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2010-09-01T13:53:00.001-07:00

Cash Flow Will Not Make you Rich

2010-08-12T07:47:00.000-07:00

Cash Flow Will Not Make you Rich

I came across the following article or blog last week and the title was, Cash Flow Will Not Make You Rich, caught my attention and I thought it would be good reading for everyone. I agree and disagree with the emphasis of this article.
I agree, cash flow alone will not make you rich. Investors in 2004 thru 2006 proved this as they made tons of money flipping properties that were structured with negative cash flow. Many put very little down and since the properties appreciated so quickly, they were making amazing returns. See, the great thing about investing in real estate is that you gain appreciation based on the property value, not your initial investment. If we ignore the boom period and look at investing into a property with reasonable positive cash flow with historic appreciation, the investor could expect to make 15% on their money. Do that over and over with some vertical moves and you can create wealth.
I disagree because cash flow may not make you rich but it certainly should be an important ingredient for most investors. Look at those investors who bought near the end of the bubble or soon after the bubble broke. If they had very little cash flow or were negative a fair amount, many unfortunately lost the property to foreclosure or short sale. So I believe that the typical investor should seek positive cash flow. In fact, I think that ALL investors should first address cash flow before moving onto other aspect of the investment. Right now, with the right property, that cash flow can make you around 6% on your money; and that is better than the bank. Because you have positive cash flow you should be able to ride the market out and once property values begin to appreciate again, you can expect that return to improve. So it’s a balancing act and I believe that my performance can help you weigh out different scenarios.

Have we hit Bottom?
Everyone keeps asking me, have we hit the bottom yet? As I have said in the past, I don’t think we’ll know it until after the fact, but looking at the data, it looks like we’re at the bottom. In prior months, if we saw a 4 plex sell at $215K and an identical 4 plex came on the market a month later, that sales price would be $215K or lower. Well, we have now seen that exact scenario, but the 2nd 4 plex sold for over $230K. The short sales and foreclosures are still dominating the market and there are many more coming down the pipe, but I think the market has found that sweet spot and I think we just might be there. Years ago I said that our inventory levels would have to get to or below a year’s worth of inventory. Well, guess what, we’re there. So all the indicators are there. I’m looking forward to seeing the data over the next couple of months.

Boise Rental Market
As predicted our vacancy did drop this last week and I further predict that it will improve throughout the remainder of the month. Things are still looking pretty good.

(Click to enlarge)

First Rate Property Management’s 2010 Vacancy Rate

2010-08-10T08:01:00.000-07:00

Below is First Rate Property Management’s vacancy graph. Let me explain what we count as vacant. If the property is vacant, but the tenant is paying rent, we count it as vacant. If the property is vacant and we have executed a lease and the new tenant just hasn’t moved in yet, we count it as vacant. As you can see, our vacancy spiked an entire percent in the last week. That is because most tenants vacate at the end of the month. I suspect that next week will fall back down to the 4% level.

(Click to enlarge)

Market Conditions

With the rental market improving, First Rate Property Management has had to make some changes in our policies and procedures. For most of the last decade, it has mostly been a renter’s market and our staff has made the appropriate adjustments. With the rental market now improving, we are now making adjustments that more favor the Landlord. Below are some examples of some of these changes.
Move-in dates: If the property was available on the 1st and the tenant couldn’t move in until the 21st, we mostly accommodated them and started the lease on the 21st, which means that the owner lost 3 weeks of rent. We have to allow some time for a proper turnover, but regardless of when the tenant wants to move-in, we will be requiring them to start paying rent sooner.
Move-in incentives: Incentives are not offered as quickly or for as much as we have in the past, with some exceptions based on trend analysis. However, we are putting controls on this. For easy math, let’s just say that the tenant is to receive a $300 move-in credit. We are now applying this $300 move-in-credit from the time the tenant is approved or when the property is ready to be occupied; where in the past, we applied it to the date they wanted to move in. So if you couple the flexibility we offered on move-in dates plus a move-in incentive that didn’t apply until after the move-in date, the owner was losing many rent days.

