Rental Housing Journal Metro October 2016 by Professional Publishing, Inc

Rental Housing Journal Metro

October 2016

3. Fix and Flip or Rent 4. An Increased Apartment Construction Catches Up With Demand and Political Pressures Stifles Rents, Google May be the Best Way for Operators to Continue Raising Rents

5. Looking Forward to the New Year 6. Gentrification 7. Portland Multifamily Market Report 8. 5 Key Research Findings About Tenants and Rentals

www.rentalhousingjournal.com • Professional Publishing, Inc

9. Dear Maintenance Men – Roofs and Winterizing 11. Real Estate Investors Continue Flipping Frenzy 13. Company Threatens to Evict Tenants and Bulldoze 300 Rental Homes

Portland/Vancouver

Published in association with: Multifamily NW; Rental Housing Association of Oregon; IREM & Clark County Association

Preparing Your Furnace For Winter

Better Investment Rent or Fix & Flip?

he weather is getting colder and colder out there. It’s time to break out the warmer jackets and turn on the heat. But before you turn on your heater, winterizing your investment properties (especially the HVAC system) should be at the top of your to-do list. Your tenants will rely on the heater throughout the cold months of winter, so it’s important to prepare the system for the upcoming winter days. Here are some helpful tips on how to get it ready.

What is the better investment within the current market?

Tip #1: Clean and replace filters. Did you know that dirty and clogged filters can cause big problems? Furnace filters are incredibly important parts of continued on page 15

8 Ways to Profit By Properly Managing Your Commercial Leases

o you ever find yourself wondering what the best investment is based on the current market and how long the current market will make that investment profitable? Most real estate investors typically have two main investments to choose from; fix and flip or buy, fix and rent. Through my position as president of IRC Enterprises (www. IRCEnterprises.com), I have the benefit of running companies that help investors in both of these markets from Portland down to Eugene. My general advice is to always have a balanced investment portfolio, but the right timing can make you much larger profit margins, as well as save you from taking unneeded losses. The fix and flip market has been very profitable for the savvy investors over the last few years. Our clients have typically seen 20 to 50 percent ROIs, but those margins are being squeezed. It has notably helped, though that Oregon has becontinued on page 10 Professional Publishing Inc., PO Box 6244 Beaverton, OR 97007

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

eal estate is a relationship-dependent business, and no relationship is more important to real estate than the landlord/tenant relationship. Yet no relationship in real estate deals with more divergent interests. The lease is the bond that holds this crucial relationship together and selecting the right lease clauses and leasing approaches can add significant value to a property or prevent unnecessary losses. The following are some examples of lease clauses and leasing decisions that can help increase property value. continued on page 12 PRSRT STD US Postage PAID Portland, OR Permit #5460

Text REALESTATE-ROI to 44222 to receive a digital copy of this year's Real Estate Opportunities in Investing (ROI) Finding Investing Success in Today's Housing Market

Rental Housing Journal Metro

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Rental Housing Journal Metro · October 2016

Rental Housing Journal Metro

Fix and Flip or Rent By Christian Bryant

hat is the better investment within the current market? Do you ever find yourself wondering what the best investment is based on the current market and how long the current market will make that investment profitable? Most real estate investors typically have two main investments to choose from; fix and flip or buy, fix and rent. Through my position as president of IRC Enterprises (www.IRCEnterprises.com), I have the benefit of running companies that help investors in both of these markets from Portland down to Eugene. My general advice is to always have a balanced investment portfolio, but the right timing can make you much larger profit margins, as well as save you from taking unneeded losses. The fix and flip market has been very profitable for the savvy investors over the last few years. Our clients have typically seen 20 to 50 percent ROIs, but those margins are being squeezed. It has notably helped, though that Oregon has become a redemption rights state. This has kept most of the large, national investment companies out of Oregon, leaving plenty of deals for local investors to take on without too much competition. While other markets around the nation are tightening up and Oregon continues to be one of the top places to live, this will start changing. We’ve also had the benefit of very low inventory on the retail sales market, which has helped keep the retail sales prices high enough to support fix and flip investments.

Currently there are still deals to be had as a fix and flip investor, but they are getting much harder to find unless you are willing to lower your profit expectations. In my best professional opinion, this will continue for no more than one to two years, and two may be stretching it. This is why we have been suggesting that our investors start looking for properties that they can buy and hold as rentals. As most long-term successful investors will tell you, you must be willing to

be flexible and adjust your investment strategy along with market demand. Ideally, you will adjust before the market so that you can stay ahead of the game. I would suggest that all investors slowly add to their rental property portfolio over time as it will create a great, passive income stream. If you want your primary long-term focus to be on the fix and flip market, then there is a way to work rental properties into the ongoing strategy.

Everyone is aware of the current rental market and how much rent has increased over the last couple of years. Most likely, rent will start to plateau within the next year or so, but it’s very unlikely that they’ll decrease. If you have ever wanted to start building a rental portfolio, now is the time to do so. Lending rates are still very low and rents are at an all-time high. This mix will make a lot of properties’ cash flow much better than in typical continued on page 17

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Rental Housing Journal Metro · October 2016

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Rental Housing Journal Metro

As Increased Apartment Construction Catches Up With Demand and Political Pressures Stifle Rents, Google May Be the Best Way For Operators to Continue Raising Rents

ll is fair in love and war, and portfolio managers that love revenue and rent increases are using Google (of all things) to win the war for the most profitable renters. And, its working! Let’s take the bay area for example, easily one of the hottest markets in the United States. In 2015, San Francisco experienced double-digit increases in apartment rents with occupancy rates unaffected by these skyrocketing increases. This year has been a bit of a different story. Although rent increases are still at a more than acceptable 3.7% for most of the Bay, it’s a far cry from the boom of 2015. With many renters unable or unwilling to pay premium rent in San Francisco choosing to look to the east in Oakland, the battle to capture renters willing to “payto-stay” has turned to SEO and Google search results to maintain high single digit

and even double digit annual rent increases in the cooling San Francisco market. The counter-pressure from construction completions on 2016-2017 San Francisco rent increases is turbocharged in the political arena with city leaders asking private developers in San Francisco to rent 20 percent of units in new apartment buildings at below-market prices. Requirements like this take an even bigger bite out of developers and property managers margins, placing even more importance on maximizing revenue from the market-rate 80%. Search engine optimization or SEO in short, is a process that highly skilled digital marketers use to optimize apartment websites for search engines like Google, Yahoo and Bing, improving the community’s visibility with potential renters online. Apartment SEO is a bit trickier, as the SEO company must understand the com-

plex arena that is multifamily real estate. The last thing a community wants to do is end up ranking for searches that only bring unqualified renters. Apartment SEO that is done right puts developments miles ahead of their competition. If two apartment sites are promoting the same category of units in the same neighborhood, the search engine optimized community is far more likely to get leased in a shorter time and at higher rent rates. It quite simple, if the ideal renters can’t find you, they find someone else and somewhere to live. Search engine optimization is essential to San Francisco apartment owners and managers because: The overwhelming majority of renters are more likely to choose one of the first five actual property website suggestions in the results page. 99% of all San Francisco apartment searches start online, with the majority of those powered by Google.

