Apartment Sector to be Among First to Recover

This morning, in an article (Early Surge Seen in Apartment Demand) published in the Investors Business Daily, the apartment sector is predicted to be among the first to experience recovery. While the labor market remains very unstable and this week's unemployment figures (increasing unemployment) don't bode well, the recovery (when it does finally occur) should visit the apartment sector first.

This is welcome news as multi-family housing has, during the current recession, become an euphemism for younger families losing their homes. Mom, Dad, and children are moving in with Grandma and Grandpa. Young single adults have opted for the financial security of living with Mom/Dad in some cases, or a larger number than usual of roommates in the home or apartment.

The central point in all of this is that there is pent up demand for additional living space when the economy improves. Some of that demand is being felt as the economy has improved over the last few months, but it will require a sustained recovery for demand to return to normal levels.

Dealing with Bad Tenants

There are advantages to being a landlord. It can make for a nice additional income enabling one to get ahead financially. This is what everyone wants in today’s financially unstable world. If rental property is selected wisely, the mortgage debt can decrease over time while having a positive increase in cash flow. Sounds good? Definitely sounds manageable when we have easy renters and minimal upkeep.

But with those problem-free tenants, we also encounter the opposite extreme. One of the most difficult things to deal with as a landlord is bad tenants. These tenants can range from being vicious criminals, to trashing your property, to not paying rent, or to being sue-happy. However there are some things we can do to protect ourselves as landlords, but still we must proceed with caution.

• Resident Screening. To help sift out potentially bad tenants, the first key step is to screen them. Check if they have a criminal history, contact past landlords -- use every resource to make a decision whether to even accept a tenant in the first place.


• Detailed Rental Application. Get as much asset information as you can on record and then you’ll have this for collection purposes if necessary.


• Strong Lease Agreement. Know the lease and the law. Lease Agreements should be specific to your state. Make sure policies are clear, clarifying how and when rent is to be paid and the penalties for late payments, criminal behavior, and dirty and damaged apartments. Also include some kind of peace and quiet phrase, covering any type of complaint that could be possible from other tenants. Even have signed leases for every adult in the apartment/house, sending separate notices to each of them. This can help you avoid sticky situations in the future where one roommate may not receive a notice or when evicting there’s another tenant living there and you have no signed lease with them.


• Divulge Legally-Required Rental Disclosures and Abide with the Eviction Laws. If renters don’t pay, their lawyers will be seeking out any disclosures that weren’t actually ‘disclosed’ to the tenants. Find out what your state requires or you may be out on rent. You can do this by reading your state’s landlord-tenant code directly, hiring a real estate attorney, or using an online landlord form system. Also comply with laws when evicting a tenant. Once again you can hire a real estate attorney or an eviction specialist which can get expensive. Best advice: do your homework first, know the laws as it will save time and money if put in a difficult situation.


• Provide a Succinct, Written Notice. This will be an explanation of the expectations of the tenant. For example, they’ll be expected to leave by a certain time if rent isn’t paid or damages aren’t fixed. This will provide documentation in case you need to take the tenant to court for unpaid rent or damages.


• Offer a Deal. The aim here is to have the tenant vacate quickly. Avoiding eviction for the tenant can keep their credit untainted and can also save you paying high legal fees which may be higher than the ultimate amount you’ll be able to get from the tenant. Judgments against the renters can be on their credit for years and this information may help motivate them to get out fast, leaving no mess behind.


• Treat all Tenants Equally. Never single a tenant out. The Fair Housing Act safeguards the tenants. Even with evictions, you can’t threaten tenants. If they’ve filed a complaint against you, it would be looked upon as retaliatory. And when sending notices, give nonpayment notices to all the renters at the same time.
  

If you’re a landlord or are seriously considering owning some more property to rent out, take these helpful hints to heart otherwise you may be dealing with a situation similar to landlord Ted Hayes. He rented a home in Peterborough, Ontario to tenant Greg Houle and it cost him $30,000. Greg Houle figured out how to use the legal system for his gain -- delaying the eviction process -- and hopping from one rental unit to another pretty much rent-free (Read the full article here).