Renewals: Our lease has an automatic rent increase built in it. For the past few years, we have waived the increase and used it as an incentive or as good will, to get the tenant to stay and renew. We are now back to reviewing all upcoming leases and invoking the automatic rent increase to those paying under market rent.

In summary, I think these changes will improve our client’s bottom lines and I also think it will entice tenants to move-in sooner.

Boise Vacancy Rates

2010-08-02T13:54:00.000-07:00

The 2nd quarter vacancy and rental reports from the SW Idaho Chapter of the National Association of Residential Property Managers were just released. As you can see, the vacancy for single family homes is just a mere 2.5%. I haven’t seen that since 2001. It’s a great sign that our surplus inventory of single family homes have mostly been consumed. However, the survey showed a vacancy of over 6% for small multi-family buildings. First Rate Property Management has been fairly steady at 3 to 4%, so I was surprised to see that figure as high as it was. But I think it explains why I’ve seen some of our multi-family units not move as fast as I wanted them to or at least at the rental price that I thought would work. All-in-all, I am still pleased with the current market conditions.

(click image to enlarge)

Boise Average Rents

The SW Idaho Chapter of the National Association of Residential Property Managers posted their 2nd quarter rent survey. Below I have posted the results. With vacancy so greatly improved, I would’ve expected rents to have increased. If you have any questions, please feel free to contact Tony@FRPMrentals.com or simply post to this blog so that everyone can see your question and the response.

(click image to enlarge)

Summertime Busy

As we’ve mentioned, summer is our busiest time of the year. As of today, we haven’t received that many notices to vacate for August. So unless they come in by the truck-load next week, August should post up some good numbers.

Boise Area Rental Market

2010-07-19T08:18:00.000-07:00

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.

(Click image to enlarge)

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.

TENANT SCREENING TRENDS

2010-05-28T12:22:00.000-07:00

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 Update:

2010-07-08T13:57:00.000-07:00

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.

(click to enlarge)

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

2010-07-06T10:33:00.000-07:00

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%.

(Click graph to enlarge)

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

2010-06-04T07:30:00.000-07:00

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!

2010-06-03T09:49:00.000-07:00

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.

Boise Rental Market

2010-05-26T13:38:00.000-07:00

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.

Rental Market 5/10/2010

2010-05-10T08:42:00.000-07:00

First Rate Property Management’s vacancy rate continues to be low and I am predicting that the Boise area’s rental market will continue to improve. With rents and vacancy improving, we should start seeing other rental attributes improving as well. It’s a nice trend to be seeing.

Investment Market:

Distress sells continue to dominate the 4 plex and duplex sales and the main reason for values to continue to decline. However, with the interest rates starting what I believe to be an upward trend, I’m thinking NOW very well may represent the best time to buy. If you are looking to buy please take a look at our current listed investment properties. For those of you who I have been working with and trying to find the absolute best deal around, be ready for me to be pushing to jump on some properties as they come available. I just fear that the interest rate increases will hurt cash flow more than the potential of actually being able to buy something later at a bit lower price.

GOOGLE Reviews

When you do a search for property management or rentals in Boise, often the first thing you see is our GOOGLE Local Listing. This listing allows anyone to post a review. Over the past few years, we have had past and disgruntled tenants post negative reviews. There are always two sides to every story, but I c an tell you that in all these cases, the tenants were upset with the enforcement of their rental agreement and the fact that we charged them for tenant related cleaning and damages. Since prospective tenants may read these reviews and chose not to rent from First Rate Property Management, we are requesting that our owners post positive reviews written in a way that a tenant could relate to. To post a positive review, please click on here. With positive reviews I am hoping that it helps us fill our vacancies.

