Embezzlement, Boise Idaho Vacancy Rates & Our Readers

When it Comes to Embezzlement, Property Management is Risky Business:

Attached is an article that ran in the Idaho Business Review earlier this week. For the most part, I agree with much of what is said. Is there an epidemic of embezzling going on; I don't think so. Is there a lot of "rob Peter to pay Paul"; I think so. I think licensing of property managers in Idaho would help, but I know licensing won't completely solve this issue. Most states do require licensing of their property managers and although theft of other people’s money still happens, it’s just happens a lot less frequent in those states that require licensing.

Why your money is safe with First Rate Property Management…

1. First Rate Property Management is one of three Certified Residential Management Companies in all of Idaho. The certification required policy and procedures, as well as an audit demonstrating how we assure our owner (Client) and tenant (Customer) funds are reconciled.
2. We utilize property management software that uses a double entry system.

   a. Unlike Quick books, we can't just go in and edit bills, checks, and ledgers to make them do what we want. There is no delete or edit. We either do it right the first time, or have to go in and enter an offsetting charge. The system is not very flexible, which keeps us from doing some things that we'd like, but evidently it’s protecting us from ourselves.

   b. Our system has security levels that deny employee access to areas outside of their department or to the general ledgers.

   c. Monthly we perform a 3-way reconciliation of funds and balance to the penny.

   d. Annually, we hire a 3rd party person to perform a full audit of our books.
   e. Vendor invoices are verified, before a payables clerk processes them and our bookkeeper performs the final check before signing the checks.
   f. All bank reconciliations are done outside of our accounting department.
3. We require owner reserves so that we have the funds to pay bills between the time rents are received and proceeds are released to the owner.
4. First Rate Property Management's books are kept on a complete different set of books and software.

http://idahobusinessreview.com/2012/01/09/when-it-comes-to-embezzlement-property-management-is-a-risky-business/

Vacancy is down; NARPM 2011 rent and vacancy report:
Below are two graphs. One shows vacancies from 2006 to 2011 and the other shows average rents for that same time period. Although vacancies are way down, rents have remained relatively flat. One would expect that the rent amounts would be the inverse to the vacancy graph, meaning as vacancy decreases sharply, so would rent. Why is this? For one, I think that after almost a decade of the market being a tenant market, property managers have been slow or cautious to adjust. Additionally, with today's technology, researching and comparing rents can be done within minutes. As a management company, we subscribe to a number of services that go out and find these on-line listings, create an average and some upper and lower control limits so that we can maximize our rents, yet reduce our chances of the property sitting for a month to get that absolute highest rent. Tenants basically do the same thing, but they look at the lowest rent and don't necessarily make adjustments for improvements and other factors that may make one property higher rent than another. I guess you could call it "PRICELINE" for rentals, but just not quite a formal. It’s too bad Boise property managers don't use the MLS as it certainly could help other property managers in analyzing comps and determine a more fair market rent to ask. And lastly, I believe that the supply of rentals has been slowly increasing to keep up with that demand, therefore not allowing that sharp increase in rents one would expect with such low vacancies. Nonetheless, I do however still believe that we will see slight rent increases in 2012.

Click to enlarge images

Our Reader Base:

Initially, our blog was just an easy way to convert First Rate Property Management's monthly newsletters into an electronic format. Over the years, our blog has become a resource to many. Our current subscribers consist of: mortgage lenders, insurance agents, would-be investors in the area, other property managers within the Boise area and as far away as New Jersey, local and out-of-state Realtors, vendors, friends of clients, and even a couple tenants have subscribed to the feeds. Although no one ever posts comments within the blog, the FRPM staff and I receive emails all the time regarding our posts, the feedback and recommendations are always great. So I encourage you to continue to forward these blog entries to others. If they are looking to invest, these certainly can help them understand the market or maybe just a topic here and there will be of benefit.

Tony A Drost
http://www.frpmrentals.com/
http://www.boiseinvestmentproperties.net//
First Rate Property Management, Inc
Boise, ID

Vacancies and Evictions in Boise Idaho

First Rate Property Management Vacancy:
Our vacancy rate for the first week of 2012 is 1.2%, compared to 2.4% last year at this time. The average vacancy rate in 2011 was 2.7%, compared to 3.7% in 2010.

                                                 Click image to enlarge

Evictions:
First Rate Property Management recently took over a new property. Within 30-days, we had to file 3 evictions. Including these 3 evictions, FRPM only evicted 8 tenants all year long, which equates to less than one tenth of one percent. In comparison, that is very good. So I wanted to explain a bit why I believe our eviction rate is so low and why we had 3 in one month for a new property.

Tenant screening:
Tenant screening is imperative, by examining past payment history, credit, criminal background, eviction history, income, employment verification, and so on, a landlord can quickly screen out those who have a higher chance of not paying. Collecting an application and reading what is entered is not adequate. Bad tenants lie, they have friends pose as their current landlord or employer. They fudge their income. They do what they can to beat the system. That is why we use a 3rd party screening company that digs in and verifies everything.

