Boise Area Rental Market

Vacancy dropped just slightly to less than 4.5%. Based on the number of pending applications, I suspect that the vacancy will continue to slowly drop through the remainder of July. The single family homes are renting up fairly quickly. However, I have a few multi-family units that aren’t moving at all. In fact we aren’t even showing them that much. It’s always fun trying to figure out why a property isn’t renting? Is it location? Is the wording in our marketing not as good as others? Curb appeal? Price? What? We make a few deductions, such as if the call volume is as high as other properties, then we know that the marketing is good. If we are scheduling a lot of appointments we know that our leasing team is responding to these leasing inquiries and adequately selling the property. But if we aren’t getting applications at that point, it could be location, property condition, or price. First Rate Property Management adjusts for bad location by adjusting the rent down or offering an incentive. Sometimes it’s the condition of the surrounding properties, not necessarily the one First Rate Property Management handles. So we tend to drop price temporarily and then work on notice to the surrounding neighbors to get things cleaned up, like a nice little note to the HOA letting them know that the grounds look trashy. So rent amount can typically fix all of the above, but I wanted you to know that we evaluate and identify these trends each week and take the necessary actions to get things moving.

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Additional Insured:

First Rate Property Management requires each of our clients to list us as additional insured. The reasoning for this has recently been questioned, so we have added this to our Owner’s frequently asked questions. Please click here to view the question and the answer as to why this protects the owner/investor more than it protects First Rate Property Management.

Sales Market:

As you probably heard on the news, the Feds extended the tax credit date, but only for those deals that were already under contract before the previous deadline. Interest rates are as low as I’ve ever seen them. In fact, I’m refinancing my own home at 4.375%. I had been holding out on refinancing because of the costs to refinance would take me 1.5 years to recover and I was thinking that if the right property came out as an REO or foreclosure, I would jump on it. But that hasn’t happened, so I am going to go ahead and refinance. Besides, if the right deal comes down, I think I will have the potential of making hundreds of thousands on it, so a few thousand in lost closing costs on a refi are negligible.

I am still pleased with the investment opportunities out there. Please take a look at the Boise Investment Properties Team’s listings. And to view all of the Swope Investment Properties listings, click here.

Mold:

On average, First Rate Property Management deals with some sort of water loss each month. Sometimes there is significant damage and sometimes very little. Because of this, we have purchased equipment to respond quickly to include dehumidifiers and air movers. Recently I discovered a water leak in my own home. This leak had been going on for a very long time and went unnoticed because the leak was a very small one and I have tile floors which were set after the cabinets and served as dams, keeping the water contained under the cabinet. Because the cabinets had legs, the actual cabinet box had no signs of damage. Eventually we noticed the toe-kick of the cabinet had a color change. After further investigation we discovered the leak and immediately began the clean up.

Over all these years, I have never seen an insurance company cover a leak that caused damage over a length of time. In fact, they typically specifically excluded those types of leaks and use words such as “SUDDEN LOSS”. Well, my company did. I encourage you all to check with your agents to see if your policy specifically excludes undetected leaks that occurred over a length of time. I would also ask if you have a rental rider which ensures you coverage of any loss rent due to damages so significant that the tenant has to move out. If you don’t have either, I would recommend that you add those to your policy.

Anyway, my insurance adjuster came to the house and was impressed with the work that I had done and how quickly I had gotten it done. Which amazes me since I did 90% of the work at that time? First Rate Property Management not only knows how to care for your water losses, but we also have the equipment to save you and your insurance provider a lot of money.

FRPM Summer Retreat:

Every year, First Rate Property Management holds a summer retreat. Over the past few years, we have held it right below Tamarack resort in a campground on Cascade Lake. As you have read from past posts, the summer is a busy time for us. There never seems to be enough time. So we hold this retreat right in the middle of summer so that we can break up the frantic pace and let our hair down if you will by just going out and having fun. We do close the office down for half a day to do this, but we hire a contractor to field any afterhours emergency calls. This year’s retreat will be held on July 30th thru August 1st. Below are some photos of past retreats.