On-Line Statements May Change Again:

When we went to online statements years ago, our clients loved the 24/7 access, but the actual statements left a lot to be desired. Our online statements were created through the partnership of our management software, PROMAS and our web host, Homerentals.net. My requests to improve the online statements were ignored. To meet the needs of our clients, First Rate Property Management went out and hired the developers of RentalHomePros to create a new website that interfaced with our management software. This was no easy feat, nor was it cheap, but the end result seemed to make our clients happy. Well, our software manufacturer evidently didn’t like us going around them so they are making changes so that we no longer can do that on our own. We know that changes are on the horizon, we just don’t know how much. I just wanted to apologize upfront.

Additionally, we may take this opportunity to go ahead and change software. Its something I’ve been wanting to do for many years now. Two other companies actually contacted me years ago and asked me everything I didn’t like about my current system and what I wanted to see in a new system and they actual implemented all of it. Even now, they still contact me asking for recommendations. Plus we still have concerns with our current statements. For example, if we create a work order and put an estimate cost of $250 for the repair, the system will automatically hold that money back from the owner. There is no entry on the G/L or statement and no explanation; its just held back. So we are currently testing several new systems. Trust me, when we make the change, it will be for the better. If you would like to see a demo of these other systems and what the reports look like, let me know, your input would be appreciated.

Tony’s Travels:

Well, I returned for a few days and now head to Oahu to teach Tenancy, then to Dallas for the SC NARPM Conference, and then wrap up my May travel in Spokane Washington for the NARPM NW Regional Conference. The office is doing very good in my absence.

NARPM Travels

2010-04-29T15:26:00.001-07:00

Last week I was in Concord California attending a property management training conference. I learned a lot of things, but the advantages and uses of social media was the most intriguing. So, I’ll be studying it and if it can benefit us in renting up properties and communicating with our tenants, First Rate Property Management will most likely move in that direction. This week I’m in Denver, Colorado. I return for 2 days this weekend and then will leave to Atlanta, Georgia where I will be teaching ethics and leadership classes, and hopefully attend a few classes for myself.

Boise Rental Market

First Rate Property Management’s vacancy last week was 3.2% and improved over the past week and is now only 2.8%. In response to the outstanding vacancy, First Rate Property Management has reduced our renewal incentives to $150 plus carpet cleaning for a 12 month lease and $75 for a 6 month lease plus carpet cleaning. Additionally, I am encouraging our owners and employees not to be so quick to start offering incentives. And lastly, I want to see rents moving upwards. Maybe we’ll be back in the market where we pre-leased most of our properties, offered no move-in incentives, and higher rents. That would be great.

Property Tax Assessments

Between trips, I met with two Ada County Tax Assessors, one who specializes in apartments and the other who does residential, to get an idea what to expect this year. Your property values will be lower, but will they be low enough? In May, keep an eye out for your 2010 tax assessment which will be mailed to you. I’d be happy to assist you in appealing your tax assessment, but we have a short window to do so, so please contact me right away if you have concerns about your properties value.

ADA COUNTY BANK OWNED PROPERTY SALES

2010-04-09T13:53:00.000-07:00

I recently attended the SW Idaho Chapter of the National Association of Property Manager’s meeting with guest speakers from Title One. Their main point of discussion was that many Home Owners’ Associations were experiencing significant balance deficits due to foreclosed homes. They explained that unlike some neighboring states, once the home is foreclosed upon, the dollar amount due to the association is wiped clean. In addition to that information, they included some interesting data about REO/Bank Owned Property sales.

Below is a graph showing roughly 30% of all properties sold are bank owned properties. Now, what percentage of sales are short-sales would also be an interesting number? I can tell you that in March, 96% of the residential income properties were either an REO or short sale. Unfortunately these sales have hurt value.

Below is a graph showing the rate of Notice of Defaults (NODS) in both Ada and Canyon counties. A Notice of Default is one of the first actions taken when a person gets behind on their mortgage. If the property is foreclosed upon, it’s at least 6 months down the road before they foreclose. So based on the data, it appears to me that we can expect the market to remain soft for a good portion of 2010.

