Rental Housing Journal Colorado
November 2016 - Vol. 8 Issue 11
2. Most Home Buyers Keep Their Options Open, Consider Renting Instead
3. Dear Maintenance Men -
Plumbing, Pest Preventing Primer and Paint
DENVER • COLORADO SPRINGS • BOULDER
www.rentalhousingjournal.com • Professional Publishing, Inc
Monthly Circulation To More Than 7,000 Apartment Owners, Property Managers, On-Site & Maintenance Personnel
2Q16 Market Overview NEBRASKA
WYOMING
Multifamily Housing Update Fort Collins
UTAH
Greeley
Boulder
DENVER Grand Junction
Colorado Springs Pueblo
Colorado Springs, CO COLORADO ARIZONA
NEW MEXICO
Payroll Job Summary Average Payrolls Annual Change RCR 2016 Forecast RCR 2017 Forecast RCR 2018 Forecast RCR 2019 Forecast RCR 2020 Forecast Unemployment (NSA)
KANSAS
Trends and Data Surrounding the U.S. Real Estate Market and What It Takes to Become a Successful Owner and Investor By Michael Monteiro, CEO and Co-Founder, Buildium
OKLAHOMA
M
278.5m 7.0m (2.6%) 7.0m (2.6%) 8.0m (2.9%) 7.6m (2.7%) 5.2m (1.8%) 4.2m (1.4%) 3.9% (Aug)
2Q16 Payroll Trends and Forecast Colorado Springs payroll job growth decelerated in the second quarter, slowing from 1Q’s robust 8,300-job, 3.2% rate to a 7,000-job, 2.6% year-on-year pace. Slower growth was largely due to the business services sector, which tumbled to a -100 (-0.1%) job y-o-y decline, following 900- and 1,300-job gains in 1Q16 and 4Q15, respectively. Job cuts among non-professional and nontechnical workers were entirely responsible for the loss. Otherwise, super-sector trends were closely comparable to conditions observed in 2H15 and 1Q16 when Colorado Springs created payroll jobs at 3.0% to 3.5% annual rates. Seasonally-adjusted payroll data were weaker. This series recorded a net effective 200-job loss during 1Q16, and a below trend 1,100-job advance during 2Q. Preliminary August data suggest that headcounts were essentially flat yearcontinued on page 5
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Top Tips for Real Estate Investing
aybe it was passing by the For Sale sign in your favorite vacation town, flipping through the new listings in your Sunday paper or receiving a property passed down through the family—there are countless ways and reasons that real estate investors enter the market. But once that purchase goes through and all the papers are signed, what are you supposed to do next? I know from experience it can be daunting to figure out what your first step should be, how to get a rental ready for the market and how to then expand the business. In 2002, when my business partner and I first started our property management business in Rhode Island, we had a lot of questions on how to successfully
manage a property. We were faced with what seemed like a never-ending list of day-to-day, tedious tasks such as credit checks, lease renewals, rent collection, etc., while simultaneously trying to grow the business with new properties. But fourteen years later, and through some growing pains, we’ve seen the potential for real estate investment and the success it can bring. Are you looking to expand your own portfolio in a thoughtful and low-risk way? While it will be trial and error to get a successful real estate investment or multiple investments off the ground, here are a few of the tips and indicators continued on page 6
Four Questions to Consider When Deciding to Buy or Rent Tools By Tony English, Senior Tool Rental Merchant, The Home Depot
M
aintenance expenses are one of the largest controllable elements for a property manager’s operating budget, and you have to factor in both labor and equipment. One of the most important considerations for managing equipment costs is deciding whether to buy or rent necessary tools. In addition to the upfront vs. rental costs of the products, there are a lot of factors to consider when deciding to rent or buy. Equipment may be required on a seasonal or ongoing basis and used for small- or large-scale projects. Ask
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Rental Housing Journal Colorado
I
Most Home Buyers Keep Their Options Open, Consider Renting Instead
n today's competitive housing market, most of those who moved recently considered both buying and renting while looking for a new place to live, according to the Zillow Group Report on Consumer Housing Trends. It takes more than 10 weeks to find a new home to rent – and more than 12 weeks for those with low incomes or those searching in tight rental markets, according to an analysis of the Zillow Group Report and U.S. Census datai. For home buyers, the search is longer – 17 weeks. The Zillow Group Report, available for free in its entirety, surveyed more than 13,000 renters, homeowners, buyers and sellers about their home search, aspirations, and preferences. More than half -- 54 percent -- of buyers do not get the first home on which they make an offer. First-time home buyers make up 47 percent of all buyers, so it's feasible for many potential buyers to keep their options open and return to renting if they aren't successful purchasing a home. "The line between renting and buying is blurry, and that's a sign of the times," said Zillow Chief Marketing Officer Jeremy Wacksman. "It's difficult and time-consuming to find a home to move to, especially in competitive
