Posts tagged Multi-Family
San Diego Apartment activity is on upswing – SignOnSanDiego.com
Feb 8th
Apartment activity is on upswing – SignOnSanDiego.com.
San Diego County’s apartment market ranks second nationally after Washington, D.C., in its outlook for stability and possible growth in 2010, according to Marcus & Millichap’s annual apartment report covering 44 metro areas. Two other reports came to the same conclusion: San Diego’s rental market is on the way up.
“With property performance expected to be steady throughout much of the metro area, investment activity will likely pick up this year,” said Kent Williams, regional manager of the real estate investment services firm’s San Diego office.
Marcus & Millichap is a great company and Kent has really done a great job leading the San Diego office. In my opinion until something causes owners of buildings to sell, things like foreclosures, high vacancy and credit losses, etc. we will have light volume.
I think (my guess is as good as yours!) is 2010 will start off slow continuing from last years anemic sales volume (15% or so compared to 2004) and the second half will pick up some steam but slowly. In talking to some friends of mine like Aaron Bove (later in this article, who will probably deny our friendship but eh what can you do?) and others I am starting to hear of some deals that are almost piquing my interest. I will probably be a buyer myself towards the later half of 2010 or early 2011. It will most likely these deals will be value added deals that were previously bought by novice investors who were ok with all the crap that goes into operating apartments when they were getting 20% increases in equity per year. Now that the buildings have not been maintained or operated well I believe we will see some motivation.
As much as I would like to see rock bottom prices with huge CAP rates I don’t think that is where the deal flow will come from. It will probably take a little more creativity this time around doing things like subject to, master leases, wraps, or partnering with the current owners in some capacity. The goal for me is to control mismanaged buildings and bring them back through good operational management to bring the vacancy and credit loss down and reduce expenses. Nothing like a little tenants & toilets phone calls in the middle of the night eh?
Aaron Bove, an apartment expert at Marcus & Millichap, said the outlook for complexes will vary depending on location and quality. Middle-market complexes, charging an average of $950 to $1,200 for two-bedroom units, are likely to fare best. Bove also said investors favor coastal areas.
One factor that may push vacancies down, the company said, is the arrival this spring of the aircraft carrier Carl Vinson. Its shipboard crew of 3,200 will be home-ported in San Diego, “providing a boost to rental housing demand.”
Thanks for the info Aaron I did not know this was happening. I have been wondering when we would start getting some of the military back. If most of the rest of our troops get back within the next 5 years in combination with the lack of apartments being built San Diego apartment owners may just see some upside in the rents. Probably not until then and unemployment becomes much lower.
Bove said he could not estimate how many more military households will seek local housing off the base. But he said it is common for landlords to hear from military tenants in certain areas.
Asked why vacancies should go up at a time of rising demand, Bove said supply is being boosted as many formerly owner-occupied condos and foreclosed houses become rentals. Also, some renters are doubling up or moving in with relatives.
I am seeing this in my own properties.
“They say the economy is getting better, but talk to the person out there right now and see whether that’s the truth,” he said.
Totally agree. There seems to be a lag of what we have on the news and what is really happening, the hangover is still there and peoples savings have run out and were just about to see a big wave of people on unemployment run out of benefits.
Still, he said, San Diego is better off than most metro areas, as Marcus & Millichap’s national apartment index indicates.
“San Diego has been one of the first markets to go into the downturn, and we see signs of San Diego being one of the first to come out,” Bove said.
If you are in the market to buy apartments right now Aaron is a top notch broker and you’d be doing yourself a favor to talk to him. Just don’t call him for no money down, 10 CAP deals at the beach. There not there and it’s tough to get brokers to work to hard on deals where the principal is hoping to get in through some Carlton Sheets infomercial program. Remember this is a relationship business and San Diego has a small Real Estate community. If you burn good brokers time it get’s around quickly.
Seconding that prediction was Sarah Bridge, owner of RealFacts, a Novato company that monitors 37 apartment markets around the country and 24 in California . While some areas, such as Phoenix and Las Vegas, are classified as “code red,” meaning apartment vacancies are rising rapidly despite deeply discounted rents, she said San Diego is on the mend.
“San Diego is poised for recovery unless something really goes wrong in the economy, and we are all going to have another big drop,” Bridge said.
In its report on the apartment market, RealFacts listed San Diego’s average rent at $1,357 in the fourth quarter, down 1.5 percent from the third quarter and off 2.8 percent year over year. Its 5.7 percent vacancy rate for the quarter was down from 6 percent in the third quarter but up 0.4 percent year over year. It was one of 12 areas to see a quarterly decrease nationally, and it tied with San Jose and Oxnard in having the lowest vacancy rate.
