Rental Housing Journal Valley May 2016 by Professional Publishing, Inc

Rental Housing Journal Valley

May 2016

2. The Increasing Cost of Owning Properties With Onsite Staff

4. Dear Maintenance Men – Water Heaters 5. Ask the Secret Shopper –

Alive After Five

EUGENE · SALEM ·ALBANY · CORVALLIS WWW.RENTALHOUSINGJOURNAL.COM • PROFESSIONAL PUBLISHING, INC

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

Charm Residents with Outdoor Living Spaces By Scott Matthews, Director, Strategic Accounts, The Home Depot

ransforming outdoor spaces into comfortable, functional extensions of interior living areas is in demand for multifamily communities. Residents are interested in spending more time outside, and creating an inviting outdoor space for your property will help attract prospective residents and retain current tenants, especially during the warm months and moving season. Here are some ideas for outdoor upgrades that will give residents a place to engage with other tenants, family and friends and help you stand out against the competition.

continued on page 3

Nightly Rentals

The Hottest Investment Right Now?

By Richard Montgomery

nvesting in multifamily housing and apartments requires extra investigation, sometimes called due diligence by attorneys, for investors who want to be certain they do not make a mistake. This extra investigation and these questions are beyond what a real estate investor may do normally for a typical commercial real estate investment. As a real estate investor, once you go beyond multifamily rentals such as duplexes or fourplexes, you enter the commercial real estate area. Here are 9 out-of-the-box questions you should be asking, or at least consider asking, before you purchase that multifamily or apartment building. Dear Monty: About six months ago, three longtime friends and I decided to make some real estate investments together. Our investment goals are similar; we are each high-income professionals, share similar risk tolerance and see real estate as a long-term investment opportunity. Now, we have identified a 60-unit

continued on page 8 Professional Publishing Inc., PO Box 6244 Beaverton, OR 97007

How to earn 2-5 times the gross profit of traditional rental properties

am sure by now you have heard of the many nightly rental websites that allow property owners to advertise their homes, apartments, and even extra rooms for rent on a nightly basis. There have of course been some controversies over this new industry as it takes revenue away from the hotel industry and thus decreases the amount of taxes that local cities receive from the transient tax. One way or another, you have likely heard of this industry by now. Have you taken the time to analyze this as a viable investment opportunity, though? When you start running the numbers and seeing what others are doing, then it starts looking very attractive. If you take your typical rental that rents for $1200-1500 per month and convert it

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Rental Housing Journal Valley

The Increasing Cost Of Owning Properties With Onsite Staff By Cliff Hockley, President, Bluestone & Hockley Real Estate Services

Sick leave

As of January 2016, Oregon joined California, Connecticut and Massachusetts in requiring employers with more than ten employees to offer 40 hours of paid sick leave. Employers with nine or fewer workers must provide 40 hours of unpaid sick time. In Portland, the threshold is lower. Employers with six or more workers must provide paid leave while those with five or less must offer unpaid sick time. Lawmakers carved out an exception for Portland, which passed it own sick leave ordinance two years earlier, and effectively canceled out Salem’s law, which was due to take effect July 1, 2016 and would have applied to all employers, regardless of size. The vast majority of Oregon’s workforce (excluding federal employees) is covered by the law, meaning full-time, part-time, temporary and seasonal workers will accrue sick time.

Definition of family members expanded

The new law allows the use of sick time to care for and/or or help seek diagnosis and treatment (including preventative) of a family member with a mental or physical illness, injury or health condition. In addition, sick leave may be used to deal with the death of a family member. As part of this process, the statute and regulations defining a “family member” have been broadened. The definition now includes an employee’s spouse, same-gender domestic partner, custodial parent, non-custodial parent, adoptive parent, foster parent, biological parent, step-parent, parent-in-law, a parent of an employee’s same-gender domestic partner, an employee’s grandparent or grandchild, a biological, adopted, foster child or stepchild, or the child of an employee’s same-gender domestic partner, and a person with whom the employee is or was in a relationship of in loco parentis.

ven though the sales of apartments are reaching very low CAP rates with expectations of high returns, a number of laws aiming to protect workers have increased the cost of managing apartments. In Oregon, these laws include state mandated minimum wage increases and sick leave. On the federal level, required health insurance (for full time employees) and potential changes in federal overtime rules keep increasing the costs to staff with onsite management, maintenance and operations.