Boise Rental Market Update:

Below is the updated vacancy rate graph. As you can see, the last 3 weeks have trended upward. I believe the major cause of the increase in vacancy is that this is the month with the highest turnover so there is some down time as all of these tenants move from one place to the next. I suspect that the trend will either level out or hopefully even decrease. We have been increasing rents and that could be a factor as well, although I put more weight on the time of the month and year as tenants make their summer moves. Our single family homes are doing very well. Overall, I am very pleased with the current market.

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Ada County Duplexes and Four Plexes:

As you know, I sell investment properties for Swope Investment Properties. In fact, the brokerage is #1 in sales production of Residential Income Properties within Ada County. One of the things the office does is track the four plex and duplex sales. June was a huge month in 4 plex sales within Ada County. If it weren’t for the knowledge that I have that more four plexes are coming to foreclosure within the next few months, I’d say that we might be close to seeing values finally stabilize. But my guess is that those foreclosures will keep that from happening. Not to sound like a broken record, but my opinion is that it is a great time to buy.

Annual Accounting Audit:

Next week we have our annual accounting audit. I hire a 3rd party company to dig into our books and make sure that everything is posted right. I do this to make sure that your bookkeeping is dead on as well as my own books. We also purge old data and install updates once the audit is complete and that requires everyone to be out for a day or two. So please excuse the girls if they have to wait a day to respond to any accounting questions next week.

Useful Information:

I got a lot of great comments about last week’s post on the average expenses. If you ever have any questions or think of a good subject line, please just reply back or post a reply post on the blog and I’ll get something written up. I enjoy writing these and I want to keep all of you up to speed of the market conditions and any changes First Rate Property Management is making.

Boise Area Rental Market

The below graph shows First Rate Property Management's vacancy rate for 2010. As you can see the market has really improved since January. We are currently just over 3% and the average for 2010 is just under 4%.

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Property Performance

I field a lot of calls from property investors who are concerned about their current property manager and the performance of the property. They’ll tell me that it “isn’t cash flowing” or “it’s not covering my mortgage”. Depending on what type of property they bought and the terms of their financing, this property may rarely see positive cash flow or cover the mortgage. So I share some data with them to make sure they are being realistic. Nine times out of Ten these folks are upset not because of their property management company’s inability to manage the property, but they are upset because of unreasonable expectations regarding expenses. Below shows our average income and expenses as a percentage of total income. You might find it interesting. Also, I’m trying to see if someone has a national average so that we can compare to see if these are realistic or not.

INCOME

Rent Hud                                                                          1.2%

Rent                                                                                 98.8%

                                                         TOTAL INCOME  100.0%

EXPENSES

Advertising                                                                        1.2%
Tenant related repairs that exceed deposit                          0.2%

Cleaning that exceeded tenant deposit                                0.3%
 
Flooring replacement/repairs                                              2.2%

Electricity bills, while vacant                                               0.5%

Eviction and Legal Costs                                                    0.1%

HOA Dues                                                                        4.0%

Gas Service, while vacant                                                   0.3%

Landscaping/Yard Care - mostly multi-family properties      1.9%

Management Fee                                                                7.7%

Maintenance/Repairs                                                          7.3%

Sprinkler Repairs                                                                0.3%

Water, Sewer, & Trash Service - mostly multifamily properties 3.6%

Exterior repairs for roofs, windows, and siding                      1.0%

                                                        TOTAL EXPENSES   30.8%


Rental Income and Expenses

The numbers above are a 5 year average for all of our properties.I think they probably compare fairly well to local companies averages, although I don’t know of anyone else that has published this information. If you have a single family home and the tenant pays all utilities and does their own yard care, you could remove those numbers from your calculations. Please note that these numbers don’t include property taxes, hazard insurance, or debt service. Also, I posted our owner’s eviction and legal costs just to point out that that expense is less than 1 tenth of 1%. So roughly 30% of each month’s rent will go towards some expense or another. Add property taxes and hazard insurance to that and you’ll probably be around 40% for multi-family properties. Now if you have debt service, add that in and see where you fall. If the numbers work with these percentages plus a safety factor, you probably are ready to become an investor and have reasonable expectations. I hope this was helpful information. It was a fun exercise for me.

