Rental Housing Journal Valley September 2016

Rental Housing Journal Valley

September 2016

3. Creating an Annual Operating Budget for Your Multifamily Property 4. Dear Maintenance Men – Do’s, Dont’s, Doors and Droughts

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The Risks and Rewards Of Owning NNN Investments

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

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

As a result of the aging Baby Boomer Generation, there is a growing appetite for NNN investments, and many retail businesses are taking advantage of this demand to expand their national footprint. Businesses such as fast food restaurant franchises (Chick-Fil-A), mobile carrier storefronts (T Mobile), convenience stores (7 Eleven), pharmacy chains (Walgreens), and numerous banks are using this financial energy to help fund their growth. More stores mean better distribution, more sales, better purchasing power and more advertising efficiency, all things that growing retailers see as plusses. Before plunging in to purchase these attractive offerings, investors should take time to understand the companies they plan to start this long term landlord/tenant relationship with.

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Budgets; Don’t Just Update That Spreadsheet

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

continued on page 8

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

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ongratulations, you are the marketing manager of the best portfolio or property manager of the best community in town, or it’s not. You have new construction in lease-up, or you have an older community that wants to stay on top. Even if you are the world’s best property manager you still may have no clue how you’re going to get your units toured by hot, qualified prospective renters that are ready to lease a unit from you today.

And, no matter how cool your communities are, if people don’t know about them at the precise moment they are looking to lease, you will never hit your occupancy goals. Getting units leased is what apart-

Risks

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

Depending on the type of business and their product line, many of these retailers face competition from the internet. Online based retailers appeal to consumers with their ease of access. Operationally they can offer more products with less overhead than brick and mortar retail-

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Rental Housing Journal Valley

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Rental Housing Journal Valley · September 2016

Rental Housing Journal Valley

Creating an Annual Operating Budget for Your Multifamily Property

By Theresa Bradley-Banta

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multifamily real estate annual operating budget allows you to compare the actual financial performance of your property to your longrange projections for future income and expenses.

It’s important to prepare an annual income and expense forecast for your property whether you manage it yourself or if a professional third party management company manages it for you.

Important: Do not prepare an annual operating budget for your multifamily property or apartment building and then file it away and ignore it. This article will give you some great ideas for using a budget to your advantage.

Benefits of Creating an Annual Multifamily Investment Property Budget A budget allows you to establish or identify: • Performance targets.

• A baseline for property management reviews.

meetings with your manager to review these comparisons. How are they doing in meeting projections? What can be done to course correct when and if your targets are not being met?

Some of the items to review are: Multifamily Property Income:

• Vacancies against leasing projections: Is your manager on target for leasing new units or maintaining the average occupancy rate in your market?

• Income and expense projections based on market drivers and assumptions.

• Capital improvements planning and projections.

• Problems that need to be resolved.

Importantly, a budget can help you maximize profitability and avoid unforeseen major repairs and expenses.

Third Party Property Manager Performance Baseline

The best use of a property budget is to track how your manager is performing.

Ask your third party property manager to prepare an annual budget forecast with side-by-side comparisons of actual vs. budgeted income and expenses.

This budget then establishes a baseline for your property manager’s performance reviews. It’s a great idea to have regular

• Lease renewal (rollover) projections: These are leases that are due for renewal during the budget period. Make initial contact with residents no later than 60 days prior to lease expiration. If there is not a renewal commitment from your tenant there should be a follow up in 45-days.

• Future profit projections from increased revenue: This could include rent increases, laundry revenue increases, the introduction of a utility reimbursement program (tenant pays utilities), etc. Where continued on page 6

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Rental Housing Journal Valley

The VIP Tour of How to Easily Set ...continued from page 1 ment marketing should be all about, it’s not about what you think is cool, it’s about getting units leased, on budget and ahead of schedule.

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

Here are a few tips for navigating that elusive apartment marketing budget bas well as what marketing strategy will not only cost a fraction of the others, it will get you the most units leased and the highest rents in the shortest time, sound good?

I thought you would say that; so fasten your seatbelt I am about to start the tour:

Our first stop is apartment marketing math

The first question your regional or property owner will always ask the prop-

erty or marketing manager is, “Do you know what your property’s marketing budget is?” Usually that’s when they see the manager’s eyes get as big as saucers as they reply, “I have no idea! That’s what I thought you were here for.”