Minimum wage increases in Oregon

The state’s minimum wage as of January 2016 was $9.25. Beginning in July of 2016, it will rise steadily each year for the next seven years through at least June of 2023. How much the rate will increase will depend on where an employer is located within the state. continued on page 6

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Charm Residents ...continued from page 1

Outdoor Kitchens

Grills are often the gathering point for many multifamily outdoor areas, so make them as functional and inviting as possible. Explore different options like charcoal, gas and electric grills, or consider installing a combination to give residents a choice. Consider upgrading the grilling area by adding built-in counters to make prep, cooking and entertaining easier. Always ensure the grill is compliant with local regulations, especially regarding fuel type. One of the newest trends for outdoor spaces is to move beyond simple grills and create full outdoor kitchens. If your community enjoys mingling over meals outside, consider upgrading your area to a kitchen by adding counters, cabinets, sinks, faucets and maybe even alternative cooking methods like a pizza oven. One of the latest outdoor kitchen trends, pizza ovens are a great alternative to grilling and come in different options such as built-in or cart-mounted, as well as gasor wood-burning. Residents will be able to prepare, cook and keep their company entertained all in one place without the hassle of traveling back and forth to their apartments.

Patio Furniture

One of the keys to comfort outside is to invest in durable, water-resistant patio furniture like couches, dining tables and chairs. Make your outdoor space full and functional by offering seating for both dining and relaxing. A dining set will allow for communal seating and a space for residents to eat after making their meal in the kitchen. Add in a conversation set with comfortable sofas, loveseats and lounge chairs, where entertaining can continue and tenants can relax and unwind all in one place. When deciding on furniture, consider the construction of the furniture. Wicker, plastic and aluminum are great, lightweight choices. Wood or wrought iron furniture are heavier options, sturdy enough to handle strong winds.

years, giving you a lot of energy-efficient options. Safety is the most important consideration, and LED motion lights can cut down on utility costs while still protecting the space. Installing solar-powered lighting like post caps and pathway lights will also reduce energy costs, add to the safety of the space and improve the evening ambiance. Finish the area with decorative accents like string lighting, LED lanterns and candles, making the space functional and inviting.

Don’t Neglect Maintenance

It’s important not to forget the importance of regular maintenance on the outdoor space. Regular upkeep to the lawn and shrubbery is easy to overlook. Upgrade to a drip irrigation system, a water system that allows the right amount of water to plants and shrubbery without losing money in labor and overwatering. For patios and decks, it’s important to maintain surfaces by regularly using sealants and resurfacing products to withstand foot traffic and weather. Inspect walkways and surrounding pavements for any cracked or uneven surfaces. Repair and seal with concrete sealant and paint for more aesthetical appeal and eliminate any potential risks. When deciding where to begin, consider the most effective updates for the property. Whether it is starting the outdoor space by updating the furniture and lighting or upgrading to a full outdoor kitchen, these changes will make the space more inviting and communal for residents, while also setting your property aside from competitors. By Scott Matthews, Director, Strategic Accounts, The Home Depot Scott is responsible for managing national accounts and e-commerce while overseeing business-to-business relationships. During his 25 years at The Home Depot, he has served in a variety of roles and capacities, including Regional Pro Sales Manager, District Manager and Store Manager.