The company’s San Diego findings were based on a survey of 438 properties holding 98,892 units.
This may or may not be true but personally doesn’t matter as much to me since this is not my niche. There are over 15,000 apartment buildings in San Diego and most companies only focus on the large developments or in this case 438 of the 15,000 + properties. That is not the market my tenants are coming from or going to or I’ll be buying in the next few years.
Tenant Maintenance Addendum – Add this to your lease aggreements
Jan 27th
Ok I have not posted lately because I have been focused on business planning and operations but I wanted to take a few moments and share a good maintenance addendum to add to your leases. As part of the last few weeks I have been updating my policy and procedures for our rental and flipping operations.
I am a huge believer in systems and processes. Anything that is going to be done multiple times I want to have a process in place that is documented so it can be done the same way each time. This is also known as Standard Operating Procedures or Policy and Procedures.
These become very helpful when
1 – Certain things may not be done each day and when they come up it will prevent you from having to start all over and try to remember how exactly you did it last time. This is particularly important in things like property management because of the potential liability of omitting certain documents or disclosures to tenants or transactions.
2 – It helps make your business more scale able. If you have these systems documented it is easier to bring someone on if you get busy and they can hit the ground running. It is also good if you have people working for you so that if something were to happen to them you would know how these items were done.
3 – It makes you more efficient and allows you to improve quicker by allowing yourself to see over time how you are or were doing things which makes it easier to build upon previous systems.
4 – You add checklists to everything you do.
As part of our lease agreements with tenants we add an addendum called maintenance instructions. This let’s our resident know in advance what is expected of us as the owners and of the tenants and helps reduce questions that frequently come up. This is part of our resident welcome package which incorporates the lease, addendum and a 30 page document on making there stay with us more enjoyable and helping alleviate many misunderstandings that frequently happen between the landlord and the tenant.
Disclaimer – I am in San Diego, California so check out all your laws & speak with an attorney etc. wherever you are at before taking advice from someone like me Read the rest of this entry »
Resident Welcome Manual
Jan 6th
Well I was posting on one of my favorite Real Estate forms www.sdcia.com getting some feedback on the San Diego rental market and some ideas about the best ways people were renting their apartments because all of a sudden I have quite a few vacancies to fill.
Until recently it has been pretty turnkey because most of my units had been filling by the time the previous tenant had left. I probably took my eye off the ball a little bit because I had been so focused on flipping properties that I have not paid attention to talking to fellow investors in the market I own units.
Apparently I missed the memo that said for everyone to move out because all of a sudden I had 2 vacancies in December (they were on 12 month leases that I signed the December before. I remember thinking that it would suck if they moved out next December and here you have it, Merry Christmas Mr. Landlord)
As usual there was a lot of good feedbacks and comments and the thing that stuck out to me was that you needed to call people back immediately, especially in weak markets like we are heading into and with  today’s 24/7 world when everyone expects instant gratification (especially me!). I knew if I didn’t call them back to rent one of my competitors would.
One of the posts was by someone I respected who thought that if you called the tenants back at their whim you were setting a bad precedence. Â And it got me thinking (can you spell the burning rubber?)
A lot of people (including myself more than I would like to admit) fly by the seat of their pants when managing properties and don’t have many mechanisms in place to run the operations efficiently.
One of the things we do that I feel is very helpful once we have found the resident in place is a “resident welcome manual” to spell out how the relationship is going to work. We did not make it up but we purchased it from a company that creates property management operations manuals and forms and modified it to meet our needs (why reinvent the wheel? I’d rather make a better ball bearing to make it go faster.) Post a comment or send me an email if you would like their info.
So anyways I starting posting my response at click here and was pasting my table of contents of our resident manual and I had technical difficulties and it wouldn’t let me post so guess what…… Yes I am posting it here with a link to our TOC which will hopefully shed some light on a way to “set the tone” from the beginning.