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

New apartment communities in leaseup: Working on hundreds of new community lease-ups, I can tell you the average marketing budget is about $275/unit for lease-up properties. This includes ILSs, SEO, Google PPC Campaigns, Internet/Website Costs (hosting, website plugins, etc.), Special Website Enhancements/Upgrades, Email Services, Customer Surveys, Tracking Services, Referral Fees, Promo Supplies (brochures, pens, balloons, etc.), Special Promos, and social activities for residents.

Established apartment communities: For those properties that have been occupied more than two years and have solid occupancy, we see management

companies allocating around $175/unit Internet/Website Costs (hosting, website plugins, etc.), Special Website Enhancements/Upgrades, Email Services, Customer Surveys, Tracking Services, Referral Fees, Promo Supplies (brochures, pens, balloons, etc.), Special Promos, and social activities for residents.

Tour stop #2 is how to get 90% of the way there for $30/unit

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

Information Resources From the Multifamily NW website to regular communications and monthly newsletters we keep our members informed on the industry. Our biannual Apartment Report gives you the latest rent and vacancy data to stay competitive.

Professional Rental Forms Multifamily NW offers a full suite of Single-Family and Multifamily rental forms that are reviewed quarterly by a committee of experts and legal counsel. With over 100 different forms, we have you covered!

Professional Development Property Management has many facets. Whether you manage single-family or multifamily we are here to provide great opportunities for Leasing, Marketing, Financial Management, Forms Training and more! Nationally Recognized Designations through NAA are a great way to show your management expertise in the industry.

Legislative Action Government & Public Affairs Committee meets monthly to discuss the current issues facing the industry and provide support on behalf of our members. Legislative Alerts are regularly provided to members so that all are informed and ready for action.

Commitment to Charity Charity Events are a very important part of the Multifamily NW agenda. Annual golf events support housing charities around the state and the Service Committee hosts charity drives and events throughout the year.

Networking Opportunities

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

Stop #3 chicken and egg apartment marketing

I need to fill my vacant units, but I have no money to help get them leased. Sound familiar? We call this chicken and egg marketing and it is something we are very familiar with. I’m here to tell you, to lease the units at your property you have to crack many eggs. However, if you focus on the biggest yolk for your buck first you can get your cost down. But you will need to spend something. Make sure your apartment marketing budget is used wisely and can be tied tightly to the specific rental goals you have set for the property.

That pool party budget could buy you 2 months of a Google AdWords campaign, which one is going to get potential renters to call the leasing office? There is nothing more frustrating and costly than burning thru your property’s entire marketing budget only to find that you have been doing things that aren’t getting units leased and that you have to start over again. So do it right the first time and work strategies that lease units, period.

Stop #4 Know your limits.

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

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

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

If they don’t bring in traffic, dump them.

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

Multifamily NW offers regular networking events throughout the year. It’s the perfect chance to connect with your peers to learn the tips and tricks that make your job easier.

Annual Events With 8 large annual events and counting, Multifamily NW is second to none for educational and networking resources. We offer great sponsorship opportunities to promote your business and are committed to promoting Members Using Members (MUM).

16083 SW Upper Boones Ferry Road, Suite 105, Tigard, OR 97224  503-213-1281  503-213-1288  info@multifamilynw.org MultifamilyNW.org

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Rental Housing Journal Valley · September 2016

Rental Housing Journal Valley

The Risks and Rewards ...continued from page 1

ers. To compete, established retailers have launched their own online stores with the benefit of in-store pickup. This is a potential advantage over online retailers who levy shipping charges. Retailers without a strong online presence like Radio Shack, and K-Mart for example, have lost market share to the likes of Target and Walmart who have made the decision to have a two-pronged marketing plan, with both brick and mortar and internet stores.

Clothing stores have the added volatility of being trend dependent. They can be popular one day and outdated the next. A style that impresses on the runway or in LA may not fly off the shelves in suburban Portland, leaving the retailer with a glut of unwanted goods and a loss on the balance sheet. Clothing stores with just-in-time inventory control systems have a better chance of adjusting to changes in fashion than those that order a year ahead.

Restaurant chains and franchises shoulder different risks, both from outside competition, and from within their own operations. The location of the restaurant factors heavily into this. Does the area have a larger lunch crowd or dinner crowd? Are there many competitors?

