Rental Housing Journal On-Site
June 2015 - Vol. 9 Issue 06
3. Real Estate: What’s In It For Me?
11. WMFHA: The Good, The Bad, and The Ugly
4. Behind the Leasing Desk
12. WROA: Culminated In a Success
5. Seattle Rent Trend
13. Ask the Secret Shopper
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Can You Handle the Truth About Apartment Rents?
Market Overview :
Multifamily Housing Update Red Capital Group Seattle 1Q15
he average apartment rent in Seattle rose 8.3% in the past year. That’s a lot. No doubt about it. It beats inflation. It beats wage growth. So some in the media and special interest groups take to calling this a problem of skyrocketing rents, a crisis, an emergency. Is it really? Let’s take a look. First, let me say this about that. That type of hyperbole is misleading at best. And it is dishonest at worst. Next, that 8.3% rent increase compares rents last year with rents this year. That’s fine, except for one thing. Developers opened a lot of new apartments in the past year. And new units have more features and continued on page 16
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1Q15 Payroll Trends And Forecast Jet City employers continued to add workers to payrolls at a blistering pace, increasing metro headcounts at a 51,000-job, 3.4% year-onyear rate, up from 4Q14’s 48,500-job performance.. Faster hiring in the construction and business services sectors was largely responsible, fueled by a surge in multifamily housing development and rapid staff expansion among technology serviccontinued on page 6
T
Apartment Rent Trends In Seattle
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moke-free housing policies are on the rise in Washington. As a property owner or manager, you already have policies that protect your investments, like screening tenants and setting rules to create a safe and enjoyable community. If you haven’t implemented a nosmoking rule yet, chances are you know landlords who have. These rules prohibit smoking inside resident units and on patios and balconies, in common areas and within a certain distance of buildings. Smoke-
free policies save money by lowering operating costs and insurance premiums, increase your property’s market value and protect your residents’ health. If you’re thinking about implementing a new no-smoking rule, there are resources that can help. See the end of this article for more information. But what about marijuana? Like tobacco, a no-smoking policy doesn’t mean that you can’t rent to people who smoke marijuana. It is perfectly
within your right as a landlord to have a no-smoking rule for your building. And it’s already against the law for people to smoke in public areas like stairwells, common courtyards and laundry rooms. You have options. Landlords can set reasonable rules to protect their investments and tenants’ health. Smoke can’t be contained to a single unit and can cause serious health problems. It can also cause fires and damage to units. Restricting smokcontinued on page 10
Advertise in Rental Housing Journal On-Sight Circulated to over 20,000 Apartment owners, On-site, and maintenance personnel monthly. Call 503-221-1260 to place and ad. www.re nt a l h o u s i n g j o u r n a l .co m
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Rental Housing Journal On-Site • June 2015
RENTAL HOUSING JOURNAL ON-SITE
M
Real Estate: What’s In It For Me?
any people are interested in real estate, but don’t really know much about it. They know that it seems that a lot of people have made a lot of money in real estate (or achieved other goals using it), and they wonder if maybe there could be something in it for them, too. National REIA wants to help you understand a little more about the real estate business and real estate investing. We’ve developed this report so you can get an overview of multiple investing strategies and determine whether any of these areas of real estate business or investing sound interesting to you. All of the strategies in real estate we cover in this report are actually used by REIA members. When you join us at a monthly meeting you can talk to us and learn even more. Here are some areas of real estate discussed in this report: • Landlording • Wholesaling • Rehabbing/Retailing (Flipping) • Discounted mortgages and notes • Private money and hard money lending There are many more things you can do in real estate, including being a real estate agent or broker, an
appraiser, or a home inspector, and buying/selling on creative terms. Although these are beyond the scope of this report, we at REIA would be happy to discuss these with you as well.
Real Estate Business vs. Real Estate Investment Is real estate a business, an investment, or both? The correct answer is “Yes.” The “business” of real estate is generally referring to an ongoing, hands-on strategy. This is usually done using techniques like wholesaling, retailing, and flipping (buying/rehabbing/selling) property. It can be a great way to make a living, but if you stop working at your real estate business, the income will stop too. When we talk about “investing” in real estate, we typically mean buying and holding real estate long-term, which generally means you are acting as a landlord, or landlording. When investing in real estate, we talk about tax advantages, return on investment (ROI), and appreciation. Many people operate a real estate business and invest in buy-and-hold properties at the same time, but it is helpful to keep the two concepts separate in your mind. In any case,
you can participate in real estate fullor part-time.
Goals: What are your goals? You need to think about this and come up with your own answer before you actually proceed to involve yourself in real estate as a business or investment. Below are some common goals that you may want to achieve through real estate: • Higher income • Tax benefits
• Self-employment • Personal fulfillment • Passive income • Increased wealth • Supplemental current income At this point we’ll begin an overview of different types of real estate businesses and investing. National REIA has experts who are involved in these various areas of real estate, and they would really like to continued on page 19
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RENTAL HOUSING JOURNAL ON-SITE
Behind the Leasing Desk with Heather Blume
Dear Heather, I have worked for the same property management company for several years and have worked my way into a good salary, benefits, and a Manager in Training role. With this role comes great responsibility, including taking on the challenge of supervising employees. The downside to this role is that I don't really have the autonomy to really fix some issues that drive me crazy within my office and for the most part, my hands are tied when it comes to disciplinary action issues because that is my manager's responsibility. You see, I have a coworker that has a variety of health issues and it is known within the office and management, so therefore, we have to accommodate. I have no problem with this for the most part. My issue is that she calls out a lot. When I say a lot, I mean it is to the point of being predictable. Even my maintenance staff make jokes about her calling out so much. For instance, I will get a text that tell me how she's not feeling well and how it's ruining her weekend. First off, this is rather annoying because I frankly don't care what she is doing on her days off. Secondly, this irritates me even more because in my eyes this is a set up for the inevitable call out for her return to work from her weekend break. Not only that but she won't hesitate to share with you
that she suffers from several ailments at the same time and all of the details of them ...I am not trying to belittle her health conditions but I honestly have never met anyone with more issues that prevents them from working in my life! I have brought these frustrations to my manager's attention many times. The response I get is very HR (which I understand) and it's typically something like "you have to accommodate by giving breaks during the day or allowing her to go home early or come in late". Seriously?! Can't I just get a Leasing Agent that shows up and isn't a Web MD nightmare? Although her call outs have been less frequent than before, it's still predictable and if she does show up, she is so loopy from her medications it makes it difficult to work with her. My manager has told me to send her home if she comes to work loopy but frankly, I need her in the office and can't afford to be alone in the office any more than I already am. How do I balance my feelings of frustration and disbelief in her legit "sick days" and still be in compliance with the law and not on the wrong side of an lawsuit? Some days I believe she is ill and other days I think she just didn't want to get up out of bed and come to work. She has even mentioned that she knows my manager can't fire her because she could
sue based on her medical issues. I know we all have a right to call out sick but I just feel like it's predictable and abusing that very policy that is meant for those that do have medical issues that truly inhibit them from working normal shifts or performing daily tasks. How do I overcome these feelings of not believing her, not feeling confident in her attendance, not feeling confident that her ailments are severe enough to prevent her from working or performing her duties, and yet knowing that I have to accommodate her call outs and deal with it? Please Help! Sick and Tired of those who are ALWAYS Sick and Tired Dear Sick and Tired of those who are ALWAYS Sick and Tired, Wow! This is a really horrible situation and I can imagine that you must be thoroughly frustrated, even more than your letter sounds. It's always difficult to work in an environment where you feel there is someone who is shirking their responsibilities, and working in a property management office with that sort of a person is extra hard because our days move so fast that once you get behind, you never feel like you can catch up.