Renters trust Google and other search engines and operators that make sure their property website has a standalone presence in the top positions for the keywords Bay Area renters are searching, increases not only the property’s trust but the asset value as a whole. A property that is tops in Google has millions of dollars more in blue-sky value that can be cashed in at the time of a sale. Communities looking to take advantage of these facts and gain highly qualified visitors to their website, need to rank as high as possible on Google and other search engines for the most searched keywords. In the San Francisco market, over 8,100 local people search the keyword “San Francisco apartments” per month. Even if a property only received a visit to their website from 10% of them that is 810 hot qualified visitors per month. If only 5% of the 810 could afford the highest possible rent, that is 40 people who you want to talk to before they call anyone else. If you close 10% of those, you just leased 4 units at the highest possible rent. Now if you also take a hyper-focused keyword like “luxury apartments San Francisco” with 320 people locally searching per month and assume 10% of those contact you, you now have 32 even more qualified continued on page 14

Rental Housing Journal Metro · October 2016

President: John Sage Vice President: Phil Owen President Elect: Ron Garcia Secretary: Lynne Whitney Treasurer: Elaine Elsea

John Sage, RHA Oregon President

Past President: Elizabeth Carpenter Office Manager: Cari Pierce

President’s Message

10520 NE Weidler, Portland, OR 97220 (503) 254-4723 • Fax (503) 254-4821 info@rhaoregon.com • www.rhaoregon.org

Looking Forward to the New Year

idn’t it seem that right after August 31st, someone turned a switch and fall was upon us? The rain and lower temperatures for a few days were great chances to get certain projects done. Myself, I had postponed a couple of projects due to the warm summer temps. But once the temperature dropped there were no more reasons to delay getting things done. It felt great to complete these things and then move on to the next project. I always enjoy that sense of accomplishment and completion which then leads to the start of a new project. Speaking of projects, we at RHA Oregon are working on new things all the time. We are currently getting ready for our planning retreat for the next year. It will be exciting to see what the future looks like for RHA Oregon in the coming year. As I look forward to the coming year and the events that will unfold, I think about how much of our success is due to volunteer help both at our office and events. Volunteering is something that has been the life-blood of RHA since its beginning in 1927. The Board of Directors are all volunteers giving of their time and expertise in a multitude of ways. While working on writing this month’s message, I did some research into the benefits

of volunteering. It’s a pretty simple thing to do. Just Google benefits of volunteering and then start reading. You will find that it relieves stress and is a great way to meet new people. It strengthens your ties to your community, and broadens your support network. It also exposes you to people with common interests and resources. Another benefit is that it gives you the opportunity to practice and develop your social skills. There are a myriad of other benefits that you can learn about and experience through volunteering. So I encourage you to look into the volunteering opportunities offered with RHA Oregon whether it is helping with events, at the office, or serving on a committee or on the board. If you are interested in volunteering, contact our office or the chair

Rental Housing Journal Metro · October 2016

of the nominating committee. I would also like to mention that there are several committees that are looking for new volunteers to help: Membership, Marketing, and Forms, just to list a few. The next subject that I would like to cover is education. We have started up with classes again since Labor Day. As you know, there is nothing as important as keeping up on the latest trends, laws, and best practices in owning property. Attend day classes or night classes to get the information and training to acquire your CE credits or just to learn more. Here are a couple of the classes this month: First, “Residential Financing Strategies in Today’s Market” taught by Vincent Kingston from Eagle Home Mortgage on October 6th at 6:30pm to

8pm at the RHA Annex. Then on October 13th at 11:30 am to 1pm at the RHA Oregon Annex, “Insurance Coverage, What you don’t know, can hurt you!!” taught by myself, John Sage with Stegmann Insurance Agency. There is also a Landlording 101 class on October 22nd from 9am to 5pm at Holiday Inn at 25425 SW 95th Ave. Wilsonville, OR 97070. There are also Membership and Mentoring classes and Screening Classes that you should be sure to check out. Go to our RHA Oregon website and check the calendar for more times and dates. If you don’t see a class that you need or want contact our office and let us know. We will do what we can to find what you need. Anyway, in conclusion I again encourage you to volunteer with RHA Oregon. Find out for yourself how rewarding it can be. Next, be sure to attend a class or our monthly dinner to keep up with what is going on in our industry. Have a great month and I look forward to talking with you soon. Sincerely, John Sage President RHA Oregon Stegmann Insurance Agency Inc.

Rental Housing Journal Metro 16083 SW Upper Boones Ferry Rd, Suite 105, Tigard, OR 97224 503-213-1281 | Fax 503-213-1288 | www.multifamilynw.org

Gentrification Dave Bachman President of Cascade Management Having more people living in a smaller footprint is better for the environment and more convenient for the residents. The buildings are safe and attractively maintained. Apartment buildings and condominiums foster an excellent sense of community, allowing tenants to have their space without feeling isolated, and it gives them the opportunity to live in an area where they may not be able to afford to own a house. Let’s talk a little more about the environmental impact that gentrification has on the city. Compared to the past, we now have laws and incentives to rehabilitate old buildings or construct new ones in safer and more environmentally friendly ways. Hazards such as asbestos, mold, or lead based paint are dealt with. Many owners take advantage of advanced technology to be more energy efficient. People who live closer to work and services mean fewer cars on the road and more use of public transportation. Gentrification adds to the economy as well. Think of all the work that goes into restoring old or building new housing. Then think of all the people needed to maintain rental properties. Then think of all of the businesses that are supported

by a vibrant neighborhood, and it’s easy to see how many local jobs will be created. The influx of new residents and workers into formerly low income areas also means new customers who want to eat, drink, and shop within walking distance of home, or on the way to and from work. Established businesses experience an uptick in customers. Increased demand and higher incomes support new businesses, giving them the head start they need to grow. The changes in retail and restaurants make the neighborhood a destination, a great place to visit and enjoy. Grocery stores move in, eliminating food deserts and giving the neighborhood options. Old buildings are restored, preserving the architectural heritage of the city. The grounds and buildings of multifamily housing are cared for by people with an investment in the community, creating a clean and safe standard of living. Improved neighborhoods also put appropriate pressure on city governments to create public/private partnership that creates more sustainable affordable housing. When people take pride in their neigh-

Form of the Month Notification of Balance Due – M042 OR-WA

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borhood, they’re more willing to take an active role by attending city council meetings to lobby for better services, like improved streets and parks and public transportation. Schools become better. Crime goes down. The most common negative effect that gentrification is portrayed as having is that it causes long-time residents of these neighbors to leave. In fact, studies show that the opposite is true. Once better services are available, long-time residents are actually less likely to leave. Instead of run-down streets lined with empty houses, weed-filled lots, and dying businesses, once again there’s safe and affordable housing for many working families with good schools and local services. Gentrification is simply the process of investing in neglected communities, and giving these fantastic neighborhoods a chance to shine.

Now it’s easier to track and swiftly notify tenants of their unpaid financial responsibility. The Notification of Balance Due form was created to help busy apartment managers and landlords keep their residents accountable for unpaid rent, fees and other charges that can easily accumulate. This form enables regular documentation, allowing landlords and property managers to best position themselves to collect on monies owed and garner the most favor under Oregon Landlord/Tenant Laws.