Tony A. Drost
First Rate Property Management
Tony@frpmrentals.com

Vacancy Rate for the beginning of April

2010-04-07T12:44:00.000-07:00

VACANCY

First Rate Property Management’s vacancy increased this first week of April to 3.7%. We may see another slight increase next week as we have more tenants move out, but then as we fill your rentals, the vacancy rate should decrease each remaining week. Our inquiry traffic has increased quite a bit. So that means we are entering the rental season. People are starting to surf the net and call to find a new place to move in to.

BOISE JOB MARKET

Job gains across much of the economy eased Idaho unemployment a tenth of a percentage point in March, the first decline in the jobless rate in 32 months. New jobs exceeded new job seekers for the first time in three years in another sign that Idaho's economy may have started to recover, quoted from state labor officials.

MAINTENANCE TIP

One of the tricks that we learned over the years is to use exterior rated paint for the interior. Why? For one, it is quite a bit more durable, so it holds up better. Another good reason is that it can easily be washed. So between tenants, we can wash the walls and minimize the amount of spot painting needed. And for those areas that do need touched up, the slight sheen difference from lot to lot has little to no effect on the paint that we use. The paint costs more, but once you have a full paint with it, you can go many more years between another full paint and your spot painting should be minimal. So it looks great and saves money in the long term.

FAIR HOUSING

We don’t hear too many complaints from our owners. Of the complaints I do hear, most are regarding our policies on Fair Housing issues and more specifically, those pertaining to reasonable accommodations. I have posted an article that was originally titled Fair Housing and Disability written by another local property manager for you to read. I renamed the article, “It’s a Horse of Course”. You are right, there are companies out there that ignore reasonable accommodations or find ways to work around them. In my opinion, they are putting you and themselves at great risk, as the costs can put you out of business overnight. Recently, I’ve seen two property managers decide to get out of the business due to Fair Housing complaints. I’ve had a number of self-managed owners take my property management class, who, after receiving Fair Housing complaints, wanted to sell their rental properties. Additionally, First Rate Property Management has taken on a number of properties where the owners were burned and needed someone to protect them. I know, I hear your complaints, but I am hear to tell you, you need to take a conservative approach to Fair Housing.

March vacancy closes out at 2.85% vacancy

2010-04-01T10:11:00.000-07:00

Our vacancy rate continues to remain low. We’ve increased some rents and removed move-in incentives and have continued to rent units up. We’re using our weekly traffic reports in determining which properties need the incentives. For example, we have properties located off Orchard. They are very reasonably priced, so we are getting tons of calls and above average showings. However, because the streets and nearby bridge is under construction, it seems to be deterring some tenants. So we recognized that and made some changes.

Imitation is the greatest form of flattery

Years ago I found a local company that copied several pages of my website word for word and the only changes were their logo and colors. Recently we just took over management of some properties from another property manager and their lease was almost an exact copy of our lease. In fact many of their forms were obvious copies. In the past I have always thought the more that use my forms the more professional our industry would become. Well, I stand corrected. This company copied our stuff, but didn’t understand the purpose or the intent of many of the terms, so in this case, their forms may look more professional, but their business practices certainly did not help to improve the image of the property management industry.

Certified Residential Property Management Company

At the end of February, First Rate Property Management successfully passed our Certified Residential Property Management Company (CRMC) audit with the National Association of Residential Property Managers (NARPM). We officially should have our designation by the end of April. A good portion of our staff will attend the NARPM National Convention in Seattle, WA this October to walk across the stage and share in the glory. They worked hard for many years to get the infrastructure set up to pass this 100+ point inspection and two-day audit. If you are curious in the things they check, feel free to check out the Certified Residential Management Company Checklist to see all of what they checked for. We’re really pleased to be one of only two certified companies in Idaho and I truly believe that this proves that we are a cut above rest. Don’t get me wrong, there are a number of companies out there that are dedicated to education and ethical practices, but so many of our property managers in this area are not and they do bad things to hurt the reputation of the industry.