First, while I very much sympathize with your situation, I have to concur with the "very HR" response that you've gotten so far. Employers MUST make accommodations to sick employees under federal law, but more than that, this particular employee has already placed a notso-veiled threat against them. Whenever you have an employee who KNOWS and has the audacity to say that they know they can sue their employer upon termination, it's a very sticky situation. On one hand, if any other employee pulled this behavior, you'd do the write ups and terminate them. On the other hand, it's going to cost you much more in the legal and public relations arena to get rid of this person than to let them half ass their job. From a company view point, you're picking up the slack, so they aren't out anything and they don't have to deal with the problem. Second, you have to make sure that even through your dissatisfaction with this employee that you are not making the work environment hostile so she will leave. She can sue the company for that as well, and a lot of those kinds of suits are being won currently, plus with the health continued on page 18
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Rental Housing Journal On-Site • June 2015
RENTAL HOUSING JOURNAL ON-SITE
Seattle Rent Trend CITY OF SEATTLE ONLY 20+ unit market rate apartments built before 2000 (to eliminate distortion created by the addition of new units) Survey
ALL
Studio
1 BR
2BR/1BA
2BR/2BA
3BR/2BA
Spring 2000
792
608
751
882
1101
1264
Fall 2000
812
633
770
911
1136
1283
Spring 2001
828
646
781
938
1140
1240
4.5%
Fall 2001
852
668
801
957
1175
1332
4.9%
Spring 2002
848
676
803
943
1158
1337
2.4%
Fall 2002
839
660
795
943
1126
1333
-1.5%
Spring 2003
833
659
792
934
1139
1360
-1.8%
Fall 2003
831
667
784
929
1136
1362
-1.0%
Spring 2004
817
660
774
911
1114
1439
-1.9%
Fall 2004
814
650
765
916
1125
1390
-2.0%
Spring 2005
824
657
781
918
1108
1401
0.9%
Fall 2005
828
657
789
946
1113
1456
1.7%
Spring 2006
852
671
808
952
1166
1490
3.4%
Fall 2006
883
697
834
986
1220
1368
6.6%
Spring 2007
915
721
867
992
1270
1426
7.4%
Fall 2007
969
768
923
1055
1344
1544
9.7%
Spring 2008
989
785
938
1076
1366
1545
8.1%
Fall 2008
1019
805
968
1096
1409
1642
5.2%
Spring 2009
1014
794
966
1117
1406
1655
2.5%
Fall 2009
972
764
922
1084
1326
1646
-4.6%
Spring 2010
955
753
908
1057
1320
1624
-5.8%
Fall 2010
963
759
917
1072
1330
1570
-0.9%
Spring 2011
969
758
924
1078
1344
1631
1.5%
Fall 2011
1008
798
956
1116
1405
1685
4.7%
Spring 2012
1022
815
974
1132
1410
1737
5.5%
Fall 2012
1073
861
1017
1193
1487
1753
6.4%
Spring 2013
1087
860
1036
1215
1508
1762
6.4%
Fall 2013
1141
929
1087
1275
1602
1885
6.3%
Spring 2014
1178
956
1123
1313
1634
1851
8.4%
Fall 2014
1239
1010
1178
1385
1710
1959
8.6%
Spring 2015
1266
1024
1205
1413
1718
1982
7.5%
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Market Overview ...continued from page 1 es firms. By the same token, further softness was evident in the cornerstone software and aerospace sectors, where attrition at a 2,500-job, -1.8% annual rate was recorded: the; fourth consecutive quarter of yearon-year declines in these industries. Seasonally-adjusted payroll data suggest that the Puget Sound economic juggernaut was stronger still. This series indicates that metro establishments added 16,200 workers January-to-March, the ;fourth largest one-quarter jobs tally posted since 2000. RED Research specified a 95.2% adjusted R2 payroll forecasting model for Seattle employing U.S. payroll growth, S&P500 returns and
the shape of the Treasury yield curve as independent variables. This model projects moderating headcount growth going forward, primarily due to expected lower equity returns and gradually declining U.S. payroll job growth. Nevertheless, the model anticipates Seattle employers to bring on workers to payrolls at roughly twice the national average rate throughout the forecast period, netting gains of about 47,400 jobs this year, before decelerating to the mid-20,000 range in 2018 and 2019.