2
housing markets. With first-time buyers competing for a limited number of homes on the market, savvy shoppers have a Plan B, hoping to buy if it works out, but willing to sign a lease for a home if they don't make a deal by the time they need to move." Among those who bought a home in the last 12 months, 66 percent of Millennials considered renting as well. Just over half (54 percent) of Generation X buyers considered renting, and 32 percent of Baby Boomer buyers. Younger renters are also more flexible when looking for a home to rent – 63 percent of Millennials and 59 percent of Generation X renters considered buying while looking for a rental. Among renters over 50, most did not consider buying at all. Renters make up a larger group of the U.S. population than at any time in the
last 50 years. Last week, the U.S. Census Bureau reported the homeownership rate rose very slightly to 63.5 percent in the third quarter of 2016 – barely edging up from a 51-year low. For many renters, buying is not a financial option. The median income of home buyers is $87,500 a year, while renters make, on average, $37,500. Low-income renters looking for a new home in a tight rental market can expect to spend an average of 12.1 weeks looking for a home, according to Zillow's analysis of survey responses and rental markets. PRNewswire Zillow Group Zillow Group (NASDAQ: Z and ZG) houses a portfolio of the largest real estate and home-related brands on the Web and mobile. The company's brands focus on all stages of the home
lifecycle: renting, buying, selling, financing and home improvement. Zillow Group is committed to empowering consumers with unparalleled data, inspiration and knowledge around homes, and connecting them with the right local professionals to help. The Zillow Group portfolio of consumer brands includes real estate and rental marketplaces Zillow®, Trulia®, StreetEasy®, HotPads® and Naked Apartments®. In addition, Zillow Group works with tens of thousands of real estate agents, lenders and rental professionals, helping maximize business opportunities and connect to millions of consumers. The company operates a number of business brands for real estate, rental and mortgage professionals, including Mortech®, dotloop®, Bridge Interactive™ and Retsly®. The company is headquartered in Seattle. Zillow, Mortech, StreetEasy, Retsly and HotPads are registered trademarks of Zillow, Inc. Trulia is a registered trademark of Trulia, LLC. dotloop is a registered trademark of DotLoop, LLC. Naked Apartments® is a registered trademark of Naked Apartments, Inc. Bridge Interactive is a trademark of Bridge Interactive Group, LLC. Zillow looked at individual responses from renters surveyed as part of the Zillow Group Report on Consumer Housing Trends about how much time they spent searching for their current rental unit. This data was combined with data on metro-level rental vacancy rates from the U.S. Census Bureau's 2015 American Community Survey to explore how the search for a rental unit varies across income groups and across different types of housing markets. i
Rental Housing Journal Colorado · November 2016
Rental Housing Journal Colorado
DEAR MAINTENANCE MEN: Plumbing, Pest Preventing Primer and Paint
By Jerry L’Ecuyer & Frank Alvarez
Dear maintenance men, I own a 16 unit apartment building built in the late 1960s. The property is in good shape and we try to address maintenance issue as soon as they develop. However, the drains lines are starting to get the best of us. For the past three years I have been experiencing clog after clog and now my main line appears to be blocked once again. Other than the obvious (the pipes are old) what can be contributing to my problem? Charles
on having them installed. We recommend having the pipes hydro jetted at least once a year to clear grease from the lines.
Dear Charles: You are not alone. Plumbing issues and rooter service is the largest line item expense as compared to other trades at any apartment building regardless of age. With plumbing and drains, it is best to be proactive rather than reactive. The difference in approach can save you thousands of dollars a year. In order to begin a proactive approach we will recommend the following: 1: Make an appointment with your local plumbing contractor or current service provider and tell them you are interested in having them join you on a thorough inspection of your plumbing, drains and fixtures. A professional plumber may see things you will miss.
