenience stores (7 Eleven), pharmacy chains (Walgreens), and numerous banks are using this financial energy to help fund their growth. More stores mean better distribution, more sales,

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Budgets; Don’t Just Update That Spreadsheet

h, September… my favorite time of year –warm days, cool nights, back to school, turning leaves – and all that ruined with the prospect of dealing with budgets! With the crazy schedules that fall brings it can be awfully tempting to just increase everything by the obligatory 2 to 3% and call it a day, especially if you are budgeting for multiple properties. Yet, I’ve learned the hard way that accuracy and usefulness can plummet after a couple of years of that budgeting method.

The first thing to determine is what you are specifically budgeting for. Is this budget being used for only your continued on page 5

The VIP Tour of How to Easily Set the Perfect Marketing Budget & Strategy for Your Apartment Complex

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ongratulations, you are the marketing manager of the best portfolio or property manager of the best community in town, or it’s not.

You have new construction in lease-up, or you have an older community that wants to stay on top. Even if you are the world’s best property manager you still may have no clue how you’re going to get your units toured by hot, qualified prospective renters that are ready to lease a unit from you today. And, no matter how cool your communities are, if people don’t know about them at the precise moment they are looking to lease, you will never hit your occupancy goals. Getting units leased is what apart-

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Rental Housing Journal Colorado

Budgets

Don’t Miss Opportunities to Evaluate Employees and Vendors

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udget season is right around the corner. It’s that excruciatingly tedious time full of spreadsheets and brain cramps, take-out meals and extra pots of coffee, or glasses of wine, in some cases. Managers know budgets are critical to a successful business, but they are often difficult and can sometimes feel like a 1000 piece puzzle that’s missing a few pieces and has a few pieces from other puzzles mixed in. Often, we end up rushing at the end and relying a little too much on the budget and results from the previous year and can miss some other important opportunities to fine tune our business success pushing into a new year. Two such often over looked, or at least somewhat under appreciated opportunities are taking closer examinations of our personnel and our vendors.

When it comes to budgeting for people, it can be very easy to look at our employees like commodities.

For example, we often take a mind set like this: Based on projections, we have budget for 5 sales reps and 3 admins.

Or, this complex is big enough for a manager, 4 leasing agents and 5.5 maintenance techs.

While this sort of thinking is absolutely part of the equation, each year I

in the future. Employee reviews offer a wonderful opportunity to find out what your people think about the current operation of your business and what they feel might work better. We don’t always feel we have the time or patience to hear all employee suggestions or input, but we cannot deny the fact that such feedback can be invaluable. You never know when Erin stepping up to handle the phones, so Joe can focus on sales support will lead to an additional 3 appointments a week for Carlos and Tiffany and a nice increase in revenue while saving you in personnel expenses.

like to dig a little deeper and consider the actual humans, their strengths and weaknesses in each position. Maybe Carlos and Tiffany make enough sales calls to adjust their programs to incentivize them to each produce 60% more this year, so you can cut one sale position and save a base salary. Perhaps Erin is better at multitasking than Joe, so she can handle the phones while also doing the account payable and allow him to focus on his sales support duties without distraction. Could this free up Joe for a few hours a week late in the day so he can make cold calls for Carlos &

Tiffany? Or, is Joe just in over his head with the sales support regardless, and simply needs to be replaced?

I recommend doing employee reviews shortly before budget season.

Often, I find that information gleaned from reviews helps with your staffing budget process. You not only get a sense of what each employee has accomplished since their last review, you can take their temperature on where they see themselves going and what else they might be able to bring to the table

The second area of opportunity that I often see overlooked at budget time is examining the vendors that you’re using.

Again, it’s not uncommon to get annual bids from vendors, but so often it begins and ends with shopping your current providers against their competition on price. While price is important, quality, customer service, and terms are just as important.

One maintenance company might charge $10 less than the others for basic maintenance and apartment turns, but if it takes them 25% longer or if you often have to bring them out to repair continued on page 8

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Rental Housing Journal Colorado · September 2016

Rental Housing Journal Colorado

DEAR MAINTENANCE MEN: Do's, Dont's, Doors and Droughts

By Jerry L’Ecuyer & Frank Alvarez 1: Mow 2: Weed control 3: Test the soil regularly. (Soil testers can be found at any home improvement store) 4: Fertilize 5: Prune

Dear Maintenance Men: I am not new to the industry but regret not paying more attention to my rental units. Can you give me a quick Do’s and Don’ts for maintaining the property?