NOTIFICATION OF BALANCE DUE DATE __________________________________________ PROPERTY NAME / NUMBER ___________________________________________________________________________________________________________________________________________________________________ RESIDENT NAME(S) ___________________________________________________________________________

___________________________________________________________________________

UNIT NUMBER ___________________________________ STREET ADDRESS ___________________________________________________________________________________________________________________________________________________________________________ CITY ___________________________________________________________________________________________________________________________________________________ STATE ___________________________________ ZIP _____________________________________________________________

Please be advised that the following amount(s) are outstanding on your account: CHARGE

AMOUNT

c Rent

DATE/DESCRIPTION

$___________________________________________

c Late fees

$___________________________________________

c NSF fees

$___________________________________________

c Noncompliance fees

$___________________________________________

c Deposit(s)

$___________________________________________

c Resident-caused damages

$___________________________________________

c Pet rent

$___________________________________________

c Garage

$___________________________________________

c Parking

$___________________________________________

c Storage

$___________________________________________

________________________________________________________________________

$___________________________________________

________________________________________________________________________

$___________________________________________

__________________________________________________________________________________________________________________

TOTAL DUE: $___________________________________________

DATE DUE:

_____________________________________________

ADDITIONAL INFORMATION: ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

PLEASE NOTE: If full payment is not received by the date listed above, then a termination notice may be issued.

he word ‘gentrification’ often gets used in a negative context at city planning meetings or in the media. To gentrify a neighborhood, some argue, is to change it for the worse. In fact, there are positive outcomes related to the topic. The effect gentrification has on cities is generally positive and can help create housing supply at all affordability levels. Gentrification is a natural change in the urban landscape as cities grow. When more people move to a popular city, housing around in-demand districts becomes scarce, so developers begin buying and improving properties in low income neighborhoods. That’s it. That’s gentrification. Run-down houses, empty lots, and boarded-up businesses are turned into homes and multi-use buildings. Environmentally, socially, and economically, gentrification can improve not only the city structure, but the lives of the people who live there. Multifamily housing’s role in gentrification is vital for a neighborhood’s success. When empty lots or condemned buildings make way for multifamily housing and mixed-use development, that’s good land use, and practical for booming cities. Rather than building out, let’s grow up.

This is a notice of a continuous or ongoing violation of your Rental Agreement. You are required to discontinue the conduct by paying the amounts due. The reoccurrence or failure to cure the conduct by payment may result in termination of your tenancy.

X OWNER/AGENT ____________________________________________________________________________________________________________________

THANK YOU FOR YOUR COOPERATION

ADDRESS

____________________________________________________________________________________________________________________

TELEPHONE

ON SITE

RESIDENT

____________________________________________________________________________________________________________________

MAIN OFFICE (IF REQUIRED)

Upcoming Calendar 10/12/2016 CAM: Marketing 10/14/2016 The Newest Clauses: Fine Tuning Your Rental Agreements 10/19/2016 Fall Apartment Report Breakfast 10/24/2016 EPA Lead-Based Paint Renovation Certification 8-Hour 10/25/2016 Fair Housing Basics with a Historical Perspective 10/26/2016 CAM: Property Maintenance for Managers 10/27/2016 OSHA/Safety Prep 10/28/2016 Cruel and in Property Damage Restoration 11/1/2016 Maintenance Tips, Tricks & Pitfalls 11/1/2016 New Hire 11/3/2016 Forms and Notices 11/7/2016 Oregon Landlord Tenant Law Part I 11/8/2016 HR Brown Bags: Leaves Jungle (FMLA/WC/ADA) 11/8/2016 CAMT: Plumbing Part I & II 11/10/2016 Maintenance Boot Camp for Spanish Speakers 11/11/2016 It's the Law - Time to Part Ways: Terminating the Tenancy 11/14/2016 Client Trust Accounts Rental Housing Journal Metro · October 2016

Rental Housing Journal Metro

Portland Multifamily Market Report Portland Metro Area, Third Quarter 2016

enant Demand Sparks Construction in Central Portland High cost of homeownership drives rental demand; construction surges. A steady rise in the population has contributed to an advance in household formation and underpinned the need for housing in Portland. As a result, home sales have lifted nearly 6 percent over the last four quarters. However, homeownership is out of reach for many individuals as the minimum qualifying household income for a mortgage is nearly $12,000 more than the median household income. This has spurred demand for multifamily housing, increasing construction as the vacancy rate remains well below the 5 percent equilibrium. Builders are boosting the number of completions by 73 percent from the previous year. Much of the new development will be located in the central and eastern portions of Portland. This includes the 290-unit Modera Pearl under construction in the Central Portland submarket. The complex will contain unique amenities designed to target individuals seeking an urban lifestyle, such as a wine storage room, game room, exercise/yoga studio and a stormwater garden. The significant surge in deliveries this year will place upward pressure on vacancy as new apartments enter a period of lease-up. High demand and strong renter demographics will further boost rents. High yields and tight operations push out-of-state investors to Portland. Healthy market fundamentals and average returns that are up to 160 basis points greater than other West Coast markets will motivate investors to inject capital into the metroâ&#x20AC;&#x2122;s multifamily housing market. Many of these buyers are seeking Class C assets located just east of Interstate 5. Here, properties traded with cap rates in the high-5

to mid-6 percent range during the previous 12-month period. Overall, apartments changed hands with average firstyear returns in the mid-5 percent range, as high demand compressed the rate 20 basis points from the prior year. Investors will continue to search for assets within Portland as vacancy remains low and strong tenant demand drives up rents.

2016 Multifamily Forecast Employment: Employers will increase payrolls by 2.7 percent in 2016 with 30,000 workers, highlighting a tight labor market. Strong hiring was registered in the trade, transportation and utilities sector during the first half of this year. In 2015, employers added 36,900 jobs. Construction: After finalizing 3,700 units last year, builders will boost construction in 2016 with approximately 6,500 units forecast for delivery. The majority of this construction will be completed during the second half of the year. Vacancy: A jump in construction will increase the vacancy rate 40 basis points this year to 3.5 percent as new apartments enter a period of lease-up. In the prior annual period, vacancy rose 50 basis points on net absorption of more than 2,500 units. Rents: Tight vacancy and climbing household formation will boost the average effective rent 8.7 percent in 2016 to $1,264 per month. During the previous year, rent surged 13.2 percent, with the Central Portland submarket registering the highest rent at $1,513 per month after an 11.8 percent rise.

Rental Housing Journal Metro Âˇ October 2016

Rental Housing Journal Metro

5 Key Research Findings About Tenants and Rentals By John Triplett, Rental Housing Journal

new survey designed to help property managers and owners gain insight into what tenants care about the most in their apartments shows insight on: • What will they pay more for? • What drives them crazy? • What makes them happy? • What makes them sign a lease or renew a lease? • What makes them move on from a property? The rental survey was done by Buildium in the summer of 2016 and the company said it was created because, “As property managers or owners, naturally you want to highlight the best assets of a rental, benchmark rentals against the competition, and discover which convenience features will encourage great tenants to stick around. That’s why this report was created.” The study looked at regional differences, age and professional cohorts to look for trends. “Overall, we came away impressed with the desire of tenants— particularly apartment tenants—to use digital communications, not only to find a place to rent, but also to keep in touch with property managers,” the company said in the report.

“Moreover, we noticed a direct connection between a tenant’s relationship with their property manager or landlord, and how they felt about their rental.” There were 5 basic findings: • 74% of tenants like or love their rental, but 54% are likely to move out next year. • Location. Location. Location. Renters want (and will pay for) a great neighborhood. • Most commonly sought amenities are washer/dryer in unit, high-speed internet and central air.

• Tenants seek online convenience features like ePay, tenant portals, and text alerts. • Loving a rental and loving a property manager go hand in hand.

No. 1 - 74% of tenants like or love their rental, but 54% are likely to move out next year More than half of the renters surveyed reported that they like their residence (52%), while nearly another quarter (22%) said they love it.

However, yet another quarter had a less positive feeling about their home, with 11% saying they don’t care, 12% saying they don’t like their rental, and 3% saying they actually hate where they live. Unsurprisingly, a tenant’s likelihood of moving over the next year is in direct approximation to these feelings. Those who loved their rental were least likely to report plans to move (only 17%). When those tenants did plan to move, it was usually for reasons such as job relocation or moving in with a boyfriend. Those who hated their rental, however, were most likely to report plans to move (58%). When tenants are looking for a new place, the most common place for them to look is to ask around with friends, family or colleagues. Next on their list is to hop online and look at listings: first on Craigslist, and then secondarily on Zillow, a Google search, or ApartmentList.