It is not always the case, but more often than not, those property managers who boast low vacancy rates and higher than market rents, are probably not screening as well as they should. Perhaps the lower screening criterion has worked out and appears to be worth the risk. I've just done this too long and seen too many slip through the cracks to be willing to take that risk for our clients or us as the property manager.

Procedures:
Immediately after tenant becomes past due, First Rate Property Management is texting, emailing, and mailing Past Due Rent Notices. For those who fail to communicate, we are delivering 3-Day Notices to Vacate at the property. After 3 business days, we go to the property and inspect. If payment hasn't been received, we then contact the owner and discuss options. Regardless of the decisions made, FRPM is aggressive on the collection of rent. I am confident that many tenants who were short on money were prepared to short the Landlord, but because we constantly hounded them at home and work, as well as on their computer and phone, they decided to pay us first, just to get us off their back.

So why the three evictions on the new property? I believe screening is one reason. The other was inconsistent procedures from previous management. Many landlords are short sighted and believe that working with everyone makes for a happy relationship. OK, I can see merit in this, but with limits, structure, and consistency. So basically, with any new property and its tenants, we have to train them in how to be good tenants. Pay your rent when it is due and if not, we are going to harass you until you do or we evict you. If you fail to communicate and ignore our requests, you will surely be given an eviction notice and might as well leave, because the cost of eviction are high enough that it doesn't make sense to stop the process once it is started. Let me tell you, after evicting tenants in November, the remaining tenants did a lot better job paying rent in December. I suspect that rent collection will improve as time goes by.

Tony A Drost
http://www.frpmrentals.com/
http://www.boiseinvestmentproperties.net//
First Rate Property Management, Inc
Boise, ID

Renting in Boise, Idaho

Happy HolidaysTo all our valued clients and customers Happy Hoildays and a wonderful upcoming New Year from the staff at First Rate Property Management!

Our Holiday schedule is as follows:
We will be closed the weekends of the 24^th - 25^th and the 31^st – 1^st of January.  We will be open Monday through Friday with normal business hours.

More Multi-Family Properties Being Built

Last week I attended a Planning and Zoning Committee concerning the building of more four plexes in Meridian.  In my discussion with all of those involved in this project, I learned of many more four plexes and apartments to come in the near future.  And, I was surprised to learn of some apartments that were built in Meridian with more to come.  So the word is definitely out that there is a demand to rent.  Some of the benefits is that these builders are finishing incomplete complexes.  That helps with association dues and really improves the overall appearance of the complexes.  It’s also good in that these new buildings are providing some inventory to meet the demand to buy turn-key properties.  These newer buildings are also selling for more, which should help improve values of residential income properties.
The potential downside is that the new construction increases the supply of rentals, which may soften the expected rent increases and reduced vacancies that we were predicting in 2012.  Also, if priced similarly, or not much higher, tenants may prefer to rent something newer.  Granite countertops, tile flooring, new appliances, and tile back splashes provide a lot of appeal, and if the rent isn't much more, I suspect many renters will be willing to make the move.

Is Renting Becoming more Glamorous?

Below is a recent online newsletter from the National Apartments Association sent to me by several clients.  There are a lot of interesting articles.  One that I found interesting, was Recent Study Shows Renting Is Getting Glamorous where the Center for Behavioral Economics at the Federal Reserve of Boston showed that fewer young people think home ownership is preferable to renting.  The study showed that a cultural shift is the reason young professionals are embracing renting in a destination-living community with multiple amenities.  First Rate Property Management has some tenants with high income and great credit choosing to rent.  However, we are still seeing many leaving the rental market to buy homes.  My guess is that this is more prevalent in areas where housing is much more expensive than what we see here in the Boise area.  However, this trend very well may increase in years to come.

Tony A Drost
http://www.frpmrentals.com/

http://www.boiseinvestmentproperties.net//

First Rate Property Management, Inc
Boise, ID

Freddie and Fannie Make Refinancing a Little Easier

Freddie and Fannie RefinancingMany of First Rate Property Management’s clients have seen the interest rates drop, but unable to refinance due to the decrease in value causing the loan-to-value (LTV) to be too great.  Freddie and Fannie have made it a bit simpler for some of us.  The first thing to do is call the company you make your payments to and ask if the loan is or since been purchased by Freddie or Fannie.  If so, you may be eligible to refinance based on some of the below:

·         125 percent LTV ceiling for fixed-rate mortgages

·         Loan must have been purchased by Fannie/Freddie on or before May 31^st 2009

·         45% Debt-to Income max (no exceptions)

·         Requires an automated approval

Current rates ranging from 4% to 4.875%

Additionally, I’m told that Fannie and Freddie are updating their underwriting systems and creating an automated value model that is due out around March of 2012.  Although we don’t know if the rates will be as advantageous as they are currently, the new system should make it a bit easier with fewer fees to refinance.  Below are some of the highlights:

·         Removing the current 125 percent LTV ceiling for fixed-rate mortgages

·         Their new automated value model eliminates the need for an appraisal

·         Extending the end date for Home Affordable Refinance Program until Dec. 31, 2013 for loans originally sold to FNMA/FHLMC on or before May 31, 2009.  The date by which the loan had to be owned by FNMA/FHLMC has NOT been extended.