Dear George: It is unfortunate that your contractor did not complete his job by sealing or painting the new wood. This would have saved you the effort and expense of repairing the wood all over again. We cannot tell you how many buildings we see that had termite or dry rot repairs completed years ago, and they are still not weatherized or painted! It is not the cost of the lumber that is expensive, but the labor that you want to avoid by having to perform the same work twice. When replacing wood at your building you should insure that the proper type of wood is used for an exterior job and that the wood is sealed with
Dear Maintenance Men: Three years ago, I had termite repairs done to the back side of my building. Turns out the wood was never painted or protected and now the wood is badly damaged. Would prime and paint have prevented this damage? George
2: On the date of inspection have your smart phone or camera with you to document any items or areas of concern. A flashlight and clipboard with notepad will be essential. 3: During the inspection take extra care to look for improper drain connections, leaks, possible or future leaks, corrosion, staining and fixtures that can appear be near or at their life expectancy. Also keep an eye out for water damage, dry rot, fungus etc. 4: Check the garbage disposal unit under the kitchen sink and if you find 1/3rd HP disposal unit, consider replacing it with a half horse motor dis-
poser. The underpowered 1/3rd unit is a large contributor to your kitchen drain line clogs. It is important to also instruct the resident in the proper use of the garbage disposal unit such as using plenty of water while using the disposer and not stuffing too much scrap food all at once. 5: Take special note of large trees above the route of the main drain line. The roots may be invading the pipe and causing many of the backups you are experiencing. Have the plumber use a camera snake to inspect the pipe. 6: If your property does not have proper mainline drain cleanouts; plan
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Four Questions
...continued from page 1 take up in your storage area. If a new piece of equipment requires an additional shed or room, factor in the cost. You don’t want items sitting out as eye sores for residents. Renting takes this factor out of the equation and simplifies the process, allowing you to return all units to the tool rental center after being used.
How do we transport the item? Lastly, take into account transportation costs if the piece of equipment is particularly large and factor in whether you will need to transfer it to different parts of the property. Avoid taking a toll on your current vehicles and consider renting a large truck or special oversized trailer to transport the equipment. It may be an additional cost, but it will make for smooth and safe transportation from the tool rental center to your property and back. By Tony English, Senior Merchant, Tool Rental
the following questions to help determine what’s best for you and your maintenance staff.
How frequently will we use it? Generally speaking, this is one of the easier questions to answer. Renting is a viable solution when equipment is used a few times a year, while buying is much more economical when it’s an item of regular use. There may even be times when choosing to do both is the best option. For projects that require
duplicates of the same tool, consider buying one and renting the extra items to complete the project more quickly. This will allow you to scale up and only worry about maintaining one tool or piece of equipment.
What kind of maintenance is required? Depending on the complexity of the tools, maintaining them may cost significant time and money, especially if your staff is not familiar with the on-
going upkeep. Purchasing equipment may require the assistance of an experienced professional and may hold up projects if tools are not in working order. Renting gives access to tools that are professionally and regularly maintained by experts. Your staff will then be able to spend more time and effort completing the project.
Do we have space for storage? Don’t underestimate the amount of space a large piece of equipment will
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Tony has worked in the capital equipment manufacturing and equipment rental industries for nearly 20 years, with extensive experienced gained at Ingersoll-Rand, Sunbelt Rentals, and The Home Depot.