Brian Dear Brian: Great Question, as you might be aware, could lead to quite a long list!

However, here are some of our favorites.

Pest Control 1: Avoid allowing residents to use contact paper on walls, cabinets, shelves or drawers. Roches love to bed and breed under the contact paper.

2: Contract with a pest control company for a monthly service.

3: Through the pest control company or your local apartment association: Educate your residents on how to avoid bed bugs.

4: Recycle using only proper recycling containers.

Loose recycling material attracts all sorts of unwanted pests.

Dear Maintenance Men: I have a problem with a sticky bedroom door. If I try to open the door quickly it sticks and if I’m gentle it opens just fine. But as you can imagine, I only remember to open it gently after my hand slips off the knob. Is this an easy fix?

Gary

Plumbing 1: Educate your residents on how to properly use a garbage disposal unit.

2: Hydro jet the building’s kitchen and main lines at least once a year.

Best time is the month of October just before the heavy cooking holidays of November and December.

3: Do a walkthrough of the property inspecting faucets, supply lines, sink and bath drains. Check the water heater and its straps, gas connections and flue.

4: Locate and mark the main four inch sewer cleanout.

5: Replace any main water line “GATE” valve with a “BALL” valve.

Dear Maintenance Men: My rental property is located in a drought prone state. What can I do to make my building my water friendly?

Matt Dear Matt: A few pointers that may help put you on the right track.

Plan and Design: 1: Determine the hot and cold zones (shade and full sun) 2: Select plants and ground cover according to the hot and cold zones.

3: Choose an irrigation system designed to minimize evaporation.

(Drip irrigation or low volume sprinkler heads.)

Soil Improvement: 1: Turning over plant beds regularly will improve water retention and reduce wasteful runoff.

2: Determine the type of soil you have and mix in mulch and other additives to improve water usage and soil richness.

Appropriate Maintenance: With an efficient, water-wise landscape you can keep it growing strong by following a few simple steps each week.

Dear Gary: This can be an easy fix. Nine out of ten times the hinge is loose on either the jamb or the door. Tighten all the hinge screws and if a screw spins freely; change it with a bigger screw with more bite. Next try “adjusting” the hinge. Replace a regular hinge screw with a long 3 inch screw that will reach through the door jamb and into the rough framing. Gently tighten the screw, pulling the hinge and door jamb tighter against the rough framing and pulling the door with it. Next, if that does not work completely, “adjust” the latch side of the jamb by using long screws through the jamb into the rough framing. This should create just enough space to allow the door to swing open without incident.

Bio: If you need maintenance work, consultation or management for your building or project, please feel free to contact us. We are available throughout Southern California. For an appointment please call Buffalo Maintenance, Inc. at 714 956-8371 and JLE Property Management, Inc. at 714 778-0480 Jerry L’Ecuyer is the owner of JLE Property Management, Inc. & Buffalo Maintenance, Inc. and is a licensed contractor & real estate broker.

He is currently on the Board of Directors, Chairman of the Education Committee & President of the Apartment Association of Orange County. Jerry has been involved with apartments as a professional since 1988 and can be reached at (714) 778-0480 or jerry@JLE1.com.

Frank Alvarez is the Operations Director for Buffalo Maintenance, Inc. He has been involved with apartment maintenance & construction for over 18 years. He is also a lecturer & educational instructor. Frank can be reached at (714) 956-8371 Frankie@JLE1.com Please view our web sites at: www.JLE1.com www.BuffaloMaintenance.com

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Real Estate Opportunities in Investing (ROI) Finding Investing Success in Today's Housing Market Rental Housing Journal Colorado · September 2016

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Rental Housing Journal Colorado

The VIP Tour

...continued from page 1

ment marketing should be all about, it’s not about what you think is cool, it’s about getting units leased, on budget and ahead of schedule.