Exterior Lighting

Brighten up the outdoor space with high quality exterior lighting. LED lighting has made big advancements in recent Rental Housing Journal Valley · May 2016

Rental Housing Journal Valley

DEAR MAINTENANCE MEN: Water Heaters

Dear Maintenance Men:

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

Johan Dear Johan:

Your water-heater probably needs the calcium build-up removed from inside the tank. If your 100-gallon water heater is a commercial unit, you should find a clean out port at the bottom of the tank. Determine the tank manufacturer and purchase a new gasket for this port. Most plumbing supply outlets will have these in stock. • Turn off the gas supply. • Turn off the water supply to the tank. • Drain the water heater completely. • Remove the clean out port. Some have a series of bolts, others have only one big nut to remove. Once you gain entry into the interior of the tank, you may see white or yellow sediment on the bottom of the tank. If the tank has not been cleaned out regularly, the build-up may be significant. A hammer and chisel may be necessary to remove the more stubborn areas. This is also a good time to check the anode rod and dip tube (note: if your dip tube is damaged it can prevent the cold incoming water from reaching the bottom of the tank and being heated.) If either is damaged or eroded, check with your plumbing supply outlet for a replacement. The anode rod can be replaced by unscrewing it from the top of the tank. After completing the tank clean out, be sure to check all the faucet spout screens and shower heads to remove any acuminated debris. After all the work is completed, reinstall the port opening and always use a new rubber gasket. Your tank should work much more efficiently & cost less money to run while supplying more hot water. This clean out procedure should be done at least once a year.

Dear Maintenance Men:

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

Michael Dear Michael:

Water is a funny thing and tracking down leaks sometimes takes a bit of detective work. The first thing we would check is the roof. As you stated, the roof is new, but sometimes the odd flashing does not get caulked and the water finds its way down the side of a pipe, valley or junction area. Have your roofer, double check all the flashings. Another issue to look at, is water pooling around the foundation. If you have cracks in the foundation, water will find its way in. Be sure to clear any debris, dirt and leaves from around your building or anything that will cause a water dam effect. Overgrown or old landscaping can contribute to leaks by trapping water or redirecting water to the building instead of away from it. Inspect the building’s stucco for cracks. We have seen small cracks in the stucco suck in large amounts of water. Pay close attention to the stucco between floors or on the edge of balconies. Balconies shed a lot of water which may cascade over the edge and flow back into the stucco where a hidden crack will allow the water to enter. If you have aluminum windows, check the weep holes that allow water to drain out of the window tracks.

night thinking about that little check box. In order to sleep, we check the residents smoke and CO alarms every time we do maintenance on the unit. We keep a log of each time we check and what action was taken. The smoke and Carbon Monoxide alarms should be “Officially” checked and logged, at least once a year. Typically, January is a good month for the annual check. 2. A typical 100-gallon water heater depending on the BTU rating will costs anywhere from $1,800 to over $3000.00 installed. That cost alone should be incentive to clean out your heater regularly. Normally, the clean out should be done at least once a year. If the water at your building has a high mineral content, then it should be cleaned out every nine months. Again keep a log of each clean out; it will help in remembering when to do the next cleaning. 3. If your building has forced air & heating, the filter should be checked, cleaned or replaced each October or November and each May or June. This will help keep your systems working properly and reduce strain on the components. It will also ensure proper filtration before the winter and summer workloads.

4. Cleaning out the exhaust vent tubes of the laundry room dryer. Everyone knows about cleaning out the dryer lint basket and throwing it on the laundry room floor. We’re talking about cleaning out the lines leading out the back of the dryer. Keeping the exhaust vent tubes clean will help cut down on gas and electric usage, longer machine life and shorter drying time and lint in these tubes have been known to be a fire hazard. It should be done at least once a year and again, keep a log of each cleaning for reference. Bio: Please call: Buffalo Maintenance, Inc for maintenance work or consultation. JLE Property Management, Inc for management service or consultation Frankie Alvarez at 714 956-8371 Jerry L’Ecuyer at 714 778-0480 CA contractor lic: #797645, EPA Real Estate lic. #: 01460075 Certified Renovation Company www.BuffaloMaintenance.com www.ContactJLE.com www.Facebook.com/BuffaloMaintenance

Dear Maintenance Men:

Should I check smoke alarm batteries in my units or is that the residents job? Also, how often should I clean out my water heaters, not to mention A/C filters and so on?