MERIDIAN’S HARD WATER AND HYDRONIC COIL FURNACES

We’re all aware of Meridian’s notoriously hard water; you wash a glass and two seconds later it has a film on it. Now, think about what that hard water is doing inside a Hydronic coil furnace that has water in it constantly. We’ve had several units that have had the coil literally burst and flood apartments. While there is nothing to be done about the water quality, we can offer some tips for helping to avoid a complete disaster.

First and foremost the filter in the unit must be changed on a regular basis and replaced with a clean one. Restricted airflow can cause the evaporative coil to freeze up, which in turn can potentially cause the Hydronic coil to freeze and burst.

Second, we can have Freeze Protection Stats installed for a small cost. These are installed inside the unit on the coil and wired to the A/C. The purpose of the Stats is to shut the A/C off if the Hydronic coil temperature reaches 35 degrees. This will decrease the chances of the coil bursting.

Lastly, for a higher cost, we can have a Safety Water Shut-Off System installed. These are 24 volt controlled shut-off solenoids installed at both the supply and return water lines. The solenoids are connected to a “Wet Switch” safety that is activated by the presence of moisture. The wet switch, when activated, will shut down the HVAC equipment as well as the water supply lines to the Hydronic air handler. This system will not completely do away with, but will substantially decrease water damage caused by Hydronic coil failure due to pressure or corrosive issues.

For pricing and additional information please contact

Dave Cole

A+ Energy Management LLC
P - 208-484-2907
F - 208-562-1845

Summer Is Here!

Tenant Turnover to Increase

In the past, I have described the seasonal cycle that we tend to see in the rental market. Typically the slowest month is December and January. Things then pick up each month from February thru May, with an explosion in June and July. Then in August it starts to slow down each month until we are at a crawl again around Thanksgiving. Depending on when school ends, our busiest months for the entire year are either June or July. Based on our notices to vacate for July move-outs, we will turnover 8% of our inventory in July. We closed May out with a 3.8% vacancy and pre-leased over 70% of our listing. We’ve also been increasing rents where possible. I’d still like to see the rents increased higher as they did take quite a dip in 2009, but I’m happy with the upward trend I am seeing.

Summertime is Busy

Summer is upon us. I think I say this each year and I forget how busy it gets until it hits. For example, we hold staff meetings every Wednesday from 9am to 11am. When I returned from our staff meeting this morning, I had missed 18 calls and had 13 voicemails. I also received 38 emails during that time. Every time I got on the phone to return a message, I’d hang up the phone and discover new and more voicemails. We’ve increased our staffing to help, but it is what it is and we just suffer through it for 3 months. Just so you know, I have already fielded several calls from tenants stating that they can’t get through. It’s true, at certain times of the day, we are all on the phone one call after the next. Both of the complaints were from callers who didn’t leave a message. If they leave a message, the call is to be returned by the end of the business day. We also add a swing shift in the summer too. That helps with showings and after hours inquiries.

Sales Market

I almost always comment about the multi-family sales market, but that’s not because I don’t follow what is happening residentially, it’s just that I’m much more entrenched with the income properties. With so many 4 plexes coming to the market as bank owned properties and short sales, this market has exploded. Prices are outstanding. Also, I received a rate quote from my lender at 5.125% with a 1% loan origination fee and .75% loan discount fee. Considering the prices and those kinds of loan terms, that’s a pretty good combination. So yes, I am still finding the biggest bang for your buck to be 4 plexes. I don’t know a lot about stocks, but what comes to mind right now is the stock broker in the movies calling everyone telling them to “buy, buy, buy”. I think we’re there.

Travels

Next week I take a two day Continuing Education Class. The following week I’m in Seattle, WA for NARPM Board meetings, and then the last week of the month I will be in a week long CCIM, which stands for Certified Commercial Investment Manager. Yes, I am working on another designation, although this one will take a little longer has the classes are a week long and for me to find a week that I don’t have other commitments has been fairly difficult.

TENANT SCREENING TRENDS

RentGrow, a national tenant screening company sends out monthly newsletters and reports trends they are seeing. Although they are reporting national trends, I have found them to be fairly relevant to the Boise market and what we at First Rate Property Management have been seeing. Click here to view RentGrow’s entire May newsletter.