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Rental Housing Journal Colorado · November 2016
Rental Housing Journal Colorado
Market Overview ...continued from page 1 to-date (+800 jobs), down sharply from the 5,900- job gain posted during the 2015 January-August period. RED Research’s COSP payroll model achieves a 95.9% adjusted-R2 (S.E.=0.6%) employing the rate of change of U.S. payroll growth as the sole independent variable. The equation foresees slower job growth through the winter quarter 2017, followed by faster job creation from 2Q17 to 3Q18. The trend corresponds to an expected rebound in U.S. economic growth during this period. Slower growth is likely to ensue in keeping with an anticipated slowdown in national trends in the forecast period out-years. Occupancy Rate Summary Occupancy Rate (Reis) 96.6% RED 50 Rank 8th Annual Chg. (Reis) +0.9% RCR YE16 Forecast 96.6% RCR YE17 Forecast 97.2% RCR YE18 Forecast 97.1% RCR YE19 Forecast 97.3% RCR YE20 Forecast 97.4%
2Q16 Absorption and Occupancy Rate Trends Apartment demand weakened during 2Q16, as renters occupied a net of 83 previously vacant units (Reis), down from 246 and 122 during the year-earlier and prior quarters, respectively. The 2Q16 metric was the second fewest units absorbed in any second quarter since 2005. Absence of new supply and dwindling inventory of vacant units, especially among more affordable product (only 314 class- B&C units were vacant), were largely responsible. Average occupancy was 96.6%, up 90 basis points year-on-year. Similar conditions were found in Axiometrics’s survey of 84 larger stabilized, same-store assets. This sample was 95.9% occupied during 2Q16, a 110 bps y-o-y increase. Class-C posted the highest occupancy (97.2%) for the 7th consecutive quarter, followed by classes-B (95.7%) and –A (95.4%). Class-A (+140bps) and class-B (+130bps) recorded y-o-y occupancy gains; but class-C declined -20bps. RCR specified relatively weak demand and supply models (due to the short COSP data history), using as independent variables occupancy change (+) and inventory growth in the former and occupied stock growth and lagged occupancy (+) in the latter. Forecasted demand consistently exceeds supply, a relationship that has been largely maintained since 2009. Occupancy gains in 2017 promise to be significant, with relative equilibrium reigning thereafter.
sequentially to $786, topping the prior quarter’s $6 (0.8) gain but falling short of 2Q15’s $12 (1.5%) surge (Reis). Expressed on a year-on-year basis, rents advanced 4.8%, down from 5.6% in each of the prior two quarters; nonetheless the third fastest annual growth rate observed in the 17-year data history. Both classes-A and -B&C made substantial contributions. Asking rents among the former advanced at an 0.8% sequential rate, while the latter increased 0.7%. Trends recorded in the Axiometrics sample of larger, professionally managed complexes were considerably stronger. All properties recorded an 11.1% y-o-y increase, up from 10.0% in 1Q, representing the fastest COSP gain ever observed. Among classes, “A” chalked down the biggest advance (12.6%), followed by “B” (11.6%) and “C” (8.7%). By way of rent model, RCR used metro payroll growth(t-3) (+), metro occupancy (+) and the GDP deflator (-) as independent variables to specify an 88.7% ARS (S.E. 0.6%) forecasting equation. The model projects slower growth through mid-2017, before an economic rebound propels rents higher in 2018. Over the course of the 5-year forecast interval rents are expected to rise at a 3.3% annual pace, 26th fastest rate among the RED 47 peer group. Trade & Return Summary $3mm+ / 80-unit+ Sales 4 Approximate Proceeds $50.6mm Average Cap Rate (FNM) 6.0% Average Price / Unit $65,433 Expected Total Return 7.0% RED 46 ETR Rank 15th Risk-adjusted Index 3.16 RED 46 RAI Rank 36th
2Q16 Property Markets and Total Returns Sales velocity during the second quarter was deliberate as four investment sales were transacted, down from seven during the prior quarter. Proceeds totaled $56.6 million as compared to $118.3mm during the first quarter. With respect to the price paid per unit the second quarter recorded an average of $65,433, down sharply from $119,212 during 1Q16. As for preliminary 3Q16 results, five transactions were closed for total proceeds of $83.4mm. The average price per unit was $75,474. Second quarter trade was focused primarily on 1970-to- 1985 value-add plays. Going in cap rates for assets in this category gravitated toward the low-6% region. Newer garden complexes may be acquired at prices producing mid– to high-5% yields. Investment grade B+/A– product is likely to trade Effective Rent Summary at yields between 5.0% to 5.5%. For purposes of estimating the exMean Rent (Reis) $786 pected total return for a typical B+ asAnnual Change 4.8% set we chose to use 5.5% as the purchase RED 50 Rent Change Rank 11th cap rate proxy. At this level, a terminal RCR YE16 Forecast 2.4% cap rate of 6.8%, and model derived occupancy and rent point estimates we RCR YE17 Forecast 3.1% estimate that an investor would expect RCR YE18 Forecast 3.8% to earn an IRR of 7.0% over 5 years, RCR YE19 Forecast 3.4% ranking 15th among the 47 U.S. marRCR YE20 Forecast 3.7% kets we model and forecast (the RED 47 ). Above average supply and demand 2Q16 Effective Rent Trends model standard error skew risks higher, Metro effective rent continued to lowering the risk-adjusted index (RAI) rise at a brisk clip in the second quar- to peer group #36. ter. Average rent increased $7 (0.9%) continued on page 7 Rental Housing Journal Colorado · November 2016