COMMERCIAL REAL ESTATE, LLC

Linda Dear Linda:

1. Most rental agreements have a check box that says the resident is responsible for the operation of the smoke alarm. The newest rental agreements now have a check box for Carbon Monoxide alarms. We lay awake at

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Rental Housing Journal Valley

SK THE SECRET SHOPPER Alive After Five

very day at five o’clock, people pour out of the work place, get into their cars and head for home. However, often times they have to run errands or make other stops after they have already put in a full day. Some people even have to schedule appointments to look at apartments when they get off work because their week-ends are packed and they can’t take a long lunch break. Most leasing consultants have put in a full day by five o’clock too, but many rental offices are open until 6:00 or later. Do the prospective renters who come through your door after 5:00 get the same level of enthusiasm and quality of service as those who visit your community before noon? See what happens when the Secret Shopper “drops in” to look for a new home at the end of the day. The bright flags and attractive landscaping caught my eye so I stopped in. It was about 5:40 when I entered the leasing. I noticed the office hours sign stating, “Open until 6:00.” The leasing consultant was alone and I could see she was straightening up and had turned off the lights in the connecting clubhouse. I said I had just gotten off work, and wanted to take a look at an apartment. The employee’s smile faded, as she sighed and practi-

cally groaned, “I just locked up the model and show apartment . . .” I apologized for stopping by so late, but explained I was on my way home from work and there really wasn’t any other time I could look for an apartment because of my schedule. She replied, “That’s okay. It’s not a problem,” but her body language communicated something entirely different. She asked the size apartment I needed and for when, but did not inquire about my needs or ask for my name. We walked directly to the model, with little conversation. My efforts at “small talk” were met mostly with silence. The consultant entered the apartment first and turned on the lights. She said, “Go ahead and look around,” and then stood to one side. I walked from room to room, but did not open anything as I felt rushed. I thanked her for showing me the apartment and she replied, “No problem.” When we reached the office building, she did not invite me back inside. Instead, she gave me a business card and an application, and dismissed me with, “Let me know what you decide.” The next evening I visited another community. As I pulled into the parking space for future residents, I observed the leasing consultant locking up. When I got out of my car and approached the office, she

tried to avoid making eye contact. It was 5:30 and the closing time was posted as 6:00 p.m. I asked if she works there, and if the office was still open, even though I could see everything was dark. The consultant unlocked the door and invited me inside. She apologized for closing early and said it had been slow so she decided to lock up a little bit early and go home. The consultant tried to stifle a yawn and said, “Slow days make me sleepy.” She asked what I needed, and then said she could show me a model. However, I felt like I would be “putting her out” and offered to come back the next day. She smiled and looked relieved. The consultant handed me a brochure and a business card and said, “Give me a call in the morning. I’ll be here at nine with bells on.” (I wondered what time she took her “bells” off!) On my third evening out, I stopped by another community that caught my eye. It was just past 5:30 when I entered the rental office. The leasing consultant greeted me with so much enthusiasm, I was caught off guard. She apologized and said, “I’m sorry. Did I startle you?” She extended her hand and introduced herself and asked for my name. She offered me a seat and asked how she could help me. I asked if she has that much energy at the end of every day. She replied, “Not always, but I work at it.” She explained how the leasing consultants stagger their start times so the person who opens early, leaves earlier, and the person who comes on shift later locks up. The consultant said, “On the days I work alone, I take a couple laps around the property around 4:30 for a ‘pick me up’ and that seems to give me the extra energy I need to finish my day.” She was