This brings home the point -- know the eviction laws and follow the legal process. But of equal importance, find as much information about the tenant as you can before you hand over the keys. Again you can do this fairly cheaply through resident screening. Obviously some things are protected by privacy laws so all the more reason to screen your potential renters and protect yourself by knowing the laws of your state. And all this information must then be balanced out with the need to rent out your houses. Owning property can be a lucrative investment, just know what you’re doing so the final outcome is positive cash-flow rather than a deep money-pit.

Showcasing our Investment Property

Purchasing property is generally seen as a good investment. Whether the economy is good or bad, people always rent. The first step is to choose the right property in an ideal location. The second key step, which is often overlooked, is the showcasing of the investment property. The interior can be cold or welcoming and this could then result in more or less value for our rental property. We’ve all heard the tricks of baking bread or cookies when we’re selling our home and even the profession of stagers. Yes, people can be paid to come into our home and transform it when it’s on the market to make it more inviting. So as an owner of an apartment complex or some kind of rental property, we must be our own stagers. Tenants don’t have the right to make major changes so they’ll be aware that if the interior is unpleasant, they’re stuck with it. Success here means making money on our investment property and it starts from the very beginning: Showcasing our investment property correctly. Here are the important factors to remember when showcasing.

• Decorating. The two most critical ingredients in decorating are simplicity and knowing your potential tenants. It’s important to keep to neutral colors. These are easy to decorate with as bold colors won’t appeal to all. And who are our potential tenants? Students don’t require luxurious finishes but executives will expect lavish superior finishes.


• Maximizing Spaces. Apartments are smaller than homes so we need to learn how to best maximize the spaces to make it appealing. Are there hidden storage spaces that can’t be seen?


• The Building. Potential tenants will want information about the building, its amenities and management, so have that information easily available. Is there anything distinctive about the architecture? They will be more confident when making rental decisions if they have this information.


• General Information. Make it simple. How many bedrooms and bathrooms? Is there a patio area or a place for tenants to have a small garden? Does the apartment have a garage space or is it street parking? What’s the general location and of course, how much to rent?


• Positive Features. Expand on these as much as possible. What’s striking about the location? Close to good schools, dining and shopping? Is the view spectacular?

Once we’ve maximized all our investment property’s best features, decorated accordingly, and provided important information, we must then be vigilant in who we choose as renters. The best case scenario is that we’ve got the ideal location and provided an attractive rental property so we hope to now have many interested renters. And with all that work, we hope we’re done. Resident screening is key here also and shouldn’t be forgotten. We don’t want to spend so much time preparing and then have a tenant who doesn’t pay rent on time and trashes the place. Companies contract with investors to provide this service where they perform background checks on potential residents, including credit checks and criminal background checks. A simple step compared to choosing a location and decorating an apartment complex. Prepare, choose tenants wisely, and then maintain, and we’ll find success in our investing endeavors.

Purchasing an Apartment Complex

Purchasing an apartment complex isn't a light decision. It's an investment that can generate thousands of dollars or it can be a black hole, sucking thousands from your pockets.The first step is to do your research. What kind of complex are you looking for? Are you seeking family apartments or units that are studio or 1 bedroom? A fixer-upper will be a lower purchase price but the risk can be greater. So examine what the apartment complex is like now and how you expect it to be after the repairs. You want all the facts and number crunching done before any purchases are made. Here's a to-do list for serious apartment investors.

• What is the address? Is the complex in a desirable location -- close to shopping, schools, restaurants, banks, hospitals etc?


• Analyze income and expense statements. This will allow you to see how the apartment has done over time. Examine at least 3 years of income statements. How much is rent and what are utility bills and maintenance costs?


• How many buildings and how many units are in the complex and what are the floor plans? What year were these buildings/units constructed? Check all apartments if possible to see what condition they are in. Take photos of both the interior and exterior.


• Are there vacancies? If a property has over 25% of its units empty, it's a sign it's not doing so well. This can be good or bad for you. Good if you're renovating the whole complex which can then increase the value. Bad if you're keeping it as is where it's clearly a struggle to find tenants. Look at the copies of leases, making sure the information is accurate.


• How many acres and parking spaces? No tenant is keen on fighting for a parking spot at their own home. What about public transportation, is it close by?


• What about amenities?Is there a pool, hot tub, game room? These can all add value to the facility, as well as maintenance time and money. So weigh the pros and cons.


• What is the price per unit? This is done by simply dividing the asking price of the property by the number of units. Then compare this price to neighboring complexes. What are the most competitive nearby complexes? Is there an opportunity to increase the value?