PAYROLL JOB SUMMARY Total Payrolls 1,571.5m Annual Change 51.0m (3.4%) 2015 Forecast 47.4m (3.1%) 2016 Forecast 39.8m (2.5%) 2017 Forecast 31.8m (1.9%) 2018 Forecast 25.3m (1.5%) Unemployment 4.2% (Mar.) (NSA) 1Q15 ABSORPTION AND OCCUPANCY RATE TRENDS Tenant demand was in line with levels observed during 2H14 as renters absorbed a net of 1,197 vacant units, according to Reis, compared to an average of 1,068 during the prior two quarters. Leasing was down sharply from the comparable periods of 2014 and 2013, however, when Seattle households occupied an average of 2,085 units. Supply was comprehensively lower though (developers completed only 480 units during 1Q15), allowing occupancy to rise 30 basis points sequentially to 95.7% nevertheless. Axiometrics surveys of larger, stabilized properties found average metro occupancy of 95.6%, up 30 bps sequentially and 10 bps y-oy. Class-A properties recorded the highest mean (95.9%), followed closely by class-B (95.7%) and class-C (95.2%) assets. New properties continued to leaseup quickly as properties delivered in
2014 and 2015 absorbed an average of 16 units per month. Downtown/ QA absorption averaged 12 units per month, leaving only a handful of new buildings below stabilized occupancy levels. RCR’s absorption model relies on two lags of the dependent variable, inventory growth, S&P500 returns and lags of rent and vacancy to achieve a 92.9% ARS. The model produces an optimistic outlook projecting that demand will nearly keep pace with supply over the forecast period, keeping average occupancy above 94.5% for the duration, despite heavy supply pressures through 2018. OCCUPANCY RATE SUMMARY Occupancy Rate (Reis) 95.7% RED 50 Rank 26th Annual Chg. (Reis) -0.3.% RCR YE15 Forecast 94.9% RCR YE16 Forecast 94.9% RCR YE17 Forecast 95.0% RCR YE18 Forecast 94.8% 1Q15 EFFECTIVE RENT TRENDS Rent growth moderated slightly during the first quarter, slowing to a brisk 5.6% annual clip following seven consecutive quarters of 6% growth or faster. Seattle ranked 5th continued on page 7
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Rental Housing Journal On-Site • June 2015
RENTAL HOUSING JOURNAL ON-SITE
Market Overview ...continued from page 6 among the RED 50 markets nonetheless, holding its position from the prior quarter behind only the three Bay Area metros and Denver. Sequential rent growth was strongest in the submarkets enjoying the most intense development, especially Downtown (2.7%) No. Seattle (2.4%) and Beacon Hill (1.8%), but increasingly also in suburban locations, including Des Moines/Kent (2.6%), Kirkland/Juanita (2.0%) and Bothell (2.1%). Axiometrics surveys recorded faster effective rent growth, reporting year-on-year gains averaging 6.6%. Class-B properties enjoyed the greatest success, pushing rents an average of 7.1%. Class-C trends cooled off considerably, slipping from 7.8% during 4Q14 to 6.0%, while class-A assets rebounded from 4Q14’s sluggish 4.0% advance to 5.4% during 1Q15. Rents at properties in lease-up were not so robust, slipping –0.2% sequentially on average from 4Q14. RCR’s rent model employs three lags of the dependent variable, payroll job growth and lags of vacancy, home prices and personal income to achieve a 95.7% ARS. The model produces a very favorable rent forecast, projecting annual gains in the mid– to high-4% range for the duration of the five-year forecast period, benefiting from strong job growth, occu-
Rental Housing Journal On-Site • June 2015
EFFECTIVE RENT SUMMARY Mean Rent (Reis) $1,222 Annual Change 5.6% RED 50 Rent Change Rank 5th RCR YE15 Forecast 4.9% RCR YE16 Forecast 4.6% RCR YE17 Forecast 4.7% RCR YE18 Forecast 4.7% pancy and home appreciation rates. 1Q15 PROPERTY MARKETS AND TOTAL RETURNS Investor interest in King and Snohomish County apartment assets didn’t diminish during the first quarter as buyers closed 14 property transactions valued at $5 million or more for $665.9 million. These data compare to 13 trades valued at $449.5mm and 17 transactions valued at $655.1mm consummated during the year-earlier and prior quarters, respectively. Traded assets were concentrated on high-cost Downtown Seattle, and Redmond addresses, producing a sharp rise in average unit prices. The price of units acquired during 1Q15 averaged $286,055, up 21.4% sequentially from $235,636 and 82.1% from 1Q14’s $157,083 metric. Five properties exchanged hands at prices exceeding $300,000 per unit, including a 2009-construction LEED certified South Lake Union asset that
traded at a price equating to more than $620,000/unit. Cap rates applicable to top properties were mostly in the low– to mid-four percent area, although several were generously estimated to generate 5% going-inyields. Reflecting the low cap rates observed during the first quarter, RCR elected to trim 20 basis points from the generic B+ cap rate assumption to 4.9%. Employing model derived performance forecasts and a terminal cap rate assumption of 5.4%, we estimate that an investor in a Seattle property may expect to achieve an 8.5% unlevered total return over five years, fourth among
the RED 46 markets, up from 6th rank during the prior quarter. Riskadjusted returns also are above par, ranking 16th among the peers. TRADE & RETURN SUMMARY $5mm+ Sales 14 Approx. Proceeds $665.9mm Avg. Cap Rate (FNM) 5.2% Avg. Price/Unit $286,055 Expected Total Return 8.5% RED 46 ETR Rank 4th RED 46 RAI Rank 16th continued on page 8
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RENTAL HOUSING JOURNAL ON-SITE
Market Overview ...continued from page 7
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RENTAL HOUSING JOURNAL ON-SITE
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Marijuana/Tobacco Housing ...continued from page 1 ing is a common-sense solution that protects both the health or your residents and your bottom line. With a no-smoking rule, you can save up to $3,000 per unit on cleaning and refurbishing costs. And your insurance company might offer a reduction in your insurance premiums. There are over 7,000 chemicals in secondhand smoke and even brief exposure can be harmful to health. Even though many homes are already smoke-free, the number one source of secondhand smoke exposure for children is in the home – some of this is due to indoor smoking by neighbors.