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

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

Research and Resources

Investors should pay close attention to all aspects of an investment. Though NNN investments seem deceptively simple and turnkey, investors should prepare for the

possible eventuality of a tenant turn. Pay attention to market rental rates. If one tenant does not succeed at that location, will another tenant pay the same national rental rate for that location? Even though NNN investments are considered less volatile, the NNN investor should have a contingency plan if a store closes and/ or does not stay the full term of its lease or chooses not to exercise its renewal options. An investor should understand the content of the leases, if it is NN, NNN, or ground leases, what renewal options are offered, and what the tenant obligations are given those lease terms. Each one has a different impact on the bottom line.

Lease terms are also an interesting issue.

Is it better to have a long term 15 to 30year lease, or a shorter term lease? When are lease increases scheduled? Every year?

Every five years? Every ten years? In addition to the timing of the lease increases, the percentages of increase must also suit both the business and the landlord.

Differences could vary from two percent every year to ten percent over ten years. A landlord needs to understand the brand and how much money each store needs to make in order to stay open. Only then can they determine if the tenant will continue to perform. An experienced broker or asset advisor may help interpret the intricacies of a lease and the suitability of the property.

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

• QRS Magazine rates the sales of chain restaurants.

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

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

If the tenant is a publicly traded company, investors have the ability to review

Rental Housing Journal Valley · September 2016

continued on page 8 5

Rental Housing Journal Valley

Creating An Annual Operating Budget ...continued from page 3 are you able to increase revenue at your property?

Do your service providers have pending increases?

• Future revenue projections from new sources: Where can you find previously untapped revenue?

Can you charge for amenities such as parking, storage, recycling or business/entertainment centers?

Can you install vending machines in your common areas?

• Utilize the know-how of your service providers: Ask your vendors for efficiency/cost saving suggestions (property improvements or services they can provide) and budget accordingly.

• Cash flow projections: With accurate cash flow projections you’ll be able to make strategic decisions about the allocation of revenue for improvements.

• Replacement reserves: Determine what percentage of gross scheduled income can be put aside for future use. For example, you might want to hold back 5% of all scheduled revenue or you can allocate a certain dollar amount annually per unit in your property.

Multifamily Property Expenses: • Projections for lowering current expenses: Are your mechanical systems operating at peak efficiency? You may be able to lower utility bills with systems that operate efficiently. Can you contest your current property tax payment amount?

• Review third-party vendors and service providers: Conduct annual reviews of your property vendors such as services that provide lawn care, cleaning, trash removal and property insurance.

Let them know they will be up for annual review for cost and service.

• Property management: Review all fees such as leasing, maintenance and on-site management (if applicable). Are you satisfied with the performance of your manager?

Are their fees as projected?

Most multifamily and apartment building management software programs will generate a budget-to-actual income and expense report for comparison. Ask for this report. A budget is nice but you must compare it to the actual property financials.

Investment Property Analysis Assumptions (Drivers)

Using the following or similar assumptions, you or your property manager can project all income and expenses over a 12-month period beginning with the current month. You can change these variables at any time. It’s a good idea to run several scenarios using both conservative and aggressive assumptions.

The following assumptions are used for example only. You will need to determine your own variables based on your particular investment market.

• Expense Ratio (40-45%) These assumptions will help you determine the best and worst case scenarios and will assist you in planning budgets for the long term. You can create 24-month, 36-month or 48-month projections using assumptions. For example, you can predict your property value over the long term at different cap rates and net operating income. This can help you set targets for increasing revenue and lowering expenses.

For national averages read or download the National Apartment Association 2015 Survey of Operating Income & Expenses in Rental Apartment Communities at this link.

Investment Property Capital Improvements Planning and Projections In addition to predicting regular, recurring expenses your budget should include projections for major capital improvements. For example, you might want to paint your common areas (halls, stairs, entry, mail room, laundry, etc.) every three years.

Planning for long-term improvements allows you to stagger the improvements over time. By doing this you can avoid surprise expenses. These funds are commonly referred to as replacement reserves and include:

Use your annual operating budget as a tool. Plan to hold quarterly budget reviews with your property manager and/ or your team at the very minimum. An annual budget can drastically maximize your profits when used as designed.