While the apartment marketing industry is filled with strategies and ideas, it’s easy to get flustered by all the things you “should” be doing to help get your property leased and yourself inducted into the Hall of Fame at your management company. Ultimately, it all comes down to planning and budget. I have personally helped nearly 1000 different properties get their units leased ahead of schedule and below budget. So allow me to be your tour guide, pull back the velvet curtain on what apartment marketing pricing really looks like and what you can actually expect for your apartment marketing dollar spend.

Here are a few tips for navigating that elusive apartment marketing budget bas well as what marketing strategy will not only cost a fraction of the others, it will get you the most units leased and the highest rents in the shortest time, sound good? I thought you would say that; so fasten your seatbelt I am about to start the tour:

Our first stop is apartment marketing math The first question your regional or property owner will always ask the property or marketing manager is, “Do you know what your property’s marketing budget is?” Usually that’s when they see the manager’s eyes get as big as saucers as they reply, “I have no idea! That’s what I thought you were here for.”

At MultiFamily Traffic we have seen hundreds of portfolios develop their own internal “marketing math” to figure out what each property should be spending on apartment marketing. Although I can’t share what our clients spend directly, I can tell you that the math adds up very closely at all of them.

Below is the basic spend levels we see at property management companies.

New apartment communities in lease-up: Working on hundreds of new community lease-ups, I can tell you the average marketing budget is about $275/unit for lease-up properties. This includes ILSs, SEO, Google PPC Campaigns, Internet/Website Costs (hosting, website plugins, etc.), Special Web-

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site Enhancements/Upgrades, Email Services, Customer Surveys, Tracking Services, Referral Fees, Promo Supplies (brochures, pens, balloons, etc.), Special Promos, and social activities for residents.

Established apartment communities: For those properties that have been occupied more than two years and have solid occupancy, we see management companies allocating around $175/ unit Internet/Website Costs (hosting, website plugins, etc.), Special Website Enhancements/Upgrades, Email Services, Customer Surveys, Tracking Services, Referral Fees, Promo Supplies (brochures, pens, balloons, etc.), Special Promos, and social activities for residents.

Tour stop #2 is how to get 90% of the way there for $30/unit While this may seem like a lot, remember new and emerging properties and older ones alike are looking to capture new renters with an audience that has absolutely no idea who they are. That is where many mistakes are made. Often times communities follow bad advice and focus all of their efforts on their website content and Facebook pages, that is great if you are Taylor Swift or Kanye West and people are already interested in you, but when was the last time you decided to go hang out on your dentist’s website or Facebook page? You don’t. It’s no different for apartments. You need to have renters find you on Google or via advertising at the precise moment they are looking to rent and apartment. Any money you spend on building up “good will” like events and on page content will produce far less in terms of leases if any.

Honestly having your property show up on Google when someone searches “Apartments in Anytown USA” will bring you 90% of the bang you need form your entire marketing budget and a 200-unit community can do an SEO campaign for $30/unit.

Stop #3 chicken and egg apartment marketing I need to fill my vacant units, but I have no money to help get them leased.

Sound familiar? We call this chicken and egg marketing and it is something we are very familiar with. I’m here to tell you, to lease the units at your property you have to crack many eggs. However, if you focus on the biggest yolk for your buck first you can get your cost

down. But you will need to spend something. Make sure your apartment marketing budget is used wisely and can be tied tightly to the specific rental goals you have set for the property. That pool party budget could buy you 2 months of a Google AdWords campaign, which one is going to get potential renters to call the leasing office? There is nothing more frustrating and costly than burning thru your property’s entire marketing budget only to find that you have been doing things that aren’t getting units leased and that you have to start over again. So do it right the first time and work strategies that lease units, period.

Stop #4 Know your limits.

This is one of the most important things to know in apartment marketing, especially if you appointed or self-appointed digital marketing gurus within your company telling you to try a new “fad” every week. If you’re a marketing manager or property manager trying to get units leased, you may only have a specific amount of budget to allocate to apartment marketing programs. In a pinch, you may also be able to beat your apartment marketing budget by cutting back on other marketing strategies that aren’t working. If you are working with 2 or more ILS’s you may want to think about focusing only on the one the brings you the most results.

Tour stop #5 set your goals and hold your programs and vendors accountable.