The American Society of Heating, reduce turnover costs for your units. Refrigerating, and Air Conditioning Non-smokers with serious breathing Engineers state that no known venti- disabilities or smoke allergies have lation technology legal protection is capable of under federal keeping out secand state laws, ondhand smoke, including the If you have legal questions, so purchasing Americans with we recommend that you fans or a fancy Disabilities Act consult an attorney. system won’t to and the Fair do much good. A Housing Act. smoke-free buildSecondhand ing is the best smoke can intersolution for the health and safety fere with some disabled tenants' abilproblems caused by lit and smoked ity to have equal access to, and enjoytobacco and marijuana. ment of, their housing. Smoke-free policies can protect What to do. If you don’t yet have you from certain liabilities and a smoke-free policy, now is a great time to implement one! We recommend that any new lease agreement includes comprehensive language; here’s one example from a housing provider in King County: “The term ‘smoking’ refers to igniting, inhaling, breathing, exhaling or carrying of any lighted cigarette, cigar, pipe, tobacco, marijuana or herbal product, or any product intended to be ignited and inhaled in any manner or form.” There are many resources for you! If you’re thinking of going smokef re e , visit w w w. SmokeFreeWashington.com. It includes an interactive guide for property managers, owners, tenants and condo owners, and free printable no-smoking signs.
If you have properties in King or Pierce County, you may be eligible for assistance. In King County, email tobacco.prevention@kingcounty.gov. In Pierce County, email ghermosillo@tpchd.org. The Washington Multi-Family Housing Association is available to assist any property in the state with developing smoke-free policies. Contact them at 425-656-9077 for more information. With a few simple steps, landlords and owners have a unique ability to help create happier and healthier apartment communities — all while improving their bottom lines. For more information about marijuana laws in Washington, visit www.liq.wa.gov/marijuana/I-502 and www.doh.wa.gov/ YouandYourFamily/Marijuana/ MedicalMarijuana For more information about the marijuana and health, visit http://www. kingcounty.gov/healthservices/health/ marijuana.aspx. Lindsey Greto, MPA Lindsey.greto@kingcounty.gov
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Rental Housing Journal On-Site • June 2015
RENTAL HOUSING JOURNAL ON-SITE 18300 Cascade Ave. S., Suite 130 Tukwila, WA 98188 425 656-9077 • 425 656 9087 (fax) admin@wmfha.org
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• Executive Director – Jim Wiard • President – Kris Buker – Vice President – Brett Stevens • Secretary – Heidi Daniel • Treasurer – Becky Sanders • Vice President of Suppliers Council – Rob Pendleton • Immediate Past President – Gail Duke
he overall housing market, locally in Washington state and nationally, continues its strong run after weathering the storm during the downturn market of the Great Recession years. As bleak as those years were for apartment managers, owners and developers, the market is making up lost ground rapidly, assisted by improved job growth, robust inmigration, a movement from home ownership to renting by choice, and demographic forces of Millenials and Baby Boomers entering the rental market at a rapid pace. New construction in the Puget Sound region is at historical levels, yet occupancies remain strong and rent growth remains higher than long term historical averages. Although many would have predicted a softening of the market due to high new construction, the trend for 2015 remains very positive. It would be predicted that 2016 and 2017 will see lower rent growth, higher vacancies and a return of concessions, as a result of all the new development in the pipeline.
The Good, The Bad, and The Ugly According to the Spring Report from Dupre+Scott, the market vacancy rate, excluding new properties in lease up, in the Puget Sound region was 3.5%, down from 3.8% last fall. Those numbers continue to surprise, considering 9,000 new units came online in the past 12 months. Absorption numbers have been remarkably good. Credit a desirable job and living environment, attracting new workers and renters to our region. Conway Pederson Economics reports our region added 56,000 new jobs in the past year, with 51,000 new jobs forecasted for the coming year. These are very good times for our state. Rent growth continues at a higher level than historical averages. We all know that real estate is a cyclical business, with highs and lows, ups and downs, a roller coaster ride that climbs or falls with the economy and dynamics of supply and demand. We are on one awesome roller coaster ride currently, and the industry is grateful for the opportunity.
Developers are likely to open 12,000 new rental units this year, with another 11,000 units predicted to come on line in 2016. When will the current cycle end? No one knows, but it is inevitable that the curve will begin to trend downward once this perfect storm subsides. Contrary to arguments that some are making, all this new development is healthy for our rental market. Rents rise when demand outpaces supply. Adding new supply makes for more options for renters, more competition among apartment owners, and allows the market to keep pace with the influx of new renter households. Policies and programs to encourage more housing, especially affordable housing and housing coinciding with transportation improvements, are needed for the long term health of our region. Building more units provides an economic boost to our area, creates jobs and spending, fills our tax rolls, and will eventually bring year over year rent growth to more average levels. Unfortunately, the develop-
ment of affordable housing units is falling far behind the needs of our state, and more efforts to create financial resources and incentives to build affordable housing are needed. The answer is not, however, to punish landlords and developers with increased taxes and fees, or measures intended to constrict supply or the ability of a property owner to control their own business. The premise of addressing housing affordability by increased government controls and impositions will ironically result in less affordability, hurting renters. Locally, there are some bad government imposed laws being discussed and considered, that would impede the industry’s ability to meet the needs of consumers. These require more evaluation which should involve key stakeholders from the housing industry, and should not be proposed merely for short-term political purposes. We all want a vibrant economy and good quality of life. This requires thoughtful planning for the long continued on page 15
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Culminated In a Success
he 2015 session was a busy one for Washington Rental Owners Association (WROA) and our coalition partners of The Rental Housing Coalition and it has culminated in a success. On 14 May 2015 the Governor signed into law one of the five bills drafted and offered by WROA. The only landlord tenant related bill to pass this year, it finally provides a legal process for a landlord to deal with the personal property of tenant that passes away when no one steps up and opens a probate or obtains a
small estate affidavit on the tenants behalf. I want to thank our landlord coalition partners, RHA & WMFHA for their support and hard work with us. The final version ended up with additional notice requirements that we had not wanted but it’s a genuine solution to a problem that was fraught with landlord liability before. Contrary to the one dissenting opinion of a landlord group not affiliated with our coalition, faking an abandonment has never been a safe and satisfactory solution for protecting a