Tony’s travel schedule

This year I am sitting as NARPM’s President-elect. This does require some travelling and April is my most demanding month. After the 9th of April, I will be pretty much gone for the remainder of the month. It would be great if you could rely on the staff to assist you, but if you ever need my input, just email. Please allow a couple of days for me to respond.

Vacancy Rate as of March 24th, 2010

2010-03-24T12:32:00.000-07:00

Below are graphs created by Rental Home Pros, who has the largest amount of rental data in the United States. These graphs show First Rate Property Management’s data as compared to the nation and our local competitors. The GREEN line represents First Rate Property Management, the BLUE line represents Nationwide, and YELLOW is our local competitors.

Average Days on Market is about 15 Days:

As the graph shows, First Rate Property Management listings average days on market are out performing our local competitors as well as those nationwide. However, I believe the data is skewed. For example, First Rate Property Management lists our properties upon time of notice. So they are listed nearly 30 days before they become vacant. So it appears that our average days on market is 15 days

Average Rent:

As the graphs below show, First Rate Property Managements rents on duplexes and 4 plexes are right at about $600 per month. This makes sense since most of our duplexes and four plexes are two bedrooms. We are slightly above the competition and about $100 lower than the national average.

And the graph immediately below this graph shows our average rents for single family home rentals. Again, we’re just a tad bit higher than our local competitors.

Vacancy Rate:

And finally, our vacancy rate as compared to the nation and local property managers. As you can see, our vacancy rate has been on a downward trend and the our competitors have remained fairly constant at just below 10%. Again, I believe the data to be slightly skewed as our vacancy rate has been lower than this. Assuming all data is skewed evenly, we’re doing very well.

First Rate Property Management Vacancy rate as of 03/24/10

In the 3rd week of March, our vacancy rate increased to 3.2%. However, 1% of those vacant properties have leases signed and tenants moving in, but since they are still vacant, we count them.

Obama’s Health Care and Will it Affect Rental Property Investments?

Well, it looks like we will have national healthcare sometime down the road. As I searched the web and reached out to others to find out how it will affect a small business owner like myself, I came across an interesting analogy. “The US Government is a lot like a couple who ran into financial difficulties and became depressed, so they went on a spending spree and now that they are about bankrupt, they decide that their last act will one of a huge charitable donation.”

So how are we going to pay for it? Well, I am not sure anyone knows, but I think I have uncovered some strong possiblities. According to a March 17th Wallstreet Journal article, we could be looking at a 2.9% medicare tax increase on RENTS and CAPITAL GAINS. Capital gains tax was scheduled to return to 20% at the end of this year anyways, so that may end up being 22.9%. A 1031 Tax Deffered Exchange will still protect or defer this tax for us investors who decide to sell and exchange into a better performing property. According to ths article, the 2.9% tax on rents will be only for those who make over $200,000 individually or $250,000 for married couples. I’ll keep you posted as I learn more.

2.5% Vacancy:

2010-03-19T07:25:00.000-07:00

Our vacancy rate continues to be very low at just 2.5%. Based on the inquiry and application rate, I am expecting that to climb in April, but maybe things will pick up in the next two weeks. We did push some rents up and drop some move-in specials, so that perhaps is what has slowed down our inquiry rate. We’ll continue to monitor the traffic rate for each listing and make the necessary adjustments to minimize vacancy.

Swing Shift:

With the time change comes extended daylight hours. We have added a swing shift so that we can show properties until 8pm each night. I don’t know any other professional property management companies out there that has extended hours like that, so we tend to capitalize on lease signings.