Here is the Table Of Contents from my resident Welcome manual
GII resident WELCOME Manual
GII Welcomes You 4
GII Personnel 5
Tenant Communication 6
Telephone Calls during Office Hours 6
Voicemail 6
After Hours Calls 6
Emergency Calls 6
Maintenance Requests 6
Change of Information 6
Email 6
Website 6
General Office Information 7
Address Information 7
Communication 7
Office Hours 7
Emergencies 7
Protect Your Rental and Credit History 8
Rental/Lease Agreement 8
Moving Checklist 8
Utility/Cable Companies 8
Rental Payments 8
Fees/Charges 8
Maintenance Reimbursement 9
Care of the Property 9
Getting To Know Your Residence 9
Maintenance 9
Tenant Renovations/Alterations 9
Tenant Maintenance Responsibilities 10
Procedures for Requesting Maintenance 10
If There Is an Emergency 10
Non-Emergencies: 11
Preventative Cleaning Tips 11
Additional Cleaning Tips 12
Energy Saving Tips 13
Renters Insurance 14
Safety Tips 14
Vacation Checklist 15
Holiday Tips 15
Emergency/Disasters 16
Drug Free Housing 16
Frequently asked questions 17
When it is time to move 18
Giving Your Notice 18
Setting Up Your Move-out Appointment 18
Preparing the Property 19
Cleaning 19
Carpet Cleaning 19
Draperies/Window Coverings/Windows 19
Replacements 20
Pest Control 20
Landscape Clean Up 20
Trash 20
Painting 20
Your Security Deposit Refund 20
GII Additional Tenant Forms 21
o      Moving checklist/utility numbers 21
o      Emergency/disaster checklist 21
o      Tenant ACH request 21
o      Work order request 21
o      Add roommate request 21
o      Cable/satellite/TV request 21
o      Request to add pet 21
o      Partial notice to vacate 21
o      Notice to vacate 21
Conclusion 21
If anyone has any questions or suggestions please post your comments. Writing this blog helps me just as I hope it helps other people to.
Curtis Gabhart
How to choose a Lender for your Multi Family Apartment Building
Oct 28th
When you’ve got your eye on a new multi family apartment building, you’ll most likely want to use a commercial loan to buy it. So how do you go about choosing a lender?
First off, understand that commercial lending is very different from residential mortgage lending. Rates are slightly higher – usually one point or so – because the lender knows that the loan isn’t secured by your own personal residence, as is the case in residential real estate lending.
When you choose a lender, you want someone who understands the commercial real estate business, knows the local market, and knows the ins and outs of commercial loans.
For example, if the multi family apartment you are buying contains five or more units, you can usually obtain a 75% loan-to-value ratio. This means that for a 6-unit building appraised at $500,000, you can get a loan for $375,000. Thus, your down payment will be $125,000.
However, if the multi family unit you want to buy happens to be in one of the 10 most expensive zip codes,
then your lender might require you to make a down payment of 30% to 50%. So for that same $500,000 building, you’ll need to put down $150,000 to $200,000.
In those more affluent areas, commercial lenders will generally do loans for higher dollar amounts than in average locations, but the multi family apartment building still has to produce enough revenue for you to service the debt. Rest assured the lender knows that, and he or she won’t make the loan without doing due diligence to make sure you’re not getting in over your head.
How much should you expect to pay for a property? Your lender should be able to give you a rough guideline, but generally, in most parts of the county you can buy multi family apartment buildings for anywhere from six to eight times the annual rents. In affluent areas, make that nine to eleven times the annual rent.
So buying in a less-expensive area lowers your cost per unit, but you won’t get as much rent. Buying in an affluent area brings in higher rents, but your purchase price is higher. You will have to perform a balancing act between the two by considering your financial investment capacity.
Why should you invest in Multi Family Buildings?
Oct 22nd
Multi family buildings aren’t cheap, so why would you want to invest in them? Well, for starters how about tax benefits, long-term appreciation, the peace of mind of a tangible asset and renters who pay the mortgage for you?
Owning real estate confers some profitable tax benefits. For one thing, real estate is a depreciable asset, since structures have a finite life associated with them. Thus, the IRS understands that you will have to perform repairs and maintenance as your building ages…thus, you are allowed to depreciate the multi family building, much like you would with a company vehicle.
Tax benefits don’t stop there. If you have a mortgage on the multi family building, you can take a deduction for the interest you pay on the loan. In the early years of ownership, when the majority of your payments are interest, this can be a very lucrative deduction.
Then there is the 1031 exchange rule which allows you do defer paying capital gains when you sell, so long as you buy a property of equal or greater value within a certain time frame.
If you’re looking to build true wealth, more Americans have made their fortunes in real estate than via any other vehicle. Long-term appreciation in real estate generally outperforms the stock market, since real estate cannot go to zero value because land never disappears and is always worth something. Thus, property appreciation builds wealth for you without you having to lift a finger.
Then there’s the peace of mind that comes from having a tangible asset that you can drive past, point to, and say, “that’s my multi family building!” If you have doubts about the condition, you can walk in and inspect it.