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Rental Housing Journal Colorado
Top Tips For Real Estate Investing ...continued from page 1 that helped my business partner and I along the way:
Location Matters It may seem obvious, but location is a key factor when it comes to real estate investment. While it likely won’t make sense to invest in a property across the country because of travel constraints, a real estate investor or property owner/manager should definitely put thought into what location will offer the most potential for rentals or flipping a home. This research can be done by looking at both industry trends along with other contributing factors. For example, Buildium’s annual Rental Ranking Report looks at a combination of U.S. real estate, rental housing and jobs reports, along with property appreciation forecasts, and a comparison of quarter-over-quarter and yearover-year data to discover how rental markets are changing. For 2016, some factors to consider for location from the report include: • Top Performing Metros: The top five performing metros for the past year include: San Francisco, Seattle, San Jose, Calif., Louisville and San Diego. • Top Performing Region: The Western U.S. is currently the best region for rental property investment, thanks largely to the impressive rent increases and property value appreciation found there. • Vacancy Rate: Worcester, Mass. had the lowest vacancy rate with
3.05 percent, and Birmingham came in the bottom spot with a 17.67 percent vacancy rate. • Rent Variance: The percent change in median rent was best in Buffalo, New York at 16 percent and worst in Hartford at -6 percent. Looking at industry data along with other important statistics can help a real estate investor truly understand the market and serve as a valuable resource to guide property purchasing decisions.
Think Like a Renter Becoming a successful real estate investor goes beyond just finding a good piece of land or a property at a good price. In the end, the success of a property always depends on its marketability, whether it’s for new buyers or renters. Does your property have the amenities that people are looking for? Is this a safe or quiet neighborhood in the city? Is the right property management company handling the property? Buildium’s annual American Renters Survey looked at these questions as it aimed to shed light on what tenants care most about in their apartment or home rental and provide insights to help property managers and landlords attract and retain the very best tenants. Some of the findings include: • Overall, an in-unit washer/dryer, high-speed internet and central air are the three most commonly sought after amenities among the age groups surveyed. • Feelings about property managers tended to be significantly more
negative overall than feelings about landlords. Of those tenants who don't like their property manager, 58 percent say they are extremely or very likely to move in the next year. • Among all the factors that renters consider when renting an apartment, 72 percent of the surveyed renters prioritized location. Indeed, when renters were asked what they love most about their homes, two of the top three answers were a great location and a nice, safe neighborhood. It’s necessary for real estate investors to consider these factors if they want their investment to eventually be profitable through either selling or renting. Researching what tenants are looking for in that area, or what amenities are included in recent rentals or home purchases can really help convince that buyer or renter to make the move.
Going Digital Is a Must It goes without saying that technology exists in every facet of our lives, and this goes for the real estate industry as well. Adopting and implementing relevant technologies can only help an investor’s business, and there are a few ways to do this. Right from the start, technology should be used when marketing properties. Buildium’s aforementioned American Renters Survey found that when renters are searching for new housing, they first look at Craigslist, Zillow, a Google search and finally ApartmentList—clearly showing that just listing
properties in the local paper is not a top search method. The report also found that a large percentage of potential renters are looking for digital options such as online listings, electronic leases, electronic payments and online maintenance requests/tracking. Especially for those renters in multi-tenant dwellings, where 37 percent of renters indicate they can currently pay online and 59 percent indicated they like or would like to pay rent via ePay methods. Additionally, while only 27 percent of residents say they currently use a tenant portal (property management sites where they can connect, get information, file maintenance tickets and pay rent), 45 percent report either having and loving it, or wanting one. When it comes to real estate investing, the success of a business goes beyond just purchasing a brand new condo around the corner. Investors should make sure to look into the key trends listed above and relevant research in their area in order to set themselves up for success. While in the end it always depends on the effort put in, these tips can assist as some fail-proof guidelines to help along the way.