·         Eliminating certain risk-based fees for borrowers who refinance into shorter-term mortgages and lowering fees for other borrowers

·         Need an automated approval

For more information, I have attached the below link:

http://www.makinghomeaffordable.gov/programs/lower-rates/Pages/harp.aspx

If you have questions or would like a referral to a lender who can help, please feel free to let me know.

Tony A Drost
http://www.frpmrentals.com/

http://www.boiseinvestmentproperties.net//

First Rate Property Management, Inc
Boise, ID

Current Vacancy:
FRPM’s current vacancy is 1.1% and below is a graph showing the trend.  It's winter, but the weather has been relatively nice so the rental inquiries haven’t come to the complete stand still that we've seen in the past.

Click to enlarge image

End of the Year Statements and Tax Reporting:

First Rate Property Management will send out the 1099’s and End-of-Year Statements at the end of January.  However, for any owner that received funds from HUD, Section 8, or the Housing Authority, we will first wait to received the 1099 reporting from that agency to double check for accuracy and then mail those out immediately afterwards.  Your 1099 and End-of-Year Statement will also be uploaded onto your online statements for future reference.

For those in partnerships, the K-1’s can’t be completed until the EOY statements and 1099’s are completed.  So look for your K-1’s to be sent out near the end of February.

Idaho Incomes are 3^rd Lowest in Nation:
It’s not uncommon for an out-of-state investor to look at Boise rents and state, “Rents are low”.  Rents do appear low in comparison to a lot of cities across the nation, but perhaps not as low as one would expect in comparison to income.  Below is a link to an article stating that Idaho income levels are currently third lowest within the nation.  First Rate Property Management manages in the Boise, Meridian, and Eagle areas, all of which fall in Ada County.  I can tell you that the income of our applicants for our multi-family rentals, like duplexes, four-plexes, and apartments is far less than the average income stated in this article.  In fact, their income averages are probably half as much.

http://boiseguardian.com/Income

Boise Property Manager Files Bankruptcy after Fair Housing Complaint:
A fellow colleague recently filed bankruptcy, after receiving several fair housing complaints, due to the legal costs and the amount of compensation wanted by the complainant.  I obviously don’t know all of the specifics and I only know one side of the story.  My sole purpose is to describe an incident and the arguments for and against the complaint.  The message here is that fair Housing is a serious issue and can put a Landlord out of business.

The complaint was generated by a local Fair Housing Advocate, not from a tenant.  This advocate found discriminatory language in their lease, such as requiring adult supervision for children under a specific age and that support/companion animals require inoculations and proper licensing.  Most reading this are going to think that sounds very reasonable and perhaps even prudent.  Where the intent may be reasonable it’s the wording used to express it that causes issue.  This property manager’s attorney reviewed his lease and approved it and even after the complaint, the attorney found no issue with the wording.  Property managers and owners have come to me with this case and their concern is that this property manager is going out of business and no actual tenant was harmed or discriminated against.  I would assume that the complainant’s position is that this wording is discriminatory and possibly caused would-be applicants to not apply.

Owner’s question decisions First Rate Property Management make all the time regarding Fair Housing Issues.  Most concerns are those regarding Reasonable Accommodations and Modifications.  A typical Reasonable Accommodation is for a support or companion animal.  Owner’s who don’t want pets in their rentals have a hard time understanding that a support or companion animal is not considered a pet.  We cannot unreasonably deny this request, nor can we charge more rent or collect a deposit.  Most owners’ arguments are that pets cause increase wear and tear and often times, damage to the property.  I do not dispute that.  But it’s the law.  Next owners want to know what is wrong with the tenant that makes them need a support or companion animal.  Again, the law prohibits us from asking that question.

A more recent common accommodation or modification request is coming from felons who claim to have committed the crime that they were convicted of while under the influence of drugs or alcohol.  Recovered drug addicts and alcoholics have some protection under Fair Housing.  Should a recovered drug or alcoholic request an accommodation or modification of a Landlord’s written rental policies that deny felons, the landlord can not unreasonably deny their request.  This decision and what makes it unreasonable is complicated.  Landlords faced with such a decision better know the laws or know who to consult with to be sure they comply.  As the story above clearly shows, an inadvertent and what may appear to be a very minor issue can cost you.  That’s why First Rate Property Management employees attend Fair Housing classes taught in the area.  We find that HUD and the advocacy groups’ position on certain issues are not all the same.  So we want to know all of them and take the conservative approach in order to reduce the risk to our owners and of course our selves.

http://boiseguardian.com/Income


Tony A Drost
http://www.frpmrentals.com/

http://www.boiseinvestmentproperties.net//

First Rate Property Management, Inc
Boise, ID