Now, think about what you’re actually trying to accomplish. Its sounds silly but constantly ask yourself, will doing this get the phones in the leasing office to ring? If you have been doing something, ask yourself “is this making my phones ring” It is funny how the “gurus” scatter when you tell them the radio ad did not make the phone ring once or all the great new website content and the property is still buried on page 5 of Google. Hold your programs and vendors accountable. If they don’t bring in traffic, dump them.

About the author: Matt Easton is EVP of Multifamily Traffic and a leading speaker on how to use SEO and digital marketing to lease apartments. For a decade, MultiFamily Traffic has helped hundreds of properties sign millions of leases. Matt Easton can be reached at 303-803-7372 or www.multifamilytraffic.com

Rental Housing Journal Colorado · September 2016

Rental Housing Journal Colorado

Budgets; Don't Just Update

personal projections? Or are you using this budget as you prepare a property for sale? Is it possible you might need this budget for refinancing or even for meeting ratios for your current loans?

These different needs can make a big difference in how you approach the budgeting process.

Over time I learned the hard way in my other businesses that a simple increase to cover “cost of living increases” might only not be accurate, but may also keep me from looking at areas in my business that I needed to reevaluate. Now I use a zero based budget for all my businesses. I start at the very beginning and build from the ground up each year. I know that sounds like a lot of work but it gives you the ability to examine your income potentials and opportunities for cutting expenses against your historical numbers. All major service contracts should be competitively re-bid to ensure that the best price possible is secured. If you have multiple properties or if you are a member of a local REIA make sure you use this leverage as a negotiating tool with your vendors. This should be effective for insurance, screening, trash, landscaping, security, cleaning, painting, advertising, etc.

Speaking of historical numbers, budget time is a great time to look at your past trends in turnover. How many move-ins, move-outs have you had in each month or season? Has this happened year over year or was last year different? What may have caused the differences? How should you plan for these? Some things to expect might be the summer rush or the winter fall off.

Many property owners see an increase in move-in and move out in the summer while children are out of school and the weather is good for moving only to see a complete slowdown in the winter. Some property owners even go so far as to write their leases to expire in the summer so if the tenant leaves it will be easier to fill the property. It also doesn’t hurt to look at current vacancies and rents in the area to see how you

...continued from page 1

compare. There will be future articles on this subject but suffice it to say these can show areas of opportunities or challenges. For the budgeting process it can give you a more accurate picture for your projections.

The seasonal changes will lead to changes in other income like application fees, and expenses such as turnover costs. The other seasonal variable will be utility costs. Many utility companies publish rates or estimates of rates for the upcoming year. You will want to ensure that you use these more accurate numbers when budgeting. With these projections you can avoid the shock of budgeting for a generic 3 percent increase in water/sewer charges when the utility provider had forecast a 10 percent increase. Some companies try to combat the seasonal effects in utilities by using accruals. I personally hated accruals in college and still hate them today so I attempt to get my projections as accurate as possible.

Keeping a journal in a separate worksheet of your spreadsheet file is incredibly helpful. It should contain all items that need to be budgeted during the year is helpful so that they aren’t forgotten the next time a budget is written. For example, a new permit may be required in October that was originally not budgeted for. Once realizing this, add it to the list, so it is not forgotten the following year.

One critical mistake I’ve made it the past is completing the budget and then not actually using it. Using it does not mean running actual-to- budget reports every month and bemoaning the fact that we didn’t get it perfect. It does mean that when there are substantial variances to the budget, an analysis must be done on how to improve operations at the property or possible adjustments required for next year’s budget.

Rebecca McLean is a rental owner, Executive Director at National REIA, and Assistant Vice President at Greater Cincinnati Northern Kentucky Apartment Association.

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Rental Housing Journal Colorado · September 2016

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Rental Housing Journal Colorado

The Scoop On How Pet DNA Testing Fixes Your Apartment Poop Problem

By John-Triplett, www.rentalhousingjournal.com

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ets are a way of life in rental housing and if you want your rentals fully leased, pet owners are a key tenant demographic you want to keep.

Look just at Millennials: 76 percent are pet owners and a majority are renters.

You might have laughed at first at this headline on how pet DNA testing could fix your apartment property’s pet poop problem.

But here is the reality.

• Your tenants may be leaving pet poop lying around for you and your maintenance crew to pick up, creating extra work and cost.