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Rental Housing Journal Colorado · November 2016
Rental Housing Journal Colorado
Market Overview
...continued from page 5
The information contained in this report was prepared for general information purposes only and is not intended as legal, tax, accounting or financial advice, or recommendations to buy or sell currencies or securities or to engage in any specific transactions. Information has been gathered from third party sources and has not been independently verified or accepted by RED Capital Group. RED makes no representations or warranties as to the accuracy or completeness of the information, assumptions, analyses or conclusions presented in the report. RED cannot be held responsible for any errors or misrepresentations contained in the report or in the information gathered from third party sources. Under no circumstances should any information contained herein be used or considered as an offer or a solicitation of an offer to participate in any particular transaction or strategy. Any reliance upon this information is solely and exclusively at your own risk. Please consult your own counsel, accountant or other advisor regarding your specific situation. Any views expressed herein are subject to change without notice due to market conditions and other factors.
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Rental Housing Journal Colorado Circulated to over 7,000 apartment owners, on-site and maintenance personnel monthly.
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Rental Housing Journal Colorado
Dear Maintenance Man
...continued from page 3 rain may make them heavy causing the door to close or fall unexpectedly. As a precaution, always replace both garage springs at the same time and throw away any used springs. Never install used garage springs. Check all property lighting and timers. Remember: Preventive Maintenance is cheaper than Emergency Maintenance! Bio: If you need maintenance work or consultation 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
primer and paint. To do the job properly, the wood should be primed before it is installed followed by a second prime and paint. When using a contractor for this type of work, be sure to read the contract carefully. Make note and question the contractor if you see the terms: “Paint by others” or “Priming and Paint not included”. You can either ask the contractor to include these items or contract with a painting company to complete the job.
Dear Apartment Owners: We are getting close to the holidays, which means guests, cooking and an emergency call to you from one of your residents on Thanksgiving Day about a clogged sink or non-working oven with an apartment full of guests waiting for dinner. This scenario can
ruin both yours and your residents’ holiday. The answer is: Preventive Maintenance. Before the holiday season begins, check each stove and oven for proper operation, many residents only turn on their ovens at this time of year, and the problem may be as simple as a pilot light being out. Also, check the oven’s temperature calibration with an oven thermometer. Because of heavier than normal use of the plumbing, it may be a good idea to snake out your main plumbing lines. Also, sending a note to each tenant on the proper use of the garbage disposal will be useful. Note what they should and should not put down the disposal unit. A few items to include on this “Do Not” list are: banana peels, potato skins, coffee grounds and any stringy food. Also make sure they turn on the water before using the disposer and put down small amounts
of food at a time. Do not use the disposer as a trash can and then turn it on when full, it will clog. Halloween and other holidays also means more people than usual walking on your property. Is your property safe? What are some of the liabilities to worry about? Check trip and fall hazards. Sprinkler heads sticking up above the grass or landscape near sidewalks. Use pop-up heads to solve this problem. Look for sidewalks that have been pushed up by tree roots. This can be solved with a concrete grinder or replacement of the section and removal of the tree root. Cut any low hanging tree branches and look for branches that may break in heavy winter wind or rain. Check your decking for cracks or damage and inspect the exterior stairways for wear and tear. Inspect all your garage door springs, winter wind and
Jerry L'Ecuyer is a licensed contractor & real estate broker. He is currently on the Board of Directors and Chairman of the Education Committee of the Apartment Association of Orange County. Jerry has been involved with apartments as a professional since 1988. Frank Alvarez is the Operations Director and co-owner of Buffalo Maintenance, Inc. He has been involved with apartment maintenance & construction for over 20 years. He is also a lecturer & educational instructor. Frank can be reached at (714) 956-8371 Frankie@BuffaloMaintenance.com For more info please go to: www.BuffaloMaintenance.com
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Rental Housing Journal Colorado · November 2016