More on Legislation and Lead Base Paint

2010-03-11T14:43:00.000-08:00

First Rate Property Management becomes a Certified Lead Based Paint Renovator

Lead based paint was banned from residential use in 1978 due to the known health issues it can cause, especially to children under the age of 6 years old. A new law was passed by the EPA and will take effect April 22nd that requires that repairs done to homes built prior to 1978 can cause disturbances to lead based paint to be completed by a Certified Renovator. A Certified Renovator has to complete an EPA-accredited renovator course that teaches you how to perform lead-safe work practices safely and effectively. This includes proper testing for lead based paint, preparation, record keeping, and clean up of dust and debris to minimized possible exposures to lead based paint. To comply, FRPM has already gotten our Maintenance Coordinator, Sheila Thomason, certified in lead based paint renovation. So what most likely will happen in the future is that FRPM will purchase Lead Based Paint test kits and test any property built prior to 1978 that requires any work that will disturb the paint and make sure that property procedures are followed.

First Rate Property Management fights for all Idaho Landlords

On March 9, 2010, Idaho House bill 505 ( interest paid on Security deposits held by Landlords ) was presented to the Idaho house business committee. The bill applied to residential as well as commercial landlords. Members from a number of professional associations were there to testify to include the National Association of Residential Property Managers (NARPM) and First Rate Property Management’s Lizz Loop, MPM, RMP and Sheila Thomason. Our argument was that trust accounts don’t pay interest and if they did, the cost to administer the program would far exceed any interest paid to the tenant. The committee voted and decided to do what they call in substitute (hold off for now) Rep. We’ll be sure to let you know if this bill surfaces again and once again fight to keep landlord rights in place.

Four Plex and Duplex Sales Update

Bank owned and Short-sales continue to dictate the market value on Ada county duplexes and four plexes. We have a 20 month supply of four plexes and 16 months of supply on duplexes. So based on the foreclosures coming down the pipe and the current absorption rate, I am still confident that we have not reached the bottom yet. So it is still a good time to buy. Performance is just like the good ol’ days.

Legislation, Lead Based Paint, and Vacancy

2010-03-10T12:56:00.000-08:00

Our vacancy dropped a tad bit to 2.56%. Below is a graph that we will publish every so often so that you can see the trends. As I stated before, February was a great month for us. We leased a lot of properties up. Our system creates a report of all properties on notice and vacant. It tracks where we are at on the turnover, any applications, dates for lease signings, etc. In reviewing this report, I am not seeing as many applications and lease signings scheduled. Hopefully that only indicates an interim slow down.

Legislation
Members of First Rate Property Management along with local members of the National Association of Residential Property Managers went to the State Capital Building on March 9th to fight a new bill that would cause hard ache and added costs to property managers. In summary, we got the bill squashed. We’ll post a summary of the bill and what our arguments were soon.

Lead Based Paint
The EPA has new laws concerning maintenance and repair of homes built prior to 1978 coming out in April. On March 8th, Sheila Thomason attended the required education and is now certified. Look for a post soon on how these new laws affect Landlords and the upkeep of your rentals.

March vacancy rises slightly

2010-03-09T11:15:00.000-08:00

Turnover rate and vacancy are completely different terms. The turnover rate is the rate our inventory becomes available, where vacancy rate is the percentage of our inventory that is vacant. The vacancy rate can never exceed the turnover rate. Currently our turnover rate is 6.5% and our vacancy is right at 3%. Since we receive most of our notices to vacate 30-days in advance, we can predict that our vacancy rate in April will not exceed 6.5%.

Last week I posted that I saw a lot of notices from tenants buying homes. That certainly was the prevailing reason for notice, but only accounted for about 60% of the notices received. We preleased a good number of our properties in February, so if that trend continues, I anticipate our vacancy to remain low in comparison to the market.

Also, as a reminder, our turnover rate is very predictable. January turnover rate is low, mostly due to the cold weather. Then as the weather improves the turnover rate increases each month. Around June or July, depending on when school gets out, the turnover rate explodes. In September, the turnover rate slows down as the weather cools down and school goes back in session. The end of November and all of December has a very low turnover rate.