No. 2 - Location. Location. Location. One clear trend that emerged from all of these questions was that location is key. “When we asked renters what they most love about their homes, two of the top three answers were a great location and a nice, safe neighborhood,” the report says. continued on page 16

Rental Housing Journal Metro · October 2016

Rental Housing Journal Metro

DEAR MAINTENANCE MEN: Roofs and Winterizing

By Jerry L’Ecuyer & Frank Alvarez

Dear Maintenance Men: When is the best time to do an annual roof inspection? Can you give me some pointers as what to look for when I inspect the roof?

Tom Dear Tom: The best time is before it rains! However, we find summer and fall to be most the prudent time to inspect and repair the roof. In other words, don’t wait to do roofing work after the first rains of winter. The roofing contractors will be very busy and costs may go up or you may have to wait in line for the work to get done. Inspect the roof during the summer and fall and get the roofing work done before it becomes an emergency. During the roof inspection, pay close attention to the flashing. Flashing is used to transition between the roofing material and the building or a change in roofing direction or angle. Flashing can also be found where pipes or a chimney come up through the roof. The flashing is sealed with roofing tar and water leaks can form when the sealing tar cracks or separates from the building or the flashing material. Look for curled up roof edges on composition roofs, low spots on flat roofs and bird nests in tile roofs. Check all roof drains and cut away

any trees branches that are touching or overhanging the roof. While you are inspecting the roof, check the gutters. Winter storms have a way of loosening gutters and filling them with gunk thereby causing them to lose their pitch and pool water. Pooling or overflowing gutters can deteriorate fascia boards and siding.

Dear Maintenance Men: I’m getting my work check off list started before winter comes. Do you have recommendations of what should be on the check list?

Lisa

Dear Lisa: After checking and repairing any roof damage, we recommend looking at the outside walls of the property. Stucco, wood siding or other vertical surfaces, is the building’s skin. Cracks, breaks and other damage to the siding invite “infection” to your building. This “infection” can take the form of wood rot, mold, siding delaminating or separation from the subsurface, material breakdown of the stucco will cause discoloration and crumbling. Common siding material found in most buildings is stucco, wood, brick, vinyl or concrete panels etc. Water intrusion of the siding can find its way through the smallest cracks by capillary action or more directly from misaligned sprinklers or other water sources. A little known and often forgotten solution to leaky windows is the clogged weep holes along the bottom of the window frame and track. These weep holes clog with dust and debris and very easily can cause water to enter the building through the window frame or even through small cracks in the stucco or siding at the edges of the window frame.

continued on page 19

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Rental Housing Journal Metro

Better Investment - Rent or ...continued from page 1 come a redemption rights state. This has kept most of the large, national investment companies out of Oregon, leaving plenty of deals for local investors to take on without too much competition. While other markets around the nation are tightening up and Oregon continues to be one of the top places to live, this will start changing. We’ve also had the benefit of very low inventory on the retail sales market, which has helped keep the retail sales prices high enough to support fix and flip investments. Currently there are still deals to be had as a fix and flip investor, but they are getting much harder to find unless you are willing to lower your profit expectations. In my best professional opinion, this will continue for no more than one to two years, and two may be stretching it. This

is why we have been suggesting that our investors start looking for properties that they can buy and hold as rentals. As most long-term successful investors will tell you, you must be willing to be flexible and adjust your investment strategy along with market demand. Ideally, you will adjust before the market so that you can stay ahead of the game. I would suggest that all investors slowly add to their rental property portfolio over time as it will create a great, passive income stream. If you want your primary long-term focus to be on the fix and flip market, then there is a way to work rental properties into the ongoing strategy. Everyone is aware of the current rental market and how much rent has increased over the last couple of years. Most likely, rent will start to plateau within the

Natural gas is comfortable, clean burning and affordable. It’s also in high demand, which makes Natural gas is comfortable, clean burning and incorporating natural gas service into your next affordable. It’s also in high demand, which makes project the right move. After all, buildings are Natural gas is comfortable, clean into burning incorporating natural gas service your and next easier to sell and lease when they come with affordable. also in high demand, which makes project theIt’s right move. After all, buildings are the amenities tenants want.clean And burning NW Natural is Natural gas is comfortable, and easier to sell and lease when they come with incorporating natural gas service into your next affordable. also in high demand, which makes the amenities tenants want. And NW Natural is project theIt’s right move. After all, buildings are

incorporating natural gaswhen service into yourwith next easier to sell and lease they come Natural gas is comfortable, clean burning and project the right move. want. After all, buildings are is theaffordable. amenities tenants And NWwhich Natural It’s also in high makes easier to sell and lease whendemand, they come with natural gas service into your next theincorporating amenities tenants want. And NW Natural is project the right move. After all, buildings are easier to sell and lease when they come with the amenities tenants want. And NW Natural is

next year or so, but it’s very unlikely that they’ll decrease. If you have ever wanted to start building a rental portfolio, now is the time to do so. Lending rates are still very low and rents are at an all-time

standing by with the incentives, and the technical and engineering guidance to make standing by with the incentives, and the adding natural gas to your next project more technical and engineering guidance to make affordable. Call 503-220-2433 to connect standing by with the incentives, andmore the adding natural gas to your next project with one of our experts, or find out more technical Call and 503-220-2433 engineering guidance to make affordable. to connect at nwnatural.com/multifamily. standing by with the incentives, and the with one of our experts, or find out more adding natural gas to your next project more technical andCall engineering guidance to make at nwnatural.com/multifamily. affordable. 503-220-2433 to connect

high. This mix will make a lot of properties’ cash flow much better than in typical markets. Within our property management company, we see clients purchasing single family homes and walking into $300 – $500 per month net profits, even after paying our management fee. If you are unfamiliar with rental properties, this is unheard of. Typically, if you breakeven, you are doing well as you end up profitable after the tax write-offs and appreciation of property value. If you don’t like the idea of maintaining a rental portfolio for the long term and want to stick to fix and flip deals, you should consider it as a way to get through the times when the market squeezes the profits out of them. What I mean by this is that you can start holding some of your single family home deals as rentals. If you buy them and fix them up with cash, you should look at refinancing them into traditional financing and get your money back. Next, rent them out for a monthly profit as a holding strategy. The reason I only suggest using single family home rentals for this strategy is for the ease at which you can liquidate them in the future when the fix and flip market comes back. You are able to sell these to anyone, not just investors. If you start taking on this strategy now, you’ll be able to pay higher dollar amounts on the wholesale market than the fix and flip investors you are competing with, almost guaranteeing that you will win at auction when you bid. You also get to profit off the monthly income and then profit again when you sell them in the future due to normal market appreciation. The main takeaway is that as an investor, the best strategy you can have is a fluid one. Don’t get stuck in one form of investing. You should always be a student of the market, willing to adjust your investment strategy based on current and upcoming market changes. There really is a way to make a profit in all market types, it’s just a matter of recognizing the proper opportunity and seizing it when the time is right. Christian Bryant

adding natural gasexperts, to your next project with one of our or find outmore more standing by with the incentives, and the affordable. Call 503-220-2433 to connect at nwnatural.com/multifamily. technical engineering to make with oneand of our experts,guidance or find out more adding natural gas to your next project more at nwnatural.com/multifamily. affordable. Call 503-220-2433 to connect with one of our experts, or find out more at nwnatural.com/multifamily.