• Examine reports and records. What improvements have been done and when? Also look at past engineering reports, environmental reports, appraisals, tax records, and insurance filings.


• Is there existing debt on the property? And are there already promised maintenance renovations to do for specific units or buildings?

When this to-do list is completed, a rough estimate can be made of the complex's potential. If you do become a property investor, other decisions then must be made. You must seek out good tenants. After all, you've spent ample time doing the investigating to purchase and now you want to fill the complex with tenants that will pay-up and help maintain the atmosphere you've bought and created. Resident screening is one way to help guarantee a continued wise investment. Upkeep and safety are also crucial in maintaining a desirable complex. Deciding to invest in property is a big decision but one -- if done correctly -- that can provide financial fulfillment.

Apartment Tenants: A Fire Hazard?

Fires can be devastating; homes can be gutted, an apartment complex burned to the ground, and lives taken. But most devastating may be that it could have been avoided. Fires can be caused by various means such as extension cords being overloaded and used improperly, exposed or frayed wiring, candles, lighters, dryers, cooking and grease fires, or heaters too close to other objects or in need of a clean. In many of these situations, prevention is simple by merely unplugging unused or unmonitored electrical equipment.

But apartment managers and rental property owners beware. A new type of fire is on the rise: Meth fires. Meth fires are not an uncommon event anymore and nor are they just for the rural area. Next time when watching the news, take note of where these meth labs are set up. These meth cooks seek out rental properties in suburbia land. It offers them the safe image they're seeking. Take the case that occurred in Cullman, Alabama just last month. This meth lab caused a fire in city apartments. Mark Meherg and Joshua McAlpine were arrested for unlawfully manufacturing a controlled substance. So how was this discovered? It was a scenario where smoke was seeping from the apartment window and a potent chemical smell was in the air. Officers checked it out and sure enough evidence showed they'd been making methamphetamines. This is a Class A felony which can result in life in prison (Read the full story here).

If we were renting to such tenants, it's an environmental catastrophe lurking around the corner. These are people that aren't trained chemists, but yet this concoction of corrosive chemicals is more hazardous than any legal chemical plant. The gases created are flammable and are usually not sealed off therefore a mere pilot light on a heater could put the whole property in flames. And after the fire, who knows the long term effects to the property such as residual chemical contamination, and even neighborhood quality of life. Rental property owners end up paying for this. Why? This meth activity attracts other criminal activity, affecting property values. This then can affect whether good tenants desire to rent where such a history has occurred. Eviction periods and the lack of good renters then directly affect the pockets of the property owners.

As property owners, we need to use all the tools available to know who we're renting to. The most obvious tool -- at least initially -- is to perform a resident screening. This can provide us with crucial information. After the resident screening and our good renters are settled, we must still observe with our eyes wide open. Look for potential indicators of meth use such as falling behind in rental and utility payments, or keeping a filthy house. Other signs may be a change in car traffic (ie. expensive vehicles out of place or cars stopping for short periods of time), or disheveled visitors, visitors bringing in tools to trade for drugs, and children or pets showing signs of neglect.
So if worse case scenario, we do have tenants that are high risk and even a fire hazard to our property, what fire safety precautions must we take?

• Every apartment needs to have a smoke detector.



• Every apartment should have a carbon monoxide detector.



• Learn how to use the fire alarm system and recognize the alarms as well as knowing where each alarm is located.

As property owners we need not be pessimistic, but meth fires are something that didn't exist in the past and now we must be aware of this new risk when seeking out good tenants.

Property Investing with Wisdom

With the downturn in the economy, property prices are still relatively low and interest rates are down. If we're investors, this would seem like the perfect time to invest in properties, but it's not as simple as purchasing a property and then allowing the rental checks to flow in. Perhaps to some, but as a mere income generator we're not paying much attention to the actual property so how long can this kind of small business truly thrive? There are key choices to make in the process. One of the first questions to ask ourselves is whether we'd look after the property ourselves or hire a property manager. What are the pros and cons of this choice?