The vacancy rate is always less than the turnover rate, but during super slow times like December and January, the vacancy rate can match the turnover rate. The other time vacancy rate is close to turnover rate is in the summer months and I think that is mostly influenced by the volume, not so much the market.

$8K Housing Credit Termination causing some urgency with tenants

2010-03-03T07:56:00.001-08:00

In order to receive the $8,000 Housing Tax Credit first time home buyers need to be under contract by the end of April and closed by the end of June. Based on the number of tenants giving First Rate Property Management notice to vacate due to buying a home, there seems to be a sense of urgency to take advantage of the $8K tax credit now. We saw the same thing happen in the fall of 2009 as the original $8,000 tax credit was due to terminate at the end of the year. If history repeats itself, we can expect more notices to come in April and May.

As I understand it, the $8,000 tax credit will not be extended again. Perhaps this will help stabilize our rental market.

Below is a link to a Wall Street Journal article...

2010-02-25T11:36:00.000-08:00

that discussed the current rental investment market. For the most part, I agree with what the article says. There is no doubt that at today’s prices, the right investment property can produce a great return. I love the example of the California investors who are boasting a 6% return. Come to Boise, we can do better than that. And then the story of the man who bought the Manhattan condo because values were going up so high, he would be able to turn around and sell it for a profit. I know a lot of people that played that game and they made a lot of money. But unfortunately, I know a lot of people that were late into the game and then when the music stopped, they were left without a chair. But worse yet, he still doesn’t get it. He states that once he pays off the loan, he’ll be producing a positive income. Sure, its positive but no growth on his initial investment. It kind of reminds me of the people that call me and say, “I want a property with good positive cash flow”. Well, heck, I can get you good positive cash flow on just about any property if you pay cash for the property. So what they really want is something that is cash positive with the least amount down and with the greatest potential of future income.

http://online.wsj.com/article_email/SB20001424052748703798904575069341576405172-lMyQjAyMTAwMDIwNTEyNDUyWj.html

Mid-February’s Vacancy Rate

2010-02-22T07:06:00.000-08:00

First Rate Property Management’s vacancy rate continued to lower to 2.9%. This is absolutely phenomenal. To me the number suggest a time to increase rents. The Leasing agents tell me “No, it’s the low rents and incentives that are getting us so much activity”. I’ll continue to watch and unless we have numerous properties in a given area, I’ll probably be pushing leasing to begin cutting back incentives and not to be so quick to drop the rent.

Tony’s Absence:

I am sorry, I never updated everyone on my election as the National Association of Residential Property Manager’s (NARPM’s) 2010 President-elect. Which means unless I screw it up, I’ll be NARPM’s President in 2011. This is a volunteer role that I really enjoy, but it does require some travel. When I am traveling it is difficult to return calls, due to time zone changes and that I am up early and back late. I am generally able to catch up on email in the late evenings. So as a general reminder, below is the contact information for the department heads. Each of these should be able to respond to any of your questions or concerns in a timely manner.

General Manager- Lizz Loop, MPM® RMP® 208-577-5202    Lizz@FRPMrentals.com

Leasing Manager- Maria Swanson 208-577-5203   Marie@FRPMrentals.com

Maintenance Coordinator- Sheila Thomason 208-577-5201   Sheila@FRPMrentals.com

Accounting Manager- Cathy Hazlett 208-577-5204   Cathy@FRPMrentals.com

FRPM VACANCY RATE CONTINUES TO HOLD STRONG

2010-02-10T15:55:00.000-08:00

Today FRPM posted a 3.8% vacancy rate. There must be something in the water. We’re still seeing some difficulty in filling some properties due to poor applicants, but for the most part, we are getting things rented. Callers are still expecting move-in incentives and low rents. In fact, in reviewing the traffic reports there is a very clear difference in the number of inquiries for properties with no incentives versus those with incentives.