President – IRC Enterprises President – Portland Area Rental Owners Association Follow me on LinkedIn h t t p : / / w w w. i rce n te r p r i s e s. co m / s i n gle-post/2016/09/19/Better-Investment---Rentor-Fix-Flip

*Renter preference acquired from a 2014 Market Strategies International discrete choice modeling study. An 80% preference for gas was reported among Portland tenants paying $1,200+ in monthly rent. For more details visit nwnatural.com/multifamily. **Limited incentives available and distributed on a first come, first served basis. *Renter preference acquired from a 2014 Market Strategies International discrete choice modeling study. An 80% preference for gas was reported among Portland tenants paying $1,200+ in monthly rent. For more details visit nwnatural.com/multifamily. **Limited incentives available and distributed on a first come, first served basis. 10695_NWN_MultiFamily-Rental_Housing_Journal-Builder_SNAP.indd 1

*Renter preference acquired from a 2014 Market Strategies International discrete choice modeling study. An 80% preference for gas was reported among Portland tenants 1paying $1,200+ in monthly rent. For more details visit nwnatural.com/multifamily. 10695_NWN_MultiFamily-Rental_Housing_Journal-Builder_SNAP.indd **Limited incentives available and distributed on a first come, first served basis. *Renter preference acquired from a 2014 Market Strategies International discrete choice modeling study. An 80% preference for gas was reported among Portland tenants paying $1,200+ in monthly rent. For more details visit nwnatural.com/multifamily. **Limited incentives available and distributed on a first come, first served basis. *Renter preference acquired from a 2014 Market Strategies International discrete choice modeling study.

10695_NWN_MultiFamily-Rental_Housing_Journal-Builder_SNAP.indd 1 An 80% preference for gas was reported among Portland tenants paying $1,200+ in monthly rent. For more details visit nwnatural.com/multifamily.

3/9/15 12:57 PM 3/9/15 12:57 PM

3/9/15 12:57 PM

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Rental Housing Journal Metro · October 2016

3/9/15 12:57 PM

Rental Housing Journal Metro

Real Estate Investors Continue Flipping Frenzy

lmost 40,000 individual real estate investors and institutions continued flipping homes at a record pace in the second quarter, according to a new report from ATTOM Data Solutions, the parent company of RealtyTrac.com. The report shows 51,434 U.S. single-family home and condo sales were completed flips in the second quarter of 2016, up 14 percent from the previous quarter to the highest number of home flips in the past nine years. Many of the flips were done by "mom and pop" investors. For the report, a home flip is defined as a property that is sold in an armslength sale for the second time within a 12-month period based on publicly recorded sales deed data collected by ATTOM in more than 950 counties accounting for more than 80 percent of the U.S. population (see full methodology below). A total of 39,775 investors (including both individuals and institutions), many of them referred to as "mom and pop investors" completed at least one home flip in Q2 2016, the highest number of home flippers since Q2 2007 - a nine-year high, according to the report. "Home flipping is becoming more accessible for smaller operators thanks to an increasingly competitive lending environment with more loan options for real estate investors, who are also benefiting

from the historically low mortgage interest rates," Daren Blomquist, senior vice president at ATTOM Data Solutions, said in a release. "That favorable lending environment for flippers has helped to fuel the recent flipping frenzy we've seen over the past five quarters.” Homes flipped in Q2 2016 accounted for 5.5 percent of all single family and condo sales during the quarter, down from 6.7 percent of all sales in the first quarter but up from 5.4 percent of all sales in Q2 2015.

Flipping hits milestones "We're starting to see home flipping hit some milestones not seen since prior to the financial crisis, which is somewhat concerning, but there are a couple of important differences in the home flipping of 2016 compared to 2006 when home flipping peaked during the last housing boom," Blomquist said in the release. • "First, home flippers are realizing a much bigger gross ROI in 2016, averaging 49 percent in the first two quarters compared to an average gross ROI of just 27 percent in 2006.” • “Second, while an increasing number of flippers are financing their purchases, more than two-thirds are still using cash to purchase compared to about one-third using cash to purchase back in 2006."

Of the 51,434 homes flipped in the second quarter, 68.3 percent were purchased with cash by the flipper, down from 71.1 percent in the previous quarter and down from 69.6 percent in Q2 2015 to the lowest level since Q3 2008 - a nearly eight-year low. "The single family real estate sector is becoming more institutional, which means that more financing is available and more attractive," Varun V. Pathria, CEO at Asset Avenue, a company that

provides investor rehab, bridge and rental loans, said in the release. "The entrepreneurs are also becoming savvier and as a result are looking to leverage their capital more. There continues to be a fringe group of people who enter and exit the sector based upon opportunity and those people are hard to predict but generally look to take maximum leverage."

continued on page 15

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Rental Housing Journal Metro · October 2016

Rental Housing Journal Metro

8 Ways to Profit ...continued from page 1 1. Strong tenant screening standards Leasing to quality tenants is the best way to maintain a successful investment. Not only should the tenant have a solid business plan that can operate in harmony with the rest of the tenants in the building, they should have some business experience, be well capitalized and have good credit. If they have weak credit it makes sense to require a co-signor or guarantor on the lease. The guarantor should be responsible for paying the rent during the full term of the lease. After the end of the initial term, you may consider letting the co-signor/ guarantor off of the hook if you are confident with the business model and the rents have consistently come in on time. Even if you have the benefit of a very successful business interested in your space, it is equally important to make sure that the lease contains language that discusses what happens if the tenant sells the business or a portion of the business. For example, if the owner of the business sells all or part of the business to a new president, this is a significant change in responsibility and you may want to include language that specifies that any new business owner be a party to the existing lease. 2. Clear definition of space being rented The Building Owners and Managers Association (BOMA) discovered years ago that negotiations are easier when both tenants and landlords use the same measurements to establish what is being rented. Every lease should include a drawing, usually attached as an exhibit. This draw-

3. Clear definition of what the rent includes Landlords often leave money on the table due to sloppy or capitated leases. Leases need to clearly define base rent, rent commencement dates, and who pays for operating expenses. In cases of tenant improvement construction, the lease should address what happens if there is a delay with the construction. Delays are often caused by contractors not showing up, materials not being available and permits not being released by government authorities. In today’s world rent is not just rent for the space being leased, but also includes parking bill backs, signage rental, storage space rental and overage charges for the extra use of utilities after hours (for office buildings). It is important to take all of these things into account. ing typically spells out the total square footage being leased. Unfortunately, not all landlords have accurate space measurements available for every space they own. BOMA has drafted up standards for all building types to use as reference. These standards are generally accepted. You can find them here: http://www. boma.org/standards/Pages/default.aspx. Most importantly, one needs to establish the rentable square footage. The rentable square footage is typically more than the usable square footage. This is because many buildings have common spaces that tenants and their visitors use, such as restrooms, elevators, hallways, janitorial closets, electrical/phone communications rooms, and generator spaces. These areas are loaded into the rentable square footage. This additional percentage is called the load factor. Additionally, leases need

to define the percentage of a building that is used, and if necessary, the percentage of a campus in a multi-building complex. A well-organized landlord will have a current and accurate schedule of rentable and usable square footages and space that is added into the load factor. Ignoring the shared area that the landlord has to maintain is a boon for a tenant and a loss for a landlord. For example, if an 11,000 square foot building has a useable square footage of 10,000 square feet and has a 10 % load factor, that 1,000 square feet needs to be added to the lease for a total rentable square footage of 11,000 to take into account all of the square footage the tenant is using.