animated and enthusiastic as she spoke and seemed eager to serve. The consultant filled out a guest card for me, determined my needs and then gave me a thorough tour of the community amenities and a vacant apartment. At the end of the tour, we returned to the leasing office where she made several attempts to close the sale. She presented me with a brochure, community newsletter and an application. She then asked if she could follow up in a couple of days to see if I had reached a decision. When I left, it was 6:15 p.m. Are you still “alive after five,” with enthusiasm to burn? If not, what can you do about it? Can you adjust your lunch hour or your work schedule so you have more energy at the end of the day? What about your attitude? Can you adjust that? If your office is open for business after five, shouldn’t YOU be open for business too? If you cut corners after five and don’t give EVERY prospective renter a “full meal deal,” they are going to go away “hungry” and end up renting somewhere else! If you are interested in leasing training or have a question or concern you would like to see addressed, please reach out to me via e-mail. Otherwise, please contact Jancyn for your employee evaluation needs: www.jancyn.com ASK THE SECRET SHOPPER Provided by: Joyce (Kirby) Bica Former owner of Shoptalk Service Evaluations Consultant to Jancyn Evaluation Shops E-mail: shptalk2@gmail.com Copyright © Joyce (Kirby) Bica

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BEFORE

AFTER

Rental Housing Journal Valley

Owning Properties with Onsite Staff ...continued from page 1 Here is the actual implementation table, with some explanation and footnotes showing the rundown of the plan: Effective Date of Rate Increase

Base State Rate

Exception: Rate within Portland’s Urban Growth Boundary2

Exception: Rate within Nonurban Counties3

July 1, 2016

$9.75

$9.50

July 1, 2017

$10.25

$11.25

$10.00

July 1, 2018

$10.75

$12.00

$10.50

July 1, 2019

$11.25

$12.50

$11.00

July 1, 2020

$12.00

$13.25

$11.50

July 1, 2021

$12.75

$14.00

$12.00

July 1, 2022

$13.50

$14.75

$12.50

After June 30, 2023, the base rate will be adjusted for inflation, with the Portland rate set $1.25 above the base and the nonurban county rate set $1.00 below the base. The impact of the increase in minimum wage is probably not a problem for apartment properties with high rent. The challenge falls to market rate and low income properties, especially if the rents are computed at a market driven 4 – 5% of rental income. Other onsite staff, leasing agents, painters, cleaners, landscapers and maintenance employees will see their pay increased which may increase the overall cost of operating apartment properties.

Health insurance required for all employees working over 30 hours a week

The Affordable Care Act was signed into law by President Barack Obama on March 23, 2010 and upheld by the Supreme Court on June 28, 2012. As part of the ACA, also known as Obamacare, large employers are required to offer health insurance to all fulltime employees and their dependents. The term ‘full-time employee’ means, with respect to any month, an employee who is employed on average at least 30 hours per week, section 1513 of the law reads. (Scroll down to section 4, paragraph A.) That section, known as the employer mandate, requires any business with 50 or more full-time employees to provide at least the minimum level of government-defined health coverage to those employees. Businesses must provide insurance for employees working an average of just 30 hours per week, which is 10 hours per week fewer than the traditional 40-hour work week. If an employer has 50 or more ‘full-time employees’ and does not offer health insurance, it must pay a penalty per employee for each month it does not offer coverage. Employees who work at least 30 hours per week or whose service hours equal at least 130 hours a month for more than 120 days in a year, are considered full-time. This added requirements for properties with onsite employees that work more than 30 hours a week, and had a major impact on larger apartment properties that may not already have offered health benefits to onsite employees.

Potential increase in supervisor costs on the horizon for 2016

The Federal Department of Labor (DOL), through the Presidential Memorandum on Updating and Modernizing Overtime Regulations, is proposing changes to “modernize and streamline” the Fair Labor Standards Act (FLSA) overtime regulations. The following outlines the key impacts of the pending regulations changes. Significant impact. Most employers covered by the FLSA will need to analyze employee classifications and make other changes by an effective date in late 2016, which will be established in the final rule. Exemption increase. To be exempt currently, workers must make more than $455/ week ($23,660 annually). The proposed rule sets the standard salary level at the 40th

percentile of weekly earnings for full-time salaried workers, which for 2013 was $921 per week, or $47,892 annually. If the 40th percentile approach is adopted, the 2016 level is projected to be $970 a week, or $50,440 annually. DOL Proposal. The Department is proposing to automatically update the salary level to be considered exempt (including for highly compensated employees) on an annual basis, either based on percentiles of earnings for full-time salaried workers or based on changes in inflation. This will have the most impact for onsite managers that supervise staff as well as on onsite maintenance managers who supervise staff. If onsite managers supervise more than two employees that can qualify as exempt employees and if they are paid enough, you don’t have to pay overtime. In other words, a non-exempt employee would be paid over time for work over 40 hours a week , an exempt employee is not paid overtime for work over 40 hours a week, though this topic continues to be debated at the Department of Labor. A final rule on this position is expected to be published this spring.