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landlord and now there is no need evict the decedent or fake an abandonment and cross your fingers and hope no one sues. Even the tenant advocates got on board this one and the final version of the bill passed unanimously in both House and Senate. WROA will now be creating forms for members to use and developing a class on best practices for our members and may further work with our coalition partners in doing so. I recommend caution when you are deciding on who you use to teach you how to properly implement this new law to protect you. Any of our coalition landlord groups would be an ideal source for the nuts and bolts of how to utilize this new tool. That being said, WROA will be bringing the other bills back again, but next session is shaping up to be one of defense. The rent control fight is coming. It is coming and it will most certainly effect you all and not for the better. The proponents of rent control ignore the economic realities of its negative impact even in the face of cities and states that have tried it who are not running away from it because of its devastating impact. Now is the time to get into this fight. If you are not a member of WROA or one of the other two groups in the Rental Housing
Coalition you certainly need to be. Your membership is the cornerstone of our ability to fight these fights for you. Joining the wrong group or not joining any group at all weakens the position of every landlord in this state. Our opponents are not weak. They are not just tenant advocates with government grant money to earn and burn but also cities with resources. The movement is spreading beyond Seattle as we speak. We need you all on board and on board the right ship. I want to personally urge you to take advantage of all the support WROA provides by joining now and in doing so strengthen our hand in fighting rent control and all those bad ideas that would harm us as landlords and members of this community. Rob Trickler President WROA Attorney & Councilor at law Waapt.org
CONTACT US For information about free signs and technical assistance for King County properties: lindsey.greto@kingcounty.gov 206-263-7886
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Over 90% of renters prefer to live
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sk the Secret Shopper
ach apartment community has certain features and benefits, which are the selling points of that particular community. It could be its location, friendly staff, spacious floor plans, beautiful landscaping or affordable price; just to name a few. Yet even with the most fabulous features, there will be times when the apartments you have availw of able won’t seem to meet the needs your prospective renters. The following question from a leasing consultant addresses this issue: Q: We have several vacant apartments right now and I know I’m supposed to try and rent all of them, but how can I rent to someone when it doesn’t seem like the apartment will really meet their needs? A: Things are not always what they “seem.” Many times you may have the tendency to make an assumption about what you think someone needs based upon your limited perspective, frame of reference or belief system. For example, you might have 2 bedrooms available right now that are all located on upper floors. If a family with small children comes in, you might automatically assume that they are not going to be interested because you think they won’t want to deal with the stairs. On the other hand, you
could have all first floor openings and your prospective renter could be a single woman. You might think women living alone only want upper level apartments because you believe they feel safer off the ground. Therefore, when you have a single woman seeking a new home, you may not try to sell her on a first floor location because you don’t think it will meet her needs. Until you truly get to know your prospective renters and determine what is most important to them, you really don’t know what they need. You are merely making “assumptions.” It could be that the husband of the family mentioned above travels a lot. The wife may prefer an upper level apartment as she is frequently home alone with their small children, and would feel safer living upstairs. The single woman might have a lot of equipment that she has to bring home from work each day, and does not want to deal with constantly lugging it up and down the stairs. It’s important to remember that every person who walks through your door is as unique and special as each one of your available apartments. The term “one size fits all” may work when you are buying a stretchy article of clothing.
However, when it comes to helping people find a new home, no apartment will fit the same two people in the same way. For those times when you have prospective renters with needs you just cannot meet, send them to a sister community and/or offer to pay them a referral fee for anyone they refer who rents. Since things are not always what they w seem, you never know when a prospective renter who does not end up leasing could be a source of referrals for months, or even years to come. If you are interested in leasing
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The Good, the Bad ...continued from page 11 term future, rather than unfairly and unwisely targeting a particular industry or type of business. Bad decisions and bad policy will lead to an ugly result that no one desires. WMFHA’s Government Affairs team continues to monitor budget discussions in Olympia and have been instrumental in educating policymakers on the importance of getting legislation right. Here are issues affecting our members and our industry that we are monitoring closely and working with legislators in Olympia and Council members and Mayor’s staff in Seattle to ensure balanced legislation and ideas are brought forth: • State budget negotiations in Olympia, in particular, the proposal to impose a capital gains tax that would have an adverse impact on real estate investments in Washington. • Seattle rent control - a memorandum to ask the legislature to repeal or modify the ban on rent control has been introduced to the Seattle City Council and will get a hearing sometime soon in committee. • Seattle Just Cause Eviction Law an ordinance has been introduced that would lengthen the notice period for termination if the owner wants to sell the
been given in the hope that the tenant will vacate and the landlord can then avoid having to pay relocation assistance. DPD would then have to decide whether the rent increase was justified - sounds a lot like rent control. The second change would require the landlord to pay relocation assistance if "the value" of the modification or rehab was at least $6000. This would apply even if no building permit was required.
property. Currently a 60 day notice is required and the proposal is to change it to 90 days. • Another Seattle Just Cause change - currently if the owner wants to move in or have a family member move in to the unit the owner only has to give 20-days notice per landlordtenant law. The proposal is to change that to 90 days. • Yet another Seattle Just Cause change - currently, if a tenant has a fixed term rental agreement that does not convert to a monthto-month tenancy when the initial term expires, the tenant must vacate at the end of the term and the landlord can evict if the tenant does not vacate. An appellate decision in 2000 held that the Just Cause law does not apply to this situation because no notice from the landlord is required. Several council members want to change the law so that any fixed term tenancy would automatically convert to a month-to-month tenancy. • Changes to the Seattle Tenant Relocation Ordinance - 2 changes have been proposed. The first would allow a tenant to file a complaint with DPD if the tenant thinks that a rent increase has
The rental housing industry is a strong industry of caring individuals and business owners, providing a beneficial service to persons and families in our communities, providing economic growth to our cities
and neighborhoods, and offering wonderful career opportunities for those who enjoy serving others. The Washington Multi-Family Housing Association continues to grow, serve our members and our communities, represents our industry with a strong, unified voice, and challenges our members to increase the professionalism and service to our residents. We look forward to more growth, innovation and assistance to government officials so that we can all build a better tomorrow and a wonderful place to call home. Visit our website at www.wmfha.org to learn how to join with us and to get more involved in your industry.