4. Clear definition of who covers which expenses Successful leases also include a clear definition of which party pays for what expense. The following is a list of potential expenses to consider: 5. Detail on the penalties for infractions and non-compliance Landlords need to ensure their leases include penalties for late rents as well as penalties for non-compliance with other lease terms. If a tenant stays over the expiration of their lease term, penalties of 150 – 200% of the rent is typically charged. This may sound onerous but landlords need strong tools to help negotiate future rents when leases expire and need to be extended. It is expensive to continued on page 17

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Rental Housing Journal Metro · October 2016

Rental Housing Journal Metro

Company Threatens to Evict Tenants and Bulldoze 300 Rental Homes In A Fight With The City, Property Management Company Threatens To Evict Tenants And Remove Rental Homes

property management company is threatening to evict tenants later this month and then bulldoze more than 300 rental homes in an on-going fight with the City of Dallas, according to a release from the city and various news reports. City of Dallas officials said HMK Limited notified tenants and the city Sept. 20 that they would close 305 of their estimated 430 rental single-family homes by Oct. 31. The Dallas City Council in late September voted to tighten regulations and enforcement on rental properties. “On Sept. 20, 2016, HMK, Ltd. gave its tenants and the City written notice that it was closing 305 of its estimated 430 rental single family dwellings by or before Oct. 31, 2016. HMK is demanding its tenants move within three days after their monthto-month leases end. After the tenants vacate, HMK says it will demolish or no longer use the dwellings for residential purposes. HMK claims “The City of Dallas is forcing us to take this action,” according to the release. The city is not forcing HMK to evict its tenants and demolish or cease using its dwellings, the release stated.

dwellings had it properly maintained them,” the city said in the release

“The City Attorney’s Office filed five lawsuits against HMK concerning five of its residential dwellings on Aug. 1, 2016. These lawsuits sought court orders requiring HMK to comply with minimum housing standards designed to protect the residents’ health and safety. The City’s lawsuits did not seek demolition of the dwellings or orders requiring

the residents to leave,” according to the city’s release. “At a time when the City is facing a crisis with homelessness, HMK’s mass evictions will likely cause many of its tenants to suffer serious hardships because they may not be able to find suitable alternative housing on such short notice. Regardless, HMK would not need to close so many

Largest Junk Landlord WFAA-TV reported on HMK earlier this year and called the company Dallas’ “largest junk landlord.” The station said the property management owners have refused to speak with the television stations. Dallas County tax records show that many are worth between $10,000 and $20,000 and most are categorized by appraisers as "unsound,” "very poor," and “poor,” the television station reported. Many of them are occupied by people disgusted by their surroundings, but too poor to leave, the station said. According to the station, “From the street, most are covered in a coat of bright pastel paint. But a closer look reveals why some current and former tenants call HMK properties “decaying” and “deplorable.” “We had central air and heat and everything, but if it ever went out, they would never repair it,” Herman Hillary, who continued on page 19

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Rental Housing Journal Metro · October 2016

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As Increased Apartment Construction ...continued from page 4

leads. If you close 10%, you just signed another 3 units. In only 2 keyword examples the property leased 7 units at the highest possible rate and MultiFamily Traffic ranks each client property website for 100’s of keywords with a focus on the 15 most searched. Getting ranked on Google is game-changing for San Francisco communities that previously did not appear anywhere on search engines for any of the most searched terms before. This is why many operators in San Francisco are employing SEO and Google AdWords campaigns before anything else; they protect rent margins and 100% occupancy. San Francisco is expecting to add over 9,000 new apartments to its market before the year is up with over 8% of these new units are with Management companies already working with MultiFamily Traf-

fic. To be competitive in the City by the Bay you should have a plan on how to capture the most lucrative of renters before the property even enters lease up. The fastest way to get units leased at a premium rent rate is to put your website in front of the hottest renters as they search Google for luxury (high-rent) apartments in San Francisco. The theory is simple, if you can put your community right in front of the 5% of renters who will pay the highest rent, you don’t have to worry about slowing down your increases to cater to the 95% that won’t pay that price. If you want to lease your units at the highest possible rent, it’s all about presenting to the best target demographic. By developing customized SEO and Google AdWords campaigns the winners in the San Francisco rent war are seeing ROI’s that cover the additional marketing

expense in the rent rate difference of in many cases, only one unit. The US apartment market is extremely competitive and a property’s online presence is more important in San Francisco than possibly any other city in the country, but the news is still good. In every case, in every market SEO can make a good market “great” for the top communities on Google. In many markets, a 1 or 2 percent increase in rents year over year is good, what we are seeing in San Francisco is unheard of, but it’s an asset managers job to maximize the opportunity presently in San Francisco and other Bay Area cities. As far as the developments in Oakland, SEO is no less important. Rents may be lower but so is the cost of land and development so the importance on capturing the highest margin your property can demand is just as important. Another hot market for apartment SEO is Sacramento because of its short supply for units and solid job growth the market, Sacramento has seen an 11 percent increase in rents over the past year. Much like San Francisco, if a Sac-town property wants the highest end of that 11% average they need to find a way to have their property stand alone in Google search results so they are called first by the big money renters. No matter what Bay Area city your assets are in, if you only use ILS services that list your property on an aggregated page next to hundreds of other competing properties, you are essentially placing your property in a “bidding war” on a list of commoditized list and you had better offer the most features to command your

higher rent. But, if you can have renters calling your community before anyone else, you can fill your units and let everyone else slow their rent increases as they fight over the tire kickers. The first step is knowing what the top searched keywords are in your city and where your website ranks for them. Multifamily Traffic has a dedicated research team that performs this as a free service for anyone. You can call that team directly and have your research back free of charge in less than 1 hour in most cases. They are available at 888-683-5885. The next step is looking for a partner that can drive renters to you without asking you to make changes to your website or overcharging you for the work they do. There are many SEO providers that charge thousands per month for a mixed bag of results. You want to work with a firm that understands the industry and can guarantee results for a price you can fit in your budget. Once you get your property to the top of the search results you will hear the results in the form of hundreds of calls to the leasing office. Make sure your staff is ready to follow up quickly. If you wait to set an appointment the renter is likely to go back to square one and look at an ILS placing both you and themselves right back in the “cattle call”. About the author: Matt Easton is EVP of MultiFamily Traffic the leading apartment SEO and digital marketing provider. MultiFamily Traffic works with 500 communities across the U.S resulting in thousands of leases signed every day. Matt can be reached at 303-803-7372 or www.MultiFamilyTraffic.com

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Rental Housing Journal Metro · October 2016

Rental Housing Journal Metro

Flipping Frenzy...continued from page 11 Pathria noted that 79 percent of the rehab loans Asset Avenue has originated so far in 2016 have been purchase loans while the remaining 21 percent have been refinance- typically an investor who purchases with cash at a foreclosure auction or some other auction and subsequently finances the property.

Gross flipping profit increases to new all-time high Homes flipped in the second quarter of 2016 sold on average for $189,000, $62,000 more than the average purchase price of $127,000, according to ATTOM data. That $62,000 average gross profit was up from an average $59,250 gross flipping profit in the previous quarter and up from an average $57,900 gross flipping profit in Q2 2015 to the highest average gross flipping profit since Q1 2000, the earliest quarter tracked in the report. The average loan amount for rehab loans originated by AssetAvenue so far in 2016 was $193,786, according to CEO Pathria. The $62,000 average gross flipping profit represented an average 48.8 percent return on the original purchase price, down from a 49.3 percent average gross flipping ROI in the previous quarter but up from a 47.5 percent average gross flipping ROI in Q2 2015. Average days to flip at 10-year high Homes flipped in the second quarter 2016 took an average of 185 days to flip, up from 180 days from the previous quarter and up from 182 days in Q2 2015 to the highest level since second quarter 2006 - a 10-year high. Among 100 metropolitan statistical areas with at least 90 home flips in the sec-

Preparing Your Furnace ...continued from page 1

ond quarter of 2016, those with the longest average time to flip were: • Ogden-Clearfield, Utah (229 days) • Naples, Florida (222 days) • Punta Gorda, Florida (212 days) • Palm Bay-Melbourne-Titusville, Florida (206 days) • Pensacola, Florida (206 days).