Bankruptcy

We have seen an increase in bankruptcies as well. First Rate Property Management will not accept any tenant with an open bankruptcy. We did however, make changes to our rental criteria to make exceptions for would-be tenants who have lost their home due to a foreclosure or filed bankruptcy due to a foreclosure. Depending on the circumstance, this can be difficult to show, but we do make the effort.

Thin to no Credit

About two years ago we changed how we looked at credit reports. We use to look and analyze the number of accounts and count and score the number of late pays, etc. Now we simply input the credit score into our decision model. So we are not penalizing our applicants for thin credit, as long as it’s good. When things go bad, we do review our screening criteria and I would have to agree, those with very little credit do pose a risk. Since the Boise rental market appears to be improving, this is probably one the first areas that we will change to tighten our rental criteria.

We have noticed a lot of bad credit. As I have said before, I don’t know if these bad credit scores are a sign of the times or an indicator of how unimportant credit is to the younger generation. It’s been amazing to see.

Identity Theft

This month’s RentGrow newsletter didn’t address identity theft, but this too is a trend we’ve been seeing. More and more applicants are blaming their poor credit due to identity theft. We are willing to work with tenants who have bad credit due to identity theft, but the documentation has to be impeccable, so we are actually unable to help very many applicants in this situation. However, it has opened my eyes to the damage a stolen identity can cause and how much time and frustration it appears to take to get it corrected. It’s devastating.

Medical Debt

Many years ago we actually forgave applicants for medical debt. However, after being burned a couple of times, we no longer allow it. The problem is that the creditor can and probably will at some point, get a judgment and garnish wages. The garnishment could be enough where they no longer can afford to pay rent. We’ve seen this scenario enough times that we realize this is a risk we no longer wanted to take.

Speaking of medical bills, I’ve been blessed to be relatively healthy all my life. Earlier this year I had to run some tests, so I’ve been dealing with medical bills and insurance. What a screwed up system. For one, the costs are absolutely ridiculous. Two, their billing is horrible. And three, between the insurance company and the service providers, it takes months to get it all sorted out. Oh, thank God the government is taking it over. I’m sure it will be much easier then. Right?

FRPM Widget

Soon, we will actually have a webpage that our applicants can go to and see where FRPM is at on their application. So it will show the application submitted, when it passes or is denied for credit, criminal background check, prior landlord references, and employment/income verification. Additionally, it will list any documents that we still need to compete their application such as payroll stubs and taxes. We are hoping that they will be able to upload these documents to us. This will eliminate the multiple phone calls we get from prospective tenants looking for an update on their application and it will drive more traffic to our website, which will improve our search engine optimization.

Summary

Tenant screening is ever changing. As new risks and trends are identified, the Landlord’s screening criteria probably needs to be tweaked too. Obviously market conditions have a role. If you have five applications per property, it’s time to tighten up your criteria. When you are denying a majority of your applications, like we were last year, it’s probably time to loosen up the criteria a bit.

Boise Rental Market

Below is a graph showing First Rate Property Management’s 2010 vacancy rate. As you can see, our vacancy is slowly increasing. However, I believe the rental market is improving. Our call volume, showings, and applications are all improving. So why is the vacancy rate increasing? The school year is almost complete and this is when tenants seem to make their moves. So even though our vacancy is increasing ever so slightly, I do see the rental market improving. We are increasing rents when possible.

Sales Market

There is just a ton of sales activity going on. I think the excess in inventory has pretty much been swallowed. However, the volume of bank owned and short sale properties is so prevalent, it continues to hurt value overall. Over the past year, I have mostly been selling 4 plexes. Mostly because as the prices drop, the cash performance improves. Really, to me a four plex purchase right now is a slam dunk good investment, if you are willing to hold for a minimum of a few years. The data is showing improvement in this market, but with the majority of recent activity being short sales and foreclosures, I don’t see values increasing yet. I’ll let you know when we do. Meanwhile, we’ll just continue to focus on buying these properties at these great prices while we can.