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Handle the Truth ...continued from page 1 rent for more. So it is really an applesto-oranges comparison. So you should exclude the new units to make an apples-to-apples comparison. We did that, and found rents rose 7.5%. That’s still a lot, but at least this correction makes the data more meaningful and more honest. Next, we need to look at rent trends over time. And we will back out the distortion created by new construction. A snapshot does tell “a” story. But it does not tell “the” story, the whole story. The average rent in Seattle in 2000
was $792. Over the past 15 years it has increased to $1,266. But you can see that over those 15 years rents rose faster in some years, slower in others, and even fell sometimes. Rents are impacted by a lot of things, like the economy and how much competition there is from new supply, to name just two. Mike Scott, Dupre + Scott (206) 935-3458 mike@duprescott.com Instead of looking at the rent dollars each year, let’s look at the change in rents every 12 months. You can see how cyclical rents are. And you can see that recent increases, while significant, are not unusual. And this roller coaster trend didn’t just suddenly appear 15 years ago. continued on page 17
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Handle the Truth ...continued from page 16
Here’s a look back over almost 40 years. This is for all of King County and we didn’t filter out the distortion from new construction. Why not? Lazy I guess. We have quick access to this information on the county level. Breaking out Seattle would be pretty time consuming. Anyway, it is still useful. And it shows the same trend over and over and over again.
The bottom line: Over the past 15 years rents rose just under 3.2% a year in Seattle. They rose a little more in studios and less in 2 and 3 bedroom apartments.
Getting back to Seattle, the overall rent trend we started this discussion with is similar for each unit type, from studios to 3 bedroom apartments.
To put those increases in perspective, apartment investors saw real estate taxes increase 6.3% a year in the same period. And building utilities rose 5% a year. That’s important beause those are the two biggest operating costs investors face. They account for 45% of total operating costs. 2015 OREGON/WASHINGTONRESOURCE RESOURCEGUIDE GUIDE 2014 OREGON/WASHINGTON
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Leasing Desk ...continued from page 4 issues she has, she'll have the sympathy on her side. Problems all around on that front. Third, if she comes in "loopy" on her meds, you really should send her home. I know this puts additional stress on you, but remember that some states are verbal contract states and what she says in her inebriated state, you and your company can be held legally liable for. On top of which, any contract that she signs with a resident might not be valid if she, as a company representative, is in an altered state. Plus, in such a state, she could write a contract for either the wrong amount of rent or the wrong lease term, and once the resident has signed it with her, you're bound to that contract. Send her home when she's a threat to your NOI. So let's talk about some solutions. One of the things that you mentioned is that you can't afford to be alone in the office anymore than you already are. This may just be the background of a staffer talking, but one of the quickest ways to call attention from the corporate office to the escalated degree of the problem is to call your local staffing agent when she calls out, or when you have to send her home sick. The corporate office might not notice the
stress that it puts you under to not have her there, but they WILL notice the stress that staffing costs put on your budget. This is a risky solution, however, so it might be worth it to just contact your office about ASKING for staffing. It will have a similar effect, and won't potentially get you in as much trouble as just calling a staffing agent without approval will. Now here's the good news People who are frequently absent or who do not seem to connect with their workplace rarely stay there long term, so she may be on her way out. Also, if she's made the lawsuit statement, that might be what she's really looking for, and when you do not provide her with the grounds to sue, she'll move on and look for another rube to play this game with. How you, as a manager in training, handle a situation like this can be a defining moment for your career. You can take the path of secretly hating your coworker (and believe me, MANY of us take that path, as it's the easiest), or you can try to ignore as much of the situation as you can and realize that you can only do what you can do in any given day, or your can try to reach the employee on a personal level. The last is the hardest to do, but
also the most long term rewarding of the options presented. To open communication you have to re-foundation some modicum of trust between the two of you. I would start by giving her massive positive reinforcement on days when she doesn't call out sick or come in loopy. Extending yourself as a mentor and trying to have a different relationship with this employee might encourage her to come to work more often and to call out less. As for managing your feelings on the issue, my best advice to you is to step back and take some deep perspective on the issue. I want you to ask yourself if it's really worth you caring if you believe her or not? If it's worth carrying anger and spite over something you cannot prove and something that in the long run will not make a difference? My mother once told me that you only have so many pieces in your matched set of emotional luggage, and you have to choose what's worth packing in them. You can't carry everything, so make sure that she's worth putting in there.