Much of this decision depends on our time constraints and financial resources. Do we have the time to screen our potential renters, seek out those overdue rents and then maintain the property? No problem we may think. True if we have good renters, but wait for those bad tenants . . . then the difficulties may arise. If we're serious, we need to do our homework. It may be in our best interest to hire a property manager -- we'd want to take into account their commission rate -- or decide if we really have the time to oversee our properties. We can expect the positive -- all great tenants -- but we must also prepare for the worst. It's only then that we have a chance of running this small business successfully. What kind of information should we be aware of?

• At a minimum, perform a resident screening on our potential tenants.




• Understand the law and how to enforce lease agreements. For example there are ways to quicken evictions with our nuisance renters especially if we're dealing with gangs and drugs. Working with the police could enable us to legally get them out.




• Are we a handyman? Do we know how to repair things on our property?




• Are there safety hazards on our property that we need to remedy?




• Know the neighbors. Let's be courteous towards them and do all that we can to seek out good tenants. We do have a responsibility to the neighborhood and our community.

Let's not be a lenient investor. We should either make ourselves the proactive property manager or hire one to preserve our investment.

The Smoke Screen

When I was a kid, smoking was for the supposed cool older teenagers and some select adults. I remember sitting in the back seat of my friend's car enveloped in a shroud of smoke exhaled by her mother. Her mother had pretty painted nails and a long, delicate cigarette held between her fingers, but I had a headache and my eyes hurt. It didn't seem so cool after all and then there were the commercials with the catchy jingles --smoking makes your teeth yellow, smoking makes your breath smellow, I'd bellow that song to my neighbor's girlfriend when I'd jump out from behind a bush, catching her lighting up and wishing to educate her. Nowadays we're a little smarter and more aware of the health risks. By law, smoking is limited in many social gathering places such as bars and restaurants. Part of the solution is to have certain designated smoking areas, but in many places there is a smoke-free policy. No longer can you light-up in airplanes -- nowhere -- not even in the bathroom. With this, it may be due time to have residences that are smoke-free. Perhaps as part of our resident screening process, we may want to screen out are smoking renters.

So this may seem harsh, but it depends on whether you're a smoker or not. It's harsh to breathe in that second-hand smoke also. It's up to the landlords whether they require all or part of the building to be smoke-free. But really, as a landlord, would it really help us if we prohibited smoking? Or would we scare away potential renters and therefore lose money? Let's look at the benefits of a smoke-free environment.

Less complaints from non-smokers.
Insurance premiums will be less in a smoke-free building because the risk of a fire will be less.
Smoke stains from nicotine are dirty and difficult to remove and in order to have a gleaming rental for a new renter -- increasing the potential of renting -- more cleaning is required and therefore more costly.
And the most important issue for everyone . . .
The health issue -- second-hand smoke. Most people will not rent anything if it compromises their health or the health of their family.

What exactly is second-hand smoke? Second-hand smoke is a combination of smoke exhaled by the smoker and also the smoke coming right from the burning tobacco. And what are the risks?

• The immediate risk is irritation. Second-hand smoke can cause a sore throat, nausea, dizziness, headache, cough and eye irritation.
• Long-term -- lung cancer in non-smokers is believed to be mostly due to exposure to second-hand smoke.
• Second-hand smoke contains a number of harmful chemicals, including carcinogens, but also chemicals that can block and harden arteries which in turn can cause hypertension and eventual heart attacks.
• Asthma and smoking don't mix, either by exacerbating the asthma or inducing it.

The question is answered by the Fair Housing Act and the accumulated case law that has been developed since its enactment.  What is the conclusion?  The conclusion is that residents who suffer from Multiple Chemical Sensitivity (MCS) or Environment Illness (EI) could be considered as "disabled" under Fair Housing.  As such landlords not only have permission to control smoking on their properties but may have a duty to do so.  There is also the concept of "nuisance clause" and smokers second-hand smoke that "unreasonably interferes" with the quiet enjoyment while on or in the premises.

Perhaps we're at a point where we do want a smoke-free residence but aren't quite sure how to go about it. If we're starting out, no problem, just don't rent to smokers by including a no smoking addendum in the lease. If you already have tenants, let them know that you'll eventually be a smoke-free building, giving them time to either move or abide. It may not be enforceable with existing arrangements, but you could at least prohibit smoking in particular areas.

So with a new push towards living a healthier lifestyle, property owners may want to listen. We should always screen our renters for the obvious -- criminal activity, unpaid bills -- but maybe it's time we raise the bar even higher, attracting renters that encourage good health.