Exempt supervisors must satisfy the following duties tests: • Primarily manage a distinct unit or subdivision within the organization. • Spends most of the workweek performing management duties. This generally means more that 50 percent of the worktime, however, other factors might support exempt status if less than 50 percent of worktime is spent in management. Other factors could include: the employee is paid a significantly higher salary than is paid to nonexempt staff; the employee makes frequent management decisions; the employee is free from direct supervision. • Supervise two or more full-time employees (or the equivalent of two or more). • Have hiring or firing authority or, if not full authority, their recommendations are given particular weight. • Customarily and regularly exercise authority to make decisions of significance.

Summary

In summary, state mandated increases of sick leave and minimum wage increases coupled with federally mandated health insurance for full time employees (30+ hours a week) and potential changes in federal overtime rules keep increasing the costs of staff involved with onsite management, maintenance and operations of apartment properties. Owners will need to calculate these costs as they think through the due diligence of the properties they are about to purchase.

Resources

http://www.multifamilyinsiders.com/multifamily-blogs/how-to-pay-your-on-sitemanager http://www.wagehourinsights.com/category/new-exemption-rules/

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Rental Housing Journal Valley · May 2016

Rental Housing Journal Valley

Nightly Rentals ...continued from page 1 to a nightly rental, you should see about double the gross income. You will have some additional costs of course, and if you have the right property in the right location that can easily increase to 4x the long term rental income. This all sounds nice, but of course you are naturally wondering about the additional costs associated with nightly rentals and the added time it takes to manage these properties. The largest cost is the initial design and furnishing of the unit. You will need to fully furnish these units to make sure they are attractive. Furnishing doesn’t end with just the beds and living room furniture. You should ultimately have a fully stocked home, so a complete set of dishes, tableware, pots, pans, etc. will be needed. You will also want to pay close attention to the details - keep in mind that you are competing with hotels that have onsite staff. So, go the extra mile and provide some travel toothpaste, toothbrushes, Q-tips, shampoo, and ultimately anything else that someone could forget to pack. You also want to make sure that all of the walls are decorated. Obviously this starts with a good paint scheme, but extends to the artwork on the walls and knickknacks on the shelves. Many of the successful nightly rental homes incorporate some sort of theme in their design. It can be a design that highlights the local area and attractions or something much more unique. When picking out furniture it is good to remember that you want your guests to feel very comfortable and at home. So you shouldn’t go with furniture that feels “cheap”; with that said you also don’t have to get expensive name brand furniture either. For many nightly rental investors,

the step of picking out furniture or keeping an eye out for unique furniture items that they can incorporate is the most exciting part of the process. The other cost is that you will have to have the unit cleaned and turned over after every visitor. If you go with a management company like IRC Real Estate, then you can typically take advantage of the volume discount they get from their vendors. This expense should be in the $50$150 range depending on size and what turn over services you require. With the dramatic increase in income you are still much more profitable compared to a long term rental. When it comes to maximizing your profits though, nothing matters more than location, location, location. With nightly rentals this isn’t just a business cliché, it truly matters. When choosing