Markets with highest home flipping rate Among 100 metropolitan statistical areas with at least 90 homes flipped in the second quarter of 2016, those with the highest flipping rate were: • Memphis (11.1 percent) • Visalia-Porterville, California (10.1 percent) • Tampa (10.0 percent) • York-Hanover, Pennsylvania (9.7 percent) • Mobile, Alabama (9.6 percent). Other metro areas in the top 10 for the highest flipping rate in Q2 2016 were: • Fresno, California (9.5 percent) • Lakeland-Winter Haven, Florida (9.5 percent) • Deltona-Daytona Beach-Ormond Beach, Florida (9.4 percent) • Clarksville,Tennessee (9.3 percent) Along with Memphis and Tampa, major markets with a population of at least 1 million where the Q2 2v016 flipping rate was above 7 percent were Miami, Orlando, Baltimore, New Orleans, Phoenix, Jacksonville, Florida, Nashville, and Las Vegas.

the overall system and if they’re clogged with dirt, pet hair or debris, the flow of warm air can be hindered, which means that the heating system will work harder to keep areas warm and comfortable. If this happens for extended periods of times, the system could break down. Make sure the furnace filters are checked on a routine basis to ensure they are clean and they are replaced on a regular basis as needed.

Tip #2: Clean the inside of the furnace. The inside of the furnace, often at the base of the heater, is where dust and other debris will start accumulating. You should consistently make sure this area is clean through routine maintenance of your heating system. Once it’s clean, it will function efficiently and will be less prone to breaking down in the future. Tip #3: Keep vents clear of obstruction. Obstructing furnace vents could cause your whole system to not work effectively and could cause it to break down so make sure vents are clear of furniture like couches or bookcases. While you’re looking at the vents, be sure to open them up and clean the insides so they are free of dust or other debris that may cause clogging or potential break down.

Tip #4: Get a professional tune-up. Hiring a professional heating and cooling company to complete an annual maintenance of the heating system is a great investment and one that should be done at the turn of the season. An annual maintenance will ensure the furnace is in proper working conditioning and the HVAC technician can identify potential problems that are unseen that could cause expensive repairs down the road. Rental properties require a little bit of attention to detail during the bitter cold of winter and taking the extra time to do that will keep your tenants comfortable and allows for the heating system to stay in good working order so you don’t have to plan for any unexpected repairs or premature replacement of the system. Written by Brooke Strickland, freelance writer for Specialty Heating & Cooling. Specialty Heating & Cooling is a full service heating and cooling company in Tigard, OR

continued on page 18

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Rental Housing Journal Metro

5 Key Research Findings ...continued from page 8 In fact, quiet emerged as a motif throughout the survey, with tenants indicating they would pay more for it, or that they seek it out in a new place to live.

6 things tenants would pay more for The report says property managers and owners might consider six amenities the report found tenants say they do not have now but would pay more for: • Swimming pool • Fitness center • Designated pet areas • Onsite storage areas • Doorman or security access • Garden or community garden No. 3- Most sought amenities are washer/dryer in unit, internet and central air When it comes to the amenities inside of an apartment, renters leaned toward the all-inclusive the survey shows. The most desired choice was an in-home or in-unit washer/dryer unit, followed by included high-speed internet, central air, and included heat and hot water. These choices did have a bit more variety along generational lines, with the 70+ preferring included utilities as their top 3 (Internet, Cable TV and heat and hot water) while all three younger groups prioritized an in-unit washer/dryer and highspeed Internet. Millennials wanted included heat and hot water, while those from 33 to 69 erred on the side of central air. “If it makes sense to bundle services in with your properties and raise the rent, consider doing so. This is something tenants will expect to pay extra

for, and could be a draw for your listing,” the report suggests.

No. 4 - Tenants seek digital convenience features Another trend which emerged strongly in the report was the desire of tenants to conduct rental-related business online. The report says, “Across the board tenants reported a lower level of access to conveniences than they desire. Offering options such as online listings, electronic leases, electronic payments, and online maintenance requests/tracking—in addition to waiving move in or pet fees and offering flexible leasing options—will likely increase your number of rental applicants.” In particular, “We asked tenants about online portals (property management sites where they can connect, get information, file maintenance tickets and pay rent) and the option to pay rent electronically. In both cases, tenants showed a strong preference—regardless of age cohort—toward using portals and ePay.” More renters want to pay rent electronically. Where 37% of renters indicate they can currently pay online, 59% indicated they like or would like to pay rent via ePay methods. The report said this information on digital convenience is an opportunity for property managers and owners to gain a competitive advantage and differentiate their properties. No. 5 - Loving a rental and loving a property manager go hand in hand “Our data shows there is a direct correlation between liking a property manager and plans to move house in the next

year. Making the extra effort to connect with tenants may significantly reduce repeat vacancies over time, and ensure you are holding on to the tenants you most value,” the report says. Feelings about property managers tended to be significantly more negative overall than feelings about landlords and this “may present a real business opportunity for property management,” the report said. The reason tenants may like landlords more, the study found, is that tenants of single-family homes may have been more likely to have found their rental through a word of mouth referral. Thus there was a potentially higher number of landlords with a personal relationship to their tenants.

Find the full report here- www.buildiumcom/wp-content/uploads/2016/08/RentersSurvey-1.pdf Methodology: The 2016 American Renters Survey was conducted by Buildium from June 6-17, 2016. The survey responses were a random sample commissioned from Market Tools. The survey had an incidence rate of 97%, with a 95% level of confidence and a margin of error of +/- 3.3%. About Buildium: Buildium is a property management solution that helps real estate professionals win new business from property owners and community associations seeking services.

Summary Buildium writes, “The 2016 American Renters Report gives us a lot of insight into what is going on in the minds of tenants in the U.S, but certainly one clear pattern emerged from these findings. Tenants—and in particular millennials— have growing expectations regarding the availability of online tenant services. This extends from initially finding a property to the leasing process and to ongoing payments, requests and communications. “Overall, it seems to be worth the effort for property managers to build relationships with tenants, as that will potentially extend the vacancy cycle over time. Moreover, property managers and landlords should look carefully at what community and home amenities renters value most in order to prioritize property upgrades or to emphasize particularly appealing features in marketing vacant listings.”

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Rental Housing Journal Metro · October 2016

Rental Housing Journal Metro

Fix and Flip or Rent ...continued from page 3

8 Ways to Profit ...continued from page 12 move tenants in and out. Such expenses include brokerage commissions, tenant improvements and attorney fees. The time lost without revenue compounds the costs to building owners. Holdover penalties are preferable to default clauses. Default clauses in the end will force a tenant out of a building, while holdover costs are more likely to be used to negotiate a ‘peaceful’ settlement and a lease renewal.

markets. Within our property management company, we see clients purchasing single family homes and walking into $300 – $500 per month net profits, even after paying our management fee. If you are unfamiliar with rental properties, this is unheard of. Typically, if you breakeven, you are doing well as you end up profitable after the tax write-offs and appreciation of property value. If you don’t like the idea of maintaining a rental portfolio for the long term and want to stick to fix and flip deals, you should consider it as a way to get through the times when the market squeezes the profits out of them. What I mean by this is that you can start holding some of your single family home deals as rentals. If you buy them and fix them up with cash, you should look at refinancing them into traditional financing and get your money back. Next, rent them out for a monthly profit as a holding strategy. The reason I only suggest using single family home rentals for this strategy is for the ease at which you can liquidate them in the future when the fix and flip market comes back. You are able to sell these to anyone, not just investors.