Lastly, the rents that you receive from owning a multi family building should more than cover the mortgage payments that you make on that building. Thus, the renters are paying the mortgage for you, and at the end of the loan period they don’t own it – you do!
With all these advantages, it would be foolish to overlook the benefits that owning your own multi family building can confer up on you and your financial future…and that of your family.
Is a Property Manager right for your Multi Family Units?
Oct 18th
If you own a multi family apartment unit – or two, or three, or more – you may be holding off on hiring a multi family unit property manager because you don’t want to part with precious profits. And yes, of course it costs money to hire a property manager.
But a property manager can save you untold amounts of hassle and aggravation in managing your several multi family units. Do you really enjoy getting phone calls at 2 am from an irate tenant who’s toilet is overflowing? A property manager can save you the hassles and give you back your sleep and peace of mind.
The real question, though, is what’s it costing you to not have a property manager for your multi family units? Consider the value of your time.
You only have 24 hours in the day, 7 days per week. You can spend your waking hours running here and there to pacify upset tenants from your multiple multi unit properties, calling plumbers, supervising the work and checking to make sure it gets done right.
Or you can spend your time looking at new multi family units and arranging financing with the bank…so that your wealth continues to grow.
So tell me again why you think you can’t afford a property manager? The cold hard facts are that you can’t afford to not have a property manager. If you try to do everything yourself, you’ll end up like John Smith.
When I first met John Smith 20 years ago, he was a landlord who’d inherited 20 rent houses. He spent his days driving around in a beat-up old work truck loaded down with supplies, going from house to house, fixing things, as the houses were old. Then I lost track of him about 15 years ago…
I saw him again 5 years ago, at the Home Depot. He was still driving around in an old truck loaded with paint, carpet, and tools…still doing everything himself. Nothing had changed except that he’d put on weight and there were now bags under his eyes and gray in his hair.
Had John hired a property manager for all his multi family units 20 years ago, he could’ve spent time doing deals for new property…and would probably be out on the country club golf course right now, or sipping single-malt scotch in the clubhouse.
Don’t be John—hire a competent property manager and spend your valuable time completing more deals!
Multi Family Management
Oct 16th
The ability to improve your multi family management capabilities boils down to you being a good asset manager. The sole purpose of multi family management is to increase equity by raising NOI to cap out the property. Asset management boils down to four areas: property management, repositioning, adding income sources and reducing expenses.
It is important that you understand the difference between asset management and multi family property management. Multi family property management is the day-to-day operation of a property. Multi family property management involves keeping the multi family apartment property up, collecting the rent and maintaining it.
Asset management on the other hand is adding value to the multifamily property. Asset management is the fun part of owning multifamily apartment property. It is more than multi family apartment management. This is where you let your creative juices flow and think up ways to raise rent and decrease expenses. Every time you consider a multifamily property deal, you need to be examining it through asset management lens and not just the multi family apartment management angle.
You are not a retail buyer. You are not looking to improve your multi family property management skills but are looking for ways to improve your multifamily apartment property and add value to it. Multi family Property management is pushing the rents, raising the collections, increasing the occupancy, and keeping expenses in check without much capital expenditure. All this involves making improvements without investing a lot of money.
Repositioning is when you change the appearance, and the image or reputation of the multi family property. If you are rehabbing properties and changing the tenant mix it may involve capital. Conversion from an all bills paid apartment property to an individually metered multi family apartment property may be entailed. Even a simple name change can many times help change the reputation.
Adding income sources may involve adding onsite laundry facilities or putting in vending machines. You could also amenities like cable or internet services. Other possibilities include a childcare facility or storage units. While these may add the scope of work in mult family apartment management but it will certainly increase your net rental income if done properly. Fac is, you can really get creative when it comes to thinking of additional sources of revenue for your multifamily property and then even hire the services of a professional multi family apartment management firm.
Reducing the expenses on your multifamily apartment property is a process of multi family apartment management that entails looking at every expense in operations to see if it can be curbed without affecting the value it provides to the tenants. Ofcourse you should not look to become slumlords but instead means that every expense should be something that can be optimized. Your responsibility to your tenants is to provide safe and decent housing and your responsibility to yourself is to minimize your multi family management costs.
When evaluating a multifamily property keep in mind the multi family management aspect and it will assist you in determining whether it is an investment deal worth pursuing. At the same time, if you currently manage a multifamily property, you always need to find ways through which you can add value to your property. Proper multi family property asset management will enable you to cap out your property in the shortest time possible.