• The pet poop problem can affect your whole apartment community and pit tenant neighbor against tenant neighbor.

• Your city government may decide your pet waste is polluting the local watershed - which the Environmental Protection Agency will confirm - and decide to fine the landlord, not the tenant.

Unreasonable burden on landlords?

In Chicago, the city had been reviewing an ordinance that would allow city

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inspectors to fine landlords and property owners who didn’t pick up dog poop on their property up to $500. Cherie Travis, former director of Animal Care and Control and the owner of a pair of two-flats in Chicago where she allows pets, told the Chicago Tribune, “I have multiple units — I can’t check every day. That’s an unreasonable burden to place on landlords.

“The result of this ordinance, admittedly unintentional, is that landlords will not rent to people with dogs. If a tenant cannot find an apartment with a dog, they will either move out of the city or they’ll surrender their dog. Those are the two choices,” Travis told the newspaper. She suggested the ordinance be retooled to “keep the responsibility on the dog owner, which may or may not be the property owner.”

So a growing number of apartment complexes are finding a solution in a company that handles the pet DNA testing necessary to fix the poop pickup problem.

How can you make the tenant responsible for the pet poop?

Here is how it works: Your tenants swab the inside of their dogs’ mouth and provide you that sample DNA for you to send to a company in Knoxville,

Tennessee called Poo Prints. When you find poop in the yard that a tenant failed to pick up, you can send a sample to the company and they will identify the offending dog so you can then take it up with the tenant.

“The number one thing for apartment complexes is, ‘How they can clean up the property and make people responsible?’ for their dogs,” said Ernie Jones, sales manager for BioPet Laboratories, which manages the Poo Prints program. He said some have tried cameras, but that is a huge ongoing expense that requires employees to monitor.

And sometimes the video is grainy and hard to see.

“One of the biggest advantages is, it takes away the denial from the tenant about whose dog left the poop on the property,” Jones said. “And it helps avoid the neighbor vs. neighbor accusations about whose dog was responsible for the poop.”

Poo Prints has more than 1,750 apartment properties in the program across the country. “We are growing steadily, adding three to six properties a day. We will be at 2,000 properties by the end of the year,” Jones said.

to assess a penalty. Apartment owners will need to check their state regulations on wording for how they can assess a monetary penalty. For instance, “Oregon is tight on how they let the apartments charge tenants for violations,” Jones said.

Who bears the cost of the pet poop program?

So how does the business model work for the company and the apartment properties?

“The business model is a startup fee – the dog registration – and the poop processing is profitable at the start,” for us, Jones says. His profitability declines as the residents and the complex keep things cleaned up, but it is never 100% and there are still cases of poop violations his company will handle.

“The main objection for apartments is the start-up costs. If a complex has 100 dogs at $40 per dog to get started, then that is $4,000 that has to come from somewhere that is usually not in the property’s budget,” Jones said.

However, “once a program is in place, it creates increased occupancy,” he said. “It is just in the beginning and the immediate rollout that is sometimes an issue. In terms of rollout when people want it, it takes about a year in an existing complex to get the program in place.”

“Typically the pet owner bears all the cost,” Jones said, and “not the apartment complex itself. Typical start-up cost is $40 to $60 per resident dog.

Some apartments have to ‘grandfather’ in existing pet owners and gradually start the program with new residents and when leases come up for renewal.”

Tenant fines are typically the way apartments handle the violations when poop is found. One Chicago complex fines tenants $250 for the first violation, and $350 after that that, according to the Chicago Tribune.

Depending on different state regulations, apartment managers may not be able to use the word “fine” when they discover the offenders and want

Other pet facts from BioPet Laboratories:

The environmental issue around pet poop In addition to keeping apartment grounds clean, there are issues with the Environmental Protection Agency from a water pollution and safety concern. “Dog waste is thousands of times” more polluting than you may think, Jones said.

“The average person today thinks of dog waste as simply a nuisance when they step in it. They are also under the assumption that it simply turns into fertilizer, as other waste,” the company said in a release. “In fact, dog waste is not fertilizer and does not simply deteriorate; instead, dog waste is the most contaminated waste of any animal. Their bodies have adapted over the years to digest any type of foods; as such, they produce huge quantities of bacteria, including E-coli. “

• Dog waste has been ranked as the #6 consumer complaint.