If you start taking on this strategy now, you’ll be able to pay higher dollar amounts on the wholesale market than the fix and flip investors you are competing with, almost guaranteeing that you will win at auction when you bid. You also get to profit off the monthly income and then profit again when you sell them in the future due to normal market appreciation. The main takeaway is that as an investor, the best strategy you can have is a fluid one. Don’t get stuck in one form of investing. You should always be a student of the market, willing to adjust your investment strategy based on current and upcoming market changes. There really is a way to make a profit in all market types, it’s just a matter of recognizing the proper opportunity and seizing it when the time is right. Christian Bryant President – IRC Enterprises President – Portland Area Rental Owners Association

6. Don’t forget rent increases Once the owner and the tenant have agreed on a lease it makes sense to plan for the future. Costs of operating properties increase every year and landlords will want to recapture these operating increases. It is not unusual for a Landlord to bill the tenant for additional costs outside of the base rent. Annual tax and insurance increases (over base year,) as well as increases in the cost of building operations should be passed through as well. Often a landlord will also have negotiated an increase in the base rent either as an annual increase, or through the use of another mechanism, such as operating cost increase adjustments, CPI increases or through the use of a percentage rent clause. Additionally, if the tenant is happy and pays on time, the landlord will want to keep them at the property for longer than the initial term of the lease and will want to pre-negotiate a renewal into their lease. This is extremely beneficial to a landlord. 7. Optimize the lease terms As a landlord tries to estimate their opportunity cost for each tenant they need to calculate the cost of free rent, tenant

improvements, leasing fees, vacancy, early out clauses, go dark clauses, and cancellation clauses tied to the success of other tenants. Landlords must carefully decide how to balance their needs against the tenant’s needs. This has a lot to do with the rental cycles. Whether signing during a landlord’s market or a tenant’s market, landlords need to optimize their lease to their benefit while still keeping or obtaining the tenant.

8. Keep the property attractive to tenants Even the most well written lease will fail to obtain or retain a tenant if the landlord is not committed to the physical condition of their building. A landlord must continually improve the building to attract or satisfy quality tenants. Not updating or upgrading a building or its systems (on the inside and the outside,) is a prescription for lower rent and an excuse for a tenant to move out. Taking tenants for granted is a dangerous business. Even with high moving costs, tenants will move if the landlord does not take care of their space. A thorough lease should protect the business interests of both parties; it should clarify expectations and protect the integrity of the property. It should also allow for all contingencies to give both parties confidence in the success of the relationship. Landlords looking to maximize the income of a building must pay attention to the lease clause details and their obligation to take care of their tenants. That is the only way to ensure that the building continues to grow wealth.

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Rental Housing Journal Metro · October 2016

Rental Housing Journal Metro

Flipping Frenzy ...continued from page 15 Markets with highest gross flipping profits Among the 100 metropolitan statistical areas with at least 90 home flips in Q2 2016, those with the highest gross ROI for homes flipped in Q2 2016 were: • Pittsburgh (133.3 percent) • Allentown, Pennsylvania (117.9 percent) • New Orleans (111.5 percent) • Cleveland (102.6 percent) • Philadelphia (98.9 percent). There were nine metro areas where the average gross flipping profit in Q2 2016 was more than $100,000: • San Jose, California ($161,000) • San Francisco ($146,000) • Los Angeles ($125,000) • New York ($124,160) • San Diego ($111,250) • Oxnard-Thousand Oaks-Ventura, California ($110,000) • Baltimore ($105,000) • Washington, D.C. ($104,500) • Seattle ($102,900). "While the number of home flips is up moderately on an annual basis, this segment of the market is still a relatively small share of the overall market in the Seattle area," Matthew Gardner, chief economist at Windermere Real Estate in Seattle said in the release. "As we head into 2017, I believe Seattle may see a slowdown in flips due to our very limited supply of homes and the high prices buyers are willing to pay, regardless of the quality of the home. Moreover, while I expect inventory levels to increase in the coming year, I believe that will actually serve to slow overall price growth and take some of the steam out of the flipping market."

Other high-level takeaways • Thirty-five percent of all homes flipped in Q2 2016 were sold by the flipper for between $100,000 and $200,000, the biggest share of any price range, but the biggest year-over-year increase in terms of price range was homes flipped in the $200,000 to $300,000 range - up 10 percent from a year ago.

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• Homes flipped for more than $5 million yielded the highest average gross ROI (73 percent), followed by the $50,000 to $100,000 price range (58 percent) and the $100,000 to $200,000 price range (58 percent). • Homes that were flipped in Q2 2016 were purchased by the flipper at a 25.7 percent discount below full "after repair" market value on average and sold by the flipper for a 9.2 percent premium above market value on average.

Report methodology ATTOM Data Solutions analyzed sales deed data and automated valuation data for this report. A single family home or condo flip was any transaction that occurred in the quarter where a previous sale on the same property had occurred within the last 12 months. Average gross profit was calculated by subtracting the average price for the first sale (purchase) from the average price of the second sale (flip). Average gross return on investment was calculated by dividing the average gross profit by the first sale (purchase) price.

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Rental Housing Journal Metro · October 2016

Rental Housing Journal Metro

Company Threatens to Evict ...continued from page 13

lived in an HMK home for four years, told WFAA. “They'd just send you a notice that they weren't going to repair it.” But the HMK lease states tenants must “provide their own air conditioning and heat.” Attorney Michael Hindman, who represents some tenants, told WFAA the lease also forces tenants have to make most of their own repairs, which violates the Texas Property Code. Dallas Mayor Mike Rawlings last year introduced something called the High Impact Landlord Initiative which looked at companies and individuals that owned more than 40 single-family rental properties around the city, according to pressreader. Resources:

Landlord threatens to bulldoze properties http://www.wfaa.com/news/local/dallas-county/ junk-landlord-investigated-by-news-8-evictinghundreds-of-tenants/329044843 Couple claims Dallas landlord violates their rights http://dfw.cbslocal.com/2016/09/13/in-lawsuitw-dallas-couple-claims-landlord-violates-theirrights/ Dallas company to close more than 300 homes http://www.nbcdfw.com/news/local/DallasProperty-Management-Company-to-CloseMore-Than-300-Homes-395952791.html City’s largest junk landlord escapes scrutiny h t t p : // w w w .w f a a . c o m / n e w s /c i t y - l a r g est-junk-landlord-escapes-scrutiny/61912490 Most prolific slumlords to evict hundreds http://www.pressreader.com/usa/the-dallasmorning-news/20161005/281487865851516

Statement regarding HMK’s decision to close more than 300 dwellings https://dallascityhall.com/government/Council%20Meeting %20Doc ument s/ hou _ 3_ city-of-dallas-housing-policies_memo_082916. pdf

Rental Housing Journal Metro · October 2016

Dear Maintenance Men ...continued from page 9

Dear Maintenance Men: It won’t be long before we need to change our clocks for winter. I’m a bit concerned about the lights at my apartment building. I have various fixtures, sensors and timers, not one of which turns on the lights at the same time. Some don’t turn off or on at all. Any suggestions?

Brian Dear Brian: There are two ways to effectively control exterior lighting: 1: A timer clock. 2: A photocell for detecting light and dark Both time clocks and photocells have been around forever. We prefer to activate landscape lighting with a photocell as it is virtually maintenance free. A photocell will ensure the property has light only when it is needed and turn off automatically with the approach of daylight. Be sure the photocell located where it can “see” ambient light and not near an artificial light source. A time clock needs constant attention in order to keep up with

the changing seasons and adjustments for longer or shorter nights. There is nothing more frustrating than seeing the property all lit up at 5pm and it only gets dark at 7pm or even worse; the lights turn on at 7pm and it has been dark since 5pm. Remember: the safety of your residents is at its greatest risk when it is dark and the lights are out. 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 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

Rental Housing Journal Metro

Rental Housing Journal Metro Âˇ October 2016