In honor of National Fair Housing Month | April 2016

We Are Fair Housing

a property to use as a nightly rental you should always start by searching within close proximity to areas that travelers might go. The obvious locations are attractions like ski resorts, downtown Portland, near airports or children’s hospitals, wine country, coastal towns, and city downtowns like Bend & Salem for events and legislative sessions, to name a few. If you have a property in a good location with a good interior design, you can end up with a fully booked home almost year round. Depending on the location, design quality, vacancies, and size you can expect $100-$1000+ per night in revenue. Keep in mind that this type of investment property is truly a full time job. For a popular property you will have a check in, check out, and turn over to coordinate nearly every week. In addition to this most of these sites are heavily reliant on reviews by your guests and your rating on things like response time to inquiries. So you have to always have your smart phone on you 7 days a week to make sure that you are able to respond within hours. As you can tell this kind of investment isn’t for everybody given the work it re-

quires. This is why the investors that truly view being an investor as their profession hire property management firms like IRC Real Estate. This allows you to focus on finding and buying the properties in the right locations and possibly handling the remodel and interior design, but then turn it over to the management company. Some companies like IRC Real Estate even offer in house interior design services that take care of that work for you. If you are seriously considering getting into the nightly rental industry I am happy to answer any questions you may have and offer some free advice. With my involvement at the board level with organizations like the Portland Area Rental Owners Association, NW Real Estate Investors Association, and the Salem Rental Housing Association I am happy to help educate or guide property investors when they run into problems or are simply new to the industry. Christian Bryant, President of IRC Enterprise / Real Estate Christian@IRCEnterprises.com • www.IRCEnterprises.com • View all credentials at LinkedIn

, as housing providers to the people of Oregon, pledge the following:

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Rental Housing Journal Valley · May 2016

Rental Housing Journal Valley

9 Out-of-the-Box Questions and Tactics ...continued from page 1 apartment building we are interested in pursuing. We have the standard list of due diligence items, but wonder if there are some “out-of-the-box” due diligence tactics to make certain we do not make a mistake as investors. Can you help? Real estate apartment investing is a series of calculated risks for investors Answer: Buying, owning and selling investment real estate is always a series of calculated risks. “Make certain” are strong words. No matter your methods, you cannot know everything the seller knows. Over and above the standard due diligence list, buyers have ways to discover more about a property that either encourages or discourages them. It is always difficult to understand the motivation of the seller because many sellers do not share their core beliefs, or some may even mislead or miscommunicate their ideas to create an image of trust. As callous as this statement is, I believe it to be true in many cases. To balance that statement, self-interest is to be expected. Choose carefully which tactics to employ. Business ethics is a subject that is not black and white. It involves various shades of gray depending on the person with whom you are talking. Choose carefully which tactics to employ with which transaction. Some sellers might not take kindly to a given tactic, while others may well have done something similar, or further out-of-the-box, themselves. I have never witnessed any one buyer applying all of these tactics on a single property. This is a career compilation of tactics I have seen.

No. 1 – The rent roll is not enough:

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

No. 2 – Visit with former tenants

Visit with multiple tenants who have moved out of the apartments. You can determine this by comparing year-to-year rent rolls. Look for patterns in the reason they moved out. Getting closer to work is one thing. But moving away from drug dealers is a different story.

No. 3 – Investors should look for patterns in the vacancy swing

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

The quote from the Truman show applies when you want to find out what is really going on with the apartment building. Visit the property unescorted on multiple occasions. Visit in early morning, midday, late afternoon and midnight. You will learn something about your potential tenants and how the building functions. • Do tenants congregate in appropriate places? • Are there vehicles with stale damage? • Is the parking lot well lit? • Do you feel safe? • It can be surprising what you learn going unannounced.

1. Access - Rentegration.com is a web 4. Management Database - Rentegra-

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1) The pet(s) shall be on a leash or otherwise under tenant’sGarbage control Cans when it is outside the tenant’s dwelling unit. TV Antenna/Cable 2) Tenant(s) shall promptly pick up all pet waste from the premises promptly. 3) Tenant(s) are responsible for the conduct of their pet(s) Fireplace at all times. 4) Tenant(s) are liable for all damages caused by their pet(s). 5) Tenant(s) shall pay the additional security deposit listedCleanliness above and/or their rental agreement as a condition to keeping the pet(s) listed above. 6) Tenant(s) shall not allow their pets to cause any sort of disturbance or injury to the BEDROOM other tenants, guests, landlord or any other persons lawfully on the premises. 1 7) Tenant(s) shall immediately report to landlord any typeWalls of damage or injury caused by their pet. Windows 8) This agreement is incorporated into and shall become part of the rental agreement exe -cuted between the parties. Failure by tenant to comply with any part of this agreement Blinds/Drapes shall constitute a material breach of the rental agreement.