• The EPA ranks dog waste as an environmental problem equal to toxic chemicals and oil spills.

• According to one study, which has its critics, an average dog has twice the carbon footprint of an SUV. • One dog dropping contains 3 billion bacteria. Because it does not evaporate, the poop goes into the air and ground water, creating major contamination.

• Studies have shown that waste from 100 dogs, in one day on a river bank, can contaminate the water for 1 mile downstream.

The EPA classified pet waste as a dangerous pollutant. And this doesn’t come from folks jumping on the “green” bandwagon; this classification was made nearly 20 years ago, according to Animal Wellness Magazine.

In 1991, the Environmental Protection Agency classified dog waste as a “non-point source of pollution,” which puts it in a category with oil and toxic chemicals. According to the EPA, a single gram of dog waste can contain up to 23 million fecal coliform bacteria, which is capable of causing cramps, diarrhea, intestinal illness and kidney disorders in people, according to a story in the Knoxville News-Sentinel.

As for its effect on the watershed, waste from 100 dogs could add enough bacteria to temporarily close a bay and watershed areas within 20 miles to swimming and shell fishing, the EPA estimates. continued on page 8

Rental Housing Journal Colorado · September 2016

Rental Housing Journal Colorado

The Risks and Rewards

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better purchasing power and more advertising efficiency, all things that growing retailers see as plusses. Before plunging in to purchase these attractive offerings, investors should take time to understand the companies they plan to start this long term landlord/tenant relationship with.

Risks NNN tenants come in one of three ownership styles: corporately owned, franchise owned and operated, or locally owned and operated. Sometimes this distinction is not initially clear. Investors need to know who in this chain is guaranteeing the rent, and that answer will determine the risk involved.

Depending on the type of business and their product line, many of these retailers face competition from the internet. Online based retailers appeal to consumers with their ease of access. Operationally they can offer more products with less overhead than brick and mortar retailers. To compete, established retailers have launched their own online stores with the benefit of in-store pickup. This is a potential advantage over online retailers who levy shipping charges. Retailers without a strong online presence like Radio Shack, and K-Mart for example, have lost market share to the likes of Target and Walmart who have made the decision to have a two-pronged marketing plan, with both brick and mortar and internet stores.

Clothing stores have the added volatility of being trend dependent. They can be popular one day and outdated

the next. A style that impresses on the runway or in LA may not fly off the shelves in suburban Portland, leaving the retailer with a glut of unwanted goods and a loss on the balance sheet.

Clothing stores with just-in-time inventory control systems have a better chance of adjusting to changes in fashion than those that order a year ahead.

Restaurant chains and franchises shoulder different risks, both from outside competition, and from within their own operations. The location of the restaurant factors heavily into this.

Does the area have a larger lunch crowd or dinner crowd? Are there many competitors? A location on a crowded ‘restaurant row’ may not be bad, since people tend to flood those areas in search of food. If a chain is placed beside a local favorite with a similar concept, however, it may not do as well since some national restaurant chains suffer from the perception that they carry lower quality ingredients than smaller local businesses.

There are grounds for this. Due to their distribution model, food used in large chains can spread nationwide, and contaminated food can result in highly publicized recalls (witness Chipotle.) Due to this and other health concerns, public sentiment regarding fast food has changed in recent years, and as restaurants innovate to meet the demands of a new consumer, investors may question if they will sustain a long term lease. One way to figure this out is to track the per store sales volume. QSR Magazine regularly rates such restaurants.

Research and Resources Investors should pay close attention to all aspects of an investment. Though NNN investments seem deceptively simple and turnkey, investors should prepare for the possible eventuality of a tenant turn. Pay attention to market rental rates. If one tenant does not succeed at that location, will another tenant pay the same national rental rate for that location? Even though NNN investments are considered less volatile, the NNN investor should have a contingency plan if a store closes and/or does not stay the full term of its lease or chooses not to exercise its renewal options. An investor should understand the content of the leases, if it is NN, NNN, or ground leases, what renewal options are offered, and what the tenant obligations are given those lease terms.

Each one has a different impact on the bottom line.