Heather is the Imagination In Charge of Behind the Leasing Desk Training & Consulting Services out of Seattle, WA. An accomplished national speaker, trainer, consultant, career coach, and author of both books as well as countless industry related articles, Heather holds her CAS designation, is NAA Advanced Instructor trained, and has been a member of the NAA Faculty since 2009, serving as a WMFHA, CAM, and NALP instructor since 2009. You can check out more of her musings, podcasts, and class offerings at www.behindtheleasingdesk.com
Good Luck to you! Heather
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In It For Me? ...continued from page 3 speak with you at a monthly meeting. Landlording Description: • Landlording is the purchase of and holding of real estate over a period of time. It is often referred to as “buy & hold” or as the “get rich slow” technique. Pros: • Tax advantages – This is a huge advantage to buying and holding real estate. The government has setup the game in such a way that owning real estate long-term as an investment can save you significantly on your taxes. • Appreciation – Unlike almost everything else that you purchase in life, real estate historically goes up in value, not down. Since real estate tends to go up in value, it can be a great hedge against the increased erosion of your net worth due to inflation. Cash flow – Hopefully you have purchased the property “right,” (with the right terms and the right financing) so that almost every month you have a positive cash flow. Over time, if you own enough properties, this can fully support you and your family. Generally speaking, there isn’t much money left over in the early years of owning a property, but the finances improve as your tenants effectively pay off the
mortgage for you. • Leveraging Other People’s Money (OPM) – When you purchase a property using a sensible amount of leverage (borrowing OPM), you are minimizing the amount of money you are investing and getting a higher return on the cash you have invested without excessive risk. You are also using OPM by using tenants’ rent to pay off your loan over time. • Wealth building – Due to tax advantages and that real estate typically appreciates, buying and holding property long-term typically will help you increase your net wealth. It is sometimes referred to as the “get rich slow” technique. Cons: • Tenants – If you talk in depth to experienced landlords, they will probably agree that a majority of their tenants have been good. However, it only takes a few bad experiences to dishearten one on being a landlord. Many people avoid putting on the landlording hat due to challenges such as trying to collect rent on time and property upkeep. • Liability – Landlording increases your chances of being involved in a lawsuit. Most people think the landlord is “rich,” and thus the landlord becomes a target for
lawsuits. You can take steps to minimize this risk. • Time intensive – Being a landlord takes time. You can minimize this if you are able to hire a manager. Some way or another the property must be maintained, managed, kept occupied and the bills paid. • Expenses – It takes money to maintain real estate. You must have the financial ability to replace the roof when it needs replacing, fix damage from a pipe breaking, and weather some of the ups and downs of owning property longterm. Skills needed: • People skills – A landlord deals with a wide variety of people, so you will need to relate to and negotiate with your tenants, repair people, contractors, insurance
representatives, bank officials, politicians, etc. • Fix-it skills – Knowing how to repair and maintain your property is invaluable. Whether you decide to do the work yourself or hire someone else do it, you should know as much as possible about how to install drywall, fix a toilet, install a faucet, repaint a property, and so on. • Financial skills – You will need to keep accurate records of the income/expenses associated with each property. This includes knowledge of tax-related issues. It is important to have a good CPA on your success team who will help you in these matters. • Planning/saving skills – This is a specific financial skill but an important one. If you are someone
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RENTAL HOUSING JOURNAL ON-SITE
In It For Me? ...continued from page 19 who spends every dollar as soon as it hits your hand, then you will have problems being a landlord. You must keep a “rainy day” fund for when the roof needs fixing. And you must have the skills to plan the maintenance and improvement of your property. Time needed: • The time needed to be a landlord varies widely depending on factors such as the number of units owned, the kind of property owned (single family vs. multi), and whether you plan to make repairs yourself. Relative to some other areas of real estate, landlording can be fairly time-intensive. Often it will be in spurts. A property may require no time for months, and then need your undivided attention for several weeks in order for you to repair and re-rent it. Cash needed: • Typically landlording requires seed money. How much will depend on your method. Cash required for buying property can be minimized if you are successful in using some creative purchasing techniques. • Once you own or have “controlled” the property, you may need money to fix it up prior to renting it out. • You will need money to keep the property maintained and to pay taxes, insurance, and the mortgage. If you purchased the property “right,” the rents from your tenants should cover all these costs and leave you some money left over for your efforts.
Wholesaling Description: • As a wholesaler, your job is to find a motivated seller who has a pressing need to sell his or her property. You negotiate with the seller and enter into a purchase agreement. Then you find a buyer who will pay a little more than you have contracted for, and you keep the “spread.” There are various valid techniques for doing this, including “buy-don’t fix-sell, buy make minimal or only urgent changes and sell, etc.” The other techniques are beyond the scope of this report. Pros: • Minimal money needed – Wholesaling requires very little money, unless you choose to pay for advertising in the hopes of getting motivated sellers to call you. • Income – This varies, but there is no limit to the number of properties you can wholesale. • No ownership responsibility – Using some techniques, you never actually purchase the real estate, but transfer your purchase rights to the end buyer. • Minimal liability – Your liability is minimal assuming you have a properly written purchase agreement. ** Remember that as a wholesaler you are focused on the CONTRACT, not the real estate itself when you are selling the property. As you have not taken possession you
Buy/Fix-up/Sell (flipping)
cannot sell the property. Cons: • Wholesaling is highly regulated in most states – You must know the law in your state and act accordingly. • Time intensive – Since you are a “deal finder,” when you stop working to find deals, you stop making money! • Business not investing – This is a way to make money. You are in the business of being a wholesaler; you are not “investing” in real estate. • No tax advantages – Since you aren’t holding the property and renting it out, you do not get any of the tax advantages of buying and holding rental property. Furthermore, the money you make wholesaling is considered “earned income” and will be taxed by the IRS as such. Skills needed: • Negotiation – You will need to negotiate with sellers when you are putting the property under contract. Likewise, you will need to negotiate with your buyers. • People skills – These are an important part of your negotiation skills. • Analytical skills – You need to be able to determine what the property will be worth after it is fixed up, accurately estimate repair costs, and determine your maximum allowable offer (MAO).
Description: • You are buying a property that is in moderate to bad physical condition, fixing it up, and then selling it—just like on those cable TV shows (except you make or lose your own money, and it’s not “reality”—it’s real!). •
• •
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Pros: Income – This can be a very lucrative way to make a living. How much you make per house will vary, and every person will have a minimum amount that he or she expects to make before purchasing. Hands-on – If you are a hands-on type person, this may be for you. Not hands-on – You can also just supervise and write checks to contractors, if you wish. This generally results in a lower profit but allows you to leverage the expertise and experience of others. Creativity – If you like to be creative and solve problems, then this will be up your alley as you determine how to transform a mess into a beautiful finished product. Just remember to focus that creativity toward the tastes of a typical buyer in the masses.
Cons: • Hidden costs – Like most repair projects, fixer-uppers often seem to take twice as long and cost twice as much as you expected. When you tear into something, you often find
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Rental Housing Journal On-Site • June 2015
RENTAL HOUSING JOURNAL ON-SITE
In It For Me? ...continued from page 20
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some other unexpected “surprises.” As a result, you may spend much more than expected doing repairs, and your bottom line suffers accordingly. Contractors – It can be very frustrating dealing with some contractors. They may be juggling different jobs and it can be challenging to keep your rehab project on budget and on schedule. Cash-intensive – This is one of the most cash-intensive areas of real estate. It takes money to purchase the home, do the repairs, pay the utilities, and pay the insurance/ taxes/mortgage for however long until you can finally sell the home. Infrequent paydays – If you are used to getting paid every week or on a regular basis, you may be in for a shock. You will be doing nothing but spending money for weeks and weeks until you finally sell the home and get one (hopefully) big payday. Liability – There is a certain amount of liability relating to fixing anything. As long as the work is done properly, you will be okay. It’s when something isn’t done correctly, and someone subsequently gets hurt, that you may be liable. So make sure you are dealing with reputable contractors.