Theresa Bradley-Banta is the founder and CEO of Denver, Colorado based Theresa Bradley-Banta Real Estate Consultancy, offering a highly skilled sounding board for the professional commercial real estate investor’s ideas and investment strategies. The company provides education and mentorship for entry to mid-level investors seeking reality-based strategies for buying and owning multifamily properties. Bradley-Banta is the author of the book Invest In Apartment Buildings: Profit Without The Pitfalls. Visit theresabradleybanta.com. Reach her at (303) 733-4400 or theresa@theresabradleybanta.com.

• Common area improvements such as new paint, lighting, vinyl, carpet, parking lots and driveways.

• Income Growth (5%)

• Major building systems repair or replacement such as windows, roof, boiler and air conditioning.

• Expense Growth (3%)

• Individual unit upgrades.

• Vacancy (7%)

A Final Note on Your Annual Operating Budget

• Cap Rate (7%)

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Rental Housing Journal Valley · September 2016

Rental Housing Journal Valley

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

By Jerry L’Ecuyer & Frank Alvarez 3: Do a walkthrough of the property inspecting faucets, supply lines, sink and bath drains. Check the water heater and its straps, gas connections and flue.

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

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

Dear Maintenance Men:

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

Brian Dear Brian:

Great Question, as you might be aware, could lead to quite a long list! However, here are some of our favorites.

Pest Control

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

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

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

4: Recycle using only proper recycling containers. Loose recycling material attracts all sorts of unwanted pests.

Dear Maintenance Men:

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

Matt Dear Matt:

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

Plan and Design:

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

3: Choose an irrigation system designed to minimize evaporation. (Drip irrigation or low volume sprinkler heads.)

Plumbing

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

2: Hydro jet the building’s kitchen and main lines at least once a year. Best time is the month of October just before the heavy cooking holidays of November and December.

Soil Improvement:

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

2: Determine the type of soil you have and mix in mulch and other addi-

tives to improve water usage and soil richness.

Appropriate Maintenance:

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

1: Mow 2: Weed control 3: Test the soil regularly. (Soil testers can be found at any home improvement store) 4: Fertilize 5: Prune

Dear Maintenance Men:

I have a problem with a sticky bedroom door. If I try to open the door quickly it sticks and if I’m gentle it opens just fine.

But as you can imagine, I only remember to open it gently after my hand slips off the knob. Is this an easy fix?

Gary Dear Gary:

This can be an easy fix. Nine out of ten times the hinge is loose on either the jamb or the door. Tighten all the hinge screws and if a screw spins freely; change it with a bigger screw with more bite. Next try “adjusting” the hinge. Replace a regular hinge screw with a long 3 inch screw that will reach through the door jamb and into the rough framing. Gently tighten the screw, pulling the hinge and door

jamb tighter against the rough framing and pulling the door with it. Next, if that does not work completely, “adjust” the latch side of the jamb by using long screws through the jamb into the rough framing. This should create just enough space to allow the door to swing open without incident.

Bio: If you need maintenance work, consultation or management for your building or project, please feel free to contact us. We are available throughout Southern California. For an appointment please call Buffalo Maintenance, Inc. at 714 956-8371 and JLE Property Management, Inc. at 714 7780480 Jerry L’Ecuyer is the owner of JLE Property Management, Inc. & Buffalo Maintenance, Inc. and is a licensed contractor & real estate broker. He is currently on the Board of Directors, Chairman of the Education Committee & President of the Apartment Association of Orange County. Jerry has been involved with apartments as a professional since 1988 and can be reached at (714) 778-0480 or jerry@JLE1.com.

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

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Dishwasher

Pursuant to RCW Doors/Woodwork 59.18.150, this is your Counter Tops 48 hour entering the dwelling notice that your landlord Locks unit and premises or their agents will located at (Address) ____________________ Cabinets be ____________________ Ceilings ____________________ Sink __________ Electrical Outlets ________ on between the hours Floor of Garbage Cans (Date) and .

Windows (Time) TV Antenna/Cable (Time) The entry will occur Blinds/Drapes for the Fireplace ____________________ following purpose: ____________________ Cleanliness Doors/Woodwork__________ ____________________ ____________________ __________________ ____________________ Locks ____________________ ________ Walls

Windows

Blinds/Drapes

Rods

Floor

Rods Floor Light Fixtures

state specific forms for

PMS 280/PMS 7543 over color

arizona, alaska, california, colorado, delaware, florida, georgia, illinois, indiana, kansas, kentucky, massachusetts, nevada, new Jersey, new york, north carolina, ohio, oregon, pennsylvania, texas, utah, washington, washington d.c., west virginia & more.