Lease terms are also an interesting issue. Is it better to have a long term 15 to 30-year lease, or a shorter term lease?

When are lease increases scheduled?

Every year? Every five years? Every ten years? In addition to the timing of the lease increases, the percentages of increase must also suit both the business and the landlord. Differences could vary from two percent every year to ten percent over ten years. A landlord needs to understand the brand and how much money each store needs to make in order to stay open. Only then can they determine if the tenant will continue to perform. An experienced broker or asset advisor may help interpret the intricacies of a lease and the suitability of the property.

For landlords who prefer to delve into the research themselves, the following are some sources for determining per store revenue that can serve as benchmarks for store profitability: • Retailer Daily offers comparable retail store sales data.

• QRS Magazine rates the sales of chain restaurants.

• Wikinvest offers a handy tool to analyze sales per square foot.

Other resources include trade associations, who often compile industry data and distribute publications applicable to a given market. Their annual surveys generally feature statistics on member retailers by sales volume, square footage, trade area size, and store type.

If the tenant is a publicly traded company, investors have the ability to review their annual report. Whether posted on their company website, a business news site, or provided by request, the annual report may not necessarily provide their average sales per square foot but it may give enough clues to reach an estimate.

For demographic insights, try The United States Census Bureau. The Retail Trade Economic Data features sales by industry, annual survey results, as well as shopping centers retail sales per square foot by state.

Return on Investment An investor may like a property, like the tenant, but if the investment fails to make a return, both of those feelings may change.

The property needs to generate enough cash on cash return to remain a sound investment. Consider the cap rate. Does the property require 30% or 50% down to make the deal cash flow?

Not everyone has the time or acumen to understand the nuances of the finances. A motivated broker will run the financial analysis, and provide comparisons of other like properties. Double-check the numbers with a banker or CPA. Lastly, a property manager can translate the lease details and handle that end of the business.

Location, Location, Location Every company thrives in a specific environment. Retailers have a list of required criteria for their chosen locations. The highest demand is for locations in major metro areas with a high traffic count. Second and third tier locations can be profitable as well depending on the retailer and their target market. Smaller markets, however, also run the risk of lower demand and less room to share.

For example, the only fast food restaurant in a newly developed area will likely have booming sales the first year, and gradually less as other chains move in around it to capitalize on the new market. If the services grow faster than the population, the same investor who once had a monopoly on the area’s fast food, may quickly regret the decision to invest in the third tier.

Financing Once an investor has vetted a tenant and property, it may come as a surprise to learn that obtaining financing is not the same for all NNN properties. Corporately owned stores are easier to finance than stores owned and operating by a franchisee. Stores that are run by franchisees with fewer than ten stores make financial institutions nervous as well. Finally, NNN investments with short term leases are much harder to finance than locations with longer term (ten years plus) leases. In order to adjust for the risk, financial institutions might ask for higher down payments or higher fees and interest rates.

The Rewards Choosing a NNN property with a responsible tenant who makes the most profitable use of the space will pay off in the long run. A good product in a great location can still fail without sound and responsible management. Learn about the company, its structure and sales, and if all factors align, the investment will likely be a safe, long term, low maintenance profit maker.

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7

Rental Housing Journal Colorado

Budgets; Don't Miss Opportunities

their own mistakes, then it’s not worth it. Similarly, if you have to wait on scheduling, a returned phone call in a time of need, or if you have trouble getting a vendor to make good on their word, you might want to consider interviewing other suppliers.

When it comes to vendors, I like to examine what sorts of products and services I actually want and need for my business while looking at budgets.

Looking ahead into the next year, is there any products or services that your company is not currently using that could be a benefit? Is there any new technology or way of accomplishing some current business need that might be a better alternative to what you’re using now? What products and services have you been allocating budget to that you simply do not need? All of these are important questions to ask and do a little research on.

...continued from page 2

Payment and finance terms are also an important thing to consider when choosing a vendor.

Some vendors will require payment up front or at the time of service or delivery. Others will offer 30, 60 or even 90 days with varying interest rates. Make sure you take this into consideration with your projected cash flow situation.

If all else is more or less equal having 60 days to pay rather than paying upon delivery allows for a lot of flexibility when managing your cash flow.