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Remember these are the special outof-the-box investigation or due diligence questions you want to ask. There are many other standard ones recommended that you should also consider, but these are my special ones from my years and experience in the business. So remember: • Where do the tenants work? • Talk to former tenants • Review the vacancy swings • Visit morning, evening and night • Talk to the police • Check single-family homes nearby • Study the turnover rate

lease, why are they not renewing? Serial leasing is expensive.

No. 8 – Talk to whoever is actually doing the maintenance for the apartments

Identify the handyman or maintenance person. Take note of the vendors who perform service for the building. Interview some of these folks. Ask them if there are any situations in the building they would change. It could take a number of calls before you hit the jackpot.

That’s right. That is really what I said. Find the closest neighborhood tavern or bar. Stop in for a drink and introduce yourself to the bartender. You want to talk with a bartender who has been there for years and knows the neighborhood. He or she may have something to say that is beneficial to you.

Investors remember these due diligence tips • Make these visits or calls yourself.

• Split them up between the four investors or partners. • If you do not have the time or inclination, hire someone who understands the apartment business.

than you think (http://www.fool.com/ investing/general/2014/08/17/buying-anapartment-complex-is-easier-than-youthi.aspx) Keys to getting started in multi-family apartment investing (www.biggerpockets.com/renewsblog/2012/01/12/ keys-to-getting-started-in-multifamily-apartment-investing/) Investing returns on apartments (nmhc.org/Content.aspx?id=4707) Dear Monty: No-nonsense real estate advice (dearmonty.com/) Forget buying a single-family home purchase an apartment complex (finance. ya hoo.com/news/forget-buy ing-single-family-home-162100725.html) Are buyers paying too much for apartments? (www.forbes.com) How to buy an apartment building (www.wikihow.com/Buy-an-ApartmentBuilding) National Apartment Association (www. naahq.org/about) About The Author Richard Montgomery gives no-nonsense real estate advice to readers’ most pressing questions. He is a real estate industry veteran who has championed industry reform for over a quarter century. You can ask him questions at www.DearMonty.com.

• These tips will undoubtedly add value to your ability to make a good decision.

Advertise in Rental Housing Journal Valley Circulated to over 6,000 apartment owners, on-site and maintenance personnel monthly. Call 503-221-1260 for more information

sales@rentegration.com 02

Electric Outlets Light Fixtures

Essential Services Plumbing Heating Electricity Hot Water Smoke Detectors

Electricity Hot Water

BATH ROOM

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

Conclusion

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

No. 9 – Visit the neighborhood bar near the apartments and introduce yourself to the bartender

5 reasons to use rentegration

TENANT(S): __________ ADDRESS: __________ ______________________________ ____________________ ____________________ ______ CITY: __________ __________________U ____________________ NIT: ______________ _____ STATE: ________ Rating Scale = (E)Excellent ZIP: _________________ (VG) Very Good (G)Good (F)Fair (P)Poor IN Out LIVING AREAS WA-RTG-40 Washington In Out KITCHEN In Out Walls

Check with the local police department. Tell them you are considering buying the building and ask if you could do anything to help them in the neighborhood. You will learn if the building has a reputation. The best thing that can happen on that visit is they will have trouble placing the property.

• Monty’s special tip for investors - Ask the landlord owner why he is selling? Any response should tell you tons.

No. 7 – What is the average occu• Talk to the maintenance folks No. 4 - Visit the apartments in the pancy per unit? Determine the turnover rate by unit. • Visit the local bartender morning- and in case you don’t Is the average occupancy per unit six see them also “good day, good months or six years? If it is six months Resources evening and good night” Buying an apartment complex is easier and the building operates on a six-month

Where do the tenants work? Determine where the tenants are employed. This data

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No. 5 – Talk with the local police about the apartments

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Rental Housing Journal Valley · May 2016