Doors/Woodwork Locks Ceilings Electric Outlets Smoke Detectors

www.rentegration.com 503-933-6437

3) Type _______________ Breed _______________ Size ______ Age __ Weight ___ Color ____ Name ________ Carpet/Vinyl/Wood Vaccinations: Yes____ No____ License Number: ______________ Additional Security Deposit Required:$

Light Fixtures

AGREEMENT

Doors/Woodwork

Locks Tenant(s) certify that the above pet(s) are the only pet(s) on the premises. Tenant(s) understands that the additional pet(s) are not permitted unless the landlord gives ten Ceilings ant(s) written permission. Tenant(s) agree to keep the above-listed pets in the premises subject to the following terms and conditions: Electrical Outlets

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.

Disposal

Dishwasher

Counter Tops

Cabinets

Sink

Floor

Light Fixtures

Ceilings

BEDROOM 1

Electric Outlets

BEDROOM 2

Walls

Landlord

Walls

Windows

Phone

Windows

Blinds/Drapes

Windows

Blinds/Drapes

BATH ROOM Towel Bars

Method of Service:

Personal Service:

* Add one additional

Blinds/Drapes

Rods

Post and Mail:

*

Floor

day for compliance

Sink & Vanity

Light Fixtures if served by post

Rods Floor

and mail.

BATH ROOM

Towel Bars

Sink & Vanity

Toilet

Tub/Shower

Fan (Exhaust)

Floor

sales@rentegration.com

Light Fixtures

Doors/Woodwork

Essential Services

Rental Housing Journal Valley · September 2016

_____________________________ Landlord

Rods

______________________________ Floor Tenant ______________________________ Light Fixtures Tenant Doors/Woodwork

Locks ©2011 NO PORTION of this form may be reproduced without written permission.

Ceilings Electrical Outlets

BEDROOM 2

Walls

Windows

Blinds/Drapes

Rods

Floor

Light Fixtures Doors/Woodwork Locks Ceilings Electric Outlets

Locks

Tub/Shower

may be reproduced without written

Ceilings

Electrical Outlets

Electric Outlets

Smoke Detectors

Smoke Detectors

of this form may

Essential Services Plumbing Heating

Hot Water

permission.

©2009 NO PORTION

Plumbing

Heating

Electricity

Hot Water

Smoke Detectors

©2009 NO PORTION

Electricity

Smoke Detectors

©2011 NO PORTION of this form

Locks

Ceilings

Fan (Exhaust)

Floor

Electric Outlets

Light Fixtures

of this form may

be reproduced without

written permission.

02

Electric Outlets

Light Fixtures

Doors/Woodwork

Toilet

do NoT put over a busy background

be reproduced without

written permission.

7

Rental Housing Journal Valley

Budgets; Don’t Just Update ...continued from page 1

The Risks and Rewards ...continued from page 5

The first thing to determine is what you are specifically budgeting for. Is this budget being used for only your personal projections? Or are you using this budget as you prepare a property for sale? Is it possible you might need this budget for refinancing or even for meeting ratios for your current loans? These different needs can make a big difference in how you approach the budgeting process.

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

This should be effective for insurance, screening, trash, landscaping, security, cleaning, painting, advertising, etc.

Speaking of historical numbers, budget time is a great time to look at your past trends in turnover. How many move-ins, move-outs have you had in each month or season? Has this happened year over year or was last year different? What may have caused the differences? How should you plan for these? Some things to expect might be the summer rush or the winter fall off. Many property owners see an increase in move-in and move out in the summer while children are out of school and the weather is good for moving only to see a complete slowdown in the winter.

Some property owners even go so far as to write their leases to expire in the summer so if the tenant leaves it will be easier to fill the property. It also doesn’t hurt to look at current vacancies and rents in the area

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

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

For example, the only fast food restaurant in a newly developed area will likely have booming sales the first year, and gradually less as other chains move in around it to capitalize on the new market.

If the services grow faster than the population, the same investor who once had a monopoly on the area’s fast food, may quickly regret the decision to invest in the third tier.

Return on Investment

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

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

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

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

Once realizing this, add it to the list, so it is not forgotten the following year.

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

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

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

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

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

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

Location, Location, Location

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

Financing

The Rewards

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

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www.americanleakdetection.com Rental Housing Journal Valley · September 2016