Skills needed: • Construction knowledge – You don’t need to know how to do everything yourself, but you need to know how things should be done, how much it should cost, and how long it should take. This knowledge enables you to talk and work with the contractors you hire. • Project management – One of the common pitfalls of rehabbing is when a two-month project takes six months. Suddenly the $20,000 profit is gone and you’re just hoping to break even. • Analytical skills – You must be able to determine the current value, after-repair value, and repair costs relating to the property in order to be successful in this business. Other: • Many cities require that at least some of the repairs, such as plumbing and electrical repairs, be done by a licensed contractor only. • Time-intensive – It depends. You can be a part-time rehabber or a full-time rehabber. Typically this is fairly time-intensive unless you hire a general contractor and turn the project over to him; then you simply spend your time (and more money) managing them. If you get the wrong guy, you’ll feel like you are paying him so you can babysit him. • Cash-intensive – As noted above,
this is one of the most cashintensive areas of real estate. It takes money to purchase the home, do the repairs, pay the utilities, and pay insurance/taxes/mortgage. • Tools – Don’t forget that if you’re going to do some of the work yourself, you’ll need money for tools, equipment and maintenance. • Creative buying and selling – You can use all kinds of techniques to buy and sell houses. We would need a whole new report to deal with all of these techniques. The “short version” on creative transactions includes subjects such as financing, short sales, partnering, buying on lease option or land contract, seller financing, and the like. Most people learn about how to do these things by taking special courses. You can also find out some more about some of them by attending your local REIA meeting. Discounted Notes and Mortgages Description: • This real estate-related business is often referred to as “buying paper.” Someone who specializes in discounted mortgages purchases an income stream, such as monthly payments on a promissory note (secured by a mortgage) for less than it is “worth.” Folks who cannot or will not learn to use a
financial calculator (or certain types of financial software) need to run from this one. This is a real estate-related business/investment that requires a lot of “savvy” and is best left to those at the advanced level. Pros • No landlording – You are concerned with your Return on Investment (ROI) and how secure your investment is (determined by Loan-to-Value, appraisals, inspections, evaluation of the borrower, etc.). • Moderate time involvement – Most of your time is spent at the beginning of the investment doing the due diligence and analysis necessary to determine if this is a transaction in which you want to be involved. • Secure – If you do your homework correctly, this should be a very secure way of obtaining an excellent return on your money. It is secure because the income stream should be secured by appropriately evaluated real estate. • Minimal hassles – You are primarily in the business of analyzing notes to be purchased and in managing your portfolio of already purchased notes, including making sure that payments are being received as agreed.
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RENTAL HOUSING JOURNAL ON-SITE
In It For Me? ...continued from page 21 Cons: • Cash-intensive? – This may or may not be a cash-intensive business. It is cash-intensive if you are using your own money, because you can buy only as many loans as you have money to purchase. There are ways to do this without your own money, but that is for an advanced class, not this report. • Bankruptcy and foreclosure – One downside of discounted mortgages occurs when the borrower doesn’t pay and/or declares bankruptcy. You may be forced to foreclose on the property and take it back. Ouch. Skills needed: • Analytical skills – Much of the analysis or “due diligence” required for deciding whether to buy a note resembles that of purchasing a property. You need to determine what the property that is securing the note is worth. Additionally, you need to learn the ins/outs of the “time value of money” and the process of discounting notes. Moreover, you need to evaluate the person who originally borrowed the money and whose name is on the note.
Private Money or Hard Money Lender
Description: • A private money lender or hard money lender is an individual who lends money to real estate investors. Instead of borrowing money from a bank and having to jump through the hoops that they require, it often is much easier and faster to use private money lender. The most common customer of the hard money lender in real estate is probably the rehabber who borrows money just long enough to purchase a home, fix it up, and repay the loan. Folks involved in this type of lending business are normally very experienced members of the advanced group who have made some money in real estate and are diversifying by becoming lenders. Pros: • Higher ROI – If you have money to lend and are willing to do some of the “due diligence” needed when lending someone money, this may be a good niche for you. It is not uncommon to earn higher interest rates than the bank gets when lending money to investors. • No landlording – You are concerned with your Return on Investment (ROI) and how secure your investment is (determined by Loan-to-Value, your own appraisal and inspection, etc.).
• Moderate time investment – Your time is primarily spent at the beginning of the investment doing the due diligence and analysis necessary to determine if this is a transaction in which you want to be involved. • Secure – If you do your homework correctly, this should be a very secure way of obtaining an excellent return on your money. The income stream should be secured by real estate that you feel comfortable owning for the amount you lend the borrower. If the borrower doesn’t pay, you’ll probably foreclose, take the house, and be the new owner. • Minimal hassles – You are primarily in the business of analyzing the loan, managing your portfolio of loans, and making sure that payments are being received as agreed. Cons: • Cash-intensive – You can only loan out money you have available. • Bankruptcy and foreclosure – As with discounted mortgages, the downside of lending people money is what happens if the borrower doesn’t pay and/or declares bankruptcy. This is typically a long and expensive process.
analysis or “due diligence” required for deciding whether to buy a note resembles that of purchasing a property. You need to determine what the property that is securing the loan is worth, in both its current state and its afterrepair state. Conclusion As you can see, there are many areas of real estate in which you can get involved. Some areas are better for beginners; others are best left for those who have lots of experience. In any case, there is much room in this field for you to involve yourself on a full- or part-time basis. If you are interested in learning more about the real estate business or investing in real estate, we would like to invite you to attend the Real Estate Investors Association in your area. Local REIA groups offer education, networking, and more at their monthly meetings. Our members have varied levels of experience so you can feel comfortable and get the support you need; many members have decades of experience, and many of our other members are just exploring whether real estate is something they want to do. Find a local group at www.nationalreia.com.
Skills needed: • Analytical skills – Much of the
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