Budgets are rarely fun, and can certainly be daunting, but it’s important to give them the time they deserve. While doing so, make sure you’re not missing any less obvious opportunities to examine what you might be able to tweak to make your operation more efficient and more profitable.

By Will Johnson Publisher Rental Housing Journal

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Real Estate Opportunities in Investing (ROI) Finding Investing Success in Today's Housing Market

The Scoop on How Pet DNA Seattle watersheds example of dog poop problem All solutions begin with excrement pickup. If you are among the 38% of dog owners who scoff at this duty, according to a story in the Los Angeles Times, consider what DNA tests revealed about the bacteria in Seattle watersheds: Although 90% or more of it comes from animals in general, some of them wild, fully 20% of it is traced back to the guts of dogs, according to the newspaper. The EPA’s Clean Water Campaign puts it, “If you think picking up dog poop is unpleasant, try swimming in it.”

Cities are going to start leaning on the big apartment complexes from an environmental standpoint to clean up their grounds to stop the runoff contamination. Dense urban areas are a particular problem.

“Dog waste draws rodents, rodents draw feral cats,” Jones said.

His company said in a release, “One other major issue seldom understood is that rats eat dog waste: the more left on the ground, the greater the rat population and also the diseases they can pass on. Many major cities have reported a large increase in rat numbers in parallel with the growth of their dog population. This is not about whether someone doesn’t like to pick up their dog’s dropping. This is a social responsibility and about protecting the environment.”

Current compliance systems not working Dog waste can be disposed of properly, the company says, but not by the present system of compliance.

“Every community has tried signs and public information programs.

Some have even spray-painted the waste to show its prevalence. None of these methods have worked,” the company said in the release. “Dog owners must be accountable. And the only proven way to make that happen is with DNA detection.”

Do tenants try to beat the system?

Jones said apartment complexes have issues with tenants who try various means to avoid the DNA fee, such as hiding dogs to avoid registering their pet during a rollout.

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...continued from page 6 One tenant with a white bulldog came up with another plan to beat the system.

Jones tells the story of one property in the program that kept picking up poop and getting “no matches” and could not figure out what was going on.

The mystery was solved when they found out that a tenant who had registered his white bulldog bought a second, almost identical, white bulldog he did not register. He walked them one at a time so most people could not tell which dog was which. Eventually it was discovered that the second white bulldog turned out to be the source of the “mystery poop.”

If a property finds poop what happens next?

All the poop samples come into the company headquarters in Knoxville from across the country.

Jones estimates they get 700 to 1,000 poop samples a month from around the country.

The U.S. Postal Service delivers all the samples in special-leak proof bottles with a special solution that protects and preserves the DNA. Apartment property managers say the DNA testing works to solve the problem “We use it as a sales tool. It’s something we knew we’d implement right at the beginning,’’ Kris Tomlinson, property manager at the Residences at Fountainhead in west Tempe, a 320-unit apartment complex that opened about a year ago, told the Arizona Republic.

Violators are assessed a $250 fine.

Tomlinson said the program has proven an effective deterrent, as only one person has been assessed the fine in the past year.

“We told them it was their dog, charged the $250 fine. They weren’t happy, but then they tell their friends because they’re (upset)’’ he told the newspaper.

Resources: Dogs and the environment http://www.latimes.com/nation/la-oe-lewis-dogs-environmentalism-20141102-story. html Pollution fact sheet on animal waste http://www.stormwatercenter.net/Pollution_ Prevention_Factsheets/AnimalWasteCollection.htm Poo Prints http://www.pooprints.com/ Dog owners beware http://www.smithsonianmag.com/smartnews/dog-owners-beware-dna-dog-poopcould-used-track-you-down-180958596/?noist Dog waste etiquette http://animalwellnessmagazine.com/poopscoop-101/ Tempe apartments getting the scoop http://www.chicagotribune.com/news/local/ politics/ct-chicago-dog-waste-removal-met0519-20160518-story.html Did you step in doggie doo? Nab the culprit. http://www.knoxnews.com/business/did-youstep-in-doggie-doo-knoxvilles-pooprintscan-help-nab-the-culprit-2c5ea43d-8c296be3-e053-010-370263141.html

Rental Housing Journal